I.

INTRODUCTION

“A corporation is an artificial being, invisible, intangible and existing only in

contemplation of law.”

[ii] “It has neither a mind nor a body of its own.”

[iii] “A living person has a mind which can have knowledge or intention and he has
hands to carry out his intention. A corporation has none of these,it must act
through living persons.”[iv] This makes it necessary that the company’s business
should be entrusted to some human agents. Hence the necessity of directors.
Section 252 of the Act, therefore, requires that “every public company shall have
at least three directors and every private company shall have at least two
directors”. By an amendment of the section by Amendment Act, 2000 it has been
provided that a public company having a paid up share capital of rupees five crore
or more and one thousand or more small shareholders, should have a director
elected by the small shareholders. The manner of such election is to be presented.
A small shareholder for this purpose means having shares of the nominal value of
twenty thousand rupees or less m a public company.

Section 2(13) of the Companies Act, 1956 defines a ‘director’ as including “any
person occupying the position of a director by whatever name called “. Thus, it is
not the name by which a person is called but the position he occupies and the
functions and duties which he discharges that determine whether in fact He is a
director or not. In Re, Forest of Dean Coal Mining Co. it was stated that function is
everything; name matters nothing. So long as a person is duly appointed by the
company to control the company’s business and authorised by the articles to
contract in the company’s name and on its behalf , he functions as a director. A
company is Indeed a person but juridical person and the directors as a body endow
the juridical person with human face that can act and react.

Section 303(1) of the Companies Act ( through for the limited purpose of
maintenance of Register of directors, etc.) provides that any person with whose
directions or instructions the Board of Directors is accustomed to act is also
deemed to be a director.

A manager or any other managerial personnel ,is however, not a

director.[v] According to section 2(30) of the 1956 act, the definition of an ‘officer’
includes a director as well as any person under whose directions or instructions the
Board or any one or more of the directors are accustomed to act.

II. Appointment of Directors

The success of the company depends, to a very large extent , upon the competence
and integrity of its directors. It is , therefore , necessary that management of
companies should be in proper hands.[vi] The appointment of directors is
accordingly strictly regulated by the act. There are now special provisions for
preventing management by undesirable persons.

One evil which has been abolished by the Act is that of a company or a firm acting
as a director of another company. Now, according to Section 253 , only an individual
can be the director of a company. No company or firm or association can be
appointed as a director. A proviso has been added to the section by the
amendments of 2006 which says that no company is to appoint or appoint
individual as a director unless he has been allotted a Director Identification Number
under S.266-B.

Appointment of first directors –

The first directors are usually appointed by name in the articles or in the manner
provided therein. Where the articles do not provide for the appointment of first
directors, the subscribers to the memorandum, who are individuals, shall be
deemed to be the first directors of the company subject to the regulations of the
company’s articles. The first directors can hold office until the directors are duly
appointed in accordance with the provisions of section 235) (Section 254). It may,
however, be noted that in case of a public company, a list of persons who are to
be the first directors of a company along with their consent in writing must be
delivered to the Registrar of Companies.

Thus, where the articles of the company name the first directors, the provisions of
section 254 deeming the subscribers as directors would not apply Where, for any
reason, for example, death, the persons named in the list of first directors do not
assume office, it will be necessary for the subscribers of the Memorandum (who
will then be the only members) to convene a meeting for the appointment of
directors. To the extent to which the articles do not make any other provisions in
that behalf, subscribers who would be entitled to requisition a meeting may call
the meeting. Notice of the meeting must be served on every subscriber in the
manner in which notices are required to be served by the Act[vii].

Appointment of directors at general meeting –

According to section 255, the director must be appointed by the company in

general meeting. In the case of a public company or of a private company which is
a subsidiary of a public company, unless the articles provide for the retirement of
all directors at every annual general meeting, at least two-third of total number of
directors must be persons whose period of office is liable to determination by
rotation. In other words, only one third of the total number of directors can be
non-rotational directors.

Appointment of directors in case of a private company which is not a subsidiary of

a public company-In case of a private company, which is not a subsidiary of a public
company, if the articles are silent as to the appointment of directors, or do not
specifically provide for appointment of directors otherwise than in a general
meeting, then the directors are to be appointed in general meeting by the
shareholders[Section 255(2)] as interpreted by the Calcutta High Court in the case
of Swapan Das Gupta v. Navin Chand Suchiantij .

Section 256 provides that one-third of the directors subject to retirement by

rotation must retire at an annual general meeting. It follows that all such directors
must retire in the course of three years, one-third of them retinring in each year.
The directors to retire by rotation at every annual general meeting shall be those
who have been longest in office since their last appointment. As between persons
appointed on the same day, retirement is to be determined by mutual consent and
in case of default, by lots [Section 256(2)]. If the directors do not hold a general
meeting in time, can they continue till the meeting is held? The Delhi High Court in
B.R. Kundra V. Motion Picture Association held that directors cannot prolong their
tenure by not holding a meeting in time . The directors due to retire by rotation
must vacate office at the latest on the last day on which an annual general meeting
ought to have been held. Retiring directors are,however, eligible for re-election.

Deemed re-appointment of a retiring director [Sec. 256]- The vacancy caused by

the retirement of a director by rotation should be filled up at the same meeting or
at an adjourned meeting. If it is not so done, the retiring director shall be deemed
to have been appointed at such adjourned meeting except in the following cases :
 1. At any previous meeting, a resolution for his re-appointment was put to vote,
but was lost; or
2. the retiring director has, in writing, expressed his unwillingness to continue,
or
3. he is not qualified or is disqualified for appointment; or
4. a special or ordinary resolution is necessary for his appointment or re-
appointment by virtue of any provisions of the Companies Act; or
5. it is resolved not tofill the vacancy; or
6. it is resolved to fill two or more vacancies by a single resolution (Sec. 263).

Appointment of a director other than a retiring director [Sec. 257]-

Section 257 provides for the procedure of appointment of a person other than
retiring director. If any person other than the retiring director wishes to stand for
directorship or any member proposes a person for directorship, he must signify his
intention to do so by giving 14 days’ notice to the company before the general
meeting and the company must inform the members not later than seven days
before the general meeting either by individual notices or by advertisement of this
fact in at least two newspapers circulating in the place where its registered office
is located of which one must be in English and the other in the regional language of
that place. Also, the candidate or the member who intends to propose him
as director has to deposit a sum of Rs. 500 which shall be refunded to such person
or the member , as the case may be, if the candidate succeeds is being elected . In
case such person is not elected as director, he or the memner, as the case may be
, will not be entitle to the refund of Rs. 500 and the amount deposited shall stand
forfeited by the company.

Consent of a director to be filed with the Company and the Registrar –

Section_264 requires every person proposed as a candidate for the office of the
director to sign and file with the company his consent to act as a director, if
appointed. Further, subsection (2) of section 264 requires a person appointed as a
director to sign and file with the. Registrar his consent in writing to act as such
director. The consent with the Registrar must be filed within 30 days of his
appointment. However, the consent with the Registrar shall not be required to be
filed in the case of :
  a director re-appointed after retirement by rotation or immediately on the
expiry of his term of office; or
 an additional or alternate director, or a person filling a casual vacancy in the
office of a director under section 262, appointed as a director or re-
appointed as an additional or alternate director, immediately on the expiry
of his term of office; or
 a person named as director of the company under its articles as first
registered.

Appointment by Board of directors –

The Board of directors can exercise the power to appoint directors in the following
three cases :

1. Additional Directors (Section 260)

2. Filling up the Casual Vacancy (Section 262)
3. Alternate Directors (Section 313).

APPOINTMENT OF ADDITIONAL DIRECTORS – If the Articles authorise, the Board

may appoint additional directors. Such additional director together with the
directors constituting the Board should not exceed the maximum number fixed by
the articles. Also, the additional directors are entitled to hold office only up to the
date of the next annual general meeting of the company (Section 260),

The provision for an additional director is one which is meant to enable the
companies to have the benefit of the services of a person, who otherwise is suitable
for serving on the board, and whose presence In the board is desirable in the
interests of the company , till the time the next AGM is held. That provision is not
meant to enable the company to keep on its board a person as additional director
for an indefinite period of time ny not holding the AGM, Section260, therefore ,
must necessary be read with section 166 which stipulate that the AGM be held
every year and not more than fifteen months shall lapse between the date of one
AGM and the next- P. Natarajan V. Central Government[viii].

In Krishna Pd. Pilani V. Colaba Land and Mills , it was held that a director appointed
as
an additional director vacates his office, at the latest, on the last day on which the
annual meeting could have been called as requires by section 166 or could not be
called within the time prescribed by that section.

It may thus be noted that without a power given by the Articles, the Board cannot
appoint additional directors. The section applies to all companies, public as well as
private – Needle Industries (India) Ltd. V. Needle Industries Newey (India) Holdings
Ltc[ix].

Filling Up Casual Vacancy –

Section 262 empowers the Board to fill casual vacancies in the case of a public
company or a private company which is a subsidiary of a public company. A casual
vacancy is one that arises otherwise than by retirement or the expiration of the
time fixed for an appointment. Thus , if the office of any director appointed by the
company in general meeting is vacated before his term of office expires in the
normal course, the resulting casual vacancy may, subject to any regulation in the
articles of the company , be filled by the Board of Directors at a meeting of the
Board.

Filling of casual vacancy by a private company– Section 262 does not apply to a
private company which is not a subsidiary of a public company. Such a company
will fill casual vacancies as provided by its own articles and/or section 255(2) that
is in a General Meeting. It need not follow the provisions of section 262.

ALTERNATE DIRECTOR (SECTION 313) – The Board of directors of a company may,

if so authorised by its articles or by a reaction passed by the company in general
meeting, appoint an alternate director to act for a director during his absence for a
period of not less than three months from the State in which meetings of the Board
are ordinarily held.

The alternate director merely fills a temporary vacancy in the office of a director
which already exists and no new office of director is created by his appointment.
Many provisions of this Act do not apply to. the alternate director. For instance.
appointment of an alternate director is not considered as an increase in the
strength of the Board of directors. Likewise, alternate directorship held by a person
cannot be counted towards maximum number of
directorships which a person can hold. An alternate director is not required to hold
any qualification shares. However, the alternate director is subject to the same
liability and supposed to perform the same duties as any other director.

It is the prerogative of the Board of Directors to appoint an alternate director. The

article of the company or a resolution passed by the shareholders must give an
enabling power to the Board to appoint an alternate director. Neither the
shareholders of the company nor any other person can exercise the power to
appoint alternate director. alternate director is not an agent of the original director.