Government To Introduce Online Proficiency Test For Independent Directors
Trainees attend a class for the Government e Marketplace (GeM) website. (Photographer: Udit Kulshrestha/Bloomberg)

Government To Introduce Online Proficiency Test For Independent Directors

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In a significant step to bolster corporate governance standards, the government will introduce an online proficiency self-assessment test for independent directors from Dec. 1.

Indian Institute of Corporate Affairs, which comes under the corporate affairs ministry, would maintain a data bank of independent directors as well as conduct the proficiency test, according to notifications issued on Tuesday.

The requirement of test will not be applicable for certain categories of individuals, including those who have served for at least 10 years as director or key managerial personnel in a company.

Individuals, other than those exempted, have to pass the test within one year from the date of inclusion of their names in the independent directors’ data bank maintained by the IICA, as per the ministry.

In case of failure to pass the test, the name of the individual will be removed from the data bank. There will be no limit on the number of attempts for an individual to clear the test.

A senior ministry official said these are progressive steps that would enhance corporate governance standards as well as provide a sufficiently flexible framework to comply with.

Independent directors have a substantial role in ensuring good governance practices at corporates. In recent times, many individuals have come under the regulatory lens in connection with irregularities at companies where they were serving as independent directors.

Besides, a company has to provide a statement regarding opinion of its board over the integrity, expertise and experience, including proficiency, of an independent director appointed during a particular year.

Proficiency would be ascertained from the online test, as per a separate notification.

The test would cover “companies law, securities law, basic accountancy, and such other areas relevant to the functioning of an individual acting as an independent director”, the ministry said.

The institute will also prepare a basic study material, online lessons, including audio-visuals for easy reference of individuals taking the test. A panel, having up to 10 members including Corporate Affairs Secretary or his or her nominee, would approve the outline of the courses and the study material.

An individual needs to obtain a score of at least 60 percent in aggregate to pass the test.

A person who has been appointed as an independent director as on Dec. 1 should apply online to the institute for inclusion of his or her name in the data bank within three months.

Individuals who have served as director of key managerial personnel in a listed public company or in an unlisted public company having a paid-up share capital of at least Rs 10 crore will not be required to pass the test.

For calculating the ten-year timeframe, any period during which an individual was acting as a director or key managerial personnel in two or more companies at the same time will be counted only once.

The IICA will also maintain an online data bank. A reasonable fee would be charged from individuals who want to be part of the data bank as well as from companies for providing information to independent directors.

Among others, the institute would share details of the individuals included in the data bank on a daily basis.

Information about those applications for inclusion in the data bank that have been rejected as well as of individuals whose names have been removed from the data bank will also be shared with the ministry.

The data bank will have details about an individual’s Director Identification Number, Permanent Account Number, list of companies in which he or she is or was a director and nature of directorship, among others.

Applications can be made for inclusion in the data bank for one year, five years or life time.

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