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

The Ministry of Corporate Affairs (MCA) vide a notification dated 1st June 2022 has issued the Companies (Appointment and Qualification of Directors) Amendment Rules, 2022 to further amend the Companies (Appointment and Qualification of Directors) Rules, 2014. According to this rule, citizens from the national of a country that shares a land border with India need security clearance from the government before they are appointed as directors on boards of Indian companies. It is important to note that the amendment rules are made effective from 1st June 2022. Know more about the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022

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

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

What is the DIR-2 Form?

DIR-2 is a crucial form for anyone aspiring to become a director of a company in India. It serves as a declaration of your willingness and eligibility to take on this role. As mandated by the Companies Act of 2013, this form must be issued and signed by all individuals seeking to assume the position of director in a company.

DIR 2 Format

Below, we have attached the format of the DIR 2 Form.

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

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

Amendment in Rule 8 - Consent to Act as Director

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

Every person who has been appointed to hold the office of a director needs to furnish a consent in writing to act as Director in Form DIR-2 to the company on or before the appointment
The company will have to file such consent with the Registrar in Form DIR-12 along with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014, within 30 days of the appointment of a director

As per the Companies (Appointment and Qualification of Directors) Amendment Rules, 2022, in case the person seeking appointment is a national of a country that 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.

Amendment in Rule 10 - Allotment of DIN

As per the Companies (Appointment and Qualification of Directors) Rules, 2014, to obtain the Director Identification Number (DIN), the company needs to file Form DIR-3 on the MCA portal and have to pay the requisite amount of fees through online mode. On successful payment of the Form, an application number shall be generated by the system automatically. Now, MCA stated that no application number shall be generated in case of the person applying for a Director Identification Number is a national of a country that shares a land border with India, unless necessary security clearance from the Ministry of Home Affairs, Government of India has been attached along with an application for Director Identification Number. Note: Before security clearance from the Ministry of Home Affairs, the Government of India is compulsory to obtain a DIN by any person who is a national of a country that shares a land border with India.

Amendment in Declaration Details of Form DIR-2 & DIR-3

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

I am not required to obtain a security clearance from the Ministry of Home Affairs, Government of India before seeking appointments as a director
I am required to obtain a security clearance from the Ministry of Home Affairs, Government of India before seeking appointments as director, and the same has been obtained and attached

Amendment in Declaration Details of Form DIR-3 To obtain the DIN from the Ministry, the director will have to provide the following declaration:

I am not 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 the director identification number
I am required to obtain the security clearance from the Ministry of Home Affairs, Government of India under sub-rule (1) of rule 10 before applying for a director identification number, and the same has been obtained and is attached

According to the new rules, it will be mandatory for companies to seek clearance from the government before appointing directors from land-border sharing nations on their boards. You can do Company or DIN search through IndiaFilings.

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Frequently Asked Questions

Common questions about Companies Director Appointment Rules 2022: MCA Guidelines.

The Companies (Appointment and Qualification of Directors) Amendment Rules, 2022 is a notification issued by the Ministry of Corporate Affairs (MCA) on 1st June 2022, amending the Companies (Appointment and Qualification of Directors) Rules, 2014. It mandates that citizens from countries sharing a land border with India need to obtain security clearance from the Ministry of Home Affairs before being appointed as directors on the boards of Indian companies.

This amendment was largely aimed at preventing opportunistic takeovers of Indian companies by Chinese investors during the pandemic. In 2020, the government had placed all Foreign Direct Investment (FDI) from border countries under the approval route to curb such takeovers.

The countries that share a land border with India and are covered under this amendment are China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan.

Form DIR-2 is a crucial form that individuals seeking appointment as directors in an Indian company must submit. It serves as a written consent and declaration of eligibility to take on the role of a director, as mandated by the Companies Act, 2013.

According to the amendment, no application number for a DIN shall be generated if the applicant is a national of a land border sharing country, unless they have obtained and attached the necessary security clearance from the Ministry of Home Affairs.

In Form DIR-2, the applicant must declare whether they require security clearance from the Ministry of Home Affairs before seeking appointment as a director. In Form DIR-3 (for obtaining a DIN), the applicant must declare whether they require security clearance under Rule 10 before applying for a DIN.

As per the amendment, a company must file the director's consent in Form DIR-12, along with the prescribed fees, with the Registrar within 30 days of the director's appointment.

The purpose of obtaining security clearance is to prevent foreign nationals from potentially hostile countries from acquiring control or influence over Indian companies, which could pose a threat to national security or economic interests.

The amendment does not mention any exceptions to the security clearance requirement for directors from land border sharing countries. It appears to be a blanket requirement for all such individuals seeking appointment as directors in Indian companies.

This amendment is in line with the government's stance of scrutinizing and regulating foreign investments, particularly from neighboring countries with potential security risks, to protect India's national interests. It reflects the government's cautious approach towards foreign investments in sensitive sectors or from countries with strained relations.