Requirement by Independent Directors of inclusion of their names in the data bank of Indian Institute of Corporate Affairs, Manesar and clearance of Proficiency Test The Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2019.

The Ministry of Corporate Affairs/the Central Government, vide its notification dated October 22, 2019, has amended the Companies (Appointment and Qualification of Directors) Rules, 2014. The effective date of this notification is December 1, 2019 (the Effective Date).

Following are the requirements to be complied with by an individual, who is an Independent Director or eligible and willing to be appointed as an Independent Director.

♦ The existing Independent Director or any individual who intends to get appointed as an independent director shall apply (online) to the “Indian Institute of Corporate Affairs at Manesar” (the Institute) for inclusion of his name in the data bank on or before February 29, 2020, i.e., within a period of 3 months from the Effective Date. The said application could be for a period of 1 year or 5 years or for life-time as is decided by the individual making an application.

♦ If the concerned independent director has made an application for a period of 1 year or 5 years, he/she needs to renew the same in the data base for a further period of either 1 year or 5 years or for life-time within a period of 30 days from the date of expiry of the initial period. No such application is required to be made if the initial application was made for life-time.

♦ While submitting declaration as an independent director under Section 149(7) of the Companies Act, 2013, he/she will have to also submit a declaration of compliance of inclusion of his name in the data bank.

♦ Every individual whose name has been included in the data bank as above shall have to clear the Proficiency test (needs to score a minimum of 60% in aggregate) conducted by the Institute within one year from the date of inclusion of his/her name in the data bank.

♦ There is no limit on the number of attempts an individual may make for passing the online proficiency self-assessment test.

♦ In case the above test is not passed by such individual, his/her name shall stand removed from the data bank by the Institute.

  • For existing Independent Director – They need to include their name in the data base AND pass the online test. If they do not pass after number of attempts , their name will be ” removed” from the data base. It Means after removal they should not continue as Independent Director, but they are not disqualified . They can be appointed as ” normal Director ” . The restriction is that the incumbent can not be appointed/continue as an ” Independent Director”.
  • For the appointment of new Independent Director – They need to include their name in the data base and pass the exam within one year of inclusion.

Since every Independent Director need to give a declaration u/s 149(7) in the beginning of every Financial year   , which also include this criteria , it is a MUST for the ID or else they can not be appointed or continue since the declaration is a mandatory requirement .

Exemption from the requirement of passing the above proficiency test

An individual who has served, in aggregate, for a period of not less than ten years as a director and/or a Key Managerial Personnel in a listed public company or in an unlisted public company having a paid-up share capital of Rs. 10 crore or more as on the date of inclusion of his name in the data bank shall not be required to clear the proficiency test.

For the purpose of determining a period of 10 years as above, any over lapping period during which an individual has acted both as a director and/or key managerial personnel (KMP) at the same time in two or more companies shall be counted only once; for e.g., if an individual has acted both as a director and/or the KMP from 1.1.2018 to 31.12.2018, the number of years of his serving would be counted as 1 year and not two years.

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