INTRODUCTION
The company must have a Board of Directors for the smooth functioning of its affairs. It is the directors under whose supervision, the management team, run the business affairs of the company. A Director may act as Executive or non-executive director of the company.
As per Companies Act, 2013 (Act), a company shall have minimum number of three directors in the case of a public company, two Directors in the case of a private company, and one director in the case of a One Person Company. There shall be a maximum of fifteen directors and that number can be increased beyond fifteen, by passing members special resolution.
Every company shall have at least one resident director who has stayed in India for a total period of not less than one hundred and eighty-two days during the financial year. For the newly incorporated companies for the first financial year the duration will be counted proportionally at the end of the financial year.
In respect of some specified class of companies’ independent director and women director are required to be appointed on the board. In case of the appointment of independent director in General Meeting, an explanatory statement for such appointment should also be annexed with Notice for calling of General Meeting shall include a statement that in the opinion of the board for the fulfillment of the conditions specified in the Act.
An independent director will be appointed for the term for the five years and shall be reappointed after passing the special resolution in General Meeting. The retirement and rotation of the directors does not apply to the Independent Director.
- Appointment of Directors
(Applicable Provisions: Section 149,152,153,154,155,156,157, 158,161 of the Companies Act read with Rule 8, 9, 10, 11 and 12 of Companies (Appointment and Qualification of directors) Rules, 2014)
Every company needs to have Directors to run the affairs of the company in the prescribed manner.
At the time of incorporation of a company, if no provision is made in the articles of a company for the appointment of the first director, the subscribers to the memorandum who are individuals shall be deemed to be the first directors of the company until the directors are duly appointed and in case of a One Person Company an individual being member shall be deemed to be its first director until the director or directors are duly appointed by the member in accordance with the provisions of this section 152.
If the paid-up share capital of the company is 100 crore rupees or more or turnover of 300 crore rupees or more, it is required to appoint at least one-woman director on its Board. And if provisions of CSR is applicable to the company it is also required to have at least one independent director to be part of the CSR committee.
As per section 149(4) of the Companie Act, 2013 and rule 4 of Companies (Appointment and qualifications of directors) Rules 2014, in case of listed public company there shall be at least one third of the total directors to be independent director (while calculation any fraction to be rounded of to one). And in case of unlisted public company, it shall have at least two independent directors if any of the following conditions attracted: 1) Paid-up Share Capital of minimum ten crore or 2) Turnover of minimum 100 crore or 3) aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees:
It should be noted that every director shall be appointed by the company in general meeting except the cases where power has been given to the Board expressly under section 161 of the Companies Act 2013 i.e. Appointment of Additional director, Alternate director and Nominee director, Casual vacancy director.
Every person proposed to be appointed as a director by the company in general meeting or otherwise, shall furnish his Director Identification Number and a declaration that he is not disqualified to become a director under this Act.
In the case of appointment of an independent director in the general meeting, an explanatory statement for such appointment, annexed to the notice for the general meeting, shall include a statement that in the opinion of the Board, he fulfills the conditions specified in this Act for such an appointment.
A person appointed as a director shall not act as a director unless he gives his consent in writing to hold the office as director to the company in Form No. DIR.2 and such consent has been filed with the Registrar within thirty days of his appointment in Form No. DIR.12 along with the fee as provided in Companies (Registration of Offices and Fees) Rules, 2014.
As per section 152(6) Unless otherwise the Articles provide the two third of the total numbers of the directors of the public company will be liable to be retire by rotation (any fraction while calculation shall be rounded off to 1). One third of rotational director shall retire by rotation at every annual general meeting (while calculation any fraction rounded off to the nearest integer). The directors to retire by rotation at every annual general meeting shall be those who have been longest in office since their last appointment, but if directors appointed on the same day, then the retirement will take place by mutual agreement between them and in its absence by lottery method.
For calculation of the number of the directors liable to be retire by rotation, the ‘Total number of the directors’ shall not include the independent director.
- Appointment of additional director, alternate director and nominee director
(Applicable Provisions: Section 161 of the Act)
The articles of a company may confer on its Board of Directors the power to appoint any person, other than a person who fails to get appointed as a director in a general meeting, as an additional director at any time who shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier. Board of Directors of a company may appoint any person as an additional director, who shall hold office up to the date of next annual general meeting.
The Board of Directors of a company may, if so authorized by its articles or by a resolution passed by the company in general meeting, appoint a person, not being a person holding any alternate directorship for any other director in the company, to act as an alternate director for a director during his absence for a period of not less than three months from India. It is also important to note that no person shall be appointed as an alternate director for an independent director unless he is qualified to be appointed as an independent director under the provisions of this Act.
Board may appoint any person as a director nominated by any institution in pursuance of the provisions of any law for the time being in force. The articles of company should allow the appointment of nominee director. Subject to the articles of a company, the Board may appoint any person as a Director nominated by any institution in pursuance of the provisions of any law for the time being in force or of any agreement or by the Central Government or the State Government by virtue of its shareholding in a Government company.
In the case of a public company, 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, in default of and subject to any regulations in the articles of the company, be filled by the Board of Directors at a meeting of the Board: Provided that any person so appointed shall hold office only up to the date up to which the director in whose place he is appointed would have held office if it had not been vacated.
A person appointed shall not act as a director unless he gives his consent in writing to hold the office as director to the company in Form No. DIR.2 and such consent have been filed with the Registrar within thirty days of his appointment in Form No. DIR.12 along with the fee as provided in Companies (Registration of Offices and Fees) Rules, 2014.
- Disclosure of Director’s Interest
(Applicable Provisions: Section 184(1) of the act read with Rule 9(1) of Companies (Meeting of Board & its Powers) Rules, 2014)
Every director shall at the first meeting of the Board in which he participates as a director and thereafter at the first meeting of the Board in every financial year or whenever there is any change in the disclosures already made, then at the first Board meeting held after such change, disclose his concern or interest in any company or companies or bodies corporate, firms, or other association of individuals which shall include the shareholding, in FORM MBP-1.
- Intimation by Director
(Applicable Provisions: Section 164(2) of the act read with Rule 14 (1) of Companies (Appointment and Qualification of directors) Rules, 2014)
Every director before his appointment and re-appointment shall inform the company concerned about his disqualification under sub-section (2) of section 164, if any, in Form DIR-8.
Whenever a company receives the information in Form DIR-8, company shall, within thirty days of such receipt, file Form DIR-9 with the Registrar.
- Resignation of Director
(Applicable Provisions: Section 167 and 168 of the act read with Rule 15 and 16 of Companies (Appointment and Qualification of directors) Rules, 2014)
A director may resign from its office by giving a notice with the reasons of resignation in writing to the company. The company shall intimate the same to the Registrar of companies in Form No. DIR.12 within thirty days from the date of receipt of notice of resignation from the director and post the information on its website, if any. The resigning Director may also inform the reason of resignation to registrar in Form DIR-11 within thirty days from the date of his resignation.
Where all the directors of a company resign from their offices or vacate their offices under section 167 of the Act, the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in general meeting.
The company shall also place the fact of such resignation in the report of the board of directors to be laid down at the immediately following general meeting of the company.
In case a company has already filed Form DIR-12 with the Registrar, a foreign director of such company resigning from his office may authorize in writing a practicing chartered accountant or cost accountant in practice or company secretary in practice or any other resident director of the company to sign Form DIR-11 and file the same on his behalf intimating the reasons for the resignation.
- Vacation of office of director
(Applicable Provisions: Section 164 and 167 of the Act.)
The office of a director shall become vacant in case:-
(a) He incurs any of the disqualifications specified in section 164, which are as below:
- he is of unsound mind and stands so declared by a competent court.
- he is an undischarged insolvent.
- he has applied to be adjudicated as an insolvent and his application is pending.
- he has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence:
And if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be appointed as a director in any company.
- an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force.
- he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;
- he has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years; or
- he has not complied with sub-section (3) of section 152 relating to holding of Directors Identification number.
- A private company may by its articles provide for any disqualifications for appointment as a director in addition to those specified above.
(b) He is absents himself from all the meetings of the Board of Directors held during a period of twelve months with or without seeking leave of absence of the Board.
(c) He acts in contravention of the provisions of section 184 relating to entering into contracts or arrangements in which he is directly or indirectly interested.
(d) He fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested, in contravention of the provisions of section 184.
(e) He becomes disqualified by an order of a court or the Tribunal.
(f) He is convicted by a court of any offence, whether involving moral turpitude or otherwise and sentenced in respect thereof to imprisonment for not less than six months.
Provided that the office shall not be vacated by the director in case of orders referred to in clauses (e) and (f)-
(i) for thirty days from the date of conviction or order of disqualification.
(ii) where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting in sentence or order, until expiry of seven days from the date on which such appeal or petition is disposed of: or
(iii) where any further appeal or petition is preferred against order or sentence within seven days, until such further appeal or petition is disposed of.]
(g) He is removed in pursuance of the provisions of this Act.
(h) He, having been appointed a director by virtue of his holding any office or other employment in the holding, subsidiary or associate company, ceases to hold such office or other employment in that company.
A private company may, by its articles, provide any other ground for the vacation of the office of a director in addition to these.
The company has to take the note of the same and hold the board meeting and consider the occurrence of the case/es mentioned in sub-section (1) of the Section 167 and file the form for change in board of director in the Form No. DIR.12 with the Registrar of the companies along with the fee as provided in Companies (Registration of Offices and Fees) Rules, 2014
Where all the directors of a company vacate their offices under any of the disqualifications specified above, the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in the general meeting.
- Removal of Director
(Applicable Provisions: Section 169 of the Act.)
A company may by passing ordinary resolution in general meeting remove a director other than the director appointed by National Company Law Tribunal under section 242 and the director appointed by way of proportional representation under section 163 of the Companies Act, 2013.
Further to be noted that an independent director appointed for the second term can be by passing special resolution in the general meeting. The company shall give the opportunity of being heard to a director being removed.
(Concept of special notice to remove the director)
Special notice is required to remove the director or to appoint somebody in his place. On receipt of notice of a resolution to remove a director, the company shall forthwith send a copy thereof to the director concerned, and the director, whether or not he is a member of the company, shall be entitled to be heard on the resolution at the meeting. The company shall issue notice for holding general meeting of shareholders and the representation if any received from the director, to be removed, may also be sent with notice if time allowed to do so and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company’s default, the director may without prejudice to his right to be heard orally require that the representation shall be read out at the meeting.
copy of the representation need not be sent out and the representation need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the tribunal is satisfied that the rights conferred to director are being abused to secure needless publicity for defamatory matter; and the tribunal may order the company’s costs on the application to be paid in whole or in part by the director notwithstanding that he is not a party to it.
The Company shall, within 30 days of passing of resolution, intimate the Registrar in Form No. DIR.12 along with such fee as may be provided in Companies (Registration of Offices and Fees) Rules, 2014 and post the information on its website, if any.
A vacancy created by the removal of a director, if he had been appointed by the company in general meeting or by the Board, be filled by the appointment of another director in his place at the meeting at which he is removed, provided special notice of the intended appointment has been given.
Here in this article, provisions relating to Appointment, Resignation and Removal of company directors has been discussed and summed up. Hope the article will be helpful to the readers and will help them in compliance of the related provisions.