Government Amends Norms For Appointment Of Directors

The government has put in place stricter norms for appointment of individuals from certain countries, including China, as directors on the boards of Indian companies, by making security clearance mandatory for such individuals.

In recent weeks, the corporate affairs ministry has made various amendments to rules in terms of applicability for companies and individuals from countries that share land borders with India.

Putting in place a stricter framework, the ministry has now mandated security clearance for individuals from countries sharing land borders with India to be appointed as directors on the boards of Indian companies.

Amendments have been made in rules pertaining to appointment and qualification of directors under the Companies Act, 2013.

"... In case the person seeking appointment is a national of a country which shares a land border with India, necessary security clearance from the Ministry of Home Affairs, Government of India shall also be attached along with the consent," the notification, dated June 1, said.

Besides, for such persons, the application number will not be generated when they apply for the Director Identification Number (DIN) unless the application is submitted along with necessary security clearance from the home ministry, as per the notification.

The latest move comes after the ministry, on May 20, made declaration in connection with FEMA mandatory for entities from such countries involved in amalgamations with Indian companies.

In this regard, the rules governing compromises, arrangements and amalgamations were amended.

On May 5, the ministry amended rules governing companies with respect to prior approval being mandatory for investments by entities and individuals from countries that share a land border with India.

Amendments were made with respect to rules for the prospectus and allotment of securities.

In April 2020, the Department for Promotion of Industry and Internal Trade (DPIIT) had issued Press Note 3 regarding foreign investments.

With the press note, the government had made its prior approval mandatory for foreign investments from countries that share land border with India to curb opportunistic takeovers of domestic firms following the coronavirus pandemic.

Countries which share land borders with India are China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan. As per the decision, FDI proposals from these countries need government approval for investments in India in any sector.