DiscussiononAmendments carried by Ministry of Corporate Affairs dated 22nd October, 2019 in following rules for effective implementation of Section 150 of the Companies Act, 2013 (‘hereinafter called ‘the Act’)-
Those Individuals having unbiased and independent judgements in decision making in any company -(Those decisions which are not influenced by others)
The theory of having Independent Director was a welcomingstep for corporate governance in India under the Companies Act,2013 which was never defined in the Companies erstwhile.
Before the commencement of the 2013 Act, the definition of 'Independent Director' was adopted from provisions contained in Clause 49 of the listing agreement which was proposed to be followed by all listed public companies.
However, after the commencement of the Act, 2013 related to 'Independent Director' in Clause 49 of the Listing Agreement, The Securities and Exchange Board of India were aligned with the definition in the 2013 Act, though some difference remained.'
Companies where ID’s are required tobe appointed………………..?
As per Rule4 of Companies (Appointment and Qualification of Directors) Rules,2014:-
The following class or classes of companies shall have atleast two directors as independent directors
• ID being a person of wisdom, vision and sound judgement requires proper scrutiny before they are appointed on board.
• They Act as guide to the Company with their independency and credibility ensuring implementation of good corporate governance.
• ID’s have greater responsibility than the normal directors.
Resulting Companies Act, 2013 provides for specific provisionsunder Section 150 “for selection of Independent Director froma data bank containing names, addresses and qualificationsof persons who are eligible and willing to act as IndependentDirectors, maintained by any body, institute or association”
• Code of Independent Directors-Schedule IV of the CA, 2013 u Regulation 17 of LODR
• Constitution of the institute for a data bank of independent directors u Compliances required by the independent director
INDEPENDENT DIRECTOR DATABANK
The Ministry of Corporate Affairs, along with IICA(IndianInstituteofCorporateAffairs) with the objective of strengthening the institution of Independent Directors under the Companies Act, launched the IndependentDirector’sDatabank in accordance with the provisions of the Companies Act, 2013 under SEC 150 and the rules made thereunder.
Are the notified rules dates 22nd October 2019, and effective from01stDecember2019?
As per the expression in sec 150 ….” maintainedby any body,institute or associationmaintainedby any body, institute orassociation” denotes “The IICA(IndianInstituteofCorporateAffairs)
INDEPENDENT DIRECTOR DATABANK
Independent Director Databank: A portal where all Existing ID’s and willing to be ID are required to register themselves in order to carry their appointment as ID in Companies.
The Databank, which was launched by Secretary Ministry of Corporate Affairs, can be accessed
to search, select and connect with individuals who possess the right skills and attitude for being considered for appointment as independent directors.
APPLICABILITY OF RULES
Whether ID’s are required to appointed from databank so developed and maintained by IICA….?
YES: Theinterpretationoftheexpression“anindependentdirectormaybeselectedfromadatabank….” Under section 150 of the CA, 2013 stands changed. Earlier as there was no database maintained for ID, they were appointed randomly from industry, however, the interpretation has been affected by the amended rule 6 of Companies (Appointment and Qualifications of Directors) Rules, 2014 and Rules 3 and 4 of Companies (Creation and Maintenance of databank of Independent Directors) Rules, 2019.
• So for existing ID's, they have to enrol themselves with Institute within 3 months from commencement of rule i.e. 01st December 2019 (as per Text of Rule 6(1)(a)) and
• For newly appointed ID they have to get enrol with institute before such appointment's (as per Text of Rule 6(1)(b)).
APPLICABILITY OF RULES
Please note further:
Earlier Implementation of Section 150 of the Act, was discretionary, however after the introduction of amended Rules as mention in previous slide:
INDEPENDENT DEPOSITORY REPSOITORY: Joint Initiative by three professional institute under the encouragement of MCA namely:
The Institute of Chartered Accountants of India
The Institute of Company Secretaries of India and
The Institute of Cost Accountants of India
This repository has been developed to facilitate the individuals who are eligible and willing to act as Independent Directors and also to facilitate Companies to select the persons who are eligible and willing to act as Independent Directors under section 150 of the Companies Act, 2013
INDEPENDENT DIRECTORS DATABANK BY IICA:
• It is initiative by Ministry themselves. ØMCA has launched databank along with IICA
• Ministry themselves wants to have control and monitoring of database of ID in in accordance with the provisions of the Companies Act, 2013
• It further provides for wide array of value added service in addition to registration process for grooming of ID, so the best person is appointed on board of Company
• Further MCA wants to have single database maintained by them itself through IICA
• Joint Initiative haven’t recognised by three institute.
The registration process has been specifically designed to be quick and simple and has been divided into three simple steps:
• Log in through the user account on the Website of the Ministry
• Upon log in the user will be directed to the Databank
• Choose one of the Subscription Plans to access the e-learning and the e-proficiency assessment modules
A publicationnamed“IndependentDirectorsDatabank-Handbookcoveringkeyobjectives,empanelment/registrationprocessofindividualorcorporateandtheknowledge resourcesavailableontheportalwasalsoreleased.
FLOW CHART OF PROCESS
FLOW CHART OF PROCESS
• Existing IDs need to register themselves within 3 months of commencement of Rule i.e. last date for them to register is 29th February, 2020.
• Individuals proposing to be ID should get themselves register before their appointment
• The databank which can be accessed www.independentdirectorsdatabank.in' would provide platform for the registration of independent directors
at 'www.mca.gov.in' and an easy to access and navigate
• Such Databank will be an online databank that shall be placed on the website of the Institute.
• DurationofEnrolment: ID's can get enrol themselves for a period of 1 year/ 5 years/ lifetime on payment prescribed fees
• No renewal application is required to be filed by ID’s who has enrolled for lifetime
• Any changes in particulars so filed can be made within 30 days of such changes through a web -based portal
• Declaration Filing (Additional Step): Every Independent Director, alongside filing declaration with the Board of the company where he has been appointed as such, declaring his independence in terms of Section 149(7), additional declaration for compliance with subrules (1) and (2) ofRule 6 of Companies (Appointment and Qualifications of Directors) Rules,2014.
• Appearing for Examination: Every person, whose name has been so included in the database, shall give another test (namelyproficiencyself-assessmenttest) within one year from the date on which his name has been included, failing which his name shall be removed.
• Every ID whether Existing or new is required to appear for theexamination, once their name is enrolled in the database
• ThescoreforpassingExamination: The minimum score require passing the online proficiency test has been kept at 60%.
• No maximum number of limits has been imposed for attempting the proficiency test.
• ExemptionfromappearingExamination: The individual who has served for a period of not less than 10 YEARS as on the date of inclusion of his name in the databank as director or key managerial personnel in a listed public company or in an unlisted public company having a paid-up share capital of rupees 10 Cr. or more shall not be required to pass the online proficiency self-assessment test.
NOTE: They have to pass test to demonstrate their knowledge and proficiency in certain areas for board level functioning in corporates.
As such no minimum knowledge or specific educational qualification have been specified for them, except when they are part of Audit Committee.
As per Rule 5 of Companies (Appointment and Qualification of Directors) Rules,2014 which states about Qualifications of independent director.— that he should be person with “appropriateskills,experienceandknowledgeinoneormorefieldsoffinance,law,management,sales,marketing,administration,research,corporategovernance,technicaloperationsorotherdisciplinesrelatedtothecompany’sbusiness.”
A: SOME QUESTIONS ARE REMAINED UNANSWERED, INTERPRETATION CAN BE FORMED THAT AN INDIVIDUAL CANNOT CONTINUE AS ID OR BE APPOINTED AS ID UNTIL N UNLESS INDIVIDUAL CLEARS THE EXAM, THOUGH THEY CAN CONTINUE AS NORMAL DIRECTOR IN COMPANY
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