Databank Of Independent Director Launched

04 Dec 2019

On 2^nd December, 2019, the Ministry of Corporate Affairs (MCA) launched the Independent Director’s Databank in accordance with the provisions of the Companies Act, 2013.

Objective

Strengthening the institution of Independent Directors

Background

On 22^nd October 2019, the MCA issued certain notifications relating to the creation and maintenance of the data bank for independent directors. These relates to the following:

Notification of the Companies (Creation and Maintenance of data bank of Independent Directors) Rules, 2019
Additional disclosure in board's report
Constitution of institute for data bank of independent directors
Compliances required by the independent directors

Need for Databank

In recent times, many individuals have come under the regulatory lens in connection with failure and default cases of the companies (for ex. Default of Infrastructure Leasing & Financial Services) where they were serving as independent directors.
These failures have given enough reason to believe that directors need to have greater awareness of their fiduciary responsibilities.

About the Databank

The Databank portal which has been developed and will be maintained by the Indian Institute for Corporate Affairs (IICA), is a first of its kind initiative from the Ministry
Section 150 of the Companies Act, 2013 provides that an independent director can be selected from a data bank maintained by anybody, institute or association, as may be notified by the Central Government.
It will serve as a comprehensive repository of existing as well as those eligible to be independent directors.
The data bank would contain names, addresses and qualifications of persons who are eligible and willing to act as independent directors.
The present independent directors are also required to pass a basic online proficiency self-assessment test which will available from March 2020.
MCA has realized the importance of strengthening the Institution of Independent Directors and enhancing its effectiveness by way of creating a pool of skilled professionals to act as Agents of Change.

Significance

Will provide a platform to individuals to help them acquire knowledge, develop new skills, assess their understanding, and apply best practices.
Will help in building capacities of Individuals by delivering eLearning courses on topics related to corporate governance, regulatory framework, financial prudence, and other important aspects.
Will help to create an eco-system of individuals looking for opportunities and corporate requiring to appoint independent directors.Companies may register them selves with the databank to search, select and connect with individuals who possess the right skills and attitude for being considered for appointment as independent directors.

Independent Directors (IDs)

An independent director is a non-executive director who does not have any pecuniary relationship with the company, its promoters, and senior management or affiliate companies, is not related to promoters or the senior management, and/or has not been an executive with the company in the three preceding financial years.
The Companies Act,1956 does not provide us the specific definition of an Independent Director.
The provisions relating to appointment of Independent directors are contained in Section 149 of the Companies Act, 2013 should be read along with Rule 4 and Rule 5 of the Companies (Appointment and Qualification of Directors) Rules, 2014.

Role

IDs should makeup at least two-thirds of the directors in the audit committees of listed companies to oversee the financial reporting process and disclosure of the company's financial information, ensure compliance with listing and other legal requirements, disclosure of related party transactions and qualification in the draft audit report, among other things.
They act as a guide to the company. Their roles broadly include improving corporate credibility and governance standards functioning as a watchdog, and playing a vital role in risk management.
Independent directors play an active role in various committees set up by company to ensure good governance.

Importance

IDs serve as an important Institution of corporate governance contributing significantly at the boards by bringing a diverse set of skills with an independent judgment on the significant issues.
IDs along with other directors on a board are an integral part of a company and are entrusted with the most crucial responsibility relating to the functionality and the overall governance of a company.

Companies Act, 2013

The Companies Act 2013 is the law covering incorporation, dissolution and the running of companies in India.
The Act came into force across India on 12^th September 2013 and has a few amendments to the previous act of 1956.
The 2013 Act introduces significant changes in the provisions related to governance, e-management, compliance and enforcement, disclosure norms, auditors and mergers and acquisitions.

Objective

To consolidate and amend the law relating to companies.

Key Features

The maximum number of members (shareholders) permitted for a Private Limited Company is increased to 200 from 50.
One-Person company.
Section 135 of the Act which deals with Corporate Social Responsibility.
Company Law Tribunal and Company Law Appellate Tribunal.

Amendments

On July 31, 2019, the Ministry of Corporate Affairs introduced the Companies (Amendment) Act, 2019.
It aims to ensure more accountability and better enforcement to strengthen the corporate governance norms and compliance management in corporatesector as enshrined in the Companies Act, 2013.