In continuance of the earlier article, ‘All about Independent Directors- (Part-1)‘, this article will focus on the independent director databank and the process of appointing an independent directors.
On 22nd October, 2019 the Ministry of corporate affairs (MCA) published the Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2019, to amend the Rule 6 of the Companies (Appointment and Qualification of Directors) Rule, 2014 and the same came into effect from 01.12.2019.
Further, some amendments were again made in the Rule 6 vide the Companies (Appointment and Qualification of Directors) (first, second and third) Amendment Rules, 2020.
Also Read- All about Independent Directors- (Part-1)
Rule 6: Companies (Appointment and Qualification of Directors) Rule, 2014
Compliances required by a person eligible and willing to be appointed as an independent director:
1. Every Individual:
| Who has been appointed as an Independent director, on 01.12.2019, i.e. the commencement of the Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2019 | Who intends to get appointed as an independent director after 01.12.2019, i.e. after the commencement of the fifth amendment rules, 2019 |
| Shall within 3 months (which has now been amended to 10 months, i.e. till 30.09.2020 vide the amendment rules, 2020) shall apply online to the institute for inclusion of his name in the data bank. | Shall apply online to the institute for inclusion of his name in the data bank. |
| The name can be included for 1 year, 5 years or for lifetime and the independent director shall be registered with the databank, till he continues to hold the office of an independent director in any company. | |
Note: Holding a DIN no. is not a mandatory requirement for inclusion of name in the data bank.
2. Renewal Application: Every individual whose name has been included in the data bank shall file an application for renewal for a further period of 1 year or 5 years or for his life-time, within a period of 30 days from the date of expiry of the period upto which the name was applied for inclusion in the data bank.
On failing to do so the name shall stand removed from the data bank.
Exemption: 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.
3. Declaration by independent director: Every independent director shall at the first meeting of the Board in which he participates as a director and thereafter at the first meeting of the Board in every financial year or whenever there is any change in the circumstances which may affect his status as an independent director, give a declaration to the board regarding the compliance with the above sub-rule (1) & (2).
4. Online proficiency self-assessment test: Every individual who had applied and got his name included in the data bank shall, within a period of one year from the date of inclusion of his name in the data bank, pass an online proficiency self-assessment test conducted by the institute, otherwise his name shall stand removed from the data bank.
Individual shall not be required to pass the online proficiency self-assessment test, when he has served as a director or key managerial personnel, for a total period of not less than 10 years, as on the date of inclusion of his name in the databank, in one or more of the following, namely:-
- Listed public company; or
- Unlisted public company having a paid-up share capital of rupees ten crore or more; or
- Body corporate listed on a recognized stock exchange.
Procedure for applying to the institute for inclusion of name in data bank
- Login on http://www.mca.gov.in/mcafoportal/login.do
- From the MCA service tab, select Individual registration under the ID Databank registration headline.
- You will be re-directed to a webpage and you will be required to give any of the following:
DIN, PAN or Passport No.
- Thereafter, the following information will be verified by an OTP.
- The login information for https://www.independentdirectorsdatabank.in/databank will be shared on the email.
- Prepare your profile on the databank portal, complete the online lectures with quiz (optional), take the online- proficiency test and score 60% of more to pass the test.
- On passing the test a certificate from the Indian institute of corporate affairs will be provided to certify that a person has cleared the test.
Process of Appointing an Independent director in a company
1. Selection of Independent Director from the Data bank: The person shall be selected with proper due diligence to ensure that there is appropriate balance of skill, experience and knowledge in the board. It shall also be ensured that the person proposed to be appointed, fulfills the criteria mentioned in section 149(6) and rule 5 of the companies (Appointment and Qualification of directors) Rules, 2014, and is not disqualified under section 164 of the Act.
2. Written Consent: The Company shall obtain a written consent, in DIR-2, from the person who is proposed to be appointed.
3. Calling the Board Meeting: The meeting shall be called as per the provisions of the companies act, rules thereto and the secretarial standards. The meeting can be called at shorter, by fulfilling the conditions mentioned in the SS-1.
Alternatively, the board resolution can be passed by circulation.
4. Hold the Board Meeting: A valid meeting with proper quorum shall be convened. The resolution for appointment of the proposed person as Independent director shall be discussed and appropriate board resolution shall be passed.
The board shall also authorize the company secretary or any director or any other person to do all the acts, deeds and things as may be necessary to give effect to the decision.
Further, the board shall fix the date, time and venue to hold the general meeting of the company, to take the approval of appointment of Independent director.
5. Call and hold the General meeting: The notice of the meeting shall be given as per the Section 101 of the Act, Rule 18 of the companies (management and administration) Rules, 2014, the SS-2 and other applicable provisions. The explanatory statement shall be annexed with the notice.
The shareholder may pass the appropriate resolution for appointment of the person as the independent director.
6. Filing of e-form with ROC: DIR-12 shall be filed on the MCA portal within 30 days of appointment.
Remuneration to independent director
A director may, subject to the provisions of section 197 & 198 of Companies Act, receive remuneration by way of:
- fee for attending board meetings and other meetings (sitting fees), and
- profit related commission as approved by the members.
An independent director shall not be entitled to any stock option.
For any clarification please reach out to me on [email protected]
Author Bio
What are the consequences if name of Independent Director is being removed from Databank either on account of not passing test or renewal?