Section 150 of Companies Act, 2013 – Manner of selection of independent directors and maintenance of data bank of independent directors

SECTION 150. MANNER OF SELECTION OF INDEPENDENT DIRECTORS AND MAINTENANCE OF DATABANK

OF INDEPENDENT DIRECTORS

[Effective from 1st April, 2014]

EXEMPTIONS

Section 150 shall not apply to a Section 8 Company, vide Notification No. 466(E) dated 5th June, 2015.

The above mentioned exception shall be applicable to a Section 8 company which has not committed a default in filing its financial statements under section 137 of the said Act or annual return under section 92 of the said Act with the Registrar, vide amendment notification G.S.R. 584(E) dated 13th June 2017. 

(1) Subject to the provisions contained in sub-section (5) of section 149, an independent director may be selected from a data bank containing names, addresses and qualifications of persons who are eligible and willing to act as independent directors, maintained by any body, institute or association, as may by notified by the Central Government, having expertise in creation and maintenance of such data bank and put on their website for the use by the company making the appointment of such 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.

(2) The appointment of independent director shall be approved by the company in general meeting as provided in sub-section (2) of section 152 and the explanatory statement annexed to the notice of the general meeting called to consider the said appointment shall indicate the justification for choosing the appointee for appointment as independent director.

(3) The data bank referred to in sub-section (1), shall create and maintain data of persons willing to act as independent director in accordance with such rules as may be prescribed.

(4) The Central Government may prescribe the manner and procedure of selection of independent directors who fulfil the qualifications and requirements specified under section 149.

Applicable Rules

Companies (Appointment and Qualification of Directors) Rules, 2014

[Effective from 1st April, 2014]

[4] [Rule 6. Compliances required by a person eligible and willing to be appointed as an independent director.─

(1) Every individual –

(a) 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 [10] [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 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 upto 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:

[6] [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 [7][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.]

Companies (Creation and Maintenance of databank of Independent Directors) Rules, 2019.

[Provisions of Rule 2 and 5 effective from 22nd October, 2019 and the remaining provisions effective from 1st December, 2019]

Rule 2. Definitions.─(1) In these rules, unless the context otherwise requires, ─

(a) “Act” means the Companies Act, 2013 (18 of 2013);

(b) “institute” means the ‘Indian Institute of Corporate Affairs’ notified under sub-section (1) of section 150 of the Companies Act, 2013.

(2) Words and expressions used and not defined in these rules but defined in the Act shall have the sammeanings as respectively assigned to them in the Act.

Rule 3. Creation and maintenance of data bank.─ (1) The institute shall create and maintain a databank of persons willing and eligible to be appointed as independent directors, and such databank shall be an online databank which shall be placed on the website of the institute.

(2) The data bank referred to in sub-rule (1) shall contain the following details in respect of each person included in the data bank to be eligible and willing to be appointed as independent director—

(a) DIN (Director Identification Number), if applicable;

(b) Income Tax PAN;

(c) the name and surname in full;

(d) the father’s name;

(e) the date of Birth;

(f) gender;

(g) the nationality;

(h) the occupation;

(i) full Address with PIN Code (present and permanent);

(j) phone number;

(k) e-mail id;

(l) the educational and professional qualifications;

(m) experience or expertise, if any;

(n) any pending criminal proceedings as specified in clause (d) of sub-section (1) of section 164;

(o) the list of limited liability partnerships in which he is or was a designated partner along with—

(i) the name of the limited liability partnership;

(ii) the nature of industry; and

(iii) the duration- with dates;

(p) the list of companies in which he is or was director along with—

(i) the name of the company;

(ii) the nature of industry;

(iii) the nature of directorship—Executive or Non-executive or Managing Director or Independent Director or Nominee Director; and

(iv) duration – with dates.

(3) The information available in the data bank shall be provided only to companies required to appoint independent director after paying a reasonable fees to the institute.

(4) A person whose name is included in the data bank, may restrict his personal information to the institute, to be disclosed in the data bank.

(5) Any individual whose name appears in the data bank, shall make changes in his particulars within thirty days of such change through web based framework made available by the institute for this purpose.

(6) A disclaimer shall be conspicuously displayed on the website hosting the data bank that a company must carry out its own due diligence before appointment of any person as an independent director.

(7) The institute, shall with the prior approval of the Central Government, fix a reasonable fee to be charged from :—

(a) individuals for inclusion of their names in the data bank of independent directors; and

(b) companies for providing the information on independent directors available on the data bank.

Explanation:- For the purpose of this rule, the expression “persons willing and eligible to be appointed as independent director” shall include individuals already serving as independent directors on the Board of companies.

Rule 4. Duties of the institute.─ (1) The institute shall comply with the following, in respect of individuals referred to in subrule (1) of rule 6 of the Companies (Appointment and Qualification of Directors) Rules, 2014 , namely:—

(a) conduct an online proficiency self-assessment test covering companies law, securities law, basic accountancy, and such other areas relevant to the functioning of an individual acting as an independent director;

(b) prepare a basic study material, online lessons, including audio-visuals for easy reference of individuals taking the online proficiency self-assessment test;

(c) provide an option for individuals to take advanced tests in the areas specified in clause (a) and prepare the necessary advanced study material in this respect: Provided that no separate fees shall be charged by the institute in respect of clauses (a), (b) and (c).

(2) The institute shall daily, share with the Central Government, a cumulative list of all individuals—

(a) whose names have been included in the data bank along with the date of inclusion and their Income Tax PAN or Passport number in case of foreign director (not required to have Income-Tax PAN);

(b) whose applications for inclusion in the data bank have been rejected along with grounds and the dates of such rejection; and

(c) whose names have been removed from the data bank along with grounds and the dates of such removal.

Rule 5. Panel.—(1) There shall be a panel of not more than ten members nominated by the Central Government, for the purpose of approving the outline of the courses and study material prepared by the institute.

(2) Panel referred to in sub-rule (1) shall consist of:—

(a) Secretary, Ministry of Corporate Affairs or his nominee;

(b) Director General and Chief Executive Officer of the institute or his nominee;

(c) one member nominated by the Department of Economic Affairs;

(d) one member nominated by the Department of Public Enterprises;

(e) one member nominated by the Securities and Exchange Board of India;

(f) at-least one representative from the stock exchange nominated by the Central Government;

(g) at-least one representative from the industry nominated by the Central Government; and

(h) at-least one representative from the academia nominated by the Central Government.

Applicable Notifications

Data Bank of Independent Directors relating to IICA

Notification No. S.O. 3791(E) dated 22nd October, 2019 effective from 1st December, 2019

In exercise of the powers conferred by sub-section (1) of section 150 of the Companies Act, 2013 (18 of 2013), the Central Government hereby notifies the Indian Institute of Corporate Affairs 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.

[1] Clause (c) omitted by the Companies (Appointment and Qualification of Directors) Amendment Rules, 2014 vide Notification No. G.S.R. 671(E) dated 18th September, 2014. Prior to omission it read as: (c) income-tax PAN.

[2] The words “and mother’s name and Spouse’s name (if married)” omitted by the Companies (Appointment and Qualification of Directors) Amendment Rules, 2014 vide Notification No. G.S.R. 671(E) dated 18th September, 2014.

[3] The words “in Form DIR-1” omitted by the Companies (Appointment and Qualification of Directors) Amendment Rules, 2014 vide Notification No. G.S.R. 671(E) dated 18th September, 2014.

[4] Substituted by the Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2019 vide Notification No. G.S.R. 804(E) dated 22nd October, 2019. Prior to substitution it read as under:

Rule 6. Creation and maintenance of databank of persons offering to become independent directors.—(1) Any body, institute or association (hereinafter to be referred as “the agency”), which has been authorised in this behalf by the Central Government shall create and maintain a data bank of persons willing and eligible to be appointed as independent director and such data bank shall be placed on the website of the Ministry of Corporate Affairs or on any other website as may be approved or notified by the Central Government.

(2) The data bank referred to in sub-rule (1) shall contain the following details in respect of each person included in the data bank to be eligible and willing to be appointed as independent director—

(a) DIN (Director Identification Number);

(b) the name and surname in full;

(c) [***][1]

(d) the father’s name [***][2];

(e) the date of Birth;

(f ) gender;

(g) the nationality;

(h) the occupation;

(i) full Address with PIN Code (present and permanent);

(j) phone number;

(k) e-mail id;

(l) the educational and professional qualifications;

(m) experience or expertise, if any;

(n) any legal proceedings initiated or pending against such person;

(o) the list of limited liability partnerships in which he is or was a designated partner along with—

(i) the name of the limited liability partnership;

(ii) the nature of industry; and

(iii) the duration-with dates;

(p) the list of companies in which he is or was director along with—

(i) the name of the company;

(ii) the nature of industry;

(iii) the nature of directorship – Executive or Non-executive or Managing Director or Independent Director or Nominee Director; and

(iv) duration – with dates.

(3) A disclaimer shall be conspicuously displayed on the website hosting the databank that a company must carry out its own due diligence before appointment of any person as an independent director and “the agency” maintaining the databank or the Central Government shall not be held responsible for the accuracy of information or lack of suitability of the person whose particulars form part of the databank.

(4) Any person who desires to get his name included in the data bank of independent directors shall make an application to the “agency”.[***][3].

(5) The agency may charge a reasonable fee from the applicant for inclusion of his name in the data bank of independent directors.

(6) Any person who has applied for inclusion of his name in the data bank of independent directors or any person whose name appears in the data bank, shall intimate to the agency about any changes in his particulars within fifteen days of such change.

(7) The databank posted on the website shall—

(a) be accessible at the specified website;

(b) be substantially identical to the physical version of the data bank;

(c) be searchable on the parameters specified in sub-rule (2);

(d) be presented in a format or formats convenient for both printing and viewing online; and

(e) contain a link to obtain the software required to view or print the particulars free of charge.

[5] Substituted for the words “three months ” by the Companies (Appointment and Qualification of Directors) Amendment Rules, 2020, vide Notification No. G.S.R. 145(E) dated 28th February, 2020.

[6] Substituted by the Companies (Appointment and Qualification of Directors) Amendment Rules, 2020, vide Notification No. G.S.R. 145(E) dated 28th February, 2020. Prior to substitution it read as under:

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

[7] Substituted for the words ‘companies’ by the Companies (Appointment and Qualification of Directors) Amendment Rules, 2020, vide Notification No. G.S.R. 145(E) dated 28th February, 2020.

[8] Substituted for the words “five months” by the Companies (Appointment and Qualification of Directors) Second Amendment Rules, 2020, vide Notification No. G.S.R. 268 (E) dated 29th April, 2020.

[9] Substituted for the words “seven months” by the Companies (Appointment and Qualification of Directors) Third Amendment Rules, 2020 vide Notification No. G.S.R. 396(E) dated 23rd June, 2020.

[10] Substituted for the words “ten months” by the Companies (Appointment and Qualification of Directors) Fourth Amendment Rules, 2020 vide Notification No. G.S.R 589(E) dated 28th September, 2020