Amendments To The Companies (Appointment And Qualification Of Directors) Rules

• Published date: 07 July 2022
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Corporate Governance
• Law Firm: Obhan & Associates
• Author: Ms Ashima Obhan

The Companies Act, 2013 was passed in 2013 with the aim to revamp the Indian corporate governance regime. The new act superseded the erstwhile Companies Act, 1956 and is based upon the three pillars of liberalization, globalization and privatization.

In exercise of its power under the relevant provisions of the Companies Act, 2013, the Central Government notified the Companies (Appointment and Qualification of Directors) Rules, 2014 (hereinafter referred to as the "Principal Rules"). Several requisite details such as the number of independent directors, qualifications for independent directors, compliance requirement for a person to be appointed as an independent director, allotment of Director Identification Number (DIN), etc. are governed by the Principal Rules.

More recently, the Ministry of Corporate Affairs has on 1^st June 2022 and 10^th June 2022 respectively, notified two amendments to the Principal Rules, namely the Companies (Appointment and Qualification of Directors) Amendment Rules, 2022 ("First Amendment Rules") and the Companies (Appointment and Qualification of Directors) Second Amendment, Rules, 2022 ("Second Amendment Rules").

• Companies (Appointment and Qualification of Directors) Amendment Rules, 2022¹

The First Amendment Rules focus specifically on ascertaining and checking the background of certain directors to be appointed and puts in place a stricter framework for appointment of directors who are nationals of countries sharing a land border with India. The First Amendment Rules mandate that a security clearance from the Ministry of Home Affairs (MHA) is required for individuals from countries sharing land borders with India, to be appointed as directors on the board of Indian companies. In effect, these amendments apply only to the nationals of Afghanistan, China, Pakistan, Nepal, Bangladesh and Myanmar.

Additionally, the First Amendment Rules stipulate that a director identification number will not be generated unless the MHA security clearance is obtained. The said clearance needs to be attached with the application for issuance of DIN.

Press Note 3 of 2020²

The First Amendment Rules align the Principal Rules with changes made to the Foreign Direct Investment (FDI) policy, by Press Note 3 of 2020. Press Note 3 of 2020 stipulated that government approval is required for any foreign direct investments made from countries sharing land borders with India. In April 2020, during the initial days of the pandemic, as an immediate reaction...