Govt clearance must for Chinese nationals’ appointment as directors in Indian companies notifies MCA

The Ministry of Corporate Affairs(MCA) vide Notification No. F. No. 1/22/2013-CL-V dated 1st June 2022 notifies that government clearance is a must for Chinese nationals’ appointment as directors in Indian companies.

Notification issued by the government, requiring nationals of land border-sharing nations who are appointed as directors on boards of corporations to receive a security clearance in order to prevent Chinese enterprises from evading Indian rules in order to do business in the country.

The recent decision will have a significant impact on Chinese corporations that have subsidiaries in India. The government issued the notification after learning that Chinese and Hong Kong investors were able to circumvent the ban on foreign investment from neighbouring countries.

Foreign investment from nations sharing land boundaries with the country was needed to receive mandatory government permission under the April 2020 rules. Previously, only Pakistani and Bangladeshi investments were subject to such limitations.

Due to the pandemic, the regulation was perceived as substantially preventing Chinese firms from acquiring Indian industries at the time.

According to data from the Ministry of Corporate Affairs (MCA), there are 490 foreign nationals registered as directors in various companies in the country as of February. Around 30% of them are Chinese or Hong Kong natives, according to reports.

The Notification is Given Below:

G.S.R. 410(E).—In exercise of the powers conferred under second proviso to sub-section (1), sub-section (4), clause (f) of sub-section (6) of section 149, sub-sections (3) and (4) of section 150, section 151, sub-section (5) of section 152, section 153, section 154, section 157, section 160, sub-section (1) of section 168 and section 170 read with section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules further to amend the Companies (Appointment and Qualification of Directors) Rules, 2014, namely: –

1. Short title and commencement.- (1) These rules may be called the Companies (Appointment and Qualification of Directors) Amendment Rules, 2022.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Companies (Appointment and Qualification of Directors) Rules, 2014, ―

(i) in rule 8, after the proviso, the following proviso shall be inserted, namely:-

“Provided further that 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 alongwith the consent.”;

(ii) in rule 10, in sub-rule (1), the following proviso shall be inserted, namely: –

“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 alongwith application for Director Identification Number.”.

(iii) in the Annexure, –

(A) in Form DIR-2, under the heading Declaration, the existing paragraph, shall be numbered as paragraph (i) thereof and after the paragraph (i) as so numbered, the following shall be inserted, namely:-

“(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. ____ ”;

(B) in FORM NO. DIR-3, under the heading Verification, after serial number 3, the following serial number shall be inserted, namely:-

“3A. I am not required to obtain the security clearance from the Ministry of Home Affairs, Government of India under sub-rule (1) of rule 10 before applying for director identification number; ____or

I am required to obtain the security clearance from the Ministry of Home Affairs, Government of India under sub-rule (1) of rule 10 before applying for director identification number and the same has been obtained and is attached. ____; and ”.

For Official Notification Download PDF Given Below: