Appointing directors from land sharing neighboring countries – Mandatory security clearance from MHA

Ministry of Home Affairs on 01st June 2022 issued a notification requiring to amending the Companies (Appointment and Qualification of Directors) Rules, 2014. In pursuant to the amendment, it will become mandatory to obtain security clearance for individuals from countries sharing land borders with India before being appointed as directors on the boards of Indian companies.

Thereby, Ministry of Corporate Affairs (MCA) vide its notification dated June 01, 2022, has notified Companies (Appointment and Qualification of Directors) Amendment Rules, 2022, and the said rules are applicable from immediate effect i.e. June 01, 2022.

Key takeaways – There are three major amendments as listed below

Amendment # 1 – in first proviso of Rule 8 of Companies (Appointment and Qualification of Directors) Rules, 2014

In case the person seeking appointment is a national of a country which shares land border with India, necessary security clearance from the Ministry of Home Affairs, Government of India shall also be attached along with the consent.

Amendment #2 – in Rule 10 of Companies (Appointment and Qualification of Directors) Rules, 2014–

Provided that no application number shall be generated in case of the person applying for Director Identification Number is a national of a country which shares land border with India, unless necessary security clearance from the Ministry of Home Affairs, Government of India has been attached along with application for Director Identification Number.

Amendment # 3 – New insertions in Annexure form number DIR 2 and DIR 3 as under the head of declaration and verification respectively –

(ii) “I further declare that – I am not required to obtain the security clearance from the Ministry of Home Affairs, Government of India before seeking appointment as director……………

Or

I am required to obtain the security clearance from the Ministry of Home Affairs, Government of India before seeking appointment as director and the same has been obtained and is attached…………….. “

Impact–

1. Countries which share land borders with India are China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan.
2. If any person wants to appoint Director in Indian Company and belong to any country sharing land borders with India listed in point 1 above then –
   1. Before appointment, such persons are required to take approval from Ministry of Home Affairs and the same shall be attached along with consent to act director given in DIR -2.
   2. Before obtaining DIN, such person required to take approval from Ministry of Home Affairs and such clearance/ approval are required to be attached in DIR -3.
3. The directors are required to sign a declaration and verification ensuring that above listed approvals are duly in place id required to be obtained or whether such security clearance is not required to be obtained.
4. Effective date of implementation – 01st June 2022

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