Independent Director Amendments
On October 22, the Ministry brought the notification on the appointment and qualification of independent directors. The amended rules Companies (Appointment and Qualification of Director) Fifth Amendment Rules, 2019, – Companies (Creation and Maintenance of databank of Independent Directors) Rules, 2019 and – Companies (Accounts) Amendment Rules, 2019 and will come into force with effect from December 1, 2019.
Reason behind amendment
In May this year at the peak of IL&FS crisis, independent directors came under corporate affairs ministry scanner for alleged lapses in carrying out their duties as financial problems continued to brew at the diversified group. The ministry was working on ways to further strengthen the framework for independent directors, who have an important role in ensuring good corporate governance practices at companies.
Motive of legislation
Advisories have been given by several think tanks that independent directors must not assume a passive role, merely reacting to ideas foreseen by the controlling shareholder or their appointees. They must be willing to upset the status quo in the interest of shareholders not play a risk-free mute spectator limiting to attending just number of board meetings.
Apart from that focus is also on Build capacities of Individuals by delivering eLearning courses on topics related to corporate governance, regulatory framework, financial prudence, and other important aspects.
(1) Every individual –
(a) who has been appointed as an independent director in a company, on the date of commencement of the Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2019, shall within a period of three months from such commencement; or
(b) who intends to get appointed as an independent director in a company after such commencement, shall before such appointment,
apply online to the institute (IICA*) for inclusion of his name in the data bank for a period of one year or five years or for his life-time, and from time to time take steps as specified in sub-rule (2), till he continues to hold the office of an independent director in any company:
Provided that any individual, including an individual not having DIN, may voluntarily apply to the institute for inclusion of his name in the data bank with PAN NO.
The mean of above cited provision is that any person who is/was independent director in past, present or want to be appointed in future, required to apply to IICA for inclusion of his name in Data Bank.
How to apply
Individual, who want his name to be included in Data Bank apply online through the MCA portal by making a registered a/c by clicking link http://www.mca.gov.in/mcafoportal/iicaDirService.do OR check below link https://www.independentdirectorsdatabank.in/empanel
Name so included in data bank of IICA is valid for 1 year, 5 year or lifetime of applicant as requested.
Applicant required to pay fees of RS. 5000 at the time of registration for 1 year. Fees for 5 year or lifetime membership is yet to be notified.
(2) Every individual whose name has been so included in the data bank shall file an application for renewal for a further period of one year or five years or for his life-time, within a period of thirty days from the date of expiry of the period upto which the name of the individual was applied for inclusion in the data bank, failing which, the name of such individual shall stand removed from the data bank of the institute: Provided that no application for renewal shall be filed by an individual who has paid life-time fees for inclusion of his name in the data bank.
Crux: – Every individual within 30 days of expiry renew his/her name for further 1 year 5 year or lifetime as the case may be, failing which, the name of such individual shall stand removed from the data bank.
(3) Every independent director shall submit a declaration of compliance of sub-rule (1) and sub-rule (2) to the Board, each time he submits the declaration required under sub-section (7) of section 149 of the Act.
(4) Every individual whose name is so included in the data bank under sub-rule (1) shall pass an online proficiency self-assessment test (by obtaining 60% aggregate marks) conducted by the institute(IICA) within a period of one year from the date of inclusion of his name in the data bank, failing which, his name shall stand removed from the data bank of the institute:
Provided that the individual who has served for a period of not less than ten years as on the date of inclusion of his name in the data bank 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 ten crore or more shall not be required to pass the online proficiency self-assessment test
Provided further that for the purpose of calculation of the period of ten years referred to in the first proviso, any period during which an individual was acting as a director or as a key managerial personnel in two or more companies at the same time shall be counted only once.
Process Outline for Test
Individuals empanelled in the Independent Director’s Databank will have to follow these steps for attempting the Online Proficiency Self-Assessment Test:
1. Login into the Databank
2. Go to the dashboard
3. Select the slot as per your convenience for attempting the test
4. Attempt the test as per the slot booked
5.Get test result and reports published
6. There is no limit on the number of attempts to pass the test
Online Test Syllabus:
Note: Study material tools and syllabus detailed Performa also available at
Conclusion: As per new law every individual who want to be appointed as independent director then First his/her name should be included in IICA data bank for 1 or 5 year or lifetime by paying requisite fees and then pass online proficiency test, within 1 year from inclusion of name in data bank, conducted by IICA, failing which, his name shall stand removed from the databank of the institute.
Composed by: CS Deepak Kumar Sharma