MCA: Submission requesting for amendment in Companies Act, 2013 requiring Independent Directors to pass online proficiency self-assessment test

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MCA: Submission requesting for amendment in Companies Act, 2013 requiring Independent Directors to pass online proficiency self-assessment test

Tejasvi

@tejasvi

March 10, 2022

Public Policy

257

As per Rule 6(1) of Companies (Appointment and Qualifications of Directors) Rules, 2014 (Rules) as amended by Companies ((Appointment and Qualifications of Directors) Fifth Amendment Rules, 2020 (Amendment Rules) (Rules), every individual appointed as an independent director in a company or who intends to get appointed as an independent director is required to apply online to the Indian Institute of Corporate Affairs (IICA) for inclusion of his name in the data bank. Further, as per Rule 6(4), such individual is required to pass an online proficiency self-assessment test conducted by IICA within 2 years from the date of inclusion of his name in the data bank, failing which, his name will be removed from the databank.

However, MCA has provided exemption from passing proficiency test to individuals:

Who have served for more than 3 years as a director or Key Managerial Personnel in a listed company or unlisted company having paid up share capital exceeding INR 10 crores or a body corporate listed on recognised stock exchange
In the pay scale of Director or equivalent or above in any Ministry or Department and having experience in corporate affairs, commerce or affairs related to government company or statutory corporations
Individuals who are advocate of a court, practising chartered accountant, practising company secretary for 10 years.

We appreciate the spirit and intent of Ministry of Corporate Affairs (MCA) to prescribe a minimum level of qualifications and skill set for Independent Directors to adhere to corporate governance requirements. The online test is designed to familiarise independent directors with basics of accounting, securities, corporate law, and other such areas relevant to the functioning of an individual as an independent director.

However, companies with global presence prefer to hire foreign directors with diversified experiences on their board. This helps the company in building local presence, customer connect, and local government connect in different geographies, thereby contributing to the growth of the organisation. It is important to note that proficiency test is designed to familiarise independent directors with basics of accounting, securities, corporate law, and other such areas relevant to the functioning of an individual as an independent director. However, it does not impart practical training nor provide an option to stay updated with changing regulations and expectations from the market. Thus, making foreign Independent Directors with experience subject to passing the proficiency test may not serve the purpose behind its introduction.

In this regard, we have made a submission to MCA on march 9, 2020 requesting for exemption from the requirement to pass self-assessment online proficiency test for the following class of foreign directors -

A foreign individual who has served as a director or Key Managerial Personnel in a foreign listed company or foreign unlisted company having paid up share capital exceeding USD 1.5 million (or any other limit as may be prescribed by MCA) or a body corporate listed on a foreign stock exchange; or
In the pay scale of Director or equivalent or above in any Government department in a country other than India and have experience in corporate affairs, commerce or affairs related to government company or statutory corporations; or
Foreign individuals who possess qualification equivalent of an advocate of a court, chartered accountant, company secretary with related experience for 10 years.

This will help in promoting ease of doing business in India.

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Tejasvi

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