DIRECTORS

(The Companies Act,2013 and The Companies (Appointment and Qualifications of Director)Rules , 2014
 Various Parties in Companies

Members  Shareholders Employees

Directors
Certain section deals with the ‘Directors’ under The Companies
Act,2013
 Sec 149 – Company to have Board of Directors
 Sec 150 – Manner of Selection of Independent Directors and maintenance of databank of
Independent Directors
 Sec 151 – Appointment of Director elected by small shareholders
 Sec 152 – Appointment of Directors
 Sec 153 – Application for allotment of Director Identification Number
 Sec 154- Allotment of DIN
 Sec 155- Prohibition to obtain more than one DIN
 Sec 156 – Director to intimate DIN
 Sec 157 – Company to inform DIN to registrar
 Sec 158 – Obligation to indicate DIN
 Sec 159- Penalty for default for certain Provisions
 Sec 160- Right of persons other then retiring directors to stand for directorship
 Sec 161 – Appointment of Additional Director , Alternate Director and nominee director
 Sec 162- Appointment of director to be voted individually
 Sec 163 Option to adopt principle of proportional representation for appointment of
directors.
 Sec 164 Disqualifications for appointment of director.
 Sec 165 Number of directorships.
 Sec 166 Duties of directors.
 Sec 167 Vacation of office of directors.
 Sec 168 Resignation of directors.
 Sec 169 Removal of directors.
 Who are Directors ?

In general , Director is the person who directs the company in particular direction
for growth and Profit.

 According to Sec 2 (34) It means a director appointed to the board of a

company.
 Only Individual can be appointed as a director (Sec 149).
 Legal Position of Directors
In Re. Forest Dean Coal Mining Co., (1878) 10 Ch. D. 450 Case,
the Court observed: “Directors have sometimes been called trustees or commercial
trustees and sometimes they have been called managing partners. It does not
matter what you call them, so long as you understand what their true position is-
they are really commercial men managing a trading concern for the benefit of
themselves and of all shareholders”
 Directors as agents
Imperial Hydropathic Hotel Co. v. Hampson, 
 Company act through its directors
 Rules of agency will apply If directors are making contracts on behalf of the
company then company will be liable (Kirampudi Sugar mills ltd. vs G
venkata Rao).
 But if they incur personal liability like
 Contract in their own names,
 They exceed their authority ( it has exceptions),
 Sign is not clear ,
 Name of the company is incorrect.
“Company will not be liable”
 In Elkington & Co. v. Hurter, (1892) 2 Ch. D. 452 case, where the plaintiff
supplied certain goods to a company through its chairman, who promised to
issue him a debenture for the price, but never did so and company went into
liquidation, the chairman (as agent of a company) was held not liable to the
plaintiff.
Directors as Trustees to the company not to shareholders

 Vested with legal ownership

 Benefits the other parties (stakeholders)
 Fiduciary relationship
 They will be held liable if they misuse funds (Ramaswamy Iyer v. Brahmayya and
co.)
 In York and North Midland Ry. Co. v. Hudson, (1.845) 16 Beav 485 Roumilly, M.R.
observed :
 "Directors are persons selected to manage the affairs of the Company for the benefit of the
shareholders. It is an office of trust, which if they undertake, it is their duty to perform
fully and entirely."
Directors as Managers

 They are the part of management

 They take big policy decisions
 They are decision making body
Directors as employees

 It is always conflicting view whether directors are employees or not.

 Employee State Insurance corporation vs Venus Alloy Pvt limited
 They are elected by shareholders (R R Kothandaraman v CIT).
 They get remuneration
 They can be employees if they accept any contract of employment for any other post.
 But law doesn’t prevent company from appointing directors as employee.
Duties of Director
General qualities which are required in a director
 Honesty
 Care
 Good Faith
 Responsibility
 Disclosure
 Decisiveness
 Duties of directors( sec 166)
 (1) Subject to the provisions of this Act, a  director of a company  shall act in accordance with
the ”Articles  of the company”.
 (2) A director of a company shall act in good faith in order to promote the objects of the company for
the benefit of its members as a whole. (Turner Morrison and company vs Shalimar tar products.
,and in the best interests of the company, its employees, the shareholders, the community and for the
protection of environment (sec 134- mandatory disclosure in boards report in conservation of energy) –
Business Judgement Rule and Business and Human rights (OHCHR).
 (3) A director of a company shall exercise his duties with due and reasonable care, skill and diligence
and shall exercise independent judgment.
 (4) A director of a company shall not involve in a situation in which he may have
a direct or indirect interest that conflicts, or possibly may conflict, with the interest of
the company (No conflict of interest ).
 (5) A director of a company shall not achieve or attempt to achieve any undue gain
or advantage either to himself or to his relatives (2(77)) , partners (under Indian
Partnership Act,1932), or associates and if such director is found guilty of making any
undue gain, he shall be liable to pay an amount equal to that gain to the company.
 (6) A director of a company shall not assign his office and any assignment so
made shall be void.
 (7) 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.
What’s the most important thing that is required to become a
director?

 DIN –E Form- DIR -3

 Consent – DIR – 2 (DIR-12)
 Director identification number (DIN)- Section -153-156, 170
Rule 8, 9 ,10, 10A, 11, 12, 12A, 18 of The companies (Appointment and Qualifications)
Rules, 2014 and Fees rules ,2014

 Only individual can be a director

 Must Have DIN OR any such other number prescribed by CG (Sec 153)
 Make an application to CG (Regional Director) in form DIR -3 along with fees and it should be signed by
applicant in DSC (Digital Signature Certificate) – (Sec 153).
 It should be verified by CS or MD or CEO or CFO of the company in which he intend to become a director.
 He/she can apply for DIN under SPICE+ Forms
 CG will reply within a month(sec 154)
 He/ she will intimate Din to company within one month (156)
 Company will inform about DIN to ROC within 15 days from the directors intimation (sec 157)
 Company will File DIR-12 along with his/her consent within 30 days of appointment.
 No individual or director will apply for DIN if he already has (sec 155)
 Any change in Particular DIR – 6 (Rule 12)
 Penalty (sec 155)
 Can DIN expires – It is valid for life time
 Can DIN be deactivated (Dilip kumar singh vs UOI)– Yes , due to various reasons non
filing of DIR-3 KYC or disqualification
 ‘Deactivated due to non-filing of DIR-3 KYC’.
 Do disqualified directors has to file DIR KYC - YES
Is there any qualification for becoming a
director?
 No but there are disqualifications
 Types of Directors

 Ordinary Director
 Executive Director
 Managing Director
 Non Executive Director
 Independent Director
 Woman Director
 Nominee Director
 Resident Director
 Small Shareholders Director
 Alternate Director
 Additional Director
Executive Director (Working or internal
director)
 works in day to day affair of the company
 work towards company goals
 Represents Company at public forum
 Make strategies and policies
 Mitigate Risks
 works towards shareholders content
 Employees welfare
 etc
Non Executive Director

 Non Executive directors are those Directors which are not executive or managing
Directors.
 Participate in the planning Process
 challenges the performance of executive directors
 They provide value to the firm
 They share the liability
Independent Director

 (47) ―
 independent director means an independent director referred to in sub-section (6) of
section 149.
 Who is not a Executive or managing director or a nominee Director
 Woman Director
 Woman Director on the Board.
The following class of companies shall appoint at least one woman director-
 (i) every listed company;
 (ii) every other public company having -
 (a) paid–up share capital of one hundred crore rupees or more; or
 (b) turnover of three hundred crore rupees or more:
 Provided that a company, which has been incorporated under the Act and is covered under provisions of second
proviso to sub-section (1) of section 149 shall comply with such provisions within a period of six months from
the date of its incorporation:
 Provided further that any intermittent vacancy of a woman director shall be filled-up by the Board at the earliest
but not later than immediate next Board meeting or three months from the date of such vacancy whichever is
later.
 Explanation.- For the purposes of this rule, it is hereby clarified that the paid up share capital or turnover, as the
case may be, as on the last date of latest audited financial statements shall be taken into account.
 Nominee director

A director nominated by any financial institution in accordance with the requirements of any
legislation now in effect, or of any agreement, or appointed by any Government, or any other person
to represent its interests is defined as a nominee director under Section 149 (7) of the Companies Act,
2013
 Small Shareholder Director

“Small shareholders” means a shareholder holding shares of nominal value of not more than twenty thousand
rupees or such other sum as may be prescribed.
Section 151 of the Companies Act. 2013 requires that a listed company may have one director elected by such
small shareholders in such manner and with such terms and conditions as prescribed.
Resident director

 Every company shall have one director who stays in India for a total period of 182 days in
during financial year.(sec 149(3))
 Alternate director

 Alternate director is a personnel who is appointed by the Board of Directors, as a substitute to a

director who may be absent from India, for a period which isn’t less than three months.
 If he/she is already an alternate director for other director , then he /she will not be appointed
again
 If he/she is already a director , he/she will not be an alternative director for anyone.
 No person shall be appointed as an alternative director for independent director unless he is
qualified to be appointed as independent director.
 He will vacate his office till the director returns.
Additional Director

 Additional Director can be appointed by passing a resolution in Board meeting or by

circulation.
 Till the next AGM
 It can be appointed as WTD or MD.
Company to have BOD (149)

 Minimum no of directors , public – 3 , private – 2 , opc- 1

 a company must have at least -15 directors (if more, pass a special resolution) with at least
one woman director in specified classes of companies and one resident director
 Every listed public company shall have at least one-third of the total number of Directors
as independent Directors and the Central Government may prescribe the minimum number
of independent Directors in case of any class or classes of public companies.
 There should be at least one Resident directors
No of directorships a person can hold –sec 165

 No person, after the commencement of this Act, shall hold office as a director, including
any alternate Directorship, in more than twenty companies at the same time:
 Provided that the maximum number of public companies in which a person can be
appointed as a director shall not exceed ten.
 Explanation I — For reckoning the limit of public companies in which a person can be
appointed as director, Directorship in private companies that are either holding
or subsidiary company of a public company shall be included.
 Dormant companies are not included.
Appointment of directors -152
DIN and DIR-2 (Consent)
 First Director

 The information related to First directors usually contained in the Articles of the company.
 If not articles, subscribers to the memorandum deemed to be first director of the company until
directors are appointed in general meeting.
 In case of OPC an individual being member shall deemed to be first director until the director are
duly appointed by the member.
 Appointment of directors at General meeting -152

 Generally directors are appointed in General meeting.

 it contains two types of director – Rotational and non rotational. In Public company at least 2/3rd of directors are liable to retire
by rotation.
 Out of those 2/3rd, 1/3rd actually retires at every AGM
 It shall be those who have been longest in the office.
 If there is a tie between two directors they will retire subject to any agreement among themselves or determined by Lot.
 Retiring person can be reappointed again or a new person can also join but he has to give his candidature 14 days before GM and
members should be informed 7 days before.
 Vacancy has to be filled either by retiring director or new person otherwise meeting will be adjourned to the next week , at the
same time and place.
 Even if in the Adjourned meeting the vacancy of retiring director is not filled the retiring director shall be deemed to have been
reappointed at an adjourned meeting subject to certain exceptions.
 It doesn’t apply on government companies.
 Not applicable to private companies. Their appointment procedure is written in the articles.
 And additional director, directors appointed to a casual vacancy, alternate director or nominee director or independent director is
not Director retiring by rotation
 Appointment of director other then retiring
director
 Section 160 along+ rule 13 of companies appointment and qualification of directors rules 2014 lay down the
procedure of appointment of a person other than retiring Director.
 If any person other than retiring Director wishes to stand for director ship or any member proposes a percent
for directorship signifies his intention to do so by giving 14 days notice to the company before general
meeting and company must inform the members at least seven days before the general meeting.
 Sec 162- appointment of directors to be voted on individually

Exceptions
Private company and government company (MCA circulars)
 Private Company

 Appointment of directors in a private company subject to its articles

 If articles a silent as to the appointment of directors or also do not provide any specifications for it
then the appointment of directors to be appointed in general meeting by shareholders.
 The directors of a private company or entitled to continue until removed.
Appointment by BOD
Additional director
 Any company can appoint AD
 But the person who failed to become a director can’t be appointed as add dir.
 It is subject to the articles of association
 He/she is appointed up to next AGM or last date on which the AGM should have been
held whichever is earlier.
 Same powers as other directors
 He can be appointed as MD or WTD but subject to above mentioned conditions.
 It is applicable to both private and public company
Filling up casual vacancy 161
 Other then retirement or expiration of the time fixed.
 This person will not come under “director retire by rotation”
 Non rotational directors will not come under its preview
Alternate director
 In place of those Who is absent from India for 3 months
 Vacate immediately if the original director returns to India
 However a person holding any alternate director for any other director in the company shall
not be appointed.
 Also a person who is already a director of the company cannot be appointed as an alternate
director for another director in the same company.
 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.
 Automatic reappointment of retiring Director and default of another appointment shall apply
to original and not to the alternate directors
Nominee Director

The board may appoint any person as a director nominated by the institution in pursuance of
any law
 Appointment of Independent Directors
 As per section 151 of the companies act 2013 and independent director may be selected from a data bank
containing names, addresses and qualifications of person who are eligible and willing to act as an
Independent directors.
 Any body , institute or association which has been authorized in this behalf by the central government
shall create and maintain a data bank of persons willing and eligible to be appointed as independent
director and search data bank shall be placed on the website of Ministry of corporate affairs or any other
website approved and notified by central government.
 The responsibility of choosing the right person and placing it before the shareholders Lie with the
company making such appointment.
 The appointment of independent directors shall be approved by company general meeting and also and
explanatory statement is annexed to the notice of general meeting shall indicate the justification for
choosing the appointed for appointment as Independent Director
 Schedule IV of companies act has given the manner of appointment of independent director, their
appointment, tenure, designation and also their meetings as well.
Appointment by small shareholder


Is there any qualification for directors ?

 No
 But section 164 comprises of some disqualification
Disqualification of directors

Section 164 (1): A Person is not eligible to be appointed as Director 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 sub-section (3) of section 152. (Not acquired DIN)
i. he has not complied with the provisions of sub-section (1) of section 165. (Number of Directorships)
Section 164 (2): 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.
 Vacation – 167

 disqualified under 164

 (2) Provided that where he incurs disqualification under sub-section (2) of 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 (Company
(Amendment) Act,2017, effective from 18th may , 2018)
 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;
 Interested directors
 Failed to disclose the interest
 Disqualified by tribunal
 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 :
 he is removed in pursuance of the provisions of this Act;
  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.
(4) A private company may, by its articles, provide any other ground for the vacation of the office of a director
 in addition to those specified in sub-section (1)
Removal of directors

 By passing of Special resolution

 Director appointed by tribunal or principle of proportional representation cannot be
removed.
 Special notice to be given to remove a director for general meeting and also appoint a new
person in place of that director.
 The removed director will be heard at the meeting
 He should give his representation
 it results in a casual vacancy
Resignation of director

 He/she can resign by giving the board a notice

 Company and director can forward this copy to ROC.
 Shall vacate the office