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GOVT. AMENDS NORMS FOR DIRECTOR APPOINTMENT – SECURITY CLEARANCE MUST

The Ministry of Home Affairs (MHA) has put in place a stricter framework and norms by directing mandatory security clearance for Individuals from countries sharing land borders with India to be appointed as directors on the board of Indian Companies.

The Ministry of Corporate Affairs (MCA) vide Gazette Id no. CG-DL-E-01062022-236214 & F.No.1/22/2013-CL-V dated 01st June, 2022 has issued “the Companies (Appointment and Qualification of Directors) Amendment Rules, 2022” further to amend the Companies (Appointment and Qualification of Directors) Rules, 2014.

It is applicable from the date of its publication in the Official Gazette i.e., 01st June,2022. Amendments have been made in relevant rules pertaining to appointment and qualification of directors under the Companies Act, 2013.

What has Changed?

The Rule 8 has been amended by inserting the proviso: “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.”

In Rule 10, the following proviso has been inserted: “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.”.

What’s the likely impact?

With effect from 01st June,2022, any citizen from the nations that share land border with India like China, Bangladesh, Pakistan, Bhutan, Nepal & Myanmar, must seek security clearance from the Ministry of Corporate Affairs, Government of India in case, if they are willing to get appointed on the Board of any Indian Company.

This is said to be one of the most foresightful initiative taken up by the Govt to curb the backdoor access by Chinese Companies or their Investors including subsidiaries in India, who were finding alternative ways to pass over the April 2020 restrictions on foreign investments from neighbouring countries.

 As a result of this amendment, from now onwards no application number can be generated in case of person applying for Director Identification Number (DIN) which shares land border with India, unless necessary security clearance from the Ministry of Home Affairs, Govt. of India has been attached along with DIN application. Furthermore, the necessary corresponding declaration checkbox has been inserted in Spice+ Part B form for Incorporation and Form DIR-3.

The Directors are now required to sign a declaration and verification as stated in the circulars issued by MCA for ensuring the effective compliances are done.

According to the various reports and data from the Ministry of Corporate Affairs, around 490 foreign nationals are registered as Active Directors in India in the month of February, 2022.

Disclaimer:  Every effort has been made to avoid errors or omissions in this material. In spite of this, errors may creep in. The content of this article is intended to provide a general guide to the subject matter. It is not intended to constitute, and should not be taken as, legal advice. The readers are advised to consult competent professionals in their own judgment before acting on the basis of any information provided hereby. We shall not have any obligations or liabilities towards any acts or omission of any reader(s) consequent to any information contained in this article.

Deepak Sharma
Proprietor at Sharma D & Co. Chartered Accountants

The Author can be reached via mail at connectcadeepaksharma@gmail.com.

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