How can HR managers, compliance professionals and entrepreneurs become Independent Directors (IDs) on the board of a company?
What exactly does an ID do?
What are the eligibility criteria to become an ID?
What is the nature of the self-assessment test that the majority of IDs now need to clear?
How difficult is it to clear the test?
You may already know some of the answers, and at LawSikho, we will provide the rest – and much more – on how experienced professionals can become Independent Directors.
The basics
Just to give you some context: Section 149(4) of the Company Act 2013 provides that every listed public company must have at least one-third of the total number of directors as IDs.
For unlisted public companies, Rule 4 of The Companies (Appointment and Qualification of Directors) Rules, 2014, mandates that the following are required to appoint at least two Independent Directors:
- Companies with paid-up share capital of INR 10 crore or more, or
- Companies with turnover of INR 100 crore or more, or
- Companies with aggregate outstanding loans, debentures, and deposits exceeding INR 50 crore
Additionally, Section 150 of the Company Act prescribes the manner in which IDs are to be selected, and provides for a databank containing names, addresses and qualifications of persons who are eligible and willing to act as IDs.
Accordingly, the Ministry of Corporate Affairs and the Indian Institute of Corporate Affairs (IICA) have developed a databank of Independent Directors, after joining which an individual must clear the online self-assessment test.
What is the online self-assessment test?
The Companies (Appointment and Qualification of Directors) Fifth Amendment Rules 2019 require all existing IDs as well as professionals aspiring to become IDs to apply online to the IICA for registration in the databank.
All IDs thus registered must clear the online proficiency self-assessment test conducted by IICA within two years from the date of inclusion of their name in the databank.
Failing to pass the test within the stipulated period shall result in the removal of the individual’s name from the databank, though they may re-register for a small fee. But they will still need to clear the test as before.
A small group of individuals are exempt from the test, and a full list is available on the Independent Directors Databank website. Among them are those who at the time of registering their names are, or have been, for at least 10 years:
i. An advocate of a court; or
ii. In practice as a chartered accountant; or
iii. In practice as a cost accountant; or
iv. In practice as a company secretary
But the test is mandatory for all other professionals.
Scheme of the self-assessment test
Broad topics covered
- Companies Law
- Securities Law
- Basic Accountancy
- Corporate Governance
Of course, we will provide a detailed breakdown of these topics when required.
Marking scheme
Total marks – 100
Total number of MCQs – 50
Total test duration – 75 minutes
Marks assigned to each question – 2
Average time allotted to each question – 1.5 minutes
Break-up of questions
Board Essentials – direct questions
Board Practice – scenario-based questions
An individual who has obtained a score of not less than 60 per cent in aggregate in the self-assessment test shall be deemed to have passed the test. There is no limit to the number of attempts an individual may make to clear the self-assessment test.
What does it take to clear the test?
No matter what anyone tells you, the test is really not that difficult for a senior professional. Just scroll up and look at the syllabus again, or go through some of the key responsibilities of an ID:
- Seek appropriate clarification or amplification of information and, where necessary, take relevant professional advice from outside experts
- Participate constructively and actively in the committees of the Board in which they are chairpersons or members
- Ensure that any concerns about the running of the company or a proposed action are addressed by the Board, and insist that such concerns are recorded in the minutes of the Board meeting
- Stay well informed about the company and the external environment in which it operates
- Report concerns about unethical behaviour, actual or suspected fraud or violation of the company’s code of conduct or ethics policy
- Assist in protecting the legitimate interests of the company, shareholders and its employees
- Maintain secrecy regarding confidential information, including technologies, advertising and sales promotion plans, and price-sensitive information, unless such disclosure is approved by the Board or required by law
As compliance professionals, entrepreneurs, or HR professionals, many of you have probably already performed some of these duties, and have first-hand experience of the subjects in the syllabus. All you need now is to channelise your learnings and experience in a focused manner, which we will help you with.
Life as an Independent Director is not just immensely prestigious, but financially rewarding too. The job also offers a healthy work-life balance, and a chance for you to put your cross-functional experience to excellent use.
All you need is some guidance and help in clearing the self-assessment test, which we are happy to provide. I invite you to connect with us by contacting our counsellors on +91 98186 78383 (10.00 am-8.00 pm IST) or emailing us at counselling@lawsikho.in, to know more.