Facts you need to know about Independent Director’s Databank

Independent Directors serve as an important Institution of corporate governance contributing significantly at the boards by bringing a diverse set of skills with an independent judgement on the significant issues. Independent Directors need to act as the custodians of good governance by discharging monitoring and advisory role effectively. They need to act in the interest of the company and the interest of all stakeholders.

The Independent Director’s Databank is an initiative of the Ministry of Corporate Affairs for the capacity building of the existing Independent Directors, in order to inculcate the high standards of corporate governance in India. The databank has been developed in accordance with the provisions of the Companies Act 2013 as mentioned below:

Section 150 of the Companies Act, 2013 provides that “an independent director can be selected from a data bank maintained by Indian Institute of Corporate Affairs. The data bank would contain names, addresses and qualifications of persons who are eligible and willing to act as independent directors. The company needs to ensure exercise of due diligence before selecting an independent director from the data bank”.

The Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2019 require the existing Independent Directors as well as the professionals aspiring to become independent directors, to apply online to Indian Institute of Corporate Affairs for inclusion of their name with the Independent Directors Databank. Upon registration the individuals are required to pass a online proficiency self-assessment test within a period of 1 year from the date of inclusion of his name in the data bank.

In what circumstances the institute can remove the names of the individuals from the databank?

As per Rule 6(4) of the Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2019, if an individual fails to pass 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 databank, his name shall stand removed from the databank of the institute. This is subject to exemption allowed under the rule for individuals meeting the required experience criteria.

Exemption from passing online proficiency self-assessment test

Exemption from passing online proficiency self-assessment test has been granted to individuals who has served for a period of not less than 10 years as a Director or Key Managerial Personnel (KMP) in a listed public company or in an unlisted public company having a paid-up share capital of rupees 10 crores or more. However, registration with the online databank will remain compulsory for exempted individuals.

What is the pass percentage for passing the online proficiency self-assessment test?

As per the explanation provided for Rule 6 (4) of the Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2019 “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”.