Section 150- Manner of Selection of independent directors and maintenance of databank

Updated: May 9

Section 150 of Companies Act,2013- Manner of Selection of independent directors and maintenance of databank of independent directors

This section specifies that:

  1. the database (databank) shall be created by any agency as prescribed by the government

  2. the databank shall have details of individuals like name, address, etc.

  3. the company should approve the appointment of an independent director in a general body meeting along with an explanatory statement mentioning the reason for the appointment and the eligibility of the individual.

  4. the agency should follow all the prescribed rules to create and maintain the databank.

  5. the central government may if necessary, prescribe a procedure for the selection of independent directors.

Rule 6 of the Companies (Appointment and Qualification of Directors) Rules, 2014 specifies rules for the creation and keeping of a database( databank) of individuals seeking to become independent directors.

1) Creating databank:

Any group, institute, or organization (the agency), which has been authorized for this purpose by the central government shall form and keep a data bank of individuals seeking and competent to be assigned the post of independent director and it should be posted on the official website of the Ministry of Corporate Affairs (MCA) or any other website as may be notified and approved by the Central Government.

2) Details of Individuals in Databank:

The data bank should comprise the following information of individuals seeking to be appointed as independent directors:

  • Name of the individual along with identity proof;

  • Address of the individual along with proof of residence; and

  • Qualifications and previous experience of the persons along with necessary proofs.

3) Due Diligence:

A disclaimer should be prominently displayed on the notified website posting the databank which mentions that a company must fulfill its due diligence before appointing any individual as an independent director and there is no responsibility for the agency

or the Central Government maintaining the databank for the accuracy of the data or lack of appropriateness of the individual whose details are mentioned in the databank.

4) DIR-1:

Individuals who wish to get their name included in the data bank of independent directors should fill out Form DIR-1 and make an application to the agency.

5) Fees:

The agency can charge a reasonable amount as a fee from the individuals for the inclusion of their names in the data bank of independent directors.

6) Updation of Data Bank:

Individuals who have applied for inclusion of their name in the data bank of independent directors or individuals whose name appears in the data bank shall inform the agency about any errors or changes to be made in their details within 15 days of such difference.

7) Website:

The databank that is published on the website should –

a) be accessible on the particular website;

b) be similar to the physical form of the data bank;

c) be easily searchable;

d) be published in a layout or layouts convenient for online viewing as well as printing; and

e) include a link to print or view the details without any cost.

Note: This section doesn't apply to non-profit organizations which have a primary aim to promote art, culture, religion, music, dance, science, sports, etc.

Section 150 in the Bare Act

(1) Subject to the provisions contained in sub-section (5) of section 149, an independent director may be selected from a data bank containing names, addresses, and qualifications of persons who are eligible and willing to act as independent directors, maintained by anybody, institute or association, as may be notified by the Central Government, having expertise in creation and maintenance of such data bank and put on their website for the use by the company making the appointment of such directors:

Provided that the responsibility of exercising due diligence before selecting a person from the data bank referred to above, as an independent director shall lie with the company making such an appointment.

(2) The appointment of an independent director shall be approved by the company in the general meeting as provided in sub-section (2) of section 152 and the explanatory statement annexed to the notice of the general meeting called to consider the said appointment shall indicate the justification for choosing the appointee for appointment as an independent director.

(3) The data bank referred to in sub-section (1), shall create and maintain data of persons willing to act as an independent director by such rules as may be prescribed.

(4) The Central Government may prescribe the manner and procedure of selection of independent directors who fulfill the qualifications and requirements specified under section 149.

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