The Ministry of Corporate Affairs (MCA) is weighing a proposal to necessitate registration for all independent directors in corporates. This would impact not only these directors but also corporate administrators and promoters who function as independent directors on other company boards. It’s important to understand that this registration process adds to the already existing Director Identification Number (DIN). A Know Your Customer (KYC) process had recently been incorporated into DIN. This new initiative by the MCA sprouts from past attempts to enforce a screening mechanism for independent directors, following several irregularities encountered by Indian companies such as IL&FS.
Understanding Independent Directors
An independent director is identified as a non-executive director who neither maintains any monetary relationship with the company, its advocates, top-level management or affiliate companies nor has been an executive within the same company in the past three financial years. Furthermore, such a director is not associated with the promoters or top-tier management.
Director Identification Number (DIN) Explained
This unique identifier, allotted by the Central Government, is designated to any person who intends to serve as a director, or is an existing director of a company. DIN, an 8-digit identification number, retains its validity throughout the person’s lifetime. This ID helps maintain a comprehensive database of details pertaining to the directors. One key aspect of DIN is that it remains specific to a person, implying that a director involved with multiple companies needs only one DIN. Even when such a director transitions from one company to another, the same DIN continues its validity.
Irregularities Leading to the Proposal
| Company | Issue | Action Taken |
|---|---|---|
| IL&FS | Faced a series of irregularities | MCA put in place a screening mechanism for directors |
| Other unnamed companies | Roles of various individuals came under scrutiny | MCA proposed the new registration process |
The MCA’s Proposed Registration Process
This proposed procedure by the MCA will mandate all independent directors to undergo this registration process. By virtue of their role as independent directors in other companies, even corporate administrators and promoters who are currently serving as executive directors on the board will be required to register.
