Simplified analysis of Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2020

Simplified analysis of Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2020

Amendment in Rule

Amendment has been made in Rule 6- Sub rule 4 of Companies (Appointment and Qualification of Directors) Rules, 2014

Objective of amendment

(a) To increase years to pass Online proficiency self-assessment test by Independent directors after inclusion of name in Independent director’s data bank.

(b) To widen scope of exemption provided for experienced independent directors for passing Online proficiency self-assessment test.

(c) To decrease passing criteria of passing Online proficiency self-assessment test for Independent directors.

Existing Provisions 

Time Limit to pass Online proficiency self-assessment test by Independent directors after inclusion of name in data bank conducted by institute- 

• Within 1 year from inclusion
• Non passing can lead to removal of name from data bank

Exemptions for Experienced Independent directors from passing Online proficiency self-assessment test- 

Director or Key managerial personnel, for a total period of not less than ten years, as on the date of inclusion of his name in the databank, in one or more of the following, namely-

(a) listed public company; or

(b) unlisted public company having a paid-up share capital of rupees ten crore or more; or

(c) body corporate listed on a recognized stock exchange

Note-

For calculation of 10 years,

Period during which an individual was acting as a director or as a key managerial personnel in two or more Companies or Bodies corporate at the same time shall be counted only once.

Explanation-

(a) “Institute” means the ‘Indian Institute of Corporate Affairs at Manesar’ notified under sub-section (1) of section 150 of the Companies Act, 2013 as the institute for the creation and maintenance of data bank of Independent Directors;

(b) An individual who has obtained a score of not less than sixty percent in aggregate in the online proficiency self-assessment test shall be deemed to have passed such test;

(c) There shall be no limit on the number of attempts an individual may take for passing the online proficiency self-assessment test.

Amendments in Rule 

Time Limit to pass Online proficiency self-assessment test by Independent directors after inclusion of name in data bank conducted by institute- 

Time limit to pass extended to 2 years from 1 year

Exemptions for Experienced Independent directors from passing Online proficiency self-assessment test- 

Above exemptions as a whole substituted with below mentioned exemptions.

Individual exempting from passing test if he has served for a total period of not less than 3 years, as on the date of inclusion of his name in the databank,

(A) As a Director or Key managerial personnel, in one or more of the following, namely-

(a) listed public company; or

(b) unlisted public company having a paid-up share capital of rupees ten crore or more; or

(c) body corporate listed on a recognized stock exchange or in a country which is a member state of the Financial Action Task Force on Money laundering and the regulator of the securities market in such member state is a member of the International organization of the Securities commission or

(d) Bodies corporate incorporated outside India having a paid up share capital of US $ 2  million or more or

(e) Statutory corporations set up under an act of parliament or any state legislature carrying on commercial activities or

(B) In the Pay scale of director or above in the Ministry of affairs or Ministry of finance or Ministry of commerce and industry or the Ministry of Heavy Industries and Public Enterprises and having experience in handling matters related to corporate laws or securities laws or economic laws or

(C) In the Pay scale of Chief General manager or above in the Securities and exchange board or the Reserve bank of India or the Insurance Regulatory and Development Authority of India or the Pension Fund Regulatory and Development Authority and having experience in handling matters related to corporate laws or securities laws or economic laws.

Note-

For calculation of 3 years,

Period during which an individual was acting as a director or as a key managerial personnel in two or more Companies or Bodies corporate or Statutory corporations at the same time shall be counted only once.

Amendment in passing criteria provided in Explanation- Item (b) 

Passing criteria reduced from 60% to 50% for Online proficiency self-assessment test.