Section 149 of The Companies Act,2013 requires certain Companies to appoint Independent Directors on the Board of the Company.
these independent directors do not manage day to day operations of the Company but are entrusted with the responsibility to overview and watch over the working of the Company and render unbiased opinion in the interest of the Company which are managed upfront and undertaken by the Executive directors.
However, taking advantage of loopholes, Companies has adopted the practice of appointing person who meets the eligibility criteria of independence but does not possess knowledge and skills to manage the Company, basically appointment of independent directors on Board has become just a pretentious activity.
To keep in check these ill-intentions, Ministry of Corporate Affairs has amended The Companies (Appointment and Qualifications of Directors) Rules, 2014by inserting compliances which are required to be complied by person willing to get appointed as an Independent Director.
Rule 6 of The Companies (Appointment and Qualifications of Directors) Rules, 2014
This rule summaries that every Independent Director or persons willing to get appointed as Independent Director must enroll themselves with independent Directors Databank and pass an online test within 2 years of registration to comply with the criteria of eligibility to act as Independent Directors.
Rule 6 of The Companies (Appointment and Qualifications of Directors) Rules,2014 is majorly divided into four subsections:
- Applicability for inclusion of name in databank
- Renewal of application
- Declaration
- Exemption
Applicability for inclusion of name in databank
Renewal of application
Individual enrolled at databank can renew their registration within a period of 30 days from the date of expiry of their registration period (1 /5 year).
If not renewed, the name of such individual shall stand removed from the data bank of the institute.
Declaration
Independent directors are required to submit a declaration to the Company at the beginning of financial year that they have complied with the rules related to registration with databank.
Exemption
Below given Independent Directors are exempted to pass the online test:
A. Directors who are associated with below given for at-least 3 years as on the date of inclusion of his name in the data bank
- Listed public company
- unlisted public company having a paid-up share capital of Rs. 10 crore or more
- body corporate listed on any 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 Securities Commissions; or
- bodies corporate incorporated outside India having a paid-up share capital of US$ 2 million or more;
- statutory corporations set up under an Act of Parliament or any State Legislature carrying on commercial activities; or
B. Have Pay scale of Director or equivalent or above in any Ministry or Department, of the Central Government or any State Government, and having experience in handling,—
(i) the matters relating to commerce, corporate affairs, finance, industry or public enterprises; or
(ii) the affairs related to Government companies or statutory corporations set up under an Act of Parliament or any State Act and carrying on commercial activities
C. Have the pay scale of Chief General Manager or above in the SEBI or RBI or the IRDA or the PFRDA and having experience in handling the matters relating to corporate laws or securities laws or economic laws.
D. Practising for 10 years as an advocate of a court; or chartered accountant or as a cost accountant or as a company secretary,
KEY TAKE AWAY
- If not exempted as stated above, every Independent Director has to register as ID databank
- Online exam to be passed within 2 years of registration
- No limit on number of attempts
- 50% marks required for passing online test
Ministry of Corporate affairs vide notification dated June 10,2022 has granted relief to those directors whose name has been removed for ID databank, they can restore the same by paying fees pf Rs. 1,000 and can reappear to pass the test within 1 years from re-registration.
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