Amendment in the Companies Rules, 2014:
Security Clearance Mandated For Foreign Director Appointments
The Ministry of Corporate Affairs (MCA) in its effort to further regulate the appointment of foreign directors of companies situated in India, has amended the Companies (Appointment and Qualification of Directors) Rules, 2014 (“Rules”), to be effective from 1st June 2022, and shall affect the board of any Indian company having directors from a country that shares a land border with India (i.e., China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan). The key highlights of the amendment are as follows:
I. Security Clearance (Rule 8)
Under Rule 8 of the Rules, the following proviso has been inserted:
“Provided further that in case the person seeking appointment is a national of a country which shares land border with India, necessary security clearance from the Ministry of Home Affairs, Government of India shall also be attached along with the consent.”
Impact:
(i) Person having a nationality of a country sharing border with India and intending to be appointed as a director of an Indian company, shall mandatorily obtain a security clearance on or before his/her appointment/ re-appointment, from the Ministry of Home Affairs, Government of India.
(ii) The required security clearance shall be accompanied with the person’s consent in writing to act as a director under Form DIR-2, for the purpose of appointment / re-appointment.
II. Directors Identification Number [Rule 10 (1)]
Under Rule 10(1) of the Rules, the following proviso has been inserted namely:
“Provided that no application number shall be generated in case of the person applying for Director Identification Number is a national of a country which shares land border with India, unless necessary security clearance from the Ministry of Home Affairs, Government of India has been attached along with application for Director Identification Number.”
Impact:
(i) No Directors Identification Number (DIN) shall be generated unless prior security clearance is obtained from the Ministry of Home Affairs, Government of India, is obtained and attached to the DIN application.
III. Self-Declaration:
A self-declaration shall be attached by the director from the countries mentioned hereinabove, and in FORM DIR-2 under the head Declaration, the existing paragraph shall be numbered as paragraph (i), and thereafter, paragraph (ii) shall be inserted, which shall entail the following:
“(ii) I further declare that –
I am not required to obtain the security clearance from the Ministry of Home Affairs,
Government of India before seeking appointment as director; _______ or
I am required to obtain the security clearance from the Ministry of Home Affairs, Government of India before seeking appointment as director and the same has been obtained and is attached __________”;
(B) in FORM NO. DIR-3, under the heading Verification, after serial number 3, the following serial number shall be inserted, namely:-
“3A. I am not required to obtain the security clearance from the Ministry of Home Affairs, Government of India under sub-rule (1) of rule 10 before applying for director identification number; _______ or
I am required to obtain the security clearance from the Ministry of Home Affairs, Government of India under sub-rule (1) of rule 10 before applying for director identification number and the same has been obtained and is attached. _________ ; and”
IMPACT OF THE AMENDMENT:
The amendment shall hereby, increase the level of scrutiny over the appointment of directors from countries such as China (including Hong Kong), Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan. In comparison, earlier the directors were only required to submit a consent to take their appointment forward. However, this amendment shall mandate procuring prior clearance from the Indian Government to be appointed as a Director of an Indian company.