Lesson 16

Directors

Appointment of a Director is a crucial administrative and procedural requirement that has to be fulfilled
by every company. Directors of a company are individuals that are elected as, or elected to act as,
representatives of the stockholders to establish corporate management related policies and to make
decisions on major issues concerning business of the company. The success of the company depends, to
a very large extent, upon the competence and integrity of its directors.

INTRODUCTION

. Section 2(34) of the Act prescribed that “director” means a director appointed to the Board of a
company.

Section 2(10) of the Companies Act, 2013 defined that “Board of Directors” or “Board”, in relation to a
company, means the collective body the directors of the company The term ‘Board of Directors’ means
a body duly constituted to direct, control and supervise the affairs of a company

Section 149 of the Companies Act, 2013, the Board of Directors of every company shall consist of
individual only. Thus, no body corporate, association or firm shall be appointed as director

Section 166 (6) of Companies Act, 2013, prohibits assignment of office of director to any other person.
Any assignment of office made by a director shall be void.

DIRECTOR IDENTIFICATION NUMBER (DIN)

Section 152 (4) mandates that every person proposed to be appointed as a director by the company in
general meeting or otherwise, shall furnish his Director Identification Number or such other number as
may be prescribed under section 153 and a declaration that he is not disqualified become a director
under this Act.

As per Section 153 of the Act, every individual intending to be appointed as director in an existing
company shall make an application electronically in Form DIR-3 for allotment of DIN to the Central
Government along with the prescribed fees. Further, DINs to the proposed first directors (not having
approved till) in respect of new companies would be mandatorily required to be applied for in SPICe
forms (subject to a ceiling of 3 new DINs) only. Central government shall allot a DIN within one month of
application. A person appointed as a director shall give his consent in form DIR-2. Company shall file
Form DIR-12 (particulars of appointment of directors and KMP along with the form DIR-2 within 30 days
of the appointment of a director, necessary fee. In case of any appointment of director by Central
Government or State Government consent of director is not required.

Procedure for application for allotment of DINs to the proposed first Directors in respect of new
companies: E-Form SPICe (INC-32)

Procedure for application for allotment of DIN - Section 153 & Rule 9
Procedure for Application of DIN for foreign national

Procedure for Allotment of DIN- Section 154 and Rule 10

Intimation of changes in particulars of Director [Rule 12]

Cancellation/Surrender/Deactivation of DIN [ Rule 11]

GENERAL PROVISIONS REGARDING DIN

Proposed first director in a new company shall have to make an application through E-Form SPICe
along with the proof of Identity and address. E-Form SPICe (INC-32) deals with the single application for
reservation of name, incorporation of a new company and/or application for allotment of DIN and/or
application for PAN and TAN and/or issuance of Section 8 License Certificate. This eForm is
accompanied by supporting documents. On completion, company would be registered and CIN would be
allocated. Also DINs gets issued to the proposed Directors. Maximum three Directors are allowed for
using this integrated form.

Procedure for application for allotment of DIN - Section 153 & Rule 9

1 Application for allotment of DIN shall be made in Form DIR-3 to the Central Government along
with such fees as may be prescribed.
2 MCA 21 portal facilitates submission of application
3 download Form DIR-3 from the portal, fill in the required particulars and attaching proofs and
details

TYPES OF DIRECTORS

A director may either be executive director or non executive director. An executive director can be
either a Whole-time Director or a Managing Director. They are generally responsible for overseeing the
administration, programs and strategic plan of the organization. The position reports directly to the
Board of Directors.

TYPES OF DIRECTORS

A director so appointed may either be executive director or non-executive director. An Executive

Director can be either a Whole-time Director of the company or a Managing Director. The position
reports directly to the Board of Directors. A non-executive Director is a Director who is neither a Whole-
time Director nor a Managing Director.

First Director (Section 152)

As per section 152 where there is no provision made in articles of association of the company then the
subscribers to the memorandum who are individuals shall be deemed to be the first directors until the
directors are duly appointed.

Resident Director (Section 149(3))

Section 149(3) provides that every company shall have at least one director who has stayed in India for a
total period of not less than one hundred and eighty-two days during the financial year: a newly
incorporated company, period shall apply proportionately.

Women Director

Second proviso to Section 149(1) read Rule 3 of Companies (Appointment and Qualification of Directors)
Rules, 2014 following class of companies must have at least one Women Director.

• All Listed Companies

• Public companies

with paid up capital of Rs. 100 crore or more or

with turnover of Rs. 300 crore or more

Additionally for listed entities SEBI vide recent notification provides that the Board of directors of the
top 1000 listed entities shall have at least one independent woman director by April 1, 2020. The top
1000 entities shall be determined on the basis of market capitalization, as at the end of the immediate
previous financial year.

Director elected by Small Shareholders [Section 151]

As per section 151 of the Act every listed company may have one director elected by small
shareholders in such manner and on such terms and conditions.“Small shareholder” means a
shareholder holding shares of nominal value of not more than twenty thousand rupees or such other
sum as may be prescribed.

Terms & Conditions for Small Shareholders’ Director

Rule 7 of the Companies (Appointment and Qualification of Directors) Rules, 2014 laid down the
following terms and conditions for appointment of small shareholders’ director.

(i) Election of small shareholders’ director:

A listed company, may upon notice of not less than

(a) One thousand small shareholders; or

(b) one-tenth of the total number of such shareholders,

Whichever is lower; have a small shareholders’ director elected by the small shareholder. A ‘Small
Shareholder’s Director’ may be elected voluntarily by any listed company.

(ii) Notice of intention to propose a candidate

The small shareholders shall leave a signed notice of their intention with the company at least 14 days
before the meeting specifying their details and proposed director’s details.
(iii) Statement by the proposed small shareholders’ director:

The notice shall be accompanied by a statement signed by the proposed director for the post of small
shareholders’ director stating

(a) his Director Identification Number;

(b) that he is not disqualified to become a director under the Act; and

(c) his consent to act as a director of the company

(iv) Small shareholders’ director to be an independent director:

Small shareholders’ director shall be considered as an independent director, if

(a) he is eligible for appointment as an independent director as per section 149 (6); and

(b) he gives a declaration of his independence as per section 149(7).

(v) Tenure of office and no retirement by rotation:

The tenure of small shareholders’ director shall not exceed a period of 3 consecutive years and he shall
not be liable to retire by rotation and shall not be eligible for re-appointment after the expiry of his
tenure.

(vi) Grounds of disqualification:

Disqualifications of a small shareholders’ director are the same as that of any other director specified
under section 164 of the Act.

(vii) Grounds of vacation of office:

A Small shareholders’ director shall vacate the office if

(a) he ceases to be a small shareholder, on and from the date of cessation;

(b) he incurs any of the disqualifications specified in section 164;

(c) the office of the director becomes vacant in pursuance of section 167;

(d) he ceases to meet the criteria of independence as provided section 149 (6).

(viii) Number of small shareholders’ directorship:

A person shall not hold the office of small shareholders’ director in more than two companies. If second
company is in competitive business or is in conflict with business of the first company, he shall not be
appointed in second company.

(ix) No association with the company for next 3 years

He shall directly or indirectly not be appointed or associated in any other capacity with the company
either directly or indirectly for a period of 3 years from the date of cessation as a small shareholder’s
director.

Important points to note:

a) A small shareholders’ director may be removed by passing an ordinary resolution in the general
meeting in accordance with the provisions of section 169 of the Act. At the time of voting on such
resolution, every equity shareholder shall have a right to vote irrespective of the fact as to whether he is
a small shareholder or not.

b) A small shareholders’ director shall be included in the ‘total number of directors’ as prescribed under
section 152 (6) of the Act.

A small shareholders director shall be appointed through postal

Independent Directors

Section 149(4) read with Rule 4 of Companies (Appointment and Qualification of Directors) Rules, 2014
provides following companies to have specified number of independent directors.

• All listed public companies : At least 1/3rd of total number of directors as independent Directors
• Other public companies

with paid up capital of `10 crore or more, or

with turnover of `100 crore or more, o

with outstanding loans, debentures and deposits of `50 crore or more : At least 2 independent
Directors

However, the following classes of unlisted public company shall not be covered under sub-rule as above
(a) a joint venture; (b) a wholly owned subsidiary; and (c) a dormant company as defined under section
455 of the Act.

In case a company covered under this rule is required to appoint higher number of independents
directors due to composition of its audit committee and then they shall appoint such higher number of
independent directors.

Once the company covered under above sub-rule of Rule 4, ceases to fulfil any of three conditions for
three consecutive years then it shall not be required to comply these provisions until such time as it
meets any of such conditions.

Definition of an Independent Director – Section 149(6) An independent director means a director other
than a managing director or a whole-time director or a nominee director who does not have any
material or pecuniary relationship with the company/ directors. Basically, an independent director is a
non-executive director. Section 149(6) of the Act prescribes the criteria which are as follows:

(a) Who in the opinion of the Board (Ministry or Department of the Central Government which is
administratively in charge of the company, in case of Government company), or as the case may be, the
State Government, is a person of integrity and possesses relevant industrial expertise and experience;
(b) Such individual shall not be a promoter or related to promoter of the company or its holding,
subsidiary or associate company;

(c) Such individual who has or had no pecuniary relationship, other than remuneration as such director
or having transaction not exceeding ten per cent. of his total income or such amount as may be
prescribed, with the company, its holding, subsidiary or associate company, or their promoters, or
directors, during the two immediately preceding financial years or during the current financial year;

(d) none of whose relatives

(i) is holding any security of or interest in the company, its holding, subsidiary or associate company
during the two immediately preceding financial years or during the current financial year: Provided that
the relative may hold security or interest in the company of face value not exceeding fifty lakh rupees or
two per cent of the paid-up capital of the company, its holding, subsidiary or associate company or such
higher sum as may be prescribed;

(ii) is indebted to the company, its holding, subsidiary or associate company or their promoters, or
directors, in excess of such amount as may be prescribed during the two immediately preceding
financial years or during the current financial year;

(iii) has given a guarantee or provided any security in connection with the indebtedness of any third
person to the company, its holding, subsidiary or associate company or their promoters, or directors of
such holding company, for such amount as may be prescribed during the two immediately preceding
financial years or during the current financial year; or

(iv) has any other pecuniary transaction or relationship with the company, or its subsidiary, or its
holding or associate company amounting to two per cent. or more of its gross turnover or total income
singly or in combination with the transactions referred to in sub-clause (i), (ii) or (iii)

(e) He must not either directly or any of his relatives

(i) hold or has held the position of a key managerial personnel or is or has been employee of the
company or its holding, subsidiary or associate company in any of the three financial years immediately
preceding the financial year in which he is proposed to be appointed; Provided that in case of a relative
who is an employee, the restriction under this clause shall not apply for his employment during
preceding three financial years.

(ii) is or has been an employee or proprietor or a partner, in any of the three financial years
immediately preceding the financial year in which he is proposed to be appointed, of–
 (A) firm of auditors or company secretaries in practice or cost auditors of the company or its
holding, subsidiary or associate company; or

(B) any legal or a consulting firm that has or had any transaction with the company, its holding,
subsidiary or associate company amounting to ten per cent. or more of the gross turnover of such firm;
(iii) holds together with his relatives two per cent or more of the total voting power of the company; or

(iv) is a Chief Executive or director, by whatever name called, of any non-profit organisation that
receives 25% or more of its receipts from the company, any of its promoters, directors or its holding,
subsidiary or associate company or that holds 2% or more of the total voting power of the company,
then also he is not eligible for office of independent director; or

(f) who possesses such other qualifications as prescribed in Rule 5 of Companies(Appointment and
Qualification of Directors)Rules,2014 as an independent director shall possess appropriate skills,
experience and knowledge in one or more fields of finance, law, management, sales, marketing,
administration, research, corporate governance, technical operations or other disciplines related to the
company’s business.

1. None of the relatives of an independent director, for the purposes of sub-clauses (ii) and (iii) of clause
(d) of sub-section (6) of section 149:

(i) is indebted to the company, its holding, subsidiary or associate company or their promoters, or
directors ; or

(ii) has given a guarantee or provided any security in connection with the indebtedness of any third
person to the company, its holding, subsidiary or associate company or their promoters, or directors of
such holding company, for an amount of fifty lakhs rupees, at any time during the two immediately
preceding financial years or during the current financial year.”

Declaration by an Independent Director; Section 149 (7)

Act, prescribed that every independent director shall give a declaration that he meets the criteria of
independence when:

(a) he attends the first meeting of the Board as a director;

(b) thereafter at the first meeting of the Board in every financial year and

(c) whenever there is any change in the circumstances which may affect his status as an independent
director.

Remuneration of an Independent Director- Section 149(9

As per section 149(9) of the Act an independent director shall not be entitled to any stock option. He
may receive remuneration by way of

(a) sitting fee as may be approved by the members as provided under section 197(5) of the Act,
 (b) reimbursement of expenses incurred for participation in the Board and other committee
meetings and
(c) profit related commission subject to the provisions of Section 197 and 198
The independent director shall not be entitled to receive any “stock option”.

Term of an Independent Director- Section 149(10)

Subject to the provisions of Section 152, Term shall be of maximum 5 years. And term shall not be more
than 2 consecutive terms. And shall be re-appointed only by Special Resolution by the company in
general meeting and disclosure of such appointment is made in the Board’s report. An ID can also be
permissible for a term of less than 5 years and be treated as one term [Section 149(10)].

As per section 149(11) re-appointment (after two consecutive terms) can be only after expiration of
three years of ceasing to become an independent director but he must not be appointed/associated
with the company directly or indirectly in any other capacity during the said period of three years. No
person can hold office of ID for more than two consecutive term’s and shall have to demit office after
two consecutive terms, even if the total number of years is less than 10 years

As per [Section 149 (13)] retirement of directors by rotation is not applicable on Independent director.
The explanatory statement relating to their appointment should contain a declaration from the Board
that in their opinion, the independent directors satisfy the conditions provided in the Act for such
appointment

Vacancy of Independent Director: To be filled in the very next Board Meeting or within 3 months of
such vacancy, whichever is later.

Separate Meeting of Independent Director: The independent directors of the company shall hold at
least one meeting in a year, without the attendance of non-independent directors and members of
management;

Presence of Independent Director in Committees

• Audit committee shall consist of a minimum of three directors with ID s forming a majority.
• Nomination and Remuneration Committee shall consist of three or more non-executive
directors out of which not less than one-half shall be IDs
• Corporate Social Responsibility Committee shall consist of three or more non executive directors
out of which at least one should be an ID.

Obligations with respect to independent directors as per SEBI (LODR) 2015

ROLE OF INDEPENDENT DIRECTOR

Independent directors perform the following important role:.

 (i) Balance the often conflicting interests of the stakeholders.
(ii) Facilitate withstanding and countering pressures from owners.
(iii) Fulfill a useful role in succession planning.
(iv) Act as a coach, mentor and sounding Board for their full time colleagues.
(v) Provide independent judgment and wider perspectives.
As per Schedule IV of the Companies Act, 2013, the Independent Director shall –

1) Uphold ethical standards of integrity and probity;

2) act objectively and constructively while exercising his duties;

3) exercise his responsibilities in a bonafide manner in the interest of the company;

4) Devote sufficient time and attention to his professional obligations for informed and balanced
decision making;

5) Not allow any extraneous considerations that will vitiate his exercise of objective independent
judgment in the paramount interest of the company as a whole, while concurring in or dissenting from
the collective judgment of the Board in its decision making;

6) Avoid abusing his position to the detriment of the company or its shareholders or for the purpose of
gaining direct or indirect personal advantage or advantage for any associated person;

7) Refrain from any action that would lead to the loss of his independence;

8) Inform the Board immediately whose circumstances arise which makes an Independent Director lose
his independence;

9) Assist the company in ensuring best corporate governance practices. Facilitate withstanding and
countering pressures from owners.

Additional director Section 161(1)

Section 161)(1) of the Companies Act, 2013, provides that 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.

Alternate Director Section 161(2)

Section 161(2) of the Act empowers the Board, if so authorized by its articles or by a resolution passed
by the company in general meeting, to appoint a person, not being a person holding any alternate
directorship for any other director in the company or holding directorship in the same company, to act
as an alternate director for a director during his absence for a period of not less than three months from
India:
 Applicability:

Section 161(2) of the Act applies to all companies, whether public or private

Conditions for appointment

(a) The Board of Directors of a company must be authorised by its articles or by a resolution passed by
the company in general meeting for appointment of the alternate director.

(b) The person in whose place the Alternate Director is being appointed should be absent for a period of
not less than 3 months from India.

(c) The person to be appointed as the Alternate Director shall be the person other than the person
holding any alternate directorship for any other Director in the company or holding directorship in the
same company.

(d) If it is proposed to appoint an Alternate Director to an Independent Director the proposed appointee
also satisfies the criteria of Independence as per section 149(6) of the Act.

Method of appointment:

The right to appoint an alternate director vests in the Board. An alternate director shall be appointed by
passing a resolution at a Board meeting or a resolution by circulation

Terms of office of an alternate director:

(a) An alternate director shall not hold office for a period longer than that permissible to the director in
whose place he has been appointed. If the original director ceases to be a director by reason of death or
vacation of office under section 167, the alternate director shall immediately cease to hold his office.

(b) The alternate director shall vacate his office when the original director in whose place he has been
appointed returns to India.

Automatic reappointment applies to the original director: If the term of office of an original director
expires before he returns back to India, the provision for automatic reappointment of a director as
envisaged under section 152(7)(b) shall be applicable to the original director, and not to the alternate
director.

SEBI vide notification with effect from October 1, 2018 provides that no person shall be appointed or
continue as an alternate director for an independent director of a listed entity.

As per section 165, an alternate directorship in a company shall also be included while counting the
number of directorships held by a director.

Nominee director
Section 161(3) of the Companies Act, 2013, provides that 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.

Professional director

Director having specialised knowledge and skill in a particular field and contribute decision making of
the board may be appointed as professional director. For example, a doctor may be a professional
director in a hospital company.

Appointment of Directors in casual vacancy

Section 161(4), 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 which shall subsequently approved by the members in the immediate next general
meeting. The person so appointed shall hold office only up to the day up to which the director in whose
place he has been appointed, would have held office if he had not vacated as aforesaid. Where a person
appointed by the Board vacates his office, it is not a case of casual vacancy and cannot be filled by the
Board in the place.

APPOINTMENT/ REAPPOINTMENT, DISQUALIFICATIONS, VACATION OF OFFICE, RETIREMENT,

RESIGNATION AND REMOVAL, AND DUTIES OF DIRECTORS

Appointment of directors to be voted individually- Section 162(1)

A single resolution shall not be moved for the appointment of two or more persons as directors of the
company unless a proposal to move such a motion has first been agreed to at the meeting without any
vote being cast against it. A resolution moved in contravention of aforesaid provision shall be void

This provision is not applicable to a private company and Specified IFSC public company. This provision
shall not apply to

• a Government Company( in which the entire paid up share capital is held by Governments):
• a subsidiary of a Government company, referred to in above

Number of Directorships [Section 165]

According to Section 165, no person shall hold office as a director, including any alternate directorship,
in more than twenty companies at the same time. The maximum number of public companies in which a
person can be appointed as a director shall not exceed ten and the limit also include directorship in
private companies that are either holding or subsidiary company of a public company. The directorship
in a dormant company shall not be included.
SEBI vide recent notification provides that directorships shall comply with the following conditions

(1) A person shall not be a director in not more than seven listed entities with effect from April 1,
2020: further a person shall not serve as an independent director in more than seven listed
entities.
(2) Notwithstanding the above, any person who is serving as a whole time director / managing
director in any listed entity shall serve as an independent director in not more than three listed
entities.

Appointment of First Director

The first directors of most of the companies are named in their articles. Regulation 60 of Table F
provides that the number of the directors and the names of the first directors shall be determined in
writing by the subscribers of the memorandum or a majority of them. If they are not so named in the
articles of a company, then subscribers to the memorandum who are individuals shall be deemed to be
the first directors of the company until the directors are duly appointed.

In the case of a One Person Company, an individual being a member shall be deemed to be its first
director until the director(s) are duly appointed by the member in accordance with the provisions of
Section 152.

Appointment of Directors by Members at General Meeting

A person appointed as director shall not act as director unless he gives his consent and such consent in
Form DIR - 2 has been filed with the registrar within thirty days of his appointment The company shall,
file such consent with the Registrar in form DIR12 within thirty days. IFSC public company shall file such
consent in sixty days. According to Section 152, every director shall be appointed by the company in
general meeting.

Under section 152(6), articles of a company may provide that all directors of the company shall be
retiring by rotation. Unless the article provides for the retirement of all the directors at every AGM, not
less than 2/3rd of the total number of directors of a public company shall liable to be retired by rotation.
Directors retired by rotation can be reappointed in general meeting. At the first annual general meeting
of a public company held next after the date of the general meeting at which the first directors are
appointed and at every subsequent annual general meeting, one-third of such of the directors for the
time being as are liable to retire by rotation, or if their number is neither three nor a multiple of three,
then, the number nearest to one-third, shall retire from office. The directors those who have been
longest in office since their last appointment shall be liable to retire, but as between persons who
became directors on the same day, shall, in default of and subject to any agreement among themselves,
be determined by lot.

As per Section 152(7) (a) if the vacancy of the retiring director is not filled-up and the meeting has not
expressly resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the next
week, at the same time and place, or if that day is a national holiday, till the next succeeding day which
is not a holiday, at the same time and place.

As per Section 152(7)(b), if at the adjourned meeting also, the vacancy of the retiring director is not
filled up and that meeting also has not expressly resolved not to fill the vacancy, the retiring director
shall be deemed to have been re-appointed at the adjourned meeting, unless –

i. at that meeting or at the previous meeting a resolution for the re-appointment of such director has
been put to the meeting and lost;

ii. the retiring director has, by a notice in writing addressed to the company or its Board of directors,
expressed his unwillingness to be so re-appointed;

iii. he is not qualified or is disqualified for appointment;

iv. a resolution, whether special or ordinary, is required for his appointment or re-appointment by
virtue of any provisions of this Act; or

v. section 162 is applicable to the case.

Sub-section (6) and (7) of Section 152 shall not apply to

• a Government company,( which is not a listed company in which not less than fifty-one per
cent. of paid up share capital is held- by- the )
• a subsidiary of a Government company, referred to in above

Procedure for re-appointment of the retiring director at the Annual General Meeting

Right of persons other than retiring directors to stand for directorship [Section 160]

1. A person who is not a retiring director shall be eligible for appointment to the office of a director
at any general meeting, if he, or some member intending to propose him has to left at the
registered office of the company a notice in writing not less than fourteen days before the
meeting, Such a person may be a member or a non-member, an additional director or a director
to fill a casual vacancy or an alternate director or a nominee director.
2. notice must come along with the deposit of one lakh rupees or such higher amount as may be
prescribed which shall be refunded to such person or, as the case may be, to the member, if the
person proposed gets elected as a director or gets more than twenty five per cent of total valid
votes cast either on show of hands or on poll on such resolution.

In case of Nidhi company, the deposit of Rupees ten thousand is required with the notice. Deposit of
amount shall not apply in case of appointment of an independent director or a director
recommended by the NRC under section 178 (1) or a director recommended by the Board of
Directors of the Company
 3. Section 160 is not applicable to Government Company where the entire paid up share capital is
held by Central Government jointly or severally or in case of subsidiary of Government Company
in which the entire paid up capital is held by that Government Company.
Further, Section 160 is not applicable to Private Companies, Section 8 Companies whose article
provide for election of directors by Ballot.

Procedure for appointment of a director other than a retiring director at the Annual General
Meeting

Appointment of Independent directors [Section 149(10)]

(1)Independent director may be selected from Databank. While selecting independent directors
the Board shall ensure that there is appropriate balance of skills, experience and knowledge in
the board to discharge its functions and duties effectively. Appointment process shall be
independent of the company management;
(2) The shareholders approval at the meeting is required.
(3)The explanatory statement attached to the notice of the meeting for approving the
appointment of ID shall include a statement that in the opinion of the Board proposed ID fulfils
the conditions specified in the Act and the rules and is independent of the management.
(4) A letter of appointment of ID shall set out
• The term of appointment
• The expectation of the Board
• The fiduciary duties along with accompanying liabilities
• Directors and Officers insurance
• The Code of Business Ethics expects to follow
• The list of actions that a director should not do
• The remuneration
(5) The terms and conditions of appointment of independent directors shall be open for
inspection at the registered office of the company by any member during normal business hours
and also be posted on the company’s website.
(6)ID shall hold office for a term of upto 5 consecutive years of a company. [Section 149(10)]
Re-appointment of Independent directors Section 149(11)
The re-appointment of ID shall be on the basis of report of performance evaluation. As per
Section 149(11) the Independent Director shall be eligible for re-appointment on passing of
special resolution. He shall not hold office for more than 2 consecutive terms, but such
independent director shall be eligible for appointment after the expiration of 3 years of ceasing
to become an independent director. However, during the said period of 3 years, he shall not be
appointed in or be associated with the company in any other capacity, either directly or
indirectly.

APPOINTMENT OF DIRECTORS BY BOARD

Procedure for appointment of Additional Director

Procedure for appointing Directors in casual vacancy

Procedure for Appointment of an Alternate Director

Appointment of Directors by Tribunal

As per [Section 242(2)(k) the Tribunal on an application made under section 241, i.e., for relief in cases
of oppression may provide order for appointment of such numbers of persons as directors of the
company and ask them to report to the Tribunal on matters as the it may direct

The directors, so appointed, may or may not be the members of the company. For the purpose of
reckoning two thirds or any other proportion of the total number of directors of the company, any
director or directors appointed by the Tribunal shall not be taken into account. Such director or directors
shall not liable to retirement by rotation. But they can be removed by the Tribunal at any time and other
persons can be appointed by it in their place. Where the directors have been appointed by the Tribunal,
it may also issue such directions to the company, as it may consider necessary or appropriate in regard
to their affairs.

Appointment of Director by system of Proportional Representation section 163

According to section 163 the articles of a company may provide for the appointment of not less than
two-thirds of the total number of the directors of a company in accordance with the principle of
proportional representation, whether by the single transferable vote or by a system of cumulative
voting or otherwise and such appointments may be made once in every three years and casual
vacancies of such directors shall be filled as provided in section 161(4).

In case of Government Companies, section 163 shall not apply to –

(a) a Government Companies( in which the entire paid up share capital is held by the Government),

(b) a subsidiary of a Government Company, referred to in (a) above,

Appointment of Nominee Directors

Section 149(7) defines, “nominee director” means a director nominated by any financial institution in
pursuance of the provisions of any law for the time being in force, or of any agreement, or appointed by
any Government, or any other person to represent its interests. Nominee Director shall not be deemed
to be independent director as per Section 149(6). [Section 149(7) is not applicable to a Specified IFSC
public company

Power to appoint and terminate nominees on their Boards is conferred by incorporating appropriate
provisions in the financial assistance agreement and by alters their articles of association .They are not
liable to retire by rotation .They cannot be removed by the company

Appointment of Directors to be elected by Small Shareholders

Rule 7 of the Companies (Appointment and Qualification of Directors) Rules, 2014

Procedures are same for all directors

Disqualifications for Appointment of Director (section 164)

Section 164(1) provides that a person shall not be eligible for appointment as a director of a company, if
(a) He is of unsound mind and stands so declared by a competent court;

(b) He is an undischarged insolvent;

(c) He has applied to be adjudicated as an insolvent and his application is pending;

(d) 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. Provided that 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.

(e) An order disqualifying him for appointment as a director has been passed by a court or Tribunal and
the order is in force;

(f) 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;

(g) 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

(h) He has not complied with section 152(3)

(i) If he accepts directorships exceeding the maximum number of directorships provided in section 165.

Section 164(2) also provides that no person who is or has been a director of a company which –

(a) Has not filed financial statements or annual returns for any continuous period of three financial
years; or

(b) Has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures
on the due date or pay 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 or appointed in other company for a
period of five years from the date on which the said company fails to do so.

Provided that where a person is appointed as a director of a company which is in default of clause (a) or
clause (b), he shall not incur the disqualification for a period of six months from the date of his
appointment.

In case of Government Companies, section 164(2) shall not apply

Every director shall inform to the company concerned about his disqualification under section 164(2), if
any, in Form DIR-8 before he is appointed or re-appointed.

Whenever a company fails to do, as specified in -section164 (2), the company shall immediately file
Form DIR-9, to the Registrar furnishing therein the names and addresses of all the directors of the
company during the relevant financial years. When a company fails to file the Form DIR-9 within a
period of thirty days of the failure that would attract the disqualification under section 164(2), officers
of the company specified in section 2(60) of the Act shall be the officers in default. Upon receipt of the
Form DIR-9 the Registrar shall immediately register the document and place it in the document file for
public inspection.

Any application for removal of disqualification of directors shall be made in Form DIR-10. However, a
private company may by its articles provide for any disqualifications for appointment as a director in
addition to those specified in sub-sections (1) and (2).The disqualifications referred to in clauses (d), (e)
and (g) of sub-section (1) shall continue to apply even if the appeal or petition has been filed against the
order of conviction or disqualification.

Removal of Directors (section169)

Under section 169 of the Act, a company may, by ordinary resolution remove a director before the
expiry of the period of his office. The provisions of section 169 shall apply regardless of the way in which
the director concerned was appointed and notwithstanding anything contained in the articles of the
company or any agreement with the director concerned.

Removal of Director by Shareholders

According to Section 169, a company may, by ordinary resolution, remove a director, not being a
director appointed by the Tribunal under section 242, before the expiry of the period of his office after
giving him a reasonable opportunity of being heard. The provision relating to removal shall not apply
where the company has availed itself of the option to appoint not less than two – thirds of the total
number of directors according to the principle of proportional representation.

Procedure for Removal of Director

1. A special notice from a member proposing an ordinary resolution for removing the director is
necessary.

2. Send a copy of the special notice to the director proposed to be removed.

3. Decision to call a general meeting through the Board resolution.

4. Issue notice of the general meeting in writing at least twenty-one clear days before the date of the
meeting informing about the special notice and proposing the ordinary resolution for removal.
5. In the notice of the meeting, state the facts of the representation made by the director concerned
and also send a copy of the representation to every member of the company (whether before or after
the receipt of the representations by the company).

6. If the representation is received too late and it could not be sent to the members, the director
concerned may require that the representation shall be read out at the meeting. The director concerned
has also the right of being heard at the meeting.

7. However, the National Company Law Tribunal on an application of the company or any other person
who claims to be aggrieved, on having satisfied, may dispense with the procedure of sending a copy of
representation and reading thereof at the meeting if it is being used to secure needless publicity for
defamatory matter.

8. In case of listed company, send notice of the general meeting to the stock exchange(s) within 24
hours of the occurrence of the event where the company is listed [Refer regulation 30(6) of SEBI (Listing
Obligations and Disclosure Requirements) Regulations, 2015].

9. Hold the general meeting and pass the proposed resolution by ordinary resolution.

10. In case of listed company, forward a copy of the proceedings of the meeting within 24 hours of the
occurrence of the event to the stock exchange(s) where the company is listed.

11. The company has to file particulars of director in Form DIR – 12 with the Registrar of Companies
within thirty days of the removal after paying the requisite fee electronically. For the purpose of filing
Form DIR – 12, the following attachments are required:

(a) Notice of resignation;

(b) Evidence of Cessation;

(c) Interest in other entities;

Ensure that said Form is digitally signed by managing director or manager or secretary of the company
and also certified by a Company Secretary or Chartered accountant or Cost accountant in Whole time
practice by digitally signing it.

The particulars have to be modified in the registers maintained under Sections 170 and 189.

13. Give a general public notice in newspaper regarding removal of the director if it is so warranted for
the protection of the company and benefit of the general public.

Removal of Director by the National Company Law Tribunal

Where an application has been made to the National Company Law Tribunal under Section 241 of the
Companies Act 2013 for prevention of oppression or mismanagement and the Tribunal has conducted
its proceedings on the application, it has the power under Section 242(2)(h) of the Act, to remove any
director
Vacation of Office by Director (section 167)

The office of a director shall become vacant in case

(a) he incurs any of the disqualifications specified in section 164; the office of the director shall become
vacant in all the companies, other than the company which is in default under that sub-section.

(b) he 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.

On vacation of office of director, the company is required to file Form DIR – 12 to the Registrar of
Companies.

If the office held by any director has become vacant on the ground of disqualification provided above
and the concerned director continues to function, he shall be punishable with imprisonment for a term
which may extend to one year or with fine which shall not be less than one lakh rupees but which may
extend to five lakh rupees, or with both.

Resignation of Directors(section168)
According to section 168 –

1. A director may resign from its office by giving a notice with the reasons of resignation in writing to
the company.

2. The Board shall on receipt of such a notice from a director shall take note of the same.

3. The company shall within 30 days from the date of receipt of notice of resignation from a director,
intimate the registrar in Form DIR-12 and post the information on its website if any as provided in Rule
15 of the companies (Appointment and Qualification of Directors) Rules, 2014.

4. The board shall place the facts of such resignation by the director in the Report of Directors laid in
immediately following general meeting by the company.

5. The Director may within 30 days from his resignation, forward to the registrar a copy of his
resignation along with reasons in Form DIR-11 along with the fee provided.

6. The resignation shall be effective from the date on which the notice is received by the company or the
date specified by the Director in the notice whichever is later.

7. When all the Directors resign at the same time under section 167, in such case the required number
of directors are to be appointed by the promoter or in his absence, the Central Government. The
Directors so appointed shall hold office till the Directors are appointed by the company in general
meeting.

The proviso to section 168(2) of Companies Act, 2013 clarifies that the Director who shall be liable even
after his resignation for the offences which occurred during his tenure.

Rights and Duties of directors [Section 166]

1. Duty to act as per the articles of the company

2. Duty to act in good faith
3. Duty to exercise due care
4. Duty to avoid conflict of interest
5. Duty not to make any undue gain
6. Duty not to assign his office

Punishment for contravention

If a director of the company contravenes the provisions of this section such director shall be
punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh
rupees.

Loans to Directors (Section 185)

As per section 185

(1)No company shall, directly or indirectly, advance any loan, including any loan represented by a
book debt to, or give any guarantee or provide any security in connection with any loan taken by,—

(a) any director of company, or of a company which is its holding company or any partner or relative
of any such director; or

(b) any firm in which any such director or relative is a partner.

(2) A company may advance any loan including any loan represented by a book debt, or give any
guarantee or provide any security in connection with any loan taken by any person in whom any of
the director of the company is interested, subject to the condition that—

(a) A special resolution is passed by the company in general meeting: the explanatory statement to
the notice shall disclose the full particulars and the purpose for which it is proposed to be utilised by
the recipient and any other relevant fact; and

(b) the loans are utilised by the borrowing company for its principal business activities.

“Any person in whom any of the directors of the company is interested” means—

(a) any private company of which any such director is a director or member;

(b) any body corporate at a general meeting of which not less than twenty-five per cent. of the total
voting power may be exercised or controlled by any such director, or by two or more such directors,
together; or

(c) any body corporate, the Board of directors, managing director or manager, whereof is
accustomed to act in accordance with the directions or instructions of the Board, or of any director
or directors, of the lending company.

(3) Nothing contained in sub-sections (1) and (2) shall apply to—

(a) the giving of any loan to a managing or whole-time director—

(i) as a part of the conditions of service extended by the company to all its employees; or

(ii) pursuant to any scheme approved by the members by a special resolution; or

(b) a company which in the ordinary course of its business provides loans or gives guarantees or
securities for the due repayment of any loan and in respect of such loans an interest is charged at a
rate not less than the rate of prevailing yield of one year, three years, five years or ten years
Government security closest to the tenor of the loan; or

(c) any loan made by a holding company to its wholly owned subsidiary company or any guarantee
given or security provided by a holding company in respect of any loan made to its wholly owned
subsidiary company; or
(d) any guarantee given or security provided by a holding company in respect of loan made by any
bank or financial institution to its subsidiary company: Provided that the loans made under clauses
(c) and (d) are utilised by the subsidiary company for its principal business activities.

(4) If any loan is advanced or a guarantee or security is given or provided or utilised in

contravention of the provisions of this section,—

(i) the company shall be punishable with fine which shall not be less than five lakh rupees but which
may extend to twenty-five lakh rupees;

(ii) every officer of the company who is in default shall be punishable with imprisonment for a term
which may extend to six months or with fine which shall not be less than five lakh rupees but which
may extend to twenty-five lakh rupees; and

(iii) the director or the other person to whom any loan is advanced or guarantee or security is given
or provided in connection with any loan taken by him or the other person, shall be punishable with
imprisonment which may extend to six months or with fine which shall not be less than five lakh
rupees but which may extend to twenty-five lakh rupees, or with both.

Exemption for applicability of section 185

Section 185 shall not apply to Private Company subject to the following conditions:

(a) In whose share capital no other body corporate has invested any money

(b) If the borrowings of such company from banks or financial institutions or any body corporate is
less than twice of its paid up share capital or fifty crore rupees, whichever is lower and

(c) Such a company has not defaulted in repayment of such borrowings subsisting at the time of
making transactions under this section.

Section 185 shall not apply to Nidhi Company if the loan is given to a director or his relative in their
capacity as member and such transaction is disclosed in the annual accounts by a note. Section 185
shall not apply to Government Company in case such company obtains approval of the Ministry or
Department of the Central Government which is administratively in charge of the company or, as
the case may be, the State Government.

Disclosures by a director of his interest Section 184

Section 184 (1) states that 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 such
manner as may be prescribed in Rule 9.
 Rule 9 of Companies (Meetings of Board and its Powers) Rules, 2014

(1) Every director shall disclose his concern or interest (including shareholding interest), by giving a
notice in writing in Form MBP 1.
(2) the director giving notice of interest to cause it to be disclosed at the meeting held immediately
after the date of the notice
(3) All notices shall be kept at the registered office and preserved for a period of eight years from
the end of the financial year to which it relates and shall be kept in the custody of the company
secretary or any other person authorised by the Board for the purpose.

Register of Directors and Key Managerial Personnel and their shareholding Section 170

As per Section 170 every company should maintain a register containing the prescribed particulars
of all its directors and KMP and their shareholding.

The provisions of section 170 read with Rule 17 and Rule 18 of the Companies (Appointment and
Qualification of Directors) Rules, 2014 are as follows:

(i) Every company shall keep at its registered office a register containing such particulars of
its directors and KMP and which shall include details of securities held by each of them
in the company or its holding, subsidiary, subsidiary of its holding companies or
associate companies. [Section 170(1)]
(ii) A return containing such particulars and documents shall be filed with the Registrar in
e-form DIR-12 within 30 days from the appointment or of any change taking place of
every director and KMP. [Section 170(2)]

Section 170 shall not apply to Government Company, in which the entire share capital is held by
the Governments,

. In case of Specified IFSC Public Company and Specified IFSC Private Company - In section 170(2)
“thirty days” at both places read as “sixty days

Member’s right to inspect (Section 171)

(i) The register of directors and KMP kept shall be open for inspection during business hours and
the members shall have the right to take extracts there from and copies thereof, on request and
will be provided within 30 days free of cost. [Section 171(1)(a)]
(ii) Such register shall also be kept open for inspection at every annual general meeting of the
company and shall be made accessible to any person attending the meeting. [Section 171(1)(b)]
(iii) If any inspection during business hours is refused, or if any copy required as above is not sent
within thirty days from the date of receipt of such request, the Registrar shall on an application
made to him order immediate inspection and supply of copies required there under. [Section
171(2)]
In case of Government Company - Section 171 shall not apply to Government Company in
which the entire share capital is held by the Central Government, or by any State Government or
Section 184 Governments or by the Central Government or by one or more State Governments.
As per Rule 23A of the Companies (Incorporation) Rules, 2014
Rule 12A of the Companies (Appointment and Qualifications of Directors) Rules, 2014