Online Proficiency Assessment Test for Independent Directors under Companies Act, 2013

Online Proficiency Assessment Test For Independent Directors Under Companies Act, 2013

The Ministry of Corporate Affairs with intent to foster the growth of Corporate Governance across the Boards has introduced slew of amendments in the Companies Act, 2013 and rules made there under by introducing the much awaited proficiency examinations for the Independent Directors (ID) on 22.10.2019.

The idea is to improve corporate literacy and to make the ID’s aware of their duties, roles and responsibilities.

The proposed proficiency examination will be an online evaluation test conducted by the Indian Institute of Corporate Affairs (IICA) in Manesar, Harayana comprising the basics of Indian company law, ethics, and capital market norms etc.

The MCA has proposed exemptions to persons who are experienced as directors on company boards or as KMP for 10 or more years and they will not be required to take the exam. However registration on the IICA shall remain to be compulsory for such persons also.

The notifications would come into force from December 1, 2019.

This Article tries to explain the latest requirements in a simplified manner.

AMENDMENT NO. 1: COMPANIES (APPOINTMENT AND QUALIFICATION OF DIRECTORS) FIFTH AMENDMENT RULES, 2019

EFFECTIVE FROM: 1st day of December, 2019

Requirement TO BE MET BY:

Every Individual who:

A. has been appointed as an independent director m a company

B. intends to get appointed as an independent director in a company after such commencement, shall before such appointment

Shall mandatorily apply ONLINE to the institute (IICA) for inclusion of his name in the data bank of ID to be maintained by IICA.

The name may be included for a period of: ONE YEAR or FIVE YEARS or FOR HIS LIFE-TIME.

FURTHER: ANY INDIVIDUAL, including an individual not having DIN, may voluntarily apply to the institute for inclusion of his name in the data bank.

Therefore, the Companies requiring ID may get about the applicant and thereafter get him/her appointed in their Company as ID.

Renewal of the Information shared at Databank:

BY: Every individual whose name has been so included in the data bank

Process of Renewal: By Filing an application for renewal to IICA

Period of Renewal : The Individual may renew his information in the databank 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.

If not renewed: The name of such individual shall stand removed from the data bank of the institute:

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.

Compliance involved: Independent director shall submit a declaration of compliance of the above requirements to the Board, each time he submits the declaration required under sub-section (7) of section 149 of the Act.

Steps to be followed after the inclusion of name in the Online Database:

Every individual shall pass an online proficiency self-assessment test conducted by the institute within a period of one year from the date of inclusion of his name in the data bank.

Non-Compliance: failing to pass such test his name shall stand removed from the databank of the institute.

EXEMPTION FROM THE ONLINE PROFICIENCY SELF ASSESSMENT TEST:

Individual who has served for a period of not less than ten years as on the date of inclusion of his name in the databank as director or key managerial personnel of:

A. listed public company

B. unlisted public company having a paid-up share capital of rupees ten crore or more

is not required to pass the online proficiency self-assessment test.

Condition: for the purpose of calculation of the period of ten years, 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.

Example: Mr. A is an ID in XYZ LTD from 01.04.2014 and also a KMP in PQR LTD. from 01.04.2014. In such circumstances both the periods shall be counted as one and not twice. Hence, Mr. A is required to undergo and pass the ONLINE PROFICIENCY SELF ASSESSMENT TES to continue as an ID as he has not served for 10 or more years as an ID or KMP in order to claim exemption.

PASSING MARKS: Individual shall have to score not less than sixty percent. in aggregate to pass the examination. The Number of attempt to clear such exam is not limited.

AMENDMENT NO. 2: COMPANIES (CREATION AND MAINTENANCE OF DATABANK OF INDEPENDENT DIRECTORS) RULES, 2019.

EFFECTIVE FROM: other than rule 2 and 5, shall come into force with effect from the 1st day of December, 2019

DEALS WITH: Maintenance of Databank of Individuals who are willing and eligible to be appointed as independent directors in an online manner by the IICA on its website.

Note: the expression “persons willing and eligible to be appointed as independent director” shall include individuals already serving as independent directors on the Board of companies.

Databank to have following details:

A. DIN (Is applicable) – A person can get his name included in the databank even without having a DIN.

B. Income Tax PAN

C. the name and surname in full

D. the father’s name

E. the date of Birth

F. gender

G. the nationality

H. the occupation

I. full Address with PIN Code (present and permanent)

J. phone number

K. e-mail id

L. the educational and professional qualifications

M. experience or expertise, if any

N. any pending criminal proceedings as specified in clause (d) of sub-section (1) of section 164

O. the list of limited liability partnerships in which he is or was a designated partner along with –

i. the name of the limited liability partnership;

ii. the nature of industry; and

iii. the duration- with dates;

P. the list of companies in which he is or was director along with ­

a. the name of the company;

b. the nature of industry;

c. the nature of directorship – Executive or Non-executive or Managing Director or Independent Director or Nominee Director; and

d. duration – with date

Fees for the individuals: The Individuals for inclusion of their names in the data bank of independent directors are required to pay a certain amount of fees to the IICA and that fees shall again be paid at the time of renewal after the completion of the period for which the name was included except in cases of life time validity.

Fees for the Companies: The Companies Willing to appoint Independent Director can access such information ONLY AFTER PAYING A REQUIRED FEES TO THE IICA.

Privacy clause: Individual may restrict his personal information to the institute, to be disclosed in the data bank.

Changes to the Information shared on Databank by the Individual: Any Changes in the information shared by the individual to the data bank shall be done by him in 30 DAYS.

Duties of the institute (IICA):

> The institute shall conduct an online proficiency self-assessment test covering companies law, securities law, basic accountancy, and such other areas relevant to the functioning of an individual acting as an independent director

> prepare a basic study material, online lessons, including audio­ visuals for easy reference of individuals taking the online proficiency self-assessment test

> provide an option for individuals to take advanced tests in the areas specified in clause (a) and prepare the necessary advanced study material in this respect

Note:

1. no separate fees shall be charged by the institute in respect of its above 3 duties.

2. The Details of the Name included, applications rejected and names removed shall be shared by IICA with the MCA.

3. The Course shall be structured by panel of not more than ten members nominated by the Central Governmen

AMENDMENT 3: COMPANIES (ACCOUNTS) AMENDMENT RULES, 2019

EFFECTIVE FROM: 1st day of December, 2019

DEALS WITH: A statement regarding opinion of the Board with regard to integrity, expertise and experience (including the proficiency) of the independent directors appointed during the year.

the expression “proficiency” means the proficiency of the independent director as ascertained from the online proficiency self­ assessment test conducted by the IICA.

SIMPLIFIED VERSION: in the Directors’ Report a Statement shall be included by the Companies which shall declare that the ID on the Board have cleared the online proficiency self­ assessment conducted by the IICA unless they are otherwise exempted from the same.

Conclusion: Independent directors perform functions that are critical to good corporate governance. It is necessary that qualified independent directors are on the boards for the development of our Companies.  This process of examination and maintenance of databank will be a single-window platform where the companies looking for independent directors can meet those willing to serve on their boards. These are progressive steps that would enhance corporate governance standards across the Boards of the Companies in India.

Author: CS Rahul Harsh is from Kolkata and is currently working with Peerless Group of Companies. He may be reached at: csrahulharsh@gmail.com

DISCLAIMER: The Author have taken utmost care while drafting the article but it may occur that certain error creeps in. This article is for academic purpose and should not be treated as a professional advice. The readers are advised to refer the Bare Acts and Rules before making any judgment. The Article has been prepared on the basis of information available on the MCA website as on date.