Appointment of Directors, Legal Position

SECTION 152 OF THE COMPANIES ACT, 2013: APPOINTMENT OF DIRECTOR

Director is an individual appointed to the Board of a company who is responsible for managing and supervising its affairs. Directors act as agents and trustees of the company, and they are accountable for ensuring good governance and compliance with statutory regulations. The appointment of directors is governed by Sections 149 to 172 of the Companies Act, 2013.

A director is a person who is appointed to perform the duties and functions of a company in accordance with the provisions of The Company Act, 2013.

As per Section 149(1): Every Company shall have a Board of Directors consisting of Individuals as director.

They play a very important role in managing the business and other affairs of Company. Appointment of Directors is very crucial for the growth and management of Company.

Types of Appointment of Directors:

1. First Directors (Section 152)

• Appointed at the time of incorporation.

• Names are mentioned in the Articles of Association.

• If not named, all subscribers to the memorandum become first directors.

2. Appointment by Shareholders (Section 152(2))

• Directors are usually appointed by the shareholders in a general meeting through an ordinary resolution.

• Must file Form DIR-12 within 30 days with the Registrar of Companies (RoC).

3. Appointment by Board of Directors (Section 161)

• Board can appoint additional, alternate, or casual vacancy directors.

• These appointments are valid until the next Annual General Meeting (AGM).

4. Appointment by Central Government / Tribunal (Section 242)

• The National Company Law Tribunal (NCLT) or Central Government may appoint directors in case of oppression or mismanagement.

5. Appointment by Proportional Representation (Section 163)

• Companies may adopt this method if stated in their articles to ensure minority shareholder representation.

Procedure for Appointment of Directors:

• Obtain Director Identification Number (DIN) – Mandatory under Section 153.

• Consent in Form DIR-2 – Director must give written consent to act.

• Filing with ROC (Form DIR-12) – Within 30 days of appointment.

• Entry in Register – Director’s details must be entered in the Register of Directors.

Minimum Number of Directors (Section 149)

Disqualifications (Section 164)

• A person cannot be appointed as a director if:

• Declared insolvent.

• Convicted of an offense involving moral turpitude (imprisonment ≥ 6 months).

• Disqualified by a court or tribunal.

• Fails to obtain DIN.

APPOINTMENT OF DIRECTORS UNDER COMPANIES ACT 2013:

REQUIREMENT OF A COMPANY TO HAVE BOARD OF DIRECTORS:

• A company may appoint more than (15) fifteen Directors after passing a special resolution.
• Further, every Company should have one Resident Director (i.e. a person who has lived at least 182 days in India during the financial year)
• Director’s appointment is covered under section 152 of Companies Act, 2013, along with Rule 8 of the Companies (Appointment and Qualification of Directors) Rules, 2014.

QUALIFICATIONS FOR DIRECTORS:

According to The Companies Act no qualifications for being the Director of any company is prescribed. The Companies Act does, however, limit the specified share qualification of Directors which can be prescribed by a public company or a private company that is a subsidiary of a public company, to be five thousand rupees (Rs. 5,000/-).

New Categories of Director:

• Resident Director

This is one of the most important changes made in the new regime, particularly in respect of the appointment of Directors under section 149 of the Companies Act, 2013. It states that every Company should have at least one resident Director i.e. a person who has stayed in India for not less than 182 days in the previous calendar year.

• Woman Director

Now the legislature has made mandatory for certain class of the company to appoint women as director. As per section 149, prescribes for the certain class of the company their women strength in the board should not be less than 1/3. Such companies either listed company and any public company having-

• Paid up capital of Rs. 100 cr. or more, or
• Turnover of Rs. 300 cr. or more.

Foreign National as a Director under Companies Act, 2013

Under Indian Companies Act, 2013, there is no restriction to appoint a foreign national as a director in Indian Companies along with six types of Directors which are appointed in a company, i.e., Women Director, Independent Director, Small Shareholders Director, Additional Director, Alternative and Nominee Director. By complying with the Companies Act, 2013 (hereinafter referred as “The Act”) read along with the Companies (Appointment and Qualifications of Directors) Rules, 2014 (hereinafter referred as “The Rules”)

Restrictions on number of Directorships:

• The Companies Act prevents a Director from being a Director, at the same time, in more than fifteen (15) companies. For the purposes of establishing this maximum number of companies in which a person can be a Director, the following companies are excluded:
• A “pure” private company;
• An association not carrying on its business for profit, or one that prohibits the payment of any dividends; and
• A company in which he or she is only appointed as an Alternate Director.
• Failure of the Director to comply with these regulations will result in a fine of fifty thousand rupees (Rs. 50,000/-) for every company that he or she is a Director of, after the first fifteen (15) so determined.