JAMIA MILLIA ISLAMIA

FACULTY OF LAW

CORPORATE LAW-I

“APPOINTMENT, QUALIFICATION AND REMOVAL

OF DIRECTORS”

NAME MADIAH SHAHJAR

ROLL NO 33
STUDENT ID 20182855
SEMESTER VI – REGULAR

B.A.LL.B (H) 2018 - 2023

1
 TABLE OF CONTENT

Sl. No. CONTENT PAGE NO

1. ACKNOWLEDGEMENT 3

2. INTRODUCTION 4

3. APPOINTMENT OF DIRECTORS 5

4. QUALIFICATIONS FOR THE APPOINTMENT OF 11

DIRECTOR

5. REMOVAL OF DIRECTORS 13

6. BIBLIOGRAPHY 17

2
 ACKNOWLEDGEMENT

Firstly, I would like to express my profound sense of gratitude towards the Almighty for
providing me with the authentic circumstances, which were mandatory for the completion of my
research work.

Further, I am also thankful to Dr. Mohd. Qazi Usman, for his invaluable support,
encouragement, supervision and useful suggestions throughout this research work. His moral
support and continuous guidance enabled me to complete my work successfully. His intellectual
thrust and blessings motivated me to work rigorously on this study. In fact, this study could not
have seen the light of the day if his contribution had not been available. It would be no
exaggeration to say that it is his unflinching faith and unquestioning support that has provided
the sustenance necessary to see it through to its present shape.

Madiah Shahjar

VI – Semester (Regular)

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 APPOINTMENT, QUALIFICATION AND REMOVAL OF DIRECTORS

1. INTRODUCTION

The company must have 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 a 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, bypassing members special resolution. 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 in the previous calendar year.

In respect of some specified class of companies independent director and women,

director is required to be appointed to 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 fulfilment of the conditions specified in
the Act.1

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 do not apply to the Independent Director. The supreme executive authority
controlling the management and affairs of a company vests in the team of directors of the
company, collectively known as its Board of Directors. At the core of the corporate governance,
practice is the Board of Directors which oversees how the management serves and protects the
long-term interests of all the stakeholders of the Company. 2 The institution of the board of
directors was based on the premise that a group of trustworthy and respectable people should

1
Compliance Calendar LLP, Law Relating to Appointment, Resignation & Removal of Company Directors,
COMPLIANCECALENDAR.IN (Sep. 22, 2016), https://blogs.compliancecalendar.in/law-relating-to-appointment-
resignation-removal-of-company-directors-15
2
Addition or Removal of Directors, BUSINESSWINDO (March 15, 2017), http://www.businesswindo.com/add-
director-in-company.php

4
look after the interests of a large number of shareholders who are not directly involved in the
management of the company. The position of the board of directors is that of trust as the board is
entrusted with the responsibility to act in the best interests of the company.
Although the Board comprises individual directors, yet the actions and deeds of directors
individually functioning cannot bind the company, unless a particular director has been
specifically authorised by a Board resolution to discharge certain responsibilities on behalf of the
company.3

The Companies Act, 2013 does not contain an exhaustive definition of the term
“director”. Section 2 (34) of the Act prescribed that “director” means a director appointed to the
Board of a company.4 A director is a person appointed to perform the duties and functions of the
director of a company in accordance with the provisions of the Companies Act, 2013.

2. APPOINTMENT OF DIRECTORS

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. 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. Two or more independent directors are required to be on the Board of a public
company which is having paid up share capital of ten crore rupees or more or having a turnover
of one hundred crore rupees or more; or which have, in aggregate, outstanding loans, debentures
and deposits, exceeding fifty crore rupees. And the companies which have public deposits or
borrowed money from banks and public financial institutions in excess of fifty crore rupees, the

3
ICSI, Appointment and Qualifications of Directors, INSTITUTE OF COMPANY SECRETARIES OF INDIA (2013),
https://www.coursehero.com/file/25022429/APPOINTMENT-AND-QUALIFICATIONS-DIRECTORSpdf/
4
Id

5
Board of directors shall establish a vigil mechanism, to which other directors and employees may
report their concerns.
Further, 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 in the
Companies Act 2013 i.e. Appointment of the Additional Director, Alternate director and
Nominee 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 and he gives his consent to hold the
office as director and such consent has been filed with the Registrar within thirty days of his
appointment.5
According to section 255, the director must be appointed by the company in general
meeting. In the case of a public company or of a private company which is a subsidiary of a
public company, unless the articles provide for the retirement of all directors at every annual
general meeting, at least two-thirds of a total number of directors must be persons whose period
of office is liable to determination by rotation. In other words, only one-third of the total number
of directors can be non-rotational directors. Appointment of directors in case of a private
company which is not a subsidiary of a public company-In case of a private company, which is
not a subsidiary of a public company, if the articles are silent as to the appointment of directors,
or do not specifically provide for appointment of directors otherwise than in a general meeting,
then the directors are to be appointed in general meeting by the shareholders [Section 255(2)] as
interpreted by the Calcutta High Court in the case of Swapan Das Gupta v. Navin Chand
Suchiantij6. Further, Section 256 provides that one-third of the directors subject to retirement by
rotation must retire at an annual general meeting. It follows that all such directors must retire in
the course of three years, one-third of them retiring in each year. The directors to retire by
rotation at every annual general meeting shall be those who have been longest in office since
their last appointment. As between persons appointed on the same day, retirement is to be
determined by mutual consent and in case of default, by lots [Section 256(2)]. If the directors do
not hold a general meeting in time, can they continue until the meeting is held? The Delhi High

5
Smriti Wadehra, DIN APPLICATION & ALLOTMENT- THE AMENDMENTS, VINOD KOTHARI CONSULTANTS
(Jan. 26, 2018), http://vinodkothari.com/blog/din-application-allotment-the-amendments/
6
1988 64 CompCas 562 Cal

6
Court in B.R. Kundra V. Motion Picture Association7, held that directors cannot prolong their
tenure by not holding a meeting in time. The directors due to retire by rotation must vacate office
at the latest on the last day on which an annual general meeting ought to have been held. Retiring
directors are, however, eligible for re-election.

2.1 APPOINTMENT OF INDEPENDENT DIRECTORS

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 fulfils the conditions specified in this Act
for such an appointment.8 Both the company and the ID shall abide by the provisions of the act
and a person appointed as a director shall not act as a director unless he gives his consent in
writing to hold the office as a 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, 2014.9 The two
third of the total numbers of the directors of the public company will be liable to be retired by
rotation. One-third of such director will retire by rotation at every annual general meeting. 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 as between persons who became directors on
the same day, those who are to retire shall, in default of and subject to any agreement among
themselves, be determined by lot. The company may fill up the vacancy by appointing the
retiring director or some other person at the annual general meeting at which a director retires.

Further, it is to be noted that the “First Director” of most of the companies are named in
their articles. 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

7
1977 SCC OnLine Del 51
8
Aishwariya Mohan Gahrana, INDEPENDENT DIRECTORS IN COMPANIES ACT 2013, AISHMGAHRANA (April
26, 2013), https://aishmghrana.me/2013/04/26/independent-directors-in-companies-act-2013/
9
Deen Dayalu v. Sri B.P. Reddy, (1984) 2 Comp. LJ 396

7
member in accordance with the provisions of Section 152.10 Now let us look upon the general
provisions relating to appointment of directors, which are as follows: -
1. Except as provided in the Act, every director shall be appointed by the company in
general meeting.

2. Director Identification Number is compulsory for the appointment of a director of a

company.

3. Every person proposed to be appointed as a director shall furnish his Director

Identification Number and a declaration that he is not disqualified to become a director
under the Act.

4. A person appointed as a director shall on or before the appointment give his consent to
hold the office of director in physical form DIR-2 i.e. Consent to act as a director of a
company. Company shall file Form DIR-12 (particulars of appointment of directors and
KMP along with the form DIR-2 as an attachment within 30 days of the appointment of a
director, necessary fee. {Rule8}

5. Articles of the Company may provide the provisions relating to retirement of all
directors. If there is no provision in the article, then not less than two-thirds of the total
number of directors of a public company shall be persons whose period of office is liable
to determination by retirement by rotation and eligible to be reappointed at the annual
general meeting. Further independent directors shall not be included for the computation
of a total number of directors. At the annual general meeting of a public company 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 to retire by rotation at every annual general
meeting shall be those who have been longest in office since their last appointment.

10
Tejpal Seth, Business Law, PEARSON (2017) ,
https://books.google.co.in/books?id=LxMwDwAAQBAJ&pg=PA490&lpg=PA490&dq=%22In+the+case+of+a+On
e+Person+Company,+an+individual+being+a+member+shall+be+deemed+to+be+its+first+director+until+the+direc
tor(s)+are+duly+appointed+by+the%22&source=bl&ots=KnDReMuOc0&sig=PaRTXOPRZf4M9l9EMmwGIyohn
QE&hl=en&sa=X&ved=2ahUKEwiVkOfH1rnaAhWIv48KHf2CAigQ6AEwAHoECAAQJw#v=onepage&q=%22I
n%20the%20case%20of%20a%20One%20Person%20Company%2C%20an%20individual%20being%20a%20mem
ber%20shall%20be%20deemed%20to%20be%20its%20first%20director%20until%20the%20director(s)%20are%2
0duly%20appointed%20by%20the%22&f=false

8
 At the annual general meeting at which a director retires as aforesaid, the company may
fill up the vacancy by appointing the retiring director or some other person thereto. If the
vacancy of the retiring director is not so 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. 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) a resolution for the re-appointment of such director has been put to the meeting
and lost;
(ii) the retiring director has 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 i.e. appointment of directors to be voted individually is applicable to
the case.

2.2 INDEPENDENT DIRECTORS

Section 2(47) of the Act prescribed that “Independent director” means an independent
director referred to in subsection (5) of section 149 of the Act. In fact, reference should have
been made to subsection (6) of 149 as it specified the qualifications of an independent director
with clarity. Every listed public company shall have at least one-third of the total number of
directors as independent directors (fraction is to be rounded off to one). Central Government has
prescribed under Rule 4, public companies with specified limits as on the last date of latest
audited financial statements mentioned below shall also have at least 2 directors as independent
directors: -
i. paid up share capital of Rs. 10 crore or more, or turnover of Rs. 100 crore or more
ii. in aggregate, outstanding loans/borrowings/ debentures/ deposits/ exceeding Rs. 50
crore or more.

9
 In case a company covered under this rule is required appoint a higher number of
independents directors due to the composition of its audit committee and then they shall appoint
such higher number of independent directors. Further, if there is any intermittent vacancy of an
independent director then it shall be filled up by the board of directors within 3 months from the
date of such vacancy or not later than immediate next board meeting, whichever is later. Once
the company covered under above sub-rule (i) to (iii) 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.

2.3 ELIGIBILITY OF INDEPENDENT DIRECTORS

Any Director other than Managing Director, Nominee Director, Whole-time Director,
Person of integrity or possessing relevant expertise and experience which are as follows: -

o who is or was not a promoter of the company, holding, subsidiary or associate company,
o Who is not related to the promoter or director in the company, its holding, subsidiary or
associate company,
o Who has or had no pecuniary relationship 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,
o None of whose relatives has or had pecuniary relationship or transaction with the
company, its holding, subsidiary or associate company or their promoters or directors,
amounting to 2% or more of its gross turnover or total income or Rs. 50,00,000/- or such
higher prescribed amount, whichever is lower, during 2 immediately preceding financial
years or during the current financial year,
o Who or his relative is or has not been holding the position of KMP or been an employee
of the company or its holding, subsidiary or associate company in any of three
immediately preceding financial years,
o Who or his relative is or has not been an employee or proprietor or a partner, in any of the
three immediately preceding financial years, of Auditor’s firm, Company Secretaries in
practice, Cost Auditors of the company, Legal or a consulting firm that has or had any
transaction amounting to 10% or more of the gross turnover of such firm

10
 o Who or his relative does not hold together 2% or more of the total voting power of the
company
o Who or his relative is not a Chief Executive or director of any NPO that receives 25% or
more of its receipts from the company, any of its promoters, directors or its holding,
subsidiary or associate company, or holds at least two percent of total voting power of the
company
o Who possess 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.

2.4 PUNISHMENT (SECTION 159 OF THE COMPANIES ACT, 2013)

If any individual or director of a company, contravenes any of the provisions of section

152/155/156 such individual or director of the company shall be punishable with imprisonment
for a term which may extend to 6 months or with fine which may extend to Rs. 50,000 and where
the contravention is a continuing one, with a further fine which may extend to Rs. 500 for every
day after the first day during which the contravention continues.11

3. QUALIFICATIONS FOR THE APPOINTMENT OF DIRECTOR

Section 164 of the Companies Act, 2013 lays down the provisions where 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. If a
person has been convicted of any offence and sentenced in respect thereof to

11
Aseem Trivedi, Director Identification Number, ACATE (2016), http://atcae.in/director-identification-number/

11
 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 got the DIN.

An additional disqualification is provided in subsection (2) of Section 164 relating to

consequences of non-filing of financial statements or annual returns. Any person who is or has
been director of any company which has not filed any financial statements and Annual Return
for 3 continuous financial year or has defaulted in payment of debentures/deposit/dividend etc,
shall also not be eligible for appointment as director of any public company and for
reappointment in the same company for a period of five years from the date on which the said
company fails to do so. Rule 14 prescribed that every director who disqualified u/s 164 (2), shall
inform the company concerned in Form DIR-8 (Intimation by Director) before he is appointed or
re-appointed. Whenever a company fails to file the financial statements/annual returns/fails to
repay any deposit, interest, dividend/fails to redeem its debentures as specified u/s 164 (2), the
company shall immediately file Form DIR-9 (Report by the company to Registrar), to the
Registrar furnishing therein the names and addresses of all the directors of the company during
the relevant financial years.12 But when a company fails to file the Form DIR-9 within a period
of 30 days of the failure it would attract the disqualification u/s 164(2), officers of the company
as specified u/s 2(60) shall be the officers in default. 13 Upon receipt of the Form DIR-9, the
Registrar shall immediately register the document and place it in the document file for public

12
ICSI, Appointment and Qualifications of Directors, INSTITUTE OF COMPANY SECRETARIES OF INDIA (2013),
https://www.coursehero.com/file/25022429/APPOINTMENT-AND-QUALIFICATIONS-DIRECTORSpdf/
13
Id

12
inspection. Any application for removal of disqualification of directors shall be made in Form
DIR-10.

A private company may by its articles provide for any disqualifications for appointment
as a director in addition to aforesaid mentioned Provided that the disqualifications referred to in
clauses (d), (e) and (g) of sub-section (1) shall not take effect—

(i) for thirty days from the date of conviction or order of disqualification
(ii) (ii) where an appeal or petition is preferred within thirty days as aforesaid against
the conviction resulting in sentence or order, until the expiry of seven days from
the date on which such appeal or petition is disposed of.
(iii) (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.

4. REMOVAL OF DIRECTORS

Removal of Directors in a company is defined under Section 169 and Section 242 of the
Companies Act, 2013 There are two ways through which the director can be Removed from his
position, they are as follows: -

i. Removal by Tribunal
ii. Removal by the Shareholder

4.1 REMOVAL BY TRIBUNAL

A company may remove a director except the director appointed by National Company
Law Tribunal u/s 242, before the expiry of the period of his office after giving him a reasonable
opportunity of being heard after passing the ordinary resolution.14 Provided that nothing
contained in this sub-section shall apply where the company has availed itself of the option given
to it under section 163 to appoint not less than two thirds of the total number of directors
according to the principle of proportional representation. A special notice shall be required of
any resolution, to remove a director under this section, or to appoint somebody in place of a

14
Addition or Removal of Directors, BUSINESSWINDO (March 15, 2017), http://www.businesswindo.com/add-
director-in-company.php

13
director so removed, at the meeting at which he is removed. On receipt of notice of a resolution
to remove a director under this section, 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. Where notice has been given of a resolution
to remove a director under this section and the director concerned makes with respect thereto
representation in writing to the company15 and requests its notification to members of the
company, the company shall, if the time permits it to do so: —

(a) in any notice of the resolution given to members of the company, state the fact of the
representation having been made; and
(b) send a copy of the representation to every member of the company to whom notice of the
meeting is sent (whether before or after receipt of the representation by the company),
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.

Provided that 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 by this sub-section
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. A vacancy created by the removal of a director under
this section may, 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 under sub-section
(2). A director so appointed shall hold office till the date up to which his predecessor would have
held office if he had not been removed. If the vacancy is not filled under sub-section (5), it may
be filled as a casual vacancy in accordance with the provisions of this Act:

Provided that the director who was removed from office shall not be re-appointed as a
director by the Board of Directors. Nothing in this section shall be taken— (a) as

15
CLR, Removal of Directors, CORPORATE LAW REPORTER (April 12, 2018),
http://corporatelawreporter.com/companies_act/section-169-of-companies-act-2013-removal-of-directors/

14
 depriving a person removed under this section of any compensation or damages payable
to him in respect of the termination of his appointment as director as per the terms of
contract or terms of his appointment as director, or of any other appointment terminating
with that as director; or (b) as derogating from any power to remove a director under
other provisions of this Act.

4.2 REMOVAL BY THE SHAREHOLDERS

Shareholders may remove a director if they are not agreeable with his policy. Section 169(1)
provides that 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. However, a company cannot remove a
director where the company has exercised the option to appoint not less than two-thirds of the
directors according to the principle of proportional representation. The following are other
provisions: -

i. Special Notice: - A special notice shall be required of any resolution under this
Section 169 of the Act, 2013 to remove a director or to appoint somebody in place of
a director so removed, at the meeting at which he is removed.
ii. Copy of special notice to the director concerned: - On receipt of a resolution to
remove a director under this Section the company shall forthwith send a copy thereof
to the director concerned. The director concerned is entitled to be heard on the
resolution at the meeting.
iii. Filling of the vacancy: - A vacancy created by the removal of a director under this
section 169(5) may 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.
iv. No deprivation of compensation: - Section 169 does not deprive a person removed of
any compensation or damage payable to him for premature removal director.

15
 Further, in the case of LIC v. Escorts Ltd16, the Supreme Court held that it is not
necessary for the requestor to state the reasons on which they wish to proceed against the
director.

16
(1986) 1 SCC 264

16
 BIBLIOGRAPHY

BOOKS

 Avtar Singh. Company Law. Eastern Book Company, Lucknow

 J.P Sharma. Corporate Law. Ane Books Pvt. Ltd., New Delhi
 S. Kannal & V.S. Sowrirajan. Company Law Procedure. Taxmaan’s Allied
Services (P) Ltd., New Delhi
 Saleem Sheikh & William Rees. Corporate Governance & Corporate Control.
Cavendish Publishing, London

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