In a Gazette Notification dated 18th December, 2020, the Ministry of Corporate Affairs has issued the Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2020 (“Amendment Rules”) to further amend the Companies (Appointment and Qualification of Directors) Rules, 2014 (“Principal Rules”).
The Amendment Rules have come into force on 18th December, 2020 i.e. on the date of its publication in the Official Gazette.
The Amendment Rules amend the provision related to compliances required by a person eligible and willing to be appointed as an independent director (ID). For a detailed analysis, please refer to the table below:
| Principal Rules | Amendment Rules | Implications |
| Rule 6
(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 an individual shall not be required to pass the online proficiency self-assessment test, when he has served as a 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: 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 or bodies corporate at the same time shall be counted only once.
Explanation: For the purposes of this rule,- (a) 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; (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
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Rule 6
(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 two 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 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 three years as on the date of inclusion of his name in the data bank,- (A) as a director or key managerial personnel, 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 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
(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 Corporate Affairs or the Ministry of Finance or Ministry of Commerce and Industry or the Ministry of Heavy Industries and Public Enterprises and having experience in handling the matters relating 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 the matters relating 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 key managerial personnel in two or more companies or bodies corporate or statutory corporations at the same time shall be counted only once.
Provided that an individual shall not be required to pass the online proficiency self-assessment test, when he has served as a 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: 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 or bodies corporate at the same time shall be counted only once.
Explanation: For the purposes of this rule,- (a) 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; (b) an individual who has obtained a score of not less than fifty 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
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Sub Rule 4 provides for a proficiency test that has to be passed by every such person who has included their name in the data bank of directors. The period for taking this test has been increased from one year from date of inclusion of name in databank to two years from date of inclusion of name in databank.
Under the previous position, an exemption from this test was provided to persons who have served as a key managerial person/director for a period of minimum 10 years in a listed company or any unlisted company having a paid-up share capital of Rs. 10 crore or more, or body corporate listed on a recognized stock exchange. Such persons were not required to pass the proficiency self-assessment test.
Through the amendment the years of experience has been reduced from a minimum of 10 years to a minimum of 3 years Further, the amended position exempts persons who have served as a key managerial person/director for a period of minimum 3 years of the following additional types of companies/ corporations-
i. 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
ii. bodies corporate incorporated outside India having a paid-up share capital of US$ 2 million or more; or
iii. statutory corporations set up under an Act of Parliament or any State Legislature carrying on commercial activities.
Certain categories of persons who have served for at least 3 years in specific statutory corporations are also exempted from taking the proficiency test.
The Amendment Rules clarify that for the purpose of calculation of the period of 3 years, any 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
Additionally the cut off percentage for passing the online proficiency self-assessment test has been reduced to fifty percent from sixty percent.
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Source: Ministry of Corporate Affairs
