SELECTION OF INDEPENDENT DIRECTOR AND MAINTENANCE OF DATABANK

SECTION 150 OF COMPANIES ACT, 2013: SELCTION OF INDEPENDENT DIRECTOR AND MAINTENANCE OF DATABANK

Section 150 of the Companies Act, 2013 specifies that:

1. The database (databank) shall be created by any agency as prescribed by the government. The Central Government has prescribed an agency The Indian Institute of Corporate Affairs (IICA) for creation and maintenance of such databank.
2. The databank shall have details of individuals like name, address, current directorship etc.
3. The Company should approve the appointment of an independent director in a general body meeting along with an explanatory statement mentioning the reasons for appointment and the eligibility of the individual.
4. The agency should follow all the prescribed rules to create and maintain the databank.
5. The Central Government may if necessary, prescribe a procedure for selection of independent directors.

RULE 6 OF THE COMPANIES (APPOINTMENT AND QUALIFICATION OF DIRECTORS) RULES, 2014

It specifies rules for the creation and keeping of a database (databank) of individuals seeking to become independent directors.

1. Creating a Databank: Any group, institute, or organization (the agency), which has been authorized for this purpose by the Central Government (The Indian Institute of Corporate Affairs (IICA)) shall form and keep a data bank of individuals seeking and competent to be assigned the post of independent directors and it should be posted on the official website of the Ministry of Corporate Affairs (MCA) or any other website as may be notified and approved by the Central Government.
2. Details of Individuals in Databank: The data bank should comprise the following information of individuals seeking to be appointed as independent directors:

• Name of Individual along with identity proof.
• Address of the Individual along with proof of residence; and
• Qualifications and previous experience of person along with necessary proofs.

3. Due Diligence: A disclaimer should be prominently displayed on the notified website posting the data bank which mentions that a company must fulfil its due diligence before appointing any individual as an independent director and there is no responsibility for the agency or the Central Government maintaining the data bank for the accuracy or lack of appropriateness of the individual whose details are mentioned in the data bank.
4. DIR – 1: Individuals who wish to get their name included in the data bank of independent directors should fill out the Form DIR-1 and make an application to the agency for the same.
5. Fees: The agency can charge a reasonable amount as a fee from the individuals for the inclusion of their names in the data bank of the independent directors.
6. Updation of Databank: Individuals who have applied for inclusion of their name in the data bank of independent directors or individuals whose name appears in the databank shall inform the agency about any errors or changes to be made in their details within 15 days of such difference.
7. Databank in Website: The databank that is published on the website should:

• Be accessible on that particular website.
• Be similar to the physical form of the data bank.
• Be easily searchable.
• Be published in a layout or layouts convenient for online viewing as well as printing.
• Include a link to print or view the details without any cost.

Note: This section does not apply to non-profit organizations which have a primary aim to promote act, culture, religion, music, dance, science, sports etc.

PROCEDURE FOR INDEPENDENT DIRECTOR

Rule 6 of the Companies (Appointment and Qualification of Directors) Rules, 2014 laws down procedure required for a person who is eligible and willing to be appointed as an independent director. Accordingly: -

1. Apply online for inclusion of name in the data bank. Every Individual

(a) who has been appointed as an independent director in a company, on the date of commencement of the Companies (Appointment and Qualifications of Directors) Fifth Amendment Rules, 2019, shall within a period of thirteen months from such commencement, or

(b) who intends to get appointed as an independent director in a company after such commencement, shall before such appointment,

Apply online to the institute for inclusion of his name in the data bank for a period of one year or five year or for his life-time, and from time to time take steps as specified in sub-rule (2), till he continues to hold the office of an independent director in any company:

Provided that any individual, including an individual not having DIN, may voluntarily apply to the institute for inclusion of his name in the data bank.

2. Renewal of period of inclusion of his name in the data bank: Every   individual who name has been in the data bank shall file an application for renewal for a further period of one year or five years or for his life time within a period of 30 days from the date of expiry failing which his name will be removed from such data bank.

3. Submission of declaration of compliance to the Board: Every independent director shall submit a declaration of compliance of sub-rule (2) to the Board, each time he submits the declaration required under sub section (7) of Section 149 of the Act.

4. To pass an online proficiency self-assessment test: Every individual whose name is included in the data bank shall pass an online proficiency test within a period of 2 years from the date of inclusion of his name in the data bank, failing which, his name shall stand removed from the data bank of the institute:

Exemption from online proficiency self- assessment test: Provided that an individual shall not be required to pass the online proficiency self-assessment test when he has served for a total period of not less than 3 years as on the date of inclusion of his name in the data bank: -

(A) As a director or KMP as on the date of inclusion of his name in the data bank, in one or more of the following, namely: -

(i)Listed public company.

(ii)Unlisted public company having a paid-up share capital of rupees ten crores or more.

(iii)Body corporate listed on any recognized stock exchange or in any 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

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

(v)Statutory corporation set up under an Act of Parliament or any State Legislature carrying on commercial activities.

(B)In the pay scale of Director or equivalent or above in any Ministry or Department of the Central Government or State Government having experience in handing: -

(i)The natters relating to commerce, corporate affairs, finance, industry, or public enterprise; 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)In the pay scale of Chief 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 Pension Fund Regulatory and Development Authority and having experience in handling matters related to corporate laws or securities laws or economic laws:

Provided Further that for the purpose of calculation of the period of three years referred to in the first proviso, any period during which an individual was acting as a director or as a KMP in two or more companies or body corporate or statutory corporations at the same time shall be counted only once.

Provided also the following individuals, who are or have been, for at least ten years: -

(i)An advocate of a court; or

(ii)In Practice as a Chartered Accountant; or

(iii)In Practice as a Cost Accountant; or

(iv)In Practice as a Company Secretary.