Appointment of Directors under Companies Act, 2013 I Tax Addicters

 Appointment of Directors

There are various types of Directors were defined under the Companies Act, 2013 ("The Act"). Here we are going to discuss about them in simple manner.

Table of Content :

I. What is meant by Board of Directors 
II. How many number of Directors to be appointed 
III. Applicability of Woman Director
IV. Applicability of Resident Director 
V. Applicability and appointment of Independent Director
VI. Who is an Interested Director
VII. Who can be called as Executive Directors
VIII. Who can be called as Non-Executive Directors
IX. Who can become Small Shareholders Directors (SSD) 
X. Who can be appointed as an Additional Director 
XI. Alternate Director

XII. Nominee Director 

XIII. Appointment of Director through Casual Vacancy

XIV. Modes of Appointment of Directors

I. What is meant by Board of Directors ?

• The collective body of the directors is called the ‘Board of Directors’ or simply the ‘Board’.
• It is the Board which takes decisions at its meetings and not any individual director. 
•  This is the reason why a quorum (i.e. presence of minimum directors at the Board meetings) is prescribed so that collective decisions are taken.
• Section 149 of the Act contains provisions which require that every company shall have to constitute Board of Directors.

II. How many number of Directors to be appointed [Section 149(1)] ?

Every company shall have- 

(a)minimum number of directors:

(A) in case of a Public Company-3 Directors, 

(B) in case of a Private Company-2 Directors, and 

(C) in case of a One Person Company (OPC)-1 Director

(b)maximum number of directors:15 Directors

Exemptions :

A ) A Government company is exempted:

(i) from the application of Section 149 (1) (b) which requires a company to have a maximum of 15 directors only; and 

(ii)from the application of First Proviso to Section 149 (1) which enables a company to appoint more than 15 directors after passing a special resolution.

However, above exemption is applicable only if such Government company has not committed a default in filing its financial statements under Section 137 or Annual return under Section 92 with the registrar.

(B) Similar exemption, as above, is also applicable to company incorporated under Section 8 of the Companies Act, 2013 subject to the condition that such a company has not committed a default in filing its financial statements under Section 137 or Annual return under Section 92 with the registrar

[Notification No.G.S.R. 463(E),dated 5thJune, 2015as amended by Notification No. GSR 582 (E), dated 13-06-2017].

III. Applicability of Woman Director[Rule 3 of Section 149(1)]  :

• At least one woman director shall be on the Board of such class or classes of companies as has been prescribed in Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014[Second proviso to section 149(1)].

Rule 3provides that the following classes of companies shall appoint at least one woman director-

(1)every listed company;

(2)every other public company having -

(A) paid–up share capital of Rs.100 crore rupees or more; or 

(B) turnover of Rs.300 crore rupees or more.

Note : For the purposes of having a woman director on the board, it is 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

Compliance by a newly incorporated company: 

• shall comply with such provisions within a period of six months from the date of its incorporation. 

Filling of Intermittent Vacancy of Woman Director: 

shall be filled-up by the Board at the earliest but not later than 

1. immediate next Board Meeting or 
2. 3months from the date of such vacancy 

whichever is later.

Example1: Sheetal was occupying the office of woman director in a company but due to her sudden death on 17th March, 2019, the intermittent vacancy so occurred was required to be filled-up at the earliest because she was the only woman director on the board. The immediate Board meeting was held on 25th June, 2019. The vacancy of the women director must be filled-up latest by 25th June, 2019 or within three months from the date of such vacancy i.e.16th June, 2019 whichever is later. 

IV. Applicability of Resident Director [Section 149(3)]:

• Every company shall have at least one director who stays in India for a total period of not less than 182 days during the financial year.
• However, in case of a newly incorporated company the above requirement shall apply proportionately at the end of the financial year in which it is incorporated.[Section 149(3)].

Note : Click here to know about Board Resolution for appointment of Directors

V. Applicability and appointment of Independent Director

Specified public companies are required to appoint independent directors on their Board with a view to boost the level of corporate governance.

 A) Number of Independent Directors :

a) Listed Companies :

Every listed public company shall have At least one third of total Number of directors as Independent Directors.

b) Other Public Companies:

• The Central Government is empowered to prescribe certain minimum number of independent directors in case of any class or classes of public companies.
• Rule 4 of the Companies(Appointment and Qualification of Directors) Rules, 2014 has been framed which states that the following class or classes of companies shall have at least two directors as independent directors:

1. all such public companies which have paid up share capital of 10 crore rupees or more; or
2. all such public companies which have turnover of 100 crore rupees or more; or
3. all such public companies which have, in the aggregate, outstanding loans, debentures and deposits, exceeding 50 crore rupees. 
   

B) Intermittent vacancy of an independent director: 

Any intermittent vacancy of an independent director shall be filled-up by the Board.

1. at the earliest but not later than immediate next Board meeting or 
2. three months from the date of such vacancy, 

whichever is later. 

Notes:

• Due to composition of Audit Committee in the prescribed companies, higher number of Independent Directors shall be appointed. 
• As per section 177(2) of Act, the Audit Committee shall consist of a minimum of three directors with independent directors forming a majority.
• Non-Applicability:- If the company ceases to fulfil any of the three conditions for 3 consecutive years.

Exempted: in the following classes of Unlisted public companies: A Joint Venture, Wholly owned subsidiary and a dormant company.

C) Remuneration of Independent Director:

Entitled to :

1. Fee provided under section 197(5) 
2. Reimbursement of expenses for participation in Board Meetings and Other Meetings
3. Profit Related commission as may be approved by the members

Not Entitled to :

1. Any stock option 

VI. Who is an Interested Director ?

• An interested director is one among the other directors who constitute Board of Directors. 
• In fact, when an existing director becomes interested in a transaction of the company, he is called interested director; and he needs to disclose his interest at the appropriate forum and at appropriate time.

VII. Who can be called as Executive Directors ?

• The Board of Directors may comprise both executive and non-executive directors. 
• The executive directors are responsible for managing different business operations undertaken by the company.
• A whole time director and managing director are covered in this category of directors

  VIII. Who can be called as Non-Executive Directors ?

• The non-executive directors participate through Board meetings in discussions relating to framing of policies for the efficient management of the company.
• Professional directors and nominee directors are covered in this category of directors. 
• Independent directors are a type of non-executive directors.
• They are not as active as executive directors on the board of the company.
• They are held to be liable only if they knowingly consented to the wrongful acts.

IX. Who can become Small Shareholders Directors (SSD) (Section 151)?

1. Who is Small Shareholder Director (SSD)  as per Companies Act, 2013 ?

A shareholder holding the shares of nominal value of not more than Rs. 20,000 or such other sum as may be prescribed.

2. Is it compulsory to appoint SSD ?

No, not mandatory

3. Which company may appoint SSD?

Every Listed Company

4. How SSD appointed?

SSD appointed by notice of 

1. not less than 1000 small shareholders or
2. one tenth (1/10 th) of the total number of shareholders 

Which ever is lower.

X. Who can be appointed as an Additional Director [Section 161(1)] ?

1. Appointment:

AOA of the company may confer on its Board of Directors the power to -

• appoint any person as an Additional Director
• at any time 

2. Disqualification:

A person who fails to get appointed as a director in General Meeting , cannot be appointed as an Additional Director.

3. Term of Appointment:

 Hold the office 

• up to the date of next AGM             or
• The last date on which the AGM should have been held

whichever is earlier.

XI. Alternate Director [Section 161(2)] :

1. Appointment :

Appointed by BoD,  if so authorized by AOA or Resolution passed by company in GM

2. Time of Appointment

During the absence of Original Director for a period of not less than 3 months from India.

3.Exception 

No person shall be appointed as Alternate Director -

who is holding any alternate directorship for any other director in the company or holding directorship in the same co.

for an independent director who is not qualified to be appointed as an Independent Director.

4.Term of holding office

Till the period permissible to the original director.

5. Vacation and Automatic re-appointment :

If & when the original director returns to India.

Apply to the original director not to alternate director.

XII. Nominee Director [Section 161(3)] :

XIII. Appointment of Director through Casual Vacancy [Section 161(4)]:

XIV. Modes of Appointment of Directors [Section 162 & 163]:

1.How many ways can a director be appointed ?

There are two ways to appoint directors in a company, they are-

1. Appointment through Single Resolution [Section 162]

2. Appointment through Proportional Representation [Section 163]

2.Which Director can be appointed through a Single Resolution [Section 162]

3.What is Appointment through Principle of Proportional Representation [Section 163]

Notes :

• Not applicability of above sections 162 & 163 to the following companies -

1. A Government company in which entire the paid up share capital is held by the Central Government or by any State Government or Governments or by the Central Government and one or more State Governments. 
2.   A Subsidiary company of Government company, referred to above, in which the entire share capital is held by the Government Company.
3. Only section 162 is not applicable to a Private Company. 

Sharing is Caring 💗

Also Read :

1. What is QRMP Scheme under GST?

2. How to opt for QRMP Scheme ?

3. Accounting treatment of Sale and Leaseback transactions as per AS-9

4. Income Tax Slabs in India for the FY 2020-21

5. CA Articleship Vacancy in Hyderabad 2021