Presently, every listed Company and other prescribed unlisted Public Company required to appoint independent Director are not obliged to pick them from any data bank. It can appoint any person satisfying the pre-requisites under the Companies Act, 2013 (‘the Act’) and the Listing Regulations as applicable mainly having no relation to the promoters/directors and having no material transactions with the Company etc. In lighter way, it used to be said to the promoters that if your friend fits into prescribed pre requisites, appoint him as an independent director.

But, with recent notifications amending Rules under the Act, this liberty would be available neither to the Company nor to the Independent Director.

Recently, Ministry of Corporate Affairs (MCA) has appointed Indian Institute of Corporate Affairs (IICA) to create and maintain data base of all persons eligible and willing to act as Independent Directors (including existing Independent Directors) as also to conduct Online Proficiency Tests. Brief outlines of the same are as follows:

(1)  Compulsory enrolment with IICA

Existing independent Director is required to make online application for inclusion of his name in the Data Bank maintained by IICA by 28th February, 2020. Any other Person fulfilling the pre-requisites can also be appointed as an Independent Director only if his name is included in aforesaid data base. However, any person can voluntarily make online application for the purpose even if, he may not have DIN.

Enrolment of the name would be for a period of one year/five years/life time, on payment of requisite fees.

(2)  Passing online proficiency Test:

Every individual whose name is included in the Databank shall pass (minimum 60%) on online Proficiency self-assessment test within one year from the date of his inclusion in the Data Bank.

However, individual will have option to take advanced test in the area like Company law, securities law, basic accountancy and such other areas relevant to the functioning of independent director.

(3) Removal of the name from Data Bank

Generally name would be removed from the Data Bank due to following major reasons:

(i) if renewal is not made within 30 days from the expiry of enrolment (obviously renewal would not be necessary in case of  lifetime enrolment)

(ii) lf online proficiency Test is not passed within one year from the date of inclusion of his name in the data bank.

Exemption: An individual who has been Director or key Managerial Person at least for 10 years in any listed company or any unlisted public company having paid up capital of Rs. 10 Crores or more need not pass online Proficiency Test.

(4)  Few Anomalies

(i) Cessation as an Independent Director on removal of the name from Databank

There does not appear to be any specific provision relating to cessation of the independent Director on its own, even in case of removal of his name from the Data Bank.

(ii) Obligation of the Company to pick independent Director from the Data Bank ?

There does not appear to be any specific provision compelling the Company to appoint only such individual as an independent director (if so required to appoint) whose name continues to be included in the Data bank.

However, there is inference in the rules that information available in the data bank shall be provided only to the companies required to appoint independent director after paying a reasonable fees to IICA.

(iii) Statement relating to proficiency in the Board’s Report

The Board of Directors is required to give a statement in the Board’s Report in respect of Proficiency (i.e. passing of proficiency test) of independent director appointed during the year. In other words, the Board need not give statement in respect of independent director appointed before the year under review in the Board’s Report.

In spite of the anomalies which may be plugged in by MCA, intention of the Government appears to be loud and clear on reading relevant rules that the relevant company and the independent director himself should ensure that the name of the independent director continues to be in the Databank maintained by IICA.

Author Bio

Qualification: CS
Company: DEVESH PATHAK & ASSOCIATES
Location: VADODARA, Gujarat, IN
Member Since: 06 Nov 2019 | Total Posts: 1

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