Companies being artificial legal entities having an existence distinguished from its members is managed and controlled by a panel of personnel who act as its brain and are known as its Directors. Holding a vital position in running of the company being trustees as well agents for them, the directors are enumerated with numerous powers including power to make call for on shareholders in respect of 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. These experts with customized and meticulous planning and capabilities, work towards the aim of maximizing the profits of the company while exercising reasonable care and due-diligence.
Appointment of Directors
The Companies Act, 2013 (hereinafter referred to as the “Act”) lays down the criteria of eligibility for the appointment of a person as the director of a company. The Section 164 of the Act states, in order to be a director, a person should be of sound mind, solvent, possessing Director Identification Number in the past 5 years not be convicted of any offence or sentenced for at least 6 months, not disqualified by any Court/ Tribunal.
Director Identification Number
According to the provisions of Section 154 of the Act, no company shall appoint any individual as a director unless he has been allotted a Director Identification Number (hereinafter referred to as “DIN”). Existing as well as aspiring directors are mandatorily required to apply to the central Government to obtain this unique number after fulfilling the requisites of the prescribed form.
KYC for Directors
In order to ensure proper identification of the directors and avoid risk against illegal transactions, the Ministry of Corporate Affairs (hereinafter referred to as “MCA”) has taken recourse to Know Your Client (hereinafter referred to as “KYC”) mechanism. The MCA is in the process of conducting KYC for all directors of all companies via its form ‘DIR-3 KYC’. The directors would be required furnish information such as personal mobile number, email address, digital signature, etc. for the submission of the said form.
With a view to facilitate the process of compliance, the Government has provided the extension of the date for the submission of the aforesaid form at a reduced fee of INR 500 from September 21, 2018 till October 5, 2018 post which the directors would be required to pay an escalated fee of INR 5,000 while providing KYC. The MCA has already initiated the process of deactivation of DIN for many directors and the aforesaid provision acts as an opportunity for the revival of such deactivated DIN.
While the MCA has adopted for stricter measures aiming to prevent any illegal transactions to be carried out through false DINs, KYC compliance regulations help in clear identification of bona-fide directors indicating their obedience to the law.