Independent directors need to clear MCA test with 60% marks
Removing years of slack and frequent allegations of corruption, nepotism and mute spectators in corporate boardrooms, the appointment of independent directors is set for an overhaul from next month with Ministry of Corporate Affairs deciding to conduct examinations for such high-level appointments.
New Delhi: Removing years of slack and frequent allegations of corruption, nepotism and mute spectators in corporate boardrooms, the appointment of independent directors is set for an overhaul from next month with Ministry of Corporate Affairs deciding to conduct examinations for such high-level appointments.
The change is in line with the amended Companies Act which comes into effect next month. Under the changed parameters, the government will also maintain a database of professionals qualifying in the test that can be used by companies looking to expand their board or making fresh appointments under the current regulations.
The Indian Institute of Corporate Affairs (IICA) under the MCA will hold the exam in December and to make the process stringent, a score of 60 per cent marks will be mandatory criteria for qualification.
This will be the first year when such practice will start. It is not just domain knowledge that will be put to test, the institute will 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.
The rules are being made stringent as it was noticed that in many cases political appointees with standard financial background were also getting rehabilitated in several companies as independent directors.
Officials said this method may help in bringing professionalism, alertness and more accountability leaving aside a usual passive role. On October 22, the Ministry brought the notification on the appointment and qualification of independent directors.
The amended rules Companies (Appointment and Qualification of Director) Fifth Amendment Rules, 2019, - Companies (Creation and Maintenance of databank of Independent Directors) Rules, 2019 and - Companies (Accounts) Amendment Rules, 2019 and will come into force with effect from December 1. 2019.
Independent directors role came into sharp attack following the crisis at the Infrastructure Leasing and Financial Services and in many credit rating agencies who liberally granted and downgraded the companies as per their wish and got away with it. Their reckless grading created much of the IL&FS crisis.