India: Amendment to Appointment and Qualification of Directors

August 23, 2018


Although, a company is an artificial person having its independent existence distinguished from its members, the affairs of the company are monitored and regulated by its management which is the board of directors who act as its brain. These directors are designated with numerous powers including power to make calls for shareholders with respect to money unpaid on their shares, authorization of securities buy-back, issue of debentures, borrowing money, investment of funds, grant of loans, diversification of business, corporate restricting, etc.

Directors act as the trustee as well as agent of the company which has appointed them. It is important for them to act with reasonable care with due-diligence exercising their skill. Owing to the vital roles played by the directors in running of the company, it is necessary that they are appropriately qualified for the said position. Section 164 of the Companies Act, 2013 lays down the basic criteria stating the eligibility requirements for a director in the company namely-

  • Possession of Director Identification Number (“DIN”);
  • Soundness of mind;
  • Solvency of financial status;
  • No past record of any conviction or imprisonment (min 6 months) within the last 5 years;
  • No order of Tribunal disqualifying the appointment as director;
  • Non-payment of unpaid amount on shares held.

The Ministry of Corporate Affairs issued the Companies (Appointment and Qualification of Directors) Fourth Amendment Rules, 2018 on July 5, 2018, effective from July 10, 2018, in order to amend the Companies (Appointment and Qualification of Directors) Rules, 2014. The amended provisions are stated below:

  • In addition to the process of cancellation or surrender or deactivation of DIN, the Central Government or Regional Director (Northern Region), or any officer authorised by the Central Government or Regional Director (Northern Region) shall have the power to deactivate the DIN, of an individual who does not intimate his particulars in e-form DIR-3-KYC within stipulated time in accordance with Rule 12A. [Rule 11(2)]
  • The revised provisions allow for the de-activated DIN to be re-activated only after e-form DIR-3-KYC is filed along with fee as prescribed under Companies (Registration Offices and Fees) Rules, 2014 in addition to the requirements of cancellation or surrender or deactivation of DIN. [Rule 11(2)]
  • A new provision Rule 12A has been inserted whereby every individual who has been allotted a DIN as on 31st March of a financial year, as per these rules shall, submit e-form DIR-3-KYC to the Central Government on or before 30th April of immediate next financial year. Provided that every individual who has already been allotted a Director Identification Number (DIN) as on 31st March 2018, shall submit e-form DIR-3 KYC on or before 31st August 2018.
  • In the Annexure after Form DIR-3 i.e. KYC form details of the director along with his verification in the said regard are to be included.

The new amendments aim to ensure the appointment of directors having fulfilled the requisite needs in respect of the DIN.

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