| MCA tightens provisions regarding the appointment of an individual from neighboring countries as a Director in an Indian company |
On 1 June 2022, the Ministry of Corporate Affairs (MCA) notified certain amendments to the various provisions of the Companies Act, 2013 (Act) and Rules made thereunder. The amendments tighten the provisions regarding the appointment of an individual from neighboring countries as a Director in an Indian company.
The notification has become effective from 1 June 2022. The gist of the amendment is summarized below:
| Amendment |
Comments |
The following proviso is added after Rule 8 of the Companies (Appointment and Qualification of Directors) Rules, 2014:
"Provided further that in case the person seeking appointment is a national of a country which shares a land border with India, necessary security clearance from the Ministry of Home Affairs, Government of India shall also be attached along with the consent." |
- Pursuant to an amendment, a person who is a national of a country that shares a land border with India and seeking an appointment as a Director in an Indian company has to procure necessary security clearance from the Ministry of Home Affairs.
- Copy of such clearance is required to be attached with his consent given to the Company in Form DIR-2.
|
The following proviso is added after Rule 10 (1) of the Companies (Appointment and Qualification of Directors) Rules, 2014:
"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 a land border with India, unless necessary security clearance from the Ministry of Home Affairs, Government of India has been attached along with an application for Director Identification Number." |
- The amendment also restricts a person (who is a national of a country that shares a land border with India) from making an application for obtaining a director identification number unless necessary security clearance from the Ministry of Home Affairs is obtained.
- Furthermore, a security clearance certificate from the Ministry of Home Affairs, Government of India, shall be attached to Form DIR-3.
|
Inserting additional declaration in Form DIR-2 (consent to act as Director) and in Form DIR-3 (application for DIN)
|
- The amendment has inserted a declaration in Form DIR -2 to the effect that:
- I am not required to obtain a security clearance from the Ministry of Home Affairs, Government of India before seeking appointment as Director; or
- I am required to obtain a security clearance from the Ministry of Home Affairs, Government of India, before seeking an appointment as Director and the same has been obtained and is attached.
- The amendment has inserted a declaration in Form DIR -3 to the effect that:
- I am not required to obtain a 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 a director identification number and the same has been obtained and is attached.
|
|
|
Our Comments
Recently, MCA has brought in provisions with an intent to keep a check on investments from shareholders from countries sharing a land border with India. That was done in furtherance of Press Note 3 of 2020 issued in relation to the FDI Policy by the Central Government. The present amendments in relation to restrictions on the appointment of a person from such countries as a Director in an Indian company are a step further and are more stringent in nature. The intent behind the amendment seems to curb the situation where Indian companies may be 'controlled' if not by shareholding but by having the majority of the directors who de facto control the affairs of the company.
|
|
|
|
