Amended and updated notes on section 150 of Companies Act 2013. Detail discussion on provisions and rules related to manner of selection of independent directors and maintenance of databank of independent directors.
Chapter XI (Sections 149–172) of the Companies Act, 2013 (CA 2013) deals with the provisions related to appointment and qualifications of directors. Section 150 of CA 2013 provides for manner of selection of independent directors and maintenance of databank of independent directors.
Recently, we have discussed in detail section 149 (Company to have Board of Directors) of CA 2013. Today, we learn the provisions of section 150 of Companies Act 2013.
The provisions of section 150 are effective from 1-April-2014. You may refer Notification No. S.O. 902(E) issued dated 27-03-2014. In this article, you will learn detail of the provisions of section 150 of the Companies Act 2013 read with the Companies (Appointment and Qualification of Directors) Rules, 2014.
The provisions related to the manner of selection of independent directors from data bank has been newly introduced in the Companies Act, 2013. There was no such provision in the Companies Act, 1956 on the manner of selection of independent directors and the creation and maintenance of data base in respect of such directors.
Clause (47) of section 2 of the Companies Act, 2013 (CA 2013) defines independent director which means an independent director referred to in sub-section (5) of section 149. According to the provisions of section 150(1) of CA 2013, an independent director may be selected from a data bank subject to the provisions contained in section 149(5) of CA 2013.
The data bank of independent directors shall be maintained by any body, institute or association, as may by notified by the Central Government, having expertise in creation and maintenance of such data bank and put on their website for the use by the company making the appointment of such directors.
Such data bank shall contain names, addresses and qualifications of persons who are eligible and willing to act as independent directors. As per section 150(3) of the CA 2013, the data bank of independent directors shall create and maintain data of persons willing to act as independent director in accordance with such rules as may be prescribed.
However, the responsibility of exercising due diligence before selecting a person from the data bank as an independent director shall lie with the company making such appointment.
Note that the appointment of independent director shall be approved by the company in general meeting as provided in section 152(2) of CA 2013. The explanatory statement annexed to the notice of the general meeting called to consider the said appointment shall indicate the justification for choosing the appointee for appointment as independent director.
The Central Government may prescribe the manner and procedure of selection of independent directors who fulfil the qualifications and requirements specified under section 149.
| Name of Act | The Companies Act 2013 |
|---|---|
| Enacted by | Parliament of India |
| Administered by | Ministry of Corporate Affairs (MCA) |
| Number of Chapters | 29 |
| Number of Sections | 484 (470-43+57) |
| Number of Schedules | 7 |
| You are reading: | |
| Chapter No. | XI |
| Chapter Name | Appointment and Qualifications of Directors |
| Section No. | 150 |
| Section Name | Manner of selection of independent directors and maintenance of databank of independent directors |
| Monthly Updated Edition | Company Law PDF |
Creation and Maintenance of databank for Independent Directors
The creation and maintenance of databank of persons offering to become independent directors has now been prescribed in Rule 6 of the Companies (Appointment and Qualification of Directors) Rules, 2014.
1) Creation of Databank by Agency:
Any body, institute or association (the agency), which has been authorised in this behalf by CG shall create and maintain a data bank of persons willing and eligible to be appointed as independent director and such data bank shall be placed on the website of the Ministry of Corporate Affairs (MCA) or on any other website as may be approved or notified by the Central Government.
2) Details of Persons in Databank:
The data bank referred to in sub-rule (1) shall contain the following details in respect of each person included in the data bank to be eligible and willing to be appointed as independent director-
- a) DIN (Director Identification Number);
- b) the name and surname in full;
- c) income-tax PAN;
- d) the father’s name and mother’s name and Spouse’s name (if married);
- e) the date of Birth;
- f) gender;
- g) the nationality;
- h) the occupation;
- i) full Address with PIN Code (present and permanent);
- j) phone number;
- k) e-mail id;
- l) the educational and professional qualifications;
- m) experience or expertise, if any;
- n) any legal proceedings initiated or pending against such person;
- o) the list of limited liability partnerships in which he is or was a designated partner along with –
- i) the name of the limited liability partnership;
- ii) the nature of industry; and
- iii) the duration- with dates;
- p) the list of companies in which he is or was director along with –
- i) the name of the company;
- ii) the nature of industry;
- iii) the nature of directorship – Executive or Non-executive or Managing Director or Independent Director or Nominee Director; and
- iv) duration – with dates.
3) Due Diligence by Company:
A disclaimer shall be conspicuously displayed on the website hosting the databank that a company must carry out its own due diligence before appointment of any person as an independent director and the agency maintaining the databank or the Central Government shall not be held responsible for the accuracy of information or lack of suitability of the person whose particulars form part of the databank.
4) Application Form DIR-1:
Any person who desires to get his name included in the data bank of independent directors shall make an application to the agency in Form DIR-1.
5) Fee for name inclusion:
The agency may charge a reasonable fee from the applicant for inclusion of his name in the data bank of independent directors.
6) Updating Data Bank:
Any person who has applied for inclusion of his name in the data bank of independent directors or any person whose name appears in the data bank, shall intimate to the agency about any changes in his particulars within fifteen days of such change.
7) Website for Data Bank:
The databank posted on the website shall –
- a) be accessible at the specified website;
- b) be substantially identical to the physical version of the data bank;
- c) be searchable on the parameters specified in sub-rule (2);
- d) be presented in a format or formats convenient for both printing and viewing online; and
- e) contain a link to obtain the software required to view or print the particulars free of charge.
Section 150 of Companies Act 2013: Manner of selection of independent directors and maintenance of databank of independent directors
Section 150 shall come into force on 1st April, 2014 vide Notification No. S.O. 902(E) issued dated 27.03.2014.
(1) Subject to the provisions contained in sub-section (5) of section 149, an independent director may be selected from a data bank containing names, addresses and qualifications of persons who are eligible and willing to act as independent directors, maintained by any body, institute or association, as may by notified by the Central Government, having expertise in creation and maintenance of such data bank and put on their website for the use by the company making the appointment of such directors:
Provided that responsibility of exercising due diligence before selecting a person from the data bank referred to above, as an independent director shall lie with the company making such appointment.
(2) The appointment of independent director shall be approved by the company in general meeting as provided in sub-section (2) of section 152 and the explanatory statement annexed to the notice of the general meeting called to consider the said appointment shall indicate the justification for choosing the appointee for appointment as independent director.
(3) The data bank referred to in sub-section (1), shall create and maintain data of persons willing to act as independent director in accordance with such rules as may be prescribed.
(4) The Central Government may prescribe the manner and procedure of selection of independent directors who fulfil the qualifications and requirements specified under section 149.
Exception/ Modification/ Adaptation:
1) In case of Section 8 (Non-profit) Companies, section 150 shall not apply. – Notification No. G.S.R. 466(E) dated 5th June, 2015.
Note that by exercising the power u/s 150(1), the CG notifies (w.e.f. 1-Dec-2019) the Indian Institute of Corporate Affairs at Manesar (Haryana), as an institute to create and maintain a data bank containing names, addresses and qualifications of persons who are eligible and willing to act as independent directors, for the use of the company making the appointment of such directors. – Notification No. S.O. 3791(E) dated 22nd October, 2019.