Appointment & Qualification of Directors Amendment Rules, 2022 – Analysis

The Ministry of Corporate Affairs (MCA) in a notification dated June 1, 2022, issued the Companies Amendment (Appointment and Qualification of Directors) Rules, 2022 to further amend the Companies (Appointment and Qualification of Directors) Rules, 2014. Under this rule, citizens from a country that shares a land border with India need security clearance from the government before being appointed as directors on the boards of Indian companies. It is important to note that the rule change is effective from June 1, 2022. This article will discuss the appointment & qualification of Directors.

Overview of Amendments to the Companies (Appointment and Qualification of Directors) Rules, 2022

If any person who is a national of a country sharing a land border with India (i.e. China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan) seeking an appointment in any Indian company must, on or before the appointment, obtain and attach the necessary security clearance from the Ministry of Home Affairs, Government of India along with his written consent to act as such in Form DIR-2.

Meaning of Companies (Appointment and Qualification of Directors) Amendment Rules, 2022

In 2020, the government placed all FDI from border countries under the approval route to curb opportunistic takeovers during the pandemic. These new 2022 rule changes were largely aimed at preventing Chinese investors from taking control of Indian companies.

Rule 8 amendment – Consent to act as a director

MCA inserted a new proviso to sub-rule (1) of rule 8 of the Companies (Appointment and Qualification of Directors) Rules, 2014 vide Amendment Rules, 2022

• Every person who has been appointed as a director must give written consent to the company to act as a director in Form DIR-2 at or before the appointment.
• The company will have to submit this consent to the registrar in form DIR-12 along with the fee as prescribed in the Companies (Registrations and Fees) Rules, 2014 within 30 days of the director’s appointment.

As per the Companies (Appointment and Qualification of Directors) Additional Rules, 2022, in case the person seeking appointment is a national of a country that shares a land border with India, he must have the necessary security clearance from the Ministry of Home Affairs, India governments also attach with consent.

Rule 10 amendment – Allotment of DIN

As per the Companies (Appointment and Qualification of Directors) Rules, 2014, to get a Director Identification Number (DIN), a company has to file Form DIR-3 on the MCA portal and pay the required amount of fees through the online mode. After successful payment of the form, the system will automatically generate an application number.

Now the MCA has said that no application number will be generated if the person applying for the Director Identification Number is a national of a country that shares a land border with India unless a security clearance is required from the Ministry of Home Affairs, Government of India was attached with the application for the director’s identification number.

Note: Before security clearance by the Ministry of Home Affairs, the Government of India is required to obtain a DIN from every person who is a national of a country that shares a land border with India.

Declaration details on form DIR-2 and DIR-3- amendment

Under the Companies (Appointment and Qualification of Directors) Amendment Rules 2022, a person appointed as a director of a company will be required to submit the following declaration:

• I am not required to obtain security clearance from the Ministry of Home Affairs, Government of India before applying for appointment as Director
• Before I apply for appointment as Director I have to obtain security clearance from the Ministry of Home Affairs, Government of India, and I have obtained the same and attached

Changes in details of the declaration on form DIR-3-
To obtain a DIN from the Ministry, the director will need to submit the following declaration:

• I am not required to obtain security clearance from the Ministry of Home Affairs, Government of India under Sub-Rule (1) of Rule 10 before applying for Director Identification Number
• I am 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 I have obtained the same and it is attached

Under the new rules, it will be mandatory for companies to seek permission from the government before appointing directors from countries sharing a land border to their boards.

Final words

While the First Amendment Rules impose an additional obligation to obtain a security clearance from the Ministry of Home Affairs on persons from countries sharing a land border with India, they are silent on the extent of discretion given to the MHA to grant such security clearance. The amendments are also likely to increase the delay in the appointment of these directors.