Independent directors will now have to take proficiency test

K.R.Srivats New Delhi | Updated on October 23, 2019 Published on October 23, 2019

Online proficiency self assessment test mandated for all independent directors in companies


Independent directors of companies will now have to take up an online proficiency self-assessment test conducted by the Indian Institute of Corporate Affairs, if they are to get into or retain their Board positions.

Boards of companies have in their reports to shareholders stressed on the "integrity, expertise and experience (including the proficiency) of the independent directors,” the Corporate Affairs Ministry (MCA) has ruled.

To opine on the 'proficiency', the Board will have to be guided by the 'proficiency' ascertained from the online test conducted by the IICA, the MCA has said.

However, those who have served more than ten years as a director or a key managerial personnel in a listed or an unlisted company with over ₹10 crore paid up capital need not take this online test, the MCA has said.

All existing directors will have one year’s time — from the day they get into a IICA maintained databank— to go through the online test.

Simply put, it appears that one’s eligibility to be an independent director now rests on two main criteria — finding a place in the databank and taking an online test, S.N.Ananthasubramanian, Past President of ICSI and practising company secretary told BusinessLine.

It remains to be seen how corporate India would respond to the proposed new test for independent directors.

Given the current uncertain business environment, many independent directors have resigned and not too many may opt for such test-driven directorships, Ananthasubramanian said.

The online self-assessment test would cover company law, securities law, basic accountancy, and such other areas relevant to the functioning of an individual acting as an independent director.

Commenting on the latest MCA move, Sandeep Jhunjhunwala, Director, Nangia Andersen LLP said:"These amendments portray progressive steps towards the evolving corporate governance standards in India. So far, the qualification requirement for being an independent director has been very open ended and opens gate for almost anyone to become one. The proficiency tests mandated under the new rules would now ensure that such independent directors are equipped with contemporaneous domain expertise and can hence act in the best of their knowledge. The inclusion of statement regarding opinion of the Board with respect to integrity, expertise, experience and proficiency of appointed independent directors is commendable too and would ensure fair disclosures to the shareholders on the capabilities on such independent directors".

Vaibhav Kakkar, Partner, L&L Partners, said: "The recent amendment mandating qualification of an online proficiency self-assessment test based on aspects pertaining to companies law, securities law, basic accountancy, for being eligible to be appointed as an independent director appears to be enacted in the backdrop of recent instances of corporate frauds and corporate governance lapses faced by companies despite the presence of independent directors who play a critical role in governance of company. Unless accompanied by effective training programs, the impact of this proficiency test based qualification criteria for independent directors in contributing towards increasing the standards for corporate governance and overall development of securities market remains to be seen."

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Published on October 23, 2019
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