Quick Review on Revised DIR-2 Format

The Ministry of Corporate Affairs has recently amended the Companies (Rules for Appointment and Qualification of Directors) and a new notification has come out which will be effective from 1st June 2022, The notification hereby states that if any individual who wishes to obtain an appointment in Indian companies and that individual belongs to a particular nation that shares the land border of India, then the individual must obtain a security clearance certificate from the Ministry of Home Affairs to act as a director. We will discuss the updated format of Form DIR-2.

Quick Look

The Ministry of Corporate Affairs (MCA) revised the Companies (Appointment and Qualification of Directors) Rules, 2014, and notified the Companies (Appointment and Qualification of Directors) Amendment Rules, 2022 in its notice number. G.S.R. 410(E) dated 01.06.2022. 

As a precautionary step, the MCA would limit the provisions for Director Appointment to any such person to be appointed in the company who is a national of a country with a land border with India (namely China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan) Along with the permission form, the requisite SECURITY CLEARANCE from the Ministry of Home Affairs, Government of India, should be included for such an appointment.

If this is not done, the following effects will occur: For such a person applying for DIN, no application number will be created (Director Identification Number)

Directors of the company

The term “directors” refers to the portion of the board of directors charged with the oversight, management, and control of the company’s operations. Directors serve as stewards of the company’s assets and funds and also act as agents in transactions on behalf of the company.
Section 149 of the Companies Act, 2013 defines the number of directors.

• At least two directors must be present in every Limited Liability Partnership.
• A maximum of 15 directors in a company can be appointed.
• After passing a special resolution at a general meeting, a company can choose more than 15 directors without the approval of the government.

What is DIR-2?

Any individual seeking to become a director must provide a declaration of appointment and qualification in Form DIR-2. Form DIR-2 is consent to act as a director of the proposed company. It contains DIN/PAN details, name, address, contact details, and occupation details of each director of the company. It is a mandatory attachment while filing SPICe INC-32 on the MCA portal.

Key Amendments

The Ministry of Corporate Affairs (MCA) has included this amendment in the Companies (Appointment and Qualification of Directors) Amendment Rules, 2022, which will be effective on June 1, 2022.

The three key changes to the Rules are as follows:

• • The first proviso of Rule 8: The first proviso of Rule 8 states that, in addition to the consent of the person seeking appointment as a director on the board of a company, necessary security clearance from the MHA, the Government of India, is required if the person is from any of the countries listed above, i.e., sharing a land border with India.
  • Rule 10: No application for a Director Identification Number (DIN) would be created if the individual is from a nation that shares a land border with India unless accompanied by a security clearance from the Ministry of Home Affairs, Government of India.
  • New Declaration/Verification Annexure Form DIR 2 & DIR 3 Insertion:

‘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…’

Impacts of the amendment made in the Companies (Appointment and Qualification of Directors) Amendment Rules, 2022

The following are the impact of changes made in the Rules:

• The rules are primarily intended to limit Chinese takeovers in India. According to MCA data, there are around 490 foreign citizens registered as directors in Indian corporations, with China accounting for 30% of the total.
• This improves security, particularly in light of Chinese influence and companies’ capacity to take over foreign companies.
• This would provide an extra layer of scrutiny and inspection for Chinese enterprises operating in India through subsidiaries, keeping them under check.
• Stop other surrounding countries from gaining unwarranted control over Indian businesses.
• Restriction on the flow of private equity from Hong Kong, a Chinese-controlled region.

Revised format of DIR-2 with Declaration

Pursuant to section 152(5) and rule 8 of Companies (Appointment and Qualification of Directors) Rules, 2014. Following is the revised format of DIR-2:

To

Name of the company

Subject: Consent to act as a Director 

I, (Name), hereby give my consent to act as Director of (Name of the company) pursuant to sub-section (5) of section 152 of the Companies Act, 2013 and certify that I am not disqualified from becoming a director under the Companies Act, 2013.

Director Identification Number (DIN):

Name (in full):

Father’s Name (in full):

Permanent Address:

E-mail id:

Mobile no.:

PAN No.:

Occupation:

Date of birth:

Nationality:

No. of companies in which I am already a Director and out of such companies the names of the companies in which I am a Managing Director, Chief Executive Officer, Whole-time Director, Secretary, Chief Financial Officer, and Manager.

Particulars of membership No. and Certificate of practice No. if the applicant is a member of any professional Institute. Specifically, state NIL if none. 

• Declaration

I declare that I have not been convicted of any offense in connection with the promotion, formation, or management of any company or LLP and have not been found guilty of any fraud or misfeasance or any breach of duty to any company under this Act or any previous company law in the last five years. I further declare that if appointed my total Directorship in all the companies shall not exceed the prescribed number of companies in which a person can be appointed as a Director.

I further declare that –

I am not required to obtain a security clearance from the Ministry of Home Affairs, Government of India before seeking an appointment as director;

Signature:…………………

Designation: Director

Date:

Place:

Attachments:

Proof of identity;

Proof of residence;

Security clearance Certificate

Changes in the DIN (Director Identification Number) 

• To get a Director Identification Number (DIN), a firm has to register Form DIR-3 on the MCA portal and pay the required fees through the online mode as per the Companies Rules, 2014.
• After successfully filling out the form, the system will generate an application number for you.
• Any person who is a national of a country that has a land border with India must obtain a DIN before receiving security clearance from the Ministry of Home Affairs.
• Directors are required to attach a security clearance from the Ministry of Home Affairs, Government of India,

Declaration to the Ministry

The Director must give the following declaration to the Ministry to obtain a DIN:

I am not required to apply for security clearance from the Ministry of Home Affairs, Government of India before applying for Director Identification Number (DIN).
Before I apply for a director identification number, I have to obtain security clearance from the Ministry of Home Affairs, Government of India as required by the amendments on appointment and director qualification in rule 10 which I have completed and attached.

Note: Companies must obtain government approval before appointing directors from countries that share a land border with their boards under the new guidelines.

Final words

If any person taking an appointment in any company of Indian origin is a national of a country that shares a land border with India (i.e. Bangladesh, Myanmar, Pakistan, China, Bhutan, Nepal, and Afghanistan), they must obtain and attach the necessary security permission from the Ministry of Home Affairs, Government of India along with his written consent to act as such in Form DIR-2 at or before his appointment.
Legal Window may assist you with the appointment of the Company’s Director simply by following specific processes, offering the most acceptable support, fast delivery, and ensuring maximum customer satisfaction. You may reach us at 072407-51000 or by email at admin@legalwindow.in.