Qualifying test requirements for Independent Directors – a hasty, slipshod & cumbersome requirement

I have written a piece for Moneylife on the new requirements of the Ministry of Corporate Affairs for independent directors that mandate existing as well as first-time independent directors to enrol in a databank as also pass certain qualifying test. The Rules, that are spread over several notifications and also an FAQ, come into force from 1st December 2019 and some transition period is also given. A minimum pass percentage of 60% has been prescribed for this test. The subjects include company law, securities law, basic accountancy, etc.

The requirements are surely well meaning. A minimum level of literacy of issues relevant to Independent Directors are mandated. This may be particularly relevant to those who may have industry or technical expertise but may be unfamiliar with the governance of companies, company laws, accounting, etc.

The obligation to ensure compliance has been placed on the company appointing such independent directors as well as such directors themselves. There are several grey areas. The requirements themselves can be cumbersome and will only add to the burden and obligations independent directors are placed under.

My article in Moneylife goes into more details of these and related issues.

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CA Jayant Thakur

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