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The Ministry of Home Affairs issued a notification on 01 June 2022 seeking to amend the Companies (Appointment and Qualification of Directors) Rules, 2014. According to the amendment, it will be mandatory to obtain security clearance for persons from countries sharing a land border with India before being appointed as directors on the boards of Indian companies.
The Ministry of Corporate Affairs (MCA) vide its notification dated June 1, 2022 has notified the Companies Amendment (Appointment and Qualification of Directors) Rules, 2022 and the said rules are applicable with immediate effect i.e. June 1, 2022. For a better understanding of the concept, let us discuss the Guidelines for Application of DIN of a Foreign Director.
What is a DIN?
A DIN (Director’s Identification Number) is a unique identification number allocated to an individual who wishes to be appointed as a director of a company. This unique number contains the personal details of the relevant director (such as name, residential address, etc.) as well as the individual’s past and present professional engagement as a director of the company/companies.
How to get a DIN?
Any person who is a director of a company or a partner of an LLP must have a valid Director Identification Number (DIN) or Designated Partner Identification Number (DPIN). DIN is a unique number and is a mandatory requirement for a Company/Limited Liability Company (LLP) to file certain electronic forms. A DIN is usually obtained during Company Registration or LLP Registration for proposed company directors who do not have an existing DIN or DPIN.
Obtaining a DIN (form DIR-3)
A DIN can be obtained for a person by completing the DIR-3 form. The DIR-3 form must include a DIN photograph of the applicant along with the applicant’s details and the following documents:
- For Indian nationals, PAN is a mandatory requirement for proof of identity for Income Tax purposes.
- For foreign nationals, a passport is a mandatory requirement for proof of identity.
- Address proofs like Passport, Electoral (Voter) and Ration Card, Driving Licence, Electricity Bill, Phone Bill or Aadhaar must be attached and should be in the name of the applicant only.
- In case of an Indian applicant, the documents should not be older than 2 months from the date of submission of the e-form.
- In the case of a foreign applicant, the proof of address should not be older than 1 year from the date of submission of the electronic form.
The DIN application must be digitally signed with a class 2 signature by the person applying for the DIN. In addition, the DIN application form must be digitally signed by a Chartered Accountant or Company Secretary in permanent practice. The DIN form can also be digitally signed by a full-time company secretary or director of the company in which the applicant is to be appointed as a director. However, in such cases, the attached supporting documents should either be attested by the applicant himself or should be duly attested either by a notary public or a government official.
Overview on Appointing Directors from Bordering Countries
In support of Press Note No. 3 (Series of 2020) (PN 3), which announced a critical change in the Consolidated Foreign Direct Investment Policy to curb opportunistic takeovers of stressed and strategic assets or Indian entities in light of the impact of the COVID-19 Pandemic, on 01.06. .2022, the Ministry of Corporate Affairs (MCA) has notified amendments to the Companies (Appointment and Qualification of Directors) Rules, 2014 (the Rules) by way of an amendment to the Companies (Appointment and Qualification of Directors) Rules, 2022 (the 2022 Amendment).
The 2022 amendment extended the change brought by PN 3 to individuals who are nationals of a country that shares a land border with India and who can hold executive positions in a company incorporated in India (an Indian entity). Under the 2022 amendment, any individual who is a national of a country that shares a land border with India [neighboring national(s)] is now required to obtain a prior security clearance from the Ministry of Home Affairs if requested by such neighboring national obtain a Director Identification Number (DIN) or be appointed as a director of an Indian entity.
In addition, any individual seeking appointment to the board of directors of an Indian entity is now required to submit to such Indian entity a statement as to whether or not such individual is required to obtain a security clearance from the Department of Home Affairs.
Prerequisite for applying for a DIN
Electronic form DIR-3 (for DIN application) must be digitally signed by the applicant, i.e. resident or non-resident. So the individual must primarily apply for DSC. Once the applicant has the DSC in hand, it needs to be associated on the Ministry of Corporate Affairs portal and can then be used to digitally sign the DIN application form.
Documentation and other requirements for a non-resident DIN
We have summarized the answers to the above questions and DIN application requirements (e-form DIR-3) for NR applicants.
- PAN: PAN is a ten-digit unique number issued by the Department of Income Tax. PAN card is mandatory for obtaining DIN for all Indian nationals. (Not mandatory for foreign nationals). However, the same will be mandatory in case a non-resident is required to have a PAN number as per the Income Tax Act/Rules (Indian Regulations) such as if the NR is in India for employment etc.
Any person, whether resident or non-resident, who is a Director/Managing Director/Executive Director/Chief Director (Whole Time Director or Chief Financial Officer) in an Indian company having a financial transaction exceeding INR 2,50,000/- in a financial year will have to compulsorily get a Permanent Account Number (PAN). - Proof of identity: A copy of the passport is a mandatory requirement for proof of identity for foreigners. A notarized and/or apostilled copy (according to the NR Residence Act) of the passport must attached. It must be ensured that the data entered in the DIR-3 exactly matches the data printed on the ID card.
- Proof of address such as a notarized and/or apostilled copy of passport, driver’s license or utility bills such as electricity bill, telephone bill should be in the applicant’s name only and not older than 1 year (2 months for residents) from the date of submission of the e-form.
In the case of foreign nationals whose proofs are in a language other than English, the proofs should be translated into English by a court translator or notary public of the home country under his seal. - Mention of father’s name: The identity proof of the applicant (resident or non-resident) to be attached to the DIR-3 form should bear the name of the same father as mentioned in the form. However, the same is not required in case of foreign nationals / NRIs. Furthermore, it is mandatory to enter either the father’s first name or the father’s surname.
In case the name of the person (applicant) does not have a surname, the surname of his father or grandfather is indicated in the surname along with a statement in Form No. DIR-3A. - Resolution of the board of directors on the proposal to appoint him as a director in the existing company.
For foreign nationals, enter “NA” when entering your residential address if you do not have a PIN code. - Attestation of Form DIR-3: This form must be attested either by the company secretary of the company or a director or other officer of the company in which the appointment is proposed.
Governmental Efforts for Smooth Functioning for DIN of Director
The Ministry also comes up with an annual attempt to confirm/update the details given by the principals in their DIN applications. This is done through an annual E-KYC verification for the personal details of the directors.
Amendment I
After the first proviso, the following new proviso was inserted in rule 8 of the Companies (Appointment and Qualification of Directors) Rules, 2014:
“Provided further that in case the person seeking appointment is a national of a country sharing a land border with India, the necessary security clearance from the Ministry of Home Affairs, Government of India shall also be attached along with the consent.”
After inserting the new proviso, rule 8 of the Companies (Appointment and Qualification of Directors) Rules, 2014 will read as follows:
Consent to perform the function of Director
Any person who has been appointed as a director shall, at or before appointment, give written consent to the company to act as such in Form DIR-2:
Provided that the company shall, within thirty days of the appointment of the director, submit such consent to the Registrar in Form DIR-12 along with the fee as prescribed in the Companies (Registration Authorities and Fees) Rules, 2014.
Provided further that in case the person seeking appointment is a national of a country sharing a land border with India, the necessary security clearance from the Ministry of Home Affairs, Government of India shall also be attached along with the consent.
Effect of the above amendments:
If any person who is a national of a country sharing a land border with India (i.e. China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan) seeking appointment to any Indian company on his appointment or before him obtain and attach the necessary security clearance from the Ministry of Home Affairs, Government of India along with his written consent to act as such in Form DIR-2.
Amendment II
The following proviso was inserted in rule 10(1) of the Companies (Appointment and Qualification of Directors) Rules, 2014:
“Provided that no application number shall be generated in case the person applying for the Director Identification Number is a national of a country sharing a land border with India, unless the necessary security clearance from the Ministry of Home Affairs is attached, the Government of India along with the application for the Identification Number director.”
After inserting the above proviso, rule 10(1) of the Companies (Appointment and Qualification of Directors) Rules, 2014 shall read as follows:
DIN Assignment
(1) After submitting the DIR-3 form to the portal and paying the required amount of fees through the online mode, the system will automatically generate an application number.
Provided that no application number shall be generated where the person applying for a Director Identification Number is a national of a country sharing a land border with India, unless accompanied by the necessary security clearance from the Ministry of Home Affairs, the Government of India applying for a Director Identification Number director number.
Effect of above amendment:
If an application for allotment of Director Identification Number (DIN) is made by any person who is a national of a country sharing a land border with India (i.e. China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan), then no DIN will be allotted until the necessary security clearance from the Ministry of Home Affairs, Government of India is attached to the DIN application. Therefore, the Government of India is required to obtain a DIN from every person who is a national of a country that shares a land border with India, after prior security clearance from the Ministry of Home Affairs.
Amendment III
Form DIR-12 shall include a declaration, at the option of the person seeking appointment as a director, whether or not the national of a country sharing a land border with India has applied for the necessary security clearance from the Ministry of Home Affairs.
Effect of the above amendment: While filing Form DIR-12 with the MCA for the appointment of any person who is a national of a country sharing a land border with India (i.e. China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan) as a director, he must Company to obtain a statement from such person confirming that he has applied for the necessary security clearance from the Ministry of Home Affairs or not, as well as from a practicing professional confirming the DIR-12 form.
Analysis
PN 3 introduced certain protectionist measures against investment from countries that share land borders with India. Subject to PN 3 restrictions, Government approval is required for both primary and secondary investments by non-resident entities or entities whose beneficial owners belong to countries sharing a land border with India. Now, with the 2022 amendment, another layer of checks and balances has been added, requiring even neighboring nationals seeking to be appointed directors to obtain a security clearance from the Home Office.
It should be noted that even when applying for a Director Identification Number (DIN), neighboring nationals are required to attach this security clearance along with the prescribed DIR-3 form.
Final words
In addition, the security clearance must also be attached by neighboring nationals at the time of issue of consent in Form DIR-2 for appointment as a director in an Indian entity. In addition, any individual seeking to be appointed as a director on the board of any Indian entity is now required to submit a self-declaration, both in Form DIR-2 and Form DIR-3, stating whether the individual is required to obtain such Security clearance.
This amendment refers only to new appointments of neighboring nationals as directors of Indian entities on a prospective basis and does not mention existing Neighboring nationals who are already directors on the board of an Indian entity or existing Neighboring nationals holding DINs. Notwithstanding this limited preservation of the prior status, one consequence could be that the reappointment of existing directors after their current term of office would also impinge on the requirements set forth in the 2022 Amendment and create uncertainty in terms of both timing and eligibility.
