Appointment of Director

Appointment of Director

Section 152 – Appointment of Directors

Types of Director

  1. First Director – Individuals whose name is mentioned in the subscriber to the Memorandum.
  2. Additional Director – Individual who fails to get appointed as Director in General Meeting.
  3. Alternate Director – Other director can be appointed to act as an alternate director for a director during his absence for a period of not less than three months from India.
  4. Nominee Director - A director nominated by any financial institution in provisions of any law for the time being in force, or of any agreement, or by the Government, or any other person to represent its interest.
  5. Whole-time Director - includes a director in the whole-time employment of the Company.
  6. Managing Director – A director who, by virtue of the articles, or by agreement or by resolution passed in general meeting, or by Board of Directors, is entrusted with substantial powers of management of the affairs of the Company and includes a director occupying the position of MD
  7. Independent Director – Section 149(5)

An independent director in relation to a company, means a director other than a managing director or a whole-time director or a nominee director,—

(a) who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience;

(b) (i) who is or was not a promoter of the company or its holding, subsidiary or associate company;

(ii) who is not related to promoters or directors in the company, its holding, subsidiary or associate company;

(c) who has or had no pecuniary relationship, other than remuneration as such director or having transaction not exceeding ten per cent. of his total income or such amount as may be prescribed, 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;

(d) none of whose relatives—

(i) is holding any security of or interest in the company, its holding, subsidiary or associate company during the two immediately preceding financial years or during the current financial year:

Provided that the relative may hold security or interest in the company of face value not exceeding fifty lakh rupees or two per cent. of the paid-up capital of the company, its holding, subsidiary or associate company or such higher sum as may be prescribed;

(ii) is indebted to the company, its holding, subsidiary or associate company or their promoters, or directors, in excess of such amount as may be prescribed during the two immediately preceding financial years or during the current financial year;

(iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, its holding, subsidiary or associate company or their promoters, or directors of such holding company, for such amount as may be prescribed during the two immediately preceding financial years or during the current financial year; or

(iv) has any other pecuniary transaction or relationship with the company, or its subsidiary, or its holding or associate company amounting to two per cent. or more of its gross turnover or total income singly or in combination with the transactions referred to in sub-clause (i), (ii) or (iii);

(e) who, neither himself nor any of his relatives—

(i) holds or has held the position of a key managerial personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed;

Provided that in case of a relative who is an employee, the restriction under this clause shall not apply for his employment during preceding three financial years.

(ii) is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of—

(A) a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or

(B) any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent. or more of the gross turnover of such firm;

(iii) holds together with his relatives two per cent. or more of the total voting power of the company; or

(iv) is a Chief Executive or director, by whatever name called, of any nonprofit organisation that receives twenty-five per cent. or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds two per cent. or more of the total voting power of the company; or

(f) who possesses such other qualifications as may be prescribed.

[An independent director shall possess appropriate 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.]

Procedure for Appointment of Additional Director/ Alternate Director/ Nominee Director

  1. Check whether Articles (AOA) of the Company contain power/authorization to appoint Additional Director read with Section 161(1) of the Companies Act, 2013.
  2. Second Check whether such person have DIN No. or Not.
  3. Consent in writing to act as Director in Form DIR-2
  4. Identity and Residence Proofs of Director
  5. Intimation by Director in form DIR-8
  6. Disclosure of Interest in Form MBP-1
  7. Call the Board Meeting.
  8. Pass Resolution for appointment of Additional Director.
  9. Issue Letter of Appointment.
  10. File e-form DIR-12 Along with Consent + Letter of Appointment

Additional Director is appointed till AGM of company. If company wants to appoint him as director then regularize the person as director in General Meeting by Share holder Resolution. File form DIR-12 for Change in Designation of Director along with ordinary resolution.

Procedure for Appointment of Director in General Meeting as per Section 152

  1. Call the Board Meeting for convening General Meeting (EGM/AGM) for appointment of Director.
  2. 21 clear days notice shall be given to shareholders, in other case shorter consent received from the members of the company if the AGM/EGM is held a shorter notice.
  3. Notice of AGM/EGM, Explanatory statement shall be given along with the Notice of AGM/EGM.
  4. Intimation by Director in form DIR-8
  5. Disclosure of Interest in Form MBP-1
  6. Identity and Residence Proofs of Director
  7. Convening AGM/EGM and pass the resolution for appointment of Director.

Mandatory Forms to be filed with MCA

  1. DIR-12 within 30 days of Appointment.
  2. DIR-11 may be filed by Directors individually

Note:-  Filing of DIR-11 is not manadatory. It is a volutary requirement.

ROC Fees

Normal Fees: Rs.200/- to Rs.600/-

Additional Fees: Upto 12 times of ROC Fees

Penalty – For Company & Officer in Default: Rs. 50,000/- to Rs. 5,00,000/-

 

 

Frequently asked Questions

  1. Whether AOA of the Company shall contain the powers to appoint a Director?

Yes, if AOA is silent about the appointment of Directors then the Company shall first amend the AOA.

  1. Can an Individual become a director without obtaining DIN?

No, to obtain DIN is a mandatory pre-requisite for appointment of Director.

  1. of Directors in Private or Public Company?

Private Company – Minimum 2 Directors Maximum 15 Directors

Public Company – Minimum 3 Directors Maximum 15 Directors

OPC – Minimum 1 Director Maximum 15 Directors

In case number shall be increased from 15 then same can be done after passing Special Resolution.

  1. Can all the Directors in a Company be Foreigner?

No, atleast 1 director shall be resident of India (stays in India for atleast 182 days during financial year). In case of newly incorporated company the requirement of 182 days shall apply proportionately at the end of the financial year.

  1. Maximum Number of Directorships in Company.

Maximum 20 Companies at the same time.

Maximum 10 public companies out of 20 companies.

  1. Qualification of Director

As per Companies Act, 2013 there is no as such qualification for Appointment of Director. He/ She must attain an age of 18 years and shall have ID proof and Address Proof.

  1. What is the permissible managerial remuneration payable under the Companies Act 2013

Total managerial remuneration payable by a public company, to its directors, managing director and whole-time director and its manager in respect of any financial year:

Condition

Max Remuneration in any financial year

Company with one Managing director/whole time director/manager

5% of the net profits of the company

Company with more than one Managing director/whole time director/manager

10% of the net profits of the company

Overall Limit on Managerial Remuneration

11% of the net profits of the company

Remuneration payable to directors who are neither managing directors nor whole-time directors

For directors who are neither managing director or whole-time directors

1% of the net profits of the company if there is a managing director/whole time director

If there is a director who is neither a Managing director/whole time director

3% of the net profits of the company if there is no managing director/whole time director

 

  1. Can a Private Company pay any amount of remuneration to its Managerial Persons?

Yes, there is no ceiling limit for payment of remuneration to its Managerial Person.

  1. Which Companies are required to have independent Directors?

Every listed Company shall have atleast 1/3 of total number of Directors as Independent Directors.

 

The following class or classes of companies shall have at least two directors as independent directors -

(i) the Public Companies having paid up share capital of ten crore rupees or more; or

(ii) the Public Companies having turnover of one hundred crore rupees or more; or

(iii) the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees:

  1. Which Companies are required to have atleast 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.

  1. Manner of Appointment of Independent

The appointment of independent director(s) of the Company shall be approved at the meeting of Shareholders. Refer Schedule IV of Companies Act, 2013.

  1. Is it mandatory to indicate DIN with reference to Director?

Yes, as per Section 158 of the Companies Act, 2013 – It is mandatory to mention DIN in such return, information or particulars in case such return, information or particulars relate to the director or contain any reference of any director.

  1. Are Directors eligible for Salary?

A company may pay a sitting fee to a director for attending meetings of the Board or committees thereof, such sum as may be decided by the Board of directors thereof which shall not exceed one lakh rupees per meeting of the Board or committee thereof.

Provided that for Independent Directors and Women Directors, the sitting fee shall not be less than the sitting fee payable to other directors.

 

 Case Studies

 

  1. When there is only 1 director remaining on the Board.

 

 Section 174(2) provides if the number of directors falls below the quorum then the continuing directors:

  • may appoint a director in the meeting for increasing the number of directors to that fixed for the quorum or
  • Summon a general meeting of the company to appoint a director and for no other purpose.

Clause 69 of Table F: provides that if the number of directors falls below the quorum fixed by the Act, the remaining directors can, for increasing the number of directors to that fixed quorum, summon a General Meeting of the Company.

 

  1. When all the directors of a company resign from the Board.

Section 168(3) the promoter or the Central Government in promoter’s absence, shall appoint the required number of directors who shall hold office till the directors can be appointed in the general meeting.

  1. A director allotted DIN in March 2019 can be appointed w.e.f. January 2019.

No a director cannot be appointed from retrospective effect before allotting DIN.

 

 

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