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Proficiency test for Independent Director

Brajesh Kumar 
on 28 February 2020

LinkedIn


The Ministry of Corporate Affairs (MCA) has come with the following new notifications dated 22nd October, 2019 (effective from 31st December, 2019) for introduction of databank of Independent Directors (IDs) in accordance with the provisions of Section 150 of the Companies Act, 2013. A brief detail of the said notifications is detailed below:

Notification No. 1:

The Ministry of Corporate Affairs (MCA) has notified the Indian Institute of Corporate Affairs (IICA) at Manesar (Haryana), as an institute to create and maintain a data bank containing names, addresses and qualifications of persons who are eligible and willing to act as independent directors, for the use of the company making the appointment of such directors.

Notification No.2:

The MCA has amended Companies (Appointment and Qualification of Directors) Rules, 2014 by substituting Rule 6 with the following rule, namely:-

Compliances required by a person eligible and willing to be appointed as an independent director:

(1) Every individual -

  • 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, shall within a period of three months from such commencement; or
  • 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 years 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) Every individual whose name has been so included 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 thirty days from the date of expiry of the period up to which the name of the individual was applied for inclusion in the data bank, failing which, the name of such individual shall stand removed from the data bank of the institute:

Provided that 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.

(3) Every independent director shall submit a declaration of compliance of sub-rule (1) and sub-rule (2) to the Board, each time he submits the declaration required under sub-section (7) of section 149 of the Act.

(4) Every individual whose name is so included in the data bank under sub-rule (1) 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, failing which, his name shall stand removed from the databank of the institute:

Provided that the 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 in a listed public company or in an unlisted public company having a paid-up share capital of rupees ten crore or more shall not be required to pass the online proficiency self-assessment test:

Provided further that for the purpose of calculation of the period of ten years referred to in the first proviso, 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.

Proficiency test for Independent Director

Explanation: For the purposes of this rule,-

  • the expression '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;
  • 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;
  • there shall be no limit on the number of attempts an individual may take for passing the online proficiency self-assessment test.

Notification No.3:

The MCA has amended Companies (Creation and Maintenance of databank of Independent Directors) Rules, 2019 (Please click on the link below for reference).
http://www.mca.gov.in/Ministry/pdf/CmpInpdtDirectorsRules_22102019.pdf

Notification No. 4:

The MCA has further amended Companies (Accounts) Rules, 2014 by inserting the following clause after clause (iii) of Rule 8(5):-

'(iiia) 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';.

Explanation- For the purposes of this clause, the expression 'proficiency'; means the proficiency of the independent director as ascertained from the online proficiency self-assessment test conducted by the institute notified under sub-section (1) of section 150.

Brief outlines of the above mentioned notifications are as follows:

Applicability

 

These rules are applicable to:

  1. All existing Independent Directors;
  2. Aspiring Independent Directors; and
  3. The Companies which are required to appoint Independent directors under the Companies Act, 2013.

Requirements for Appointment of Independent Directors under the Companies Act, 2013

 

Types of Companies

Number of Independent Directors

Every Listed Public Company

1/3rd of total directors shall be Independent Directors

Every Public Company:-

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

Exemption: The following classes of unlisted public company shall not require to appoint Independent Directors:-

(a) a joint venture;

(b) a wholly owned subsidiary; and

(c) a dormant company as defined under section 455 of the Act.

At least Two directors shall be Independent Directors

  1. Application for inclusion of name in the data bank (empanelment )

All existing Independent Directors need to empanel with this databank within 3 months of commencement of these rules (i.e. latest by 29th February, 2019). The data bank launched by the MCA can be access at www.mca.gov.in or www.independentdirectorsdatabank.in.

Steps for Empanelment of Independent Directors on Databank:-

Process in MCA Portal:

  1. Login to MCA Portal.
  2. Go to 'ID Databank Registration'section under 'MCA Services'and click on 'Individual Registration.
  3. Enter DIN/PAN/Passport details and click on 'Submit';.
  4. Enter email ID and mobile no. (if not pre-populated). Enter Country code and Click on 'Send OTP';.
  5. Enter OTP & click on 'Verify OTP';.
  6. Upon successful verification, click on 'Proceed'button to receive credentials for Databank in email and mobile.
  7. Process in Databank Portal:

Fee Structure for individual empanelment:

  1. Login to Independent Director's Databank.
  2. Fill profile with Personal, Educational, and Experience Details and submit declaration.
  3. After submitting details, pay subscription fee
  • Rs. 5,000 + 18% GST for 1 Year subscription
  • Rs. 15,000 + 18% GST for 5 Years subscription
  • Rs. 25,000 + 18% GST for Lifetime subscription

Every individual whose name has been so included in the data bank shall file an application for renewal for a further period of one year; five years or for his life-time respectively, within a period of 30 (thirty) days from the date of expiry of the period up to which the name of the individual was applied for inclusion in the data bank, failing which, the name of such individual shall stand removed from the data bank of the institute.

Every independent director shall submit a declaration of compliance of inclusion of name in the data bank and renewal thereof to the Board, each time he submits the declaration required under sub-section (7) of section 149 of the Act.

As per the Section 149(7) of the Companies Act, 2013, 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 that he meets the criteria of independence.

Every individual whose name is included in the databank under sub-rule (1) shall pass an Online Proficiency Self-Assessment test conducted by IICA within a period of one year from the date of inclusion of his name in the databank, failing which, his name shall stand removed from this databank.

An individual who has obtained a score of not less than 60% in aggregate in the online proficiency self-assessment test shall be deemed to have passed such test.

Exemption to Self-Assessment Test

Individual who has served for a period of not less than 10 (ten) years as on the date of inclusion of his name in the databank as director or key managerial personnel (KMP) in a listed company or in an unlisted public company having a paid-up share capital of Rs.10 Crore or more shall not be required to pass the online proficiency self-assessment test:

Provided further that for the purpose of calculation of the period of ten years referred above, a period during which an individual was acting as a director or as a KMP in two or more companies at the same time shall be counted only once.

Process outline for Test

Individuals empanelled in the Independent Director's Databank will have to follow these steps for attempting the Online Proficiency Self-Assessment Test:-

  • Step 1: Login into the Databank
  • Step 2: Go to the dashboard
  • Step 3: Select the slot as per your convenience for attempting the test
  • Step 4: Attempt the test as per the slot booked
  • Step 5: Get test result and reports published

Note: There is no limit on the number of attempts to pass the test.

https://www.independentdirectorsdatabank.in/img/assessment/assess-process-flow.jpg

Note: Currently, the mock test is available, you can take a mock test to familiarize yourself with test environment. Actual Online Proficiency Self-Assessment Test will be available from March 01, 2020. However, you can start booking the slot now. If you need help on how to take this test, go to your dashboard from My Account menu and read self-assessment guide or watch a self-help video.

Study material tools and syllabus detailed Performa also available at:

Generally, name would be removed from the Data Bank due to following major reasons:

  1. Renewal
  2. Declaration to the Board of Directors
  3. Self-Assessment Test
  4. Removal of the name from Data Bank
    1. If renewal is not made within 30 days from the expiry of enrolment.
    2. lf online proficiency Test is not passed within one year from the date of inclusion of his name in the data bank.
  5. Corporate Access to Databank
  6. The Company can choose an Independent Director from a databank of persons who are eligible and willing to act as Independent Directors.

​​​​​​​Provided that responsibility of exercising due diligence before selecting a person from the data bank referred to above, as an independent director shall lie with the company making such appointment.

Information available in the data bank shall be provided only to the companies required to appoint independent director after paying a reasonable fees to IICA.

The Company shall include in its Board Report 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.

Explanation: 'Proficiency'; means the proficiency of the independent director as ascertained from the online proficiency self-assessment test.

 

Link for sources:

FAQs

1. ​​​​​​​Is it mandatory to appoint an Independent Director from the Data Bank only?

Ans. As per Section 150 of the Companies Act, 2013, it is not mandatory to select independent Director from the Data Bank.

2. Is there any provisions for cessation of Independent Director on removal of the name from Databank either on account of not passing test or renewal?

Ans. There is no specific provisions relating to cessation of the independent Director on its own, in case of removal of his/her name from the Data Bank.

3. Is it required to give a Statement relating to proficiency of IDs appointed during the financial year but has not passed the test till the Board's Report date in the Board's Report?

Ans. As per Rule 8 of Companies (Accounts) Rules, 2014 it is mandatory to include a statement in the Board's Report appointed during the year w.r.t proficiency of IDs irrespective of the fact that they pass the test or not. However, if in case the IDs could not be able to pass the test before the Report then such director still be able to appear for the test for a period of one year from the date of inclusion of his name in the Data Bank.

4. What are the important dates and timelines?

Ans.

 

Start date for Empanelment/registration of individuals and companies

December 01, 2019

End Date for empanelment of existing Independent Directors

February 29, 2020

Start date for slot booking for online proficiency self-assessment test

December 02, 2019

Start date for Mock (Practice) Test

December 02, 2019

Start date for online proficiency self-assessment test

March 01, 2020

Start date for corporate access and search facility

March 01, 2020

5. Can the information once shared by the individuals be changed or modified?

Ans. As per the provisions Rule 3(5) of the said Rules, any individual whose name appears in the databank must make changes in his particulars within 30 (thirty) days of such change in the databank as well.

6. What if someone whose name has been included in the databank attains the minimum years of directorship/KMP experience at a date post inclusion of his/her name in databank? Will he be required to take the test?

Ans. The individual whose name is included in the databank does not possess the minimum years of experience as provided in Rule 6 shall be required to pass the online proficiency self assessment test. However, if such individual upon attainment of such experience during the course of the year or any time later will be exempted to take the test from the date of attaining such minimum years of experience as provided in the Rule 6.

7. Who will provide the information required to be contained in the databank?

Ans. In case of already compliant/registered Independent Directors, their DIR-3 KYC detail (such as, DIN/PAN/Password number, Name, DOB, Father's name, Mobile Number and Email Address) and their directorship/KMP positions details will be automatically shared with the databank. All other information required for empanelment must be provided by the individual only.

8. How to change data coming from MCA21?

Ans. In order to change any particulars of Directors, you are required to file Form DIR-6 or DIR 3 KYC with MCA.

9. To get empanel with Data Bank of Independent Director, DIN is mandatory or Not?

Ans: DIN is not mandatory for empanelment of any person for Data Bank of Independent Director. If a person not having DIN can get empanel with PAN/Passport number.

10. If a person fails to pass proficiency test, can appoint as normal Director?

Ans. They are not disqualified. They can be appointed as 'normal Director '

The authors can also be reached at kumarbraj7@gmail.com; rahuldas151292@gmail.com

DISCLAIMER: The information given in this document has been made on the basis of the provisions of the Companies Act, 2013 and Rules made thereunder. It is based on the analysis and interpretation of applicable laws as on date. The information in this document is for general informational purposes only and is not a legal advice or a legal opinion. You should seek the advice of legal counsel of your choice before acting upon any of the information in this document. Under no circumstances whatsoever, we are not responsible for any loss, claim, liability, damage(s) resulting from the use, omission or inability to use the information provided in the document.


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