An overview of Companies (Creation and Maintenance of Databank of Independent Directors) Rules, 2019

Independent Directors serve as an important Institution of corporate governance contributing significantly at the boards by bringing a diverse set of skills with an independent judgement on the significant issues.

The Desirable Corporate Governance Code by CII (1998) for the first time introduced the concept of independent directors for listed companies and compensation paid to them. The Kumar Mangalam Birla Committee (2000) then suggested that for a company with an executive Chairman, at least half of the board should be independent directors, else at least one-third. The updated Clause 49 based on the report by the Narayana Murthy Committee further elaborates the definition of Independent Directors; and also requires listed companies to have an optimum combination of executive and non-executive directors, with non-executive directors comprising of at least 50% of the Board.

As per Section 149 (4) of the Companies Act, 2013, every listed public company shall have at least one-third of the total number of directors as independent directors and the Central Government may prescribe the minimum number of independent directors in case of any class or classes of public companies. Ministry of Corporate Affairs notified The Companies (Creation and Maintenance of Databank of Independent Directors) Rules, 2019 effective from 1st December, 2019 which authorised Indian Institute of Corporate Affairs (IICA) to act as the institute or association, responsible for the creation and maintenance of the online databank containing names, addresses and qualifications of existing Independent Directors and persons who are eligible and willing to act as Independent Directors. In furtherance, IICA was also entrusted with the duty to conduct an online proficiency self-assessment test of the Independent Directors, which would be available from 01st March 2020.

The Independent Directors Databank is an initiative of the Ministry of Corporate Affairs for the capacity building of the existing Independent Directors, in order to inculcate the high standards of corporate governance in India. The Databank is a key instrument to enable Independent Directors to become “Agents of Change” on the corporate boards.

COMPLIANCE UNDER COMPANIES ACT, 2013: –

The following class or classes of companies shall have at least two directors as independent directors –

  • The Public Companies having paid up share capital of ten crore rupees or more; or
  • The Public Companies having turnover of one hundred crore rupees or more; or
  • The Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees.

Every Person shall apply online to the institute for inclusion of his name in the data bank for a period of one year or five years or for his life-time, 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, i.e., on 18.12.2020 shall within a period of 13 months from such commencement or who intends to get appointed as an independent director in a company after such commencement shall apply before their appointment.

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 for the same.

OBJECTIVES OF CREATING THE DATABANK: –

1. As per the Current data around 19,827 people has registered themselves for the intention to be appointed as an Independent Director out of which 4,644 women has registered for this executive role as well.

2. The current static look more impressive as it has around 22.5% participation of  women on Board.

3. Also, the Companies are looking to bring more talent and intellect on Board, as around 2008 number of Companies has registered themselves for the same.

4. Empanelment of existing Independent Directors as well as the professionals aspiring to become independent directors.

5. Build capacities of Individuals by delivering eLearning courses on topics related to corporate governance, regulatory framework, financial prudence, and other important aspects.

6. Provide a platform to individuals to help them acquire knowledge, develop new skills, assess their understanding, and apply best practices.

7. Create an eco-system of individuals looking for opportunities and corporate requiring

The creation of Data Bank has not only simplified the process of Appointment of Independent Director but it has transformed it and made it easy, simple and transparent, now we have more intellect, more diversity to include on Board.

This has  also paved the way for the  Individual who wants to be in Corporates in executive roles and are capable enough to be found and explored so the system is two way enhancement   and   create a WIN -WIN situation  for all.

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This article is written by Team Anupama Tripathi & Associates for the purpose of education & comment for more you can connect us at #880089633 or [email protected]

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Qualification: CS
Company: Anupama Tripathi & Associates
Location: New Delhi, Delhi, India
Member Since: 07 Apr 2021 | Total Posts: 19
Anupama Tripathi, the co-founder of Alliance Professional, she is a Company Secretary in Practice and pursuing Law from University of Delhi and did her graduation from Jesus & Mary Collage, University of Delhi. She has an experience of more than 5+ years. She did her internships from PSU liste View Full Profile

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