Introduction:
The company is a legal entity that requires a natural person to manage, control, direct, and monitor its operations. The board of directors of a Private Limited company can appoint or elect one or more directors to carry out and determine the companies’ policies. An individual who supervises, controls, or manages the Company’s affairs is referred to as a director. A director is a person appointed by the Companies Act, 2013 to perform the duties and functions of a company. The Board of Directors is the name given to them as a group.
Directors
The directors are the individuals chosen by the shareholders to direct, conduct, manage, and monitor the company’s business.[1]
Director Appointments (Companies Act, 2013)
Of general, two-thirds of the total number of Directors in a public company or a private firm subsidiary of a public company are appointed by the shareholders, and the remaining one-third is appointed according to the Articles unless the shareholders appoint the remaining one-third. The Articles of a private company that is not a subsidiary of a public corporation can specify how any or all of the Directors are appointed. The Directors must be appointed by the shareholders if the Articles are silent.
Every public company must have at least three directors, and every other company must have at least two, according to Section 149 of the Companies Act of 2013. The following methods can be used to appoint the directors:[2]
First Directors (Section 152)
A first director is a company director who takes office on the firm’s incorporation date. The company’s initial directors may be listed in its articles of association, and if they are not, the individual subscribers to the memorandum of association are regarded to be the company’s first directors until the directors are appointed in line with Section 152.
In the event of a public company, if the article specifies a share qualification, only those subscribers who meet the requirements are considered directors. The names of the first directors may appear in the articles at the time of registration until they are appointed at the first general meeting.
Members of the General Meeting Appoint Directors (Section 152(2))
Except for the first director, the firm appoints the remaining directors in a general meeting. A public company, or a private company that is a subsidiary of a public company, must appoint at least 2/3 of the total number of directors in a general meeting, according to Section 152(2). These directors must be subjected to rotational retirement. The remaining directors of such a corporation, as well as a fully private company, are appointed by the general meeting of the firm.
Board of Directors Appointment
The members of the board of directors appoint the directors in a general meeting. However, the Board of Directors has the authority to appoint the directors in the following manner:
- Additional Directors: Section 161 of the Act states that the Board of Directors may appoint additional directors if the company’s articles of incorporation allow it. These additional directors will serve only until the next annual general meeting. If the annual general meeting is not held, the extra director vacates his office on the last day on which the annual general meeting is required to be held under Section 166. The additional directors are not required to file a consent to serve as directors.
- Casual Vacancies: Section 161 enables the Board of Directors to nominate directors to fill a casual vacancy that may arise owing to the death, resignation, insanity, insolvency, or other reasons involving the directors. Such an unplanned vacancy may be filled in accordance with the articles of the association’s regulations and procedures. A person chosen to fill a casual vacancy will serve only until the directors in whose place he is appointed have served for the same period of time.
- Alternate Directors: If a director is gone from the state for more than three months, an “alternate director” is chosen.
Central Government Appointment of Directors
At least 100 members of the company, or members of the company who hold at least one-tenth of the total voting power, petition the Central Government to appoint a director to protect the company’s or its members’ or the public’s interests, or to stop oppressive and mismanagement of the company’s affairs. The Central Government’s term of appointment of directors should not exceed three years, and he may be removed by the Central Government for the purpose of nominating another person to fill the position.
Third-Party Appointment of Directors is Permitted Provided the Article Specifies (Section 152)
A firm may have “nominee directors,” which are allowed if the articles of association grant other parties the authority to appoint their nominee to the board of directors. Debenture holders, financial corporations, and banking companies are examples of third parties who have provided loans to the company to ensure that the money is solely utilized for the purpose for which it was obtained.
Section 163
Appointment of directors by professional representation: In most cases, a company’s directors are appointed by a simple majority. As a result, a majority of shareholders with 51 percent or more votes may elect all directors, whereas a significant minority of 49 percent may be left out of the board. Minority shareholders will be able to elect directors using a single transferable vote and cumulative voting under this section.
Directorial Qualifications
The Companies Act does not stipulate any requirements for company directors. As a result, an Indian company’s Articles of Association may specify Director qualifications. However, the Companies Act limits the specified share qualification of Directors that a public company or a private company that is a subsidiary of a public company can impose to five thousand rupees (Rs. 5,000/-).[3]
Documents Required for the Appointment
For the appointment of a person as Director, the following documents are required:[4]
- In India, the only way to appoint directors is to use a digital signature, thus the first step is to generate a DSC.
- DIN is a legal prerequisite for becoming a company director. A person must have a DIN, or Director Identification Number, which can be obtained online by completing the DIR -3 form on the MCA website.
- A written letter expressing his approval as Director.
- A letter stating that the person is not disqualified to serve as a director as defined by law; Disclosure of Interest in Other Companies (shareholding pattern), if any; otherwise, a NIL disclosure suffices. With an explanation statement, a notice to call a Board meeting is issued.
- For the appointment of a director, the Company will issue an appointment letter
- E-form DIR-12 with ROC, as well as the papers listed above (consent/approval letter, DIR-2, and notice and certified copy of a Meeting resolution). Within 30 days, the form must be submitted.
Procedure for Appointing a Company’s Director
A director is a person who is appointed to undertake the duties and activities of a corporation. The method for appointing a director is outlined in sections 152 to 159 of the Act.[5]
Section 153
A person wanting to be a director of a corporation must apply to the central government for a Director Identification Number (DIN) and pay the required costs.
Section 154
The central government then issues the applicant with a DIN (Director Identification Number) within one month of receiving the allocation application.
Section 155
An applicant who has previously received a DIN (Director Identification Number) allotment is now permitted to apply for or possess another Director Identification Number.
Section 156
Within one month of receiving his DIN (Director Identification Number) from the central government, the current director must declare it. He must inform the company or companies in which he is a director.
Section 157
The company must provide the registrar or an authorized person with the DIN (Director Identification Number) of all directors within 15 days of receiving the intimation. The fees must also be submitted in accordance with the central government’s requirements, which are outlined in section 403. The company must pay a fine of Rs 25,000 twenty-five thousand, which may be increased to Rs 1,00,000 one lakh if the intimation is not received within 15 days.
Section 158
When submitting any return, information, or particulars relating to the director, or containing any reference to the director, every organisation or person must include the DIN (Director Identification Number).
Section 159
If any of the provisions of sections 152, 155, or 156 are not followed, a fine of Rs 50,000 fifty thousand rupees must be levied, or the offender may be sentenced to six months in prison. If the violation of the provisions continues, a daily fine of Rs 500 must be levied until the violation is stopped.
Directors’ Legal Position/Status
The Act does not specify the role/status of directors, thus determining the actual legal position of a company’s directors is challenging. The directors have been referred to be trustees or managing partners of the corporation, but they are none of these things in reality. For a certain moment and for a specific purpose, directors may be deemed agents, trustees, or managing partners.[6]
Individual Vote is Used to Appoint People
A director is appointed by a vote at a general meeting, as required under section 162 of the Companies Act, 2013. The candidates must vote individually, and the preferences of the shareholders must be considered for each proposed director.
Directorships
The Companies Act of 2013 establishes the minimum and maximum number of directors that a corporation can have. A private company must nominate at least two directors under the 2013 Act, whereas a public company must appoint at least three directors, and a one-person corporation must appoint at least one director. [7]A firm can have up to 15 directors (a maximum of 12 directors were allowed under the Companies Act, 1956). A firm can expand the number of directors above 15 by obtaining a specific resolution.[8]
Limits on the Number of Directorships Available
The Companies Act prohibits a Director from serving on the boards of more than fifteen (15) companies at the same time. The following companies are excluded from determining the maximum number of companies in which a person can be a Director:[9]
- A “pure” private corporation.
- A non-profit organisation; a company in which he or she is only appointed as an Alternate Director.
- A firm in which he or she is only appointed as an Alternate Director.
Cases Related to Appointment of Director
Dr.Francis Cleetus V. Ms.Rashtra Deepika LTD [10]
The Company Law Board issued an interim order, which is the subject of this appeal under Section 10F of the Companies Act, 2013. The prayed-for temporary directive was denied by the aforementioned order.
The appeal is based only on a legal issue. It is claimed that the petitioner’s grievance is that the Board meeting was held without adequate notice to the petitioner. It is submitted that there is a legal question involved in this case.
Respondents 1 and 3, the contesting respondents, were served with notice. They’ve made an appearance. Respondents 5 and 16 through 18 have likewise appointed counsel to represent them. Respondents 5–16 and 16–18 are in favour of the appellant.
The Company Law Board is now hearing Company Petition No.13/2011. The request for temporary orders was included in that petition. The company’s annual general meeting of stockholders is set for February 28, 2011. The intermediate prayer was for the mentioned meeting’s conduct to be limited.
The appellant’s learned counsel has been heard. The appellant’s skilled counsel claims that Annexure-E-4 is the notice for the company’s 21st annual general meeting. During the discussion, the counsel claims that ordinary business 1 and 2 in Annexure-E—4 can be discussed by the annual general meeting, and no objections are presented. However, there is a strong disagreement with Annexure E—5’s treatment of special business item 16.
The counsel’s arguments have been examined. Special business 3 to 12 is solely concerned with the election of Directors and Managing Directors. The Board has already appointed the individuals seeking to be nominated as Directors as Additional Directors. In any case, we believe that the annual general meeting’s consideration of the appointment of Directors and Managing Director, as well as the discussion of items 3 to 12 on the agenda, does not need to be limited.
In regards to articles 13 to 16, we believe that a direction to the Company Law Board to dispose of C.P.No.13/2011 as soon as feasible – at the very least within four months of this date – is appropriate. There could also be a directive that the decisions on items 13 to 16 not be implemented until after the disposal C.P.No.13 of 2011 or unless the Company Law Board gives special instructions.
In some instances, this appeal is partially allowed. The contested order does not prohibit interference, but it does instruct that decisions on special business items 13 through 16 be made in a timely manner. The decisions made by the annual general meeting on 28.2.2011 in Annexure-E4 will not be implemented pending the resolution of C.P.No.13/2011 or without further specific orders from the Company Law Board.
The Company Law Board is required to dispose of C.P.No.13/2011 as soon as feasible – at the very least within four months of this date.
Perla Tejo Naga Venkata Ambica Rama Su- Darsan V. Union Of India U.[11]
The petitioner, Durga Prasad Rao, seeks a writ of mandamus declaring the respondents’ action in deactivating and disqualifying the petitioner’s DIN No. 359125 as illegal, arbitrary, without jurisdiction, and contrary to the provisions of the Companies Act, 2013 and Rule 11 of the Companies (Appointment of Directors) Rules, 2014, and directing the respondents to activate the petitioner’s DIN No. 359125.
The petitioner is the Director of M/s. Kennedy International School Pvt. Ltd., and his DIN number is 359125, which was removed from the list of companies by two respondents.
While this was going on, 2 respondents gave notification under Section 164(2)(A) of the Companies Act, 2013 notifying the list of the disqualified as Director for a term of five years, and his DIN number was deactivated under Rule 11 of the Companies (Appointment of Directors) Rules, 2014.
It is alleged, among other things, that the deactivation of the DIN number occurred without prior notification, thereby violating natural justice principles. The petitioner will be unable to submit financial statements and annual reports as a result of this Deactivation.
As a result, the writ petition was filed. Sri. C. Raghu, learned counsel for the petitioner, and the learned Assistant Solicitor General of India, acting for the respondents, were heard.
Both learned counsel would argue that the order in W.P. No. 17409/2018 & batch dated 11.10.2018 covers the subject matter in the current writ petition.
Following the order in W.P. No. 17409/2018 & batch dated 11.10.2018, this writ petition is also dismissed, directing the respondents to restore the petitioner’s DIN number if the companies in respect of which he is disqualified are registered within the state of Andhra Pradesh, so that he can submit annual returns and financial statements. This order only applies to active businesses, it is said. There will be no fees.
As a result, any ongoing interlocutory applications will be withdrawn.
Conclusion
A company’s directors are similar to its brain. They provide a significant contribution to a company’s growth and development, and their position is critical. The Companies Act of 2013 gives them various powers so that they can provide their best to the organisation. Along with the authority comes a set of constraints on how it can be used in order to prevent abuse. It’s worth noting that, according to the Companies Act of 2013, no one can be a director of more than 20 companies, or 10 in the event of a public firm.
References:
[1] Section 2(3) of Companies Act, 2013
[2] https://freebcomnotes.blogspot.com/2017/03/appointment-and-removal-of-directors.html?m=1
[3] https://enterslice.com/learning/appointment-directors-companies-act-2013/amp/?_gl=1*9fk005*_ga*YW1wLUh5LUxONnowNmk5enFjbm9TUUNRUjhHQ1A4TWlETFhjd2hqeFlxUUtlVHREcG9jVUJrczc3UHlwQmZwb1VfYTQ.
[4] Singh Avtar, Company Law, 16th Edition (2015), Eastern Book Company
[5] Bare act of Companies act, 2013
[6] https://www.businessmanagementideas.com/management/directors-of-a-company-meaning-legal-status-and-resignation/8982
[7] Section 43 of Companies Act, 2013
[8] Section 258 of Companies Act, 2013
[9] Guide to the Companies Act by A . Ramaiya (16th edition) Wadhwa and Company Nagpur
[10] Feb 25, 2011
[11] Oct 14,2020
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