Independent directors: MCA gives additional one year timeline for clearing online self-assessment proficiency test

The Centre has introduced a new window for name restoration of those independent directors who were removed from a databank due to their not clearing the mandated online self-assessment proficiency test. Such independent directors have now been given an additional one year timeline to clear their self-proficiency test.

Under the newly-introduced procedure, any individual whose name has been removed from the independent directors databank can apply for restoration of his name on payment of fees of ₹1,000 and the Indian Institute of Corporate Affairs (IICA) should allow such restoration so long as certain conditions are met, the MCA has said.

The conditions include showing of his name in a separate restored category for one year from the date of restoration within which, he would be required to pass the online proficiency self-assessment test. His name can be included in the databank only if he passes the said online proficiency self assessment test. In case the person fails to pass the test within one year from the date of restoration, his name would be removed from the databank and he would be required to apply afresh for inclusion of his name in the databank.

It maybe recalled that MCA had in October 2019 mandated that independent directors will have to take up an online proficiency self-assessment test conducted by the IICA, if they are to get into or retain their Board positions.

The independent directors’ databank was jointly launched by MCA and IICA in December 2019. This databank aimed to strengthen the institution of independent directors, create a pool of skilled professionals and build an ecosystem for serving the existing independent directors, aspiring professionals and the companies.

Main criteria

As per the MCA’s specified framework, a candidate aspiring to become an independent director in Corporate India had to satisfy two main criteria — find a place in the databank and take an online self-assessment proficiency test. Directors — other than those exempted — have two years time — from the day they get into a IICA maintained databank — to pass the online self assessment proficiency test.

From time to time, MCA has been tweaking the norms around independent directors and previous rule change happened last year.

While mandating online self-assessment proficiency test for independent directors of companies, the MCA had, in October 2019 said those directors or key managerial personnel who had served over 10 years in a listed company or an unlisted company with over ₹10 crore paid-up capital need not take the online test.

Corporate observers said the latest MCA move may have been prompted by the fact that there were lot of people who did not clear examination within the two-year specified timeline and had to face name removal situation. IICA, which maintains the databank, is understood to have represented to MCA and now the latter has agreed to providing additional timeline for clearing the exams, they said.

Experts’ take

Ashok Haldia, former Secretary, Institute of Chartered Accountants of India (ICAI), said the dispensation would help those independent directors who for any reason are not able to clear the test in the first stance. It is a welcome move as these independent directors are experienced one and will get extra one-year window to pass the test, he added.

Atul Pandey, Partner, Khaitan & Co, a law firm, said the amendments introduced by the MCA in respect of the process pertaining to registration on the independent director database is intended to provide further procedural simplicity, particularly in cases where the intended director is unable to pass the online proficiency self-assessment test. Given the urgent requirement of India Inc for appointing Independent directors, the changes introduced by MCA are a welcome move, he added. 

Ashish Gupta, Partner, Chadha & Co, a law firm, said this move will help for inclusion of eligible candidates whose name has been removed from the databank due to non-passing of the proficiency test within the given timeframe.

Yashojit Mitra, Partner, Economic Laws Practice, said this amendment essentially allows the non-exempt individuals (by paying a nominal fee) an extra one year to take and pass the said online self-assessment test and by passing the test within this additional period, they can get their names restored and the fees paid by such individual at the time of initial registration shall continue to be valid.

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