Govt clearance must for companies to appoint Chinese directors on board

According to an MHA notification, it will be mandatory for companies to seek clearance from the government before appointing directors from land-border sharing nations on their boards

company, board, management, policy, marketing, plans, growth, diversity, gender
BS Web Team New Delhi
2 min read Last Updated : Jun 03 2022 | 12:16 PM IST
The Ministry of Home Affairs issued a notification on June 2, stating that citizens from land-border sharing nations need security clearance from the government before they are appointed as directors on boards of Indian companies, according to reports.

The government has notified the Companies (Appointment and Qualification of Directors) Amendment Rules, 2022  to amend the Companies (Appointment and Qualification of Directors) Rules, 2014. 

In effect, this amendment will make it mandatory for the companies to seek clearance from the government before appointing directors on boards.

What has changed?

In Rule 8, the following proviso has been inserted: “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.”;

In Rule 10, the following proviso has been inserted: “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.”.

What's the likely impact?

This decision will directly impact Chinese companies the most. According to various reports, this change has been made after it was discovered that China and Hong Kong investors were finding alternate ways to bypass April 2020 restrictions on foreign investments from neighbouring countries.

For example, a Chinese company would create a US or Cayman Islands-based entity and use it to route the investment without any restrictions. The company then would appoint senior Chinese executives as directors to gain control, said a report in the Economic Times.

According to the data from the Ministry of Corporate Affairs, 490 foreign nationals are registered as active directors in India as of February. However, the data doesn’t mention the nationality of these directors. Experts estimate that 30 per cent of these directors are from China or Hong Kong, said the ET report.


One subscription. Two world-class reads.

Already subscribed? Log in

Subscribe to read the full story →
Subscribe to Business Standard digital and get complimentary access to The New York Times

Quarterly Starter

₹900

3 Months

₹300/Month

SAVE 25%

Smart Essential

₹2,700

1 Year

₹225/Month

Save 46%

Super Saver

₹3,900

2 Years

₹162/Month

Subscribe

Renews automatically, cancel anytime

Here’s what’s included in our digital subscription plans

Access to Exclusive Premium Stories Online

  • Over 30 behind the paywall stories daily, handpicked by our editors for subscribers

Complimentary Access to The New York Times

  • News, Games, Cooking, Audio, Wirecutter & The Athletic

Business Standard Epaper

  • Digital replica of our daily newspaper — with options to read, save, and share

Curated Newsletters

  • Insights on markets, finance, politics, tech, and more delivered to your inbox

Market Analysis & Investment Insights

  • In-depth market analysis & insights with access to The Smart Investor

Archives

  • Repository of articles and publications dating back to 1997

Ad-free Reading

  • Uninterrupted reading experience with no advertisements

Seamless Access Across All Devices

  • Access Business Standard across devices — mobile, tablet, or PC, via web or app

Topics :chinese companiesboard of directorsChinaHome Ministry

Next Story