Welcome to our blog on the appointment of directors under the Companies Act, 2013. In this blog, we aim to provide you with a concise and comprehensive guide on the procedures and legal requirements for appointing directors in a company in India. The appointment of directors under Companies Act is a crucial process that shapes the governance and management of any company. As per the Companies Act, 2013, directors play a vital role in decision-making, ensuring compliance, and safeguarding the interests of stakeholders. Our blog series aims to equip you with the knowledge and understanding needed to navigate this process confidently.
Who is Director?
Directors are members of the board of directors for the companies, in accordance with Section 2(34) of the Companies Act 2013. The collective body of directors for the companies is referred to as the board of directors. The position of director under companies Act, 2013 may be one of the three that is directors may act as agents, trustees, and managing partners.
In addition, Section 149 mandates that public businesses must have a minimum of three directors and private companies a minimum of two. One person companies have at least one director. A company can have up to 15 directors. In cases when there are more than 15 directors, the company must approve a specific resolution.
Eligibility criteria for Directors
There are certain eligibility criteria that need to be fulfilled to be a director as per Companies Act 2013:
- Age Requirement: To be eligible for appointment as a director, a candidate must be at least 18 years old.
- Identifier for Directors (DIN): A distinct Director Identification Number (DIN) must be obtained from the Ministry of Corporate Affairs (MCA) by anyone who wants to become a director. The DIN is required for directors to be appointed and acts as a special identification number for them.
- Consent: Before being appointed as a director, the person must formally consent to serving in that capacity on the company’s board of directors.
- Declaration: They must provide a statement stating that they are not barred from serving as a director under the Companies Act.
- No Disqualification: The person seeking appointment as a director must not be disqualified under any of the provisions mentioned in the Companies Act.
Documents required for appointment
The documents required for appointment are:
- Driving license, voter ID, passport
- A copy of an Aadhar card and PAN card
- Utility bills that are no more than two months old and copies of bank passbooks or bank statements can both serve as proof of permanent residence.
- If the present address differs from the permanent address, you must provide proof of it.
Disqualifications for Directors
The Companies Act of 2013 lists a number of exclusions that may bar someone from obtaining or continuing to serve as a director. Key disqualifications include the following:
- Insolvency: An insolvent who has not been discharged is ineligible to be nominated as a director.
- Conviction: For a period of five years from the date of conviction, a person who has been found guilty by a court of any offense (including moral turpitude) and sentenced to jail for at least six months is unable to serve as a director.
- Non-Compliance: Directors are ineligible to be reappointed as directors for five years if they consistently fail to file financial statements or annual returns over the course of three financial years.
- Strike-off Companies: Companies that have been “struck off” by the Registrar of Companies (RoC) for non-compliance are not eligible for appointment as directors of any other company for a period of five years.
- Disqualified by Tribunal: The National Company Law Tribunal (NCLT) has the authority to revoke a director’s qualification for a number of reasons, including fraud, poor management, or a failure to adhere to the law.
Appointment of a director as per Section 152 of the Companies Act 2013
On April 1st, 2014, Section 152 of the Companies Act 2013 went into effect. This Section deals with the following in relation to the appointment of director under Companies Act, 2013 i.e.:
- Appointment of first directors
- Appointment of directors at general meetings.
Appointment of first directors
The appointment of the first directors of the companies is outlined in Section 152(1) of the Companies Act. The first directors hold their offices from the date of formation of the companies.
The Articles of Association of companies contain procedures via which the companies appoint their first directors, in accordance with Section 152(1) of Companies Act. The following individuals are regarded by the companies as first directors in cases where the articles do not contain such provisions:
- One-Person Companies: Individuals being members.
- In other cases: People who subscribe to a company’s memorandum of association.
The first directors continue in office until new directors are appointed in accordance with Section 152 by the members. The subscribers to the Memorandum (who will thereafter be just members) must call meetings to nominate directors in the event of the initial directors do not take office for whatever reason, such as death.
Appointment of directors at general meetings
Section 152(2) states that, unless the Act specifies differently, companies appoint directors at general meetings. However, shareholders choose two thirds of the directors in publicly traded companies. They appoint the remaining one-third of the members as per the Articles of Association in general meetings.
The Calcutta High Court ruled in Swapan Dasgupta v. Navin Chand Suchanti (1988) that private companies’ articles of association must specify how directors will be chosen. The shareholders elect directors at general meetings if the articles of incorporation do not specify such methods.
The appointment of an additional director is governed by Section 161 of the Companies Act of 2013, which states that the additional director will serve until the conclusion of the next annual general meeting or, where the Annual General Meeting could not held then the last date on which AGM was scheduled to be held, whichever is earlier.
According to Section 161(4), of the Companies Act the Board of Directors of the Company has the authority to call a Board Meeting and approve a Board Resolution designating a new Director to fill the casual vacancy left by the death of an existing Director, subject to the Company’s Articles of Association.
Applicable rules need to be followed for appointment of directors
As far as the appointment of directors is concerned, these are the rules that the companies must follow:
- Director Identification Numbers (DINs) are required for anyone wishing to serve as a director of any company.
- The Companies (Appointment and Qualification of Directors) Rules, 2014 must be followed by businesses. The rules of 2014 also outline the steps for allocating and revoking DINs.
- All proposed individuals who wish to serve as directors are required to submit their DINs and declarations stating that they are qualified to serve as directors under the Act. They present this data in general meetings.
- The individuals named as directors must consent to holding those positions. They are not qualified to serve as directors if they do not.
- Furthermore, within 30 days of their appointment, they must submit this consent to the Registrars.
- If the firms organize general meetings to elect independent directors as per Companies Act, 2013, there will be explanations along with the meeting notices that the candidates meet the requirements outlined in the Act proviso to Section 152(5)
- All listed companies and public companies are required to appoint at least one-woman director in accordance with Rule 3 of the companies (Appointment and Qualification of Directors) Rules, 2014.
- According to Rule 17, all corporations are required to maintain director registers. These registrations must contain information such as DINs, directors’ full names, parents’ names, spouses’ names (if married), etc.
Takeaway
In conclusion, the process of director appointment and removal under the Companies Act, 2013, plays a crucial role in shaping corporate governance. To ensure compliant and effective leadership, directors must be aware of the requirements for eligibility, their fiduciary obligations, and their exclusions. To preserve openness and accountability, businesses must comply to reporting requirements, follow right procedures, and secure consent. Directors’ duty to act in the company’s best interests is emphasized by treating them like trustees. Businesses can promote long-term success and stakeholder trust by upholding ethical standards and diverse board representation.
