Provisions relating to appointment of Directors in India

Submitted by

Shaurya Shobhit | PRN- 18010224165 | Division- C ( 2018-23)

Of

Symbiosis Law School, Noida

Symbiosis International (Deemed University), Pune

Under the guidance of

Mr.Mohit Sharma
Introduction

“There are many kinds of directors in companies, and there are many major companies, and then
there are specific mandatory rules for companies to elect specific types of directors in certain com-
panies. My article gives a brief description of the different classes of directors and their appoint-
ment. Pursuant to Section 2(34) of the Companies Act, 2013 the director is a person appointed as
director of the company. A person appointed but not assigned as a director shall not be regarded as
a director within the meaning of this Act. Only a person shall be eligible to be appointed as director
as it will be difficult to fix responsibilities and duties in the case of companies and firms. Minor
cannot be a director because of disqualification of obtaining a DIN (Section 152(3)). As per Section
149(3), at least one director must be an Indian citizen.”

Minimum number of directors: “In case of public company the minimum is 3 , and in a private
company 2 and one person company just 1. Though some articles of the company may specify for a
higher number of minimality.”

Maximum number of directors– “It is 5 but it is possible to appoint more by passing a resolution.
Provision of special resolution is not needed in government company and company licensed under
section 8 subject to situation.”
“No person shall hold directors in more than 20 companies and 10 in the case of public companies
as provided under section 165 of the Companies Act. For the purposes of counting the limit, the in-
active company and the company licensed under section 8 are exempted subject to conditions.”
“Suppose an individual is a director of 15 companies out of which 9 are public and 6 are private.
Now only 1 more public and/or 4 private companies are eligible to be appointed as directors unless
there are 5 public companies in a private company. For the purposes of this section, any holding or
subsidiary of any public company shall be deemed to be a public company.”
“The appointment of the Director of the Company shall be in accordance with the provisions of the
Companies Act, 2013. In accordance with the Companies Act 2013, each company shall have a
number of directors. The least number of directors shall be determined by different types of com-
pany-a public company shall have at least 3 directors, a private company shall have at least 2 direc-
tors, and a single-person company shall have at least 1 director. The upper limit is set at 15. That
being said, a company needs to pass a special resolution if it needs more than 15 directors."
“Members of the Company shall appoint/re-appoint the Directors at the General Meeting in the
event of the Director's retirement by Public Company Rotation or the Director appointed by the
Board as the Additional Director. Unless the provisions provide for the withdrawal of all directors
at each Annual General Meeting, no less than two-thirds of the total number of directors of a public
company shall be persons whose term of office is determined by the withdrawal of directors by ro-
tation and who are appointed by the company at the Board Meeting.”
Relevant chapters

• MANDATORY REQUIREMENTS FOR APPOINTMENT OF DIRECTOR

• PROCEDURE FOR THE APPOINTMENT OF THE DIRECTOR IN A COMPANY

• DOCUMENTS FURNISHED ON APPOINTMENT OF DIRECTOR

• WHO CAN BE APPOINTED AS A DIRECTOR

• APPOINTMENT OF DIRECTORS DIRECTLY

• APPOINTMENT OF MANAGING DIRECTORS

• REMUNERATION

Content

Mandatory requirements for appointment of directors

1. “The individual who will be appointed as a Director shall have an Active DIN. (Section
152(3)).”
2. “A person shall not be eligible for appointment as a Director of a Company if he is disquali-
fied from being appointed as a Director in the Company as per Section 164(1).”
3. No person who is or has been a director of a company which:
4. has not filed financial statements or annual returns for any continuous period of three finan-
cial years or
5. “Is unable repay the deposits accepted by it or pay interest thereon or to redeem any deben-
tures on the due date or pay the interest due thereon or pay any dividend declared and such
failure to pay or redeem continues for one year or more, shall be eligible to be re-appointed as
a director of that company for a period of five years from the date on which the company fails
to do so." (Section 164(2)(a)).
6. A person who is not a retiring director in terms of section 152 and is available for appoint-
ment to the office of a director at any General Meeting, shall be appointed as a Director after
fulfilling following conditions:
• “he, or some member willing to appoint him as a director, has, more than fourteen days till the
meeting, left at the registered office of the company, a notice in writing under his hand signifying
his candidature as a director or”
• “The purpose of such a member, as the case could be, to suggest him as a candidate for that of -
fice, along with the payment of one lakh rupee or such higher amount as may be defined, which
shall be reimbursed to that person or to a member, if the person proposed is appointed as a direc-
 tor or more than twenty-five per cent of the total legitimate votes cast either on a show of hands
or on a vote count on that person.”

Procedure for the Appointment of the Director in a company

“A director of a company is an individual who is appointed to do the duties and functions of a com-
pany as per the provisions of the act of 2013.” Appointment of director’s procedure is written under
section 152 to 159 of the Companies Act 2013 which is described below:

Section 153- “The request for the proposal of the Director Identification Number (DIN) must be
made by the person planning to be the director of the company before the central government, to-
gether with the payment of the application fee.”

Section 154- “The central government shall then allocate the DIN (Director Identification Number)
to the candidate in one month of receipt of the application for allocation.”

Section 155 – “The applicant who has received a DIN (Director Identification Number) could now
apply for or possess some other Director Identification Number.”

Section 156 – “The current director must reveal his DIN (Director Identification Number) which he
acquired from the central government within one month of receipt. He must be intimate with the
company or the companies in which he is a director.”

Section 157- “The company must inform the registrar or authorised person the DIN (Director Iden-
tification Number) of all directors within 15 days of receipt of the intimation. The fees must also be
submitted in accordance with the provisions of the central government and also referred to in sec-
tion 403. If the intimation fails within 15 days, the company shall pay a fine of Rs 25,000 twenty-
five thousand, which may extend to Rs 1,000,000 lakh.”

Section 158- "Each company or person shall indicate DIN (Director Identification Number) when
providing any return, information or information in relation to the director or containing any refer-
ence by the director.”

Section 159- “If any of the provisions laid down in Sec 152, 155 and 156 have not been complied
with, a fine of Rs 50,000 and fifty thousand shall be imposed or may be liable for imprisonment for
a period of six months. If there is a continuation of the infringement of the provisions, a fine of Rs
500 per day must be imposed until the infringement continues.”

Documents furnished on Appointment of Director

• “The Company has to call the board meeting and pass the resolution to appoint the additional
director according to the AOA of the company if no clause is mentioned then in accordance
with provisions of section 161 of the act.”
 • It has to ensure there must be allotment of the DIN (Director Identification Number) to the di-
rector who wants his appointment.
• “Form DIR 12 filled along with the letter of the appointment and then submission of the docu-
ments by the director within 30 days.”
• “The consent Form DIR-2 has to be given in writing for willingness to be a director. It is un-
der Rule 8 of Companies Appointment and Qualification of the Director Rules 2014.”
• “The appointing director has to provide Form DIR 8 intimating that he is not disqualified un-
der the provisions of section 164(2) of the act.”
• After the appointment, the director has to give Form MBP-1 in compliance to section 184(1)
read with Rule 9(1) of Companies (Meeting of Board and Its Powers) Rules 2014.

Who can be appointed as a Director

“The appointment of a director is not only an important organisational requirement, but also a pro-
cedural requirement that must be met by every company. Under the Companies Act, only a person
may be appointed as a director; a corporation, association, firm or even other body with an artificial
legal personality may not be appointed as a director.”

Appointment of Directors directly

“Generally, in a public company or a private company subsidiary of a public company, two thirds of
the total number of directors shall be appointed by the shareholders and the remaining one third
shall be appointed in accordance with the procedure laid down in Articles, failing which the remain-
ing one third of the directors shall be appointed by the shareholders. The Articles of a public com-
pany or of a private company subsidiary of a public company which provide for the retirement of all
directors at each AGM.”
“In a private company, which is not a subsidiary of a public company, the Articles may provide for
the appointment of any or all directors. In the event that the Articles are silent, the Directors should
be appointed by the shareholders only.”
“The Companies Act also allows the Articles to provide for the appointment of two-thirds of the di-
rectors on the basis of the principle of proportional representation, if adopted by the company con-
cerned. Nominee Directors may be assigned by a third party or by the Central Government with in
the event of oppression or poor management.”

Appointment of Managing Directors

“A Managing Director must be an individual and can be appointed for a maximum term of five (5)
years at a time. A person who is already a Managing Director / Manager of a public company or a
private company subsidiary of a public company can become the Managing Director / Manager of
only one other company (whether private or public) with the prior unanimous approval of the Board
of such company.” However, no such restrictions are applicable to a Manager or a Managing Direc-
tor of “pure" private companies.”
“In case of a public company or a private company that is a subsidiary of a public company, if the
appointment is not in accordance with Parts I and II of Schedule XIII of the Companies Act, such
appointment must be approved by the Central Government.”
Remuneration
“In the case of a public company or a private company which is a subsidiary of a public company,
the remuneration to be paid is subject to the provisions of the Companies Act and can be decided ei-
ther by the Articles or, if the Articles so provide, by a special resolution of the company at the gen-
eral meeting.”

Conclusion

“As we have seen before, directors play the role of trustees, agents and managing partners, but they
are not fully agents or trustees of managing partners. The directors' position is a combination of all
three and more than that. The directors have a trust relationship with both the company and the
shareholders. Director Identification Number is the amendment that came into effect in 2014 and
was further amended in 2018. The directors have the power and the Act is amended to ensure that
checks and balances are carried out in such a way that the director's office does not become abso-
lute. The rules that came into force in 2014 require women to be given opportunities as directors.
Director's Identification Number acts as a proof of identity so that the the number of any crime or
malpractices are decreased.”
References

• Indiankanoon.com
• Ministry Of Corporate affairs (www.mca.gov.in)
• Taxguru.in
• www.bareactslive.com
• Company law by Avtar Singh