DIRECTOR

Directors refer to the part of the collective body known as the Board of Directors, that is
responsible for controlling, managing and directing the affairs of a company. Directors are
considered the trustees of the company’s property and money, and they also act as the agents
in transactions that are entered into by them on behalf of the company.
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. A director is a person appointed to perform the duties and functions of director
of a company in accordance with the provisions of the Companies Act, 2013.
Section 2 (10) of the Companies Act, 2013 defined that “Board of Directors” or “Board”, in
relation to a company, means the collective body of the directors of the company.

Who May Be Appointed As Director

Section 149(1) : Every company shall have a Board of Directors consisting of individuals as
Directors. Thus, only an individual can be appointed as director. No body corporation,
association or firm can be appointed as director of a company.
However, as per Section 152(3) No person shall be appointed as a director of a company unless
he has been allotted the Director Identification Number under section 154 or any other
number as may be prescribed under section 153. Section 153 provides that every individual can
make an application to Central Government for the allotment of DIN (Directors Identification
Number). Further, as per section 154, within one month from the date of application, the
central govt. shall allot DIN to the applicant. The central government can also allot any other
identification no. and the same shall be treated as DIN. (Section 153 proviso)
Section 152(3)- No individual shall be appointed as Director without DIN

Section 153- Application for DIN to Central Government

Section 154- Allotment of DIN within 1 month

Section 155- An individual shall apply for or have only one DIN

Section 156- Director to inform about allotment of DIN to Company within 1 month form the
date of allotment

Section 157- Company to inform the ROC about allotment of DIN within 15 days.
Section 159- If the individual/ director defaults in complying with the provision
Penalty- 50,000/- (max) + 500/- each day (if such default continues)

Application for DIN

As per Companies (Appointment and Qualification of Director) Amendment Rules, 2018

INC-32(SPICe+)
(only for 3 Directors)
When the co. is
not incorporated
DIR 3
Application for (e-application)
DIN
When the co. is
DIR 3
already
(e-application)
incorporated

Legal Position of Director: (already provided the notes)

 Directors as agents
 Directors as managing partners
 Directors as trustees
 Directors as employees

Kinds of Directors

Directors

Executive Non-executive

Those who are in the full-time Those who are not in the full-time
employment of the company. employment of the company.
They control the day-to-day They are part time directors.
management of the company They only attend the board meetings.
 .
E.g.: Managing Director, (All Independent directors are non-
Whole Time Director executive directors, but all non- executive
directors are not independent directors)

1) WOMEN DIRECTOR: Second proviso to section 149(1) read along with Rule 3 of
Companies (Appointment and Qualifications of Directors) Rules, 2014 require
appointment of at least 1 woman director on the Board of the following class of
companies: -

(i) every listed company;

(ii) every other public company having-
a) paid-up share capital of 100 crore rupees or more; or
b) turnover of 300 crore rupees or more.
A company, which has been incorporated under the Act and is covered under the aforesaid
criteria, shall appoint at least one women director within a period of six months from the date
of its incorporation.
Casual vacancy: shall be filled by Board (not later that)

Immediate next board meeting or 3 months from the date of vacancy

Whichever is later

2) RESIDENT DIRECTOR: Section 149(3) provides that every company shall have least
one director who stays in India for a total period of not less than one hundred and eighty-
two days (182 days) during the previous financial year.
However, in case of a newly incorporated company the requirement shall apply
proportionately at the end of the financial year in which it is incorporated.

3) SMALL SHAREHOLDER DIRECTOR: Section 151 and Rule 7 of Companies

(Appointment and Qualification of Directors) Rules, 2014

 A listed company may have one director elected by such small shareholders in
such manner and with such terms and conditions as may be prescribed.
 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.
(Shares of the value less than 20000/-)
 A listed company, upon notice of

>= 1000 small shareholder or 1/10 of holders of such shares

Whichever is lower
shall appoint a small shareholders’ director

 A listed company may opt to have a director representing small shareholders suo motu.
 The small shareholders intending to propose a person as a candidate for the post of
small shareholders' director shall leave a notice of their intention with the company at
least 14 days before the meeting under their signatures specifying the name, address,
shares held and folio number of the person whose name is being proposed for the post
of director and of the small shareholders who are proposing such person for the office
of director. (rule shall not apply where the company suo motu appoints SSD)

 The notice shall be accompanied by a statement signed by the person whose name is
being proposed for the post of small shareholders' director stating -

(a) his DIN or any other identification number

(b) that he is not disqualified to become a director and
(c) his consent to act as a director

 SSD shall be considered independent director and shall meet the requirements of ID as
provided under section 149(6).
 Tenure: 3 years not eligible to be reappointed once SSD ceases to hold office,
he cannot be associated with the company (either directly or indirectly) for at least 3
years.
 The appointment of small shareholders' director shall be subject to the provisions of
section 152 except that such director shall not be liable to retire by rotation.
 No person shall hold the position of small shareholders' director in more than two
companies at the same time. The second company in which he has been appointed
must not be in a business which is competing or is in conflict with the business of the
first company.
 A person shall not be appointed as small shareholders' director of company if the person
is not eligible for appointment in terms of section 164.
 A person appointed as small shareholders' director shall vacate the office if -
(a) the director incurs any of the disqualifications specified in section 164
(b) the office of the director becomes vacant in pursuance of section 167
(c) the director ceases to meet the criteria of independence as provided in section
149(6).
 4) NOMINEE DIRECTOR:

5) INDEPENDENT DIRECTOR: Section149(4)-(13), Rule 4 of Companies (Appointment

and Qualification of Directors) Rules, 2014
Section 149 provides that every listed public company to have at least 1/3 of total
number of directors as independent director. Further, Central Government may
prescribe the minimum number to of independent directors in case of any class or
classes of public company.
No. of Independent Directors

Listed Public Company Every Other Public Co.

1/3 of total no. of director to be appointed Paid up share capital >= 10 Cr.
as independent dir. (section 149(4)) Turnover >= 100 Cr.
Aggregate borrowing > 50 Cr.
At least 2 I.D.
(Rule 4 of Companies (Appointment and Qualification

of Directors) Rules, 2014)

SEBI (Listing Obligation and Disclosure Requirement)

If the chairperson is ED If the chairperson is NED

1/2 of the BOD shall be ID 1/3 of the BOD shall be ID

If the Chairperson is NED, but he is the promoter or related to promoter, then 1/2 of the BOD shall be ID

 However, in case a company covered under this rule is required to appoint a higher
number of independent directors under any other law or due to composition of its audit
committee, such higher number of independent directors shall be applicable to it.
(Section 177 & SEBI LODR Regulation)
 If the company ceases to fulfil all the requirements of rule 4, for consecutive 3 years, it
is not required to appoint ID.
 Following classes of companies are not required to appoint ID
i. Joint Venture
ii. Wholly owned subsidiary if they are unlisted company
iii. Dormant co.
iv. Section 8 co.
v. Specified IFSC Public Co.
 Any intermittent vacancy of an independent director shall be filled-up by the Board
at the earliest but not later than immediate next Board meeting or 3 months from
the date of such vacancy, whichever is later.
Section 149(5) : Every company existing on or before the date of commencement of this Act
shall, within one year from such commencement or from the date of notification of the rules,
shall appoint such no. of ID as may be applicable.

Definition of Independent Director - Section 149(6)

ID means a director other than a managing director or a whole-time director or a nominee
director.
a. Who, in the opinion of board, is a person of integrity and possesses relevant expertise
and experience.
b. Who

is/ was is
not a promoter of CASH not related to promoters or Director of CASH
CASH- Company, Associate Co., Subsidiary Co. and Holding Co.

c. Who has or had no pecuniary relation

CASH promoter/ director of CASH
(Exception: Remuneration as such director or having transaction not exceeding10% of his
total income or such amount as may be prescribed)
d. None of whose relatives

is holding any security is indebted to CASH, its Promoter as given a guarantee or has any other pecuniary
of or interest in CASH & Director in excess of the provided any the security in transaction/relationship
in 2 immediately PFY amount prescribed in 2 connections with indebted- amounting to 2% or more
or CFY. immediately PFY or CFY ness of any third person to of its gross turnover
(Exception- max security/ (Amount Prescribed- CASH or Promoter of or total income singly or
interest 50 lakhs 50 lakh) CASH or Director in combination with the
Or 2% of PUSC of CASH) of Holding co. transactions referred to
in sub-clause (i), (ii) or (iii)

e. Neither himself nor any of his relatives

Holds/ has held the Is/has been an employee/ proprietor/partner. holds together with his Is a Chief Executive

position of a KMP a firm of auditors or any legal or a consulting relatives 2 % or more of or Director of any

or is/or has been CS in practice or cost firm that has/ had any the total voting power nonprofit organisation

employee in CASH. auditors of CASH transaction with CASH. of the company that receives 25% or more

(3 PFY) amounting to 10% or more of its receipts from the Company

(Exception- when of the gross turnover its Promoter/Dir, or its Holding/

Relative is employee; of such firm Associate/Subsidiary co. OR

this provision will (3 PFY) that holds 2% or more of the

not apply) total voting power of the company

f. Such other Qualifications as may be prescribed.

APPOINTMENT OF DIRECTORS
1. Appointment of first Directors
2. Appointment at general meeting
3. Appointment by the Board of Directors

Appointment of First Directors: (Section 152)

The first directors are usually appointed by name in the articles or in the manner provided
therein. Where the articles do not provide for the appointment of first directors, the subscribers
to the memorandum, who are individuals, shall be deemed to be the company's first directors
until the directors are appointed. In case of a One Person Company, an individual being a
member shall be deemed to be its first director until the director or directors are duly appointed
by the member.

No person shall be appointed as a director of a company unless he has been allotted the Director
Identification Number (DIN). As per Companies (Appointment and Qualification of Directors)
Amendment Rules, 2022, no application number shall be generated in case the person applying
for Director Identification Number is a national of a country that shares a land border with
India, unless necessary security clearance from the Ministry of Home Affairs, Government of
India has been attached along with application for Director Identification Number.

Every person proposed to be appointed as a director by the company in a 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. He has to file with the Registrar, his consent
within 30 days of his appointment.

Appointment of Directors at General Meeting

According to section 152(2) every director shall be appointed by the company in a general
meeting, except where the Act provides otherwise

152(6) provides that unless the articles provide for the retirement of all directors at every
annual general meeting, not less than two-thirds of the total number of directors of a public
company shall be a person whose period of office is liable to determination by retirement of
directors by rotation and be appointed by the company in a general meeting, except where
otherwise expressly provided in this Act.
Section 152(6)(c) provides that 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 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 1/3rd , 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, 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 between
themselves, be determined by lot.

The remaining directors in the case of a public company shall also be appointed by the company
in a general meeting, except otherwise provided in the articles.
Appointment of directors in case of a private company: In case of a private 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 a general meeting by the shareholders.

Deemed re-appointment of a retiring director [Sec. 152]

At the annual general meeting at which a director retires, the company may fill the vacancy by
appointing the retiring director or some other person thereto.
Section 152(7) provides that 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 except in the following cases:

1. At any previous meeting, a resolution for his re-appointment was put to vote, but was
lost; or
2. The retiring director has, in writing, expressed his unwillingness to continue; or
3. He is not qualified or is disqualified for appointment; or
4. A special or ordinary resolution is necessary for his appointment; or
5. It is resolved to fill two or more vacancies by a single resolution

Appointment of a Person Other than the Retiring Director

Section 160, along with Rule 13 of the Companies (Appointment and Qualification of
Directors) Rules, 2014, lays down the procedure of appointment of a person other than a
retiring director:

If any person wishes to stand for directorship or any member proposes a person for directorship,
he must signify his intention to the company, and the company must inform the members at
least seven days before the general meeting. The information shall be given:
(1) by serving individual notices, on the members through electronic mode to such members
who have provided their email addresses to the company for communication purposes, and in
writing to all other members; and

(2) by placing notice of such candidature or intention on the website of the company.
However, it shall not be necessary for the company to serve individual notices upon the
members as aforesaid, if the company advertises such candidature or intention, not less than
seven days before the meeting at least once in a vernacular newspaper in the principal
vernacular language of the district in which the registered office of the company is situated,
and circulating in that district, and at least once in English language in an English newspaper
circulating in that district.
Also, the candidate or the member who intends to propose him as director has to deposit sum
of Rs. 1 lakh or such higher amount as may be prescribed which shall be refunded, 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.

Appointment by the Board of directors [Section 161]

The Board of directors can exercise the power to appoint directors in the following three cases:

 Additional Directors
 Filling up the Casual Vacancy
 Alternate Directors
 Nominee Directors

Appointment of Additional Director

The articles of a company may confer on its Board of Directors the power to appoint any person
as an additional director at any time. However, a person who fails to get appointed as a director
in a general meeting cannot be so appointed.

The person appointed as additional director 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
This provision is meant to enable the companies to have the benefit of the services of a person
who, otherwise, is suitable for serving on the board and whose presence on the board is
desirable in the interests of the company, till the time the next AGM is scheduled to be held.
Additional directors will enjoy the same powers and rights as other directors.
The appointment of additional directors may be made either at a meeting of the Board or by
passing a resolution by circulation.

Since any director can be appointed as a managing or whole-time director, and there is nothing
in the Companies Act suggesting that an additional director cannot be appointed as the
managing/whole-time director, there should be no objection to the appointment of an additional
director as a managing or whole-time director. But the tenure of an additional director being
limited to the holding of the Annual General Meeting and if the company at the Annual General
Meeting does not re-appoint him as a director, he will automatically vacate his office as
managing or whole-time director also It is because no person who is not a director can function
as a managing or whole-time director.

Filling up Casual Vacancy

Section 161(4) as amended by the Amendment Act, 2017, empowers the Board to fill casual
vacancies in the case of any company including a private company. A casual vacancy is one
that arises otherwise than by retirement or the expiration of the time fixed for an appointment.
Thus, 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, subject
to any regulations in the articles of the company, be filled by the Board of Directors at a meeting
of the Board.

If the director fills up a casual vacancy and the same has been approved in the immediately
next general meeting, then the person appointed will hold office not until the next AGM only
but for the entire period for which the person in whose place he was appointed would have held
office.

Alternate Directors
The Board of directors of a company may, if so authorised by the articles or a resolution passed
by the company in a general meeting, appoint an alternate director to act for a director during
his absence for a period of not less than three months from India. However, a person holding
any alternate directorship for any other director in the company shall not be appointed. Again,
a person who is already a director of the company cannot be appointed as an alternate director
for another director in the same company. An alternate director is not an agent of the original
director.
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.

An alternate director appointed as such for the first time shall be required to file his consent
with the Registrar. However, on his regular appointment as a director in continuation, it would
not be necessary to file the consent.
An alternate director shall not hold office for a period longer than that permissible to the
director in whose place he has been appointed and shall vacate the office if and when the
director in whose place he has been appointed returns to India. Where the original director is a
non-retiring director, an alternate director appointed in his place can continue indefinitely,
subject only to the condition that he shall vacate the office as and when the original director
returns to India.
If the term of office of the original director is determined before he so returns to India, any
provision for the automatic re-appointment of retiring directors in default of another
appointment shall apply to the original, and not to the alternate director.
NUMBER OF DIRECTORSHIPS (SECTION: 165)
1. After this Act comes into force, no person can be a director (including an alternate director)
in more than 20 companies at the same time.
 Out of these, not more than 10 can be public companies.
 Explanation 1: When counting the number of public companies, private companies
that are subsidiaries or holding companies of a public company will also be
included.
 Explanation 2: Directorships in dormant companies will not be counted when
calculating the limit of 20 companies.

2. A company can set a lower limit than 20 for how many companies its directors can serve in,
but only by passing a special resolution.
3. If someone was already a director in more than the allowed number of companies before the
Act started:

 (a) They must choose up to the allowed number of companies where they want to stay
as a director.
 (b) They must resign from the remaining companies.

 (c) They must inform all companies where they were a director and also notify the
Registrar of Companies about their decision.
4. The resignation will take effect as soon as it is sent to the concerned companies.

5. After sending the resignation or after one year from the start of the Act (whichever comes
first), the person must not continue as a director in more than the allowed number of
companies.

6. If a person accepts an appointment as a director in violation of this section, he shall be liable

to a penalty of 2000/- for each day after the first during which such violation continues, subject
to a maximum of 2 Lakh rupees.

RESIGNATION OF DIRECTORS (SECTION: 168)

1. A director can resign from their position by giving a written notice to the company.

 Once the company receives the resignation, the Board of Directors must take note of it.
 The company must then inform the Registrar of Companies in the prescribed manner,
format, and timeline.

 The fact of resignation must also be mentioned in the Directors' Report presented at the
next general meeting of the company.
  Note: The director can also send a copy of their resignation along with the reasons for
resigning directly to the Registrar of Companies within 30 days.

2. The resignation will become effective either:

 On the date the company receives the notice, or
 On the date specified by the director in the notice,
whichever is later.
 Even after resigning, the director will still be responsible for any wrongdoing or
offences that took place while they were in office.

3. If all the directors resign or vacate their positions (under Section 167):
 The promoter of the company, or if there's no promoter, the Central Government, must
appoint the required number of new directors.

 These newly appointed directors will hold office until the company appoints directors
in a general meeting.

REMOVAL OF DIRECTORS (SECTION 169)

1. Removal by Company
A company can remove a director (except one appointed by the Tribunal under section 242)
before the end of their term, by passing an ordinary resolution. However, the director must be
given a reasonable opportunity to be heard before removal.

 Independent Directors who are re-appointed for a second term (under section 149(10))
can only be removed by a special resolution, and again, after giving them a reasonable
opportunity of being heard.
 This rule does not apply to companies that follow proportional representation under
section 163 to appoint at least two-thirds of their directors.

Special Notice: If the company wants to remove a director or appoint someone in their place at
the same meeting, a special notice is required for the resolution.
When the company receives such a notice:

 It must immediately send a copy to the concerned director.

 The director (whether or not a shareholder) has the right to speak at the meeting where
the removal is discussed.

Director’s Written Representation: If the director sends a written representation and asks that
it be shared:
 The company should mention this in the notice of the meeting sent to members.
  It should also send a copy of the representation to all members (if there's enough time).
If the company doesn’t send the copy in time, the director can ask that the representation be
read aloud at the meeting.
 Exception: If the Tribunal believes the director is misusing this right to spread
defamatory matter, it can stop the distribution/reading of the representation and may
also ask the director to pay the legal costs, even if he isn’t part of the case.

If the company removes a director, it can appoint a new director at the same meeting, provided
a special notice of the new appointment was also given.
The new director appointed will serve only the remaining term of the one who was removed.

If a new director isn’t appointed at that meeting:

 The vacancy can be filled later as a casual vacancy.

 However, the removed director cannot be re-appointed by the Board.

The removal does not affect the director’s right to claim compensation as per their contract or
appointment terms.