Appointment Of Directors Under Companies Act 2013 (Section 152)

Any individual chosen by the Board of Directors is referred to as a Director of a Company under section 2(34) of the Companies Act. Each director is in charge of running the business affairs of the corporation. Also, he or she is crucial to the governance of the business and determining its strategic course.

Relevant Case laws-

1. Ram Chand & Sons Sugar Mills Pvt. Ltd. v. Kanhayalal Bhargava- It was held that the role held by the directors in any business enterprise is a difficult subject to explain.

2. Imperial Hydropathic Hotel Co Blackpool v. Hampson, Bowen LJ- The role of the director as an adaptable one in a corporate organization was discussed. Directors may also be referred to as trustees, agents, or managing partners. These phrases serve as indicators of how directors are perceived in specific situations.

3. Ferguson v. Wilson- It was stated that a company’s directors are its legal agents. As an artificial person, the firm can only act through its directors. In this regard, the relationship between the directors and the corporation is merely similar to a principal’s and an agent’s normal relationship.

4. Indian Overseas Bank v. RM Marketing- It was decided that a director of a corporation could not be held responsible for a loan the company took simply because he is a director.

5. Ramaswamy Iyer v. Brahamayya & Co. – The directors were held accountable as trustees for their use of the company’s finances and any misuse of that power. Even after their passing, the cause of action continued against their legal agent.

Which Companies are required to appoint a Director?

Section 203 mandates the appointment of a managing director, manager, or full-time director, a company secretary, and a chief executive for every listed company, any public company with paid-up share capital of more than 10 crores, or a company not falling under the aforementioned two but with paid-up share capital of more than 5 crores.

Every corporation is supposed to have a board of directors, and this board should be made up of real people rather than a manufactured one. The minimum number of directors a business must have is specified in Section 149 as follows:

#A public company must have three directors.
#At least two directors for a private firm
#One-person business: At least one director
# A maximum number of directors is 15. After adopting a special resolution, a business is permitted to select more than 15 directors.

Types of Directors in a Company

1. Residential Director-According to the law, every firm must appoint a residential director who has resided in India for at least 182 days in the immediately preceding calendar year.

2. Independent Director- Independent directors are non-executive members of a board who support the company’s efforts to raise governance standards and promote business reputation.

3. Women Director- If a firm meets any of the following requirements, regardless of whether it is private or publicly traded, it must nominate at least one woman director:

#The corporation is a publicly traded company, and the stock exchange lists its securities.
#Such a corporation has a paid-up capital of at least Rs. 100 crore and a minimum annual revenue of Rs. 300 crores.

4. Managing Director- A managing director is a director who has been given significant management authority over the firm by the board of directors, the company’s general meeting, its bylaws, or its articles of incorporation.

5. Nominee Director- A certain class of shareholders, banks or other lending institutions, third parties through contracts, or the Union Government in the event of tyranny or poor management might all nominate directors.

6. Executive Director- The company’s executive director is the working director who is employed full-time. They have a greater duty to the organization and manage its business activities. They must exercise diligence and caution at all times.

7. Non-Executive Director- A non-executive director is not actively engaged in the day-to-day operations of the company. They could take part in the formulation of plans or policies and push the executive directors to make choices that are best for the business.

Provisions of Appointment of Director

Appointment of First Director:

The regulations for the appointment of the first director of a corporation are usually presented in their Article of Association. However, if such a provision is absent, the following people would be considered the first directors of the corporation:

i) The individual in the case of One Person Company;

ii) In the remaining cases: the individuals who are subscribers to the memorandum.

Such presumed initial director/s can hold the position until the director/s are duly assigned by the members. The company should appoint every director in a general meeting of its members.

Requirement of DIN:

Individuals who want to be appointed as a director in any company should have a Director Identification Number (DIN). DIN is allotted by the Central Government within one month after applying for the post. Before the actual appointment as a director of a company the selected individual should provide a declaration that s/he isn’t disqualified for the post of director along with DIN

Consent and ROC:

The appointed individual should give consent in writing in Form DIR-2 to hold office as a director before starting as a director in the company. The consent should be filed with the registrar in Form DIR-12 by the company within 30 days from the date of appointment of the director. However, if the individual is appointed as an independent director in the general meeting, an explanatory statement should be annexed to the notice of the GM that according to the Board, he is capable of becoming an independent director.

Retirement by Rotation

The article of association(AoA) of a public company should provide rules for the retirement of all directors at every Annual General Meeting (AGM) of the company. At least, not less than 2/3rd of the total number of directors of a Public Company should be the individuals whose tenure is to be determined by the retirement of directors by rotation and be appointed in general meetings by the company.

The ‘retiring director’ means a director retiring by rotation.

The remaining directors should also be appointed by such public companies in GM subject to any regulations in the AoA of that company. Here, the total number of directors doesn’t include independent directors. Moreover, this section does not apply to the appointment of independent directors.

In the first AGM of a public company held after the GM in which the first directors are appointed and at every subsequent AGM, 1/3 of such directors should retire by rotation for the time being, or if their number isn’t three or it’s multiple, then, the nearest number to one-third will retire from office.

For Example: If a company has 12 directors then a) the directors who should retire by rotation would be 12*2/3 i.e. 8, and b) No. of directors who will retire are 8*1/3 i.e. 2.33 or nearest to one-third is 2.

The directors with the longest tenure should retire by rotation at AGM. However, individuals who became directors on the same day should retire as per the agreement among themselves, or else it will be decided by a lot. However, the company should fill up such vacancies at the AGM where the director retires by appointing a retiring director or some other individual thereto.

Re-appointment of Director

If the position of the retiring director is vacant and the meeting wasn’t expressly able to fill the vacancy, the meeting will stand adjourned till the same day, at the same time and place in the next week, or if that day is a national holiday, till the next working day, at the same place and time.

If at the next adjourned meeting also, the position remains vacant and that meeting also wasn’t expressly able to fill the vacancy, the retiring director will be re-appointed at the vacant post in the adjourned meeting. However, the retiring director wouldn’t be re-appointed in the adjourned meeting in the following five situations:

• In case a resolution for the re-appointment of a retiring director has been put to the current or previous meeting and lost;
• In case the retiring director expresses his unwillingness to be re-appointed by written notice;
• In case the retiring director disqualifies or is not qualified for appointment as a director of the company;
• In case a Special Resolution (SR) or an Ordinary Resolution (OR) is necessary for his appointment or reappointment; or
• In case the individual was appointed with all individual votes in a general body meeting.

Other Provisions related to the Appointment of Directors

1. Where no provision is made in the articles of a company for the appointment of the first director, the subscribers to the memorandum who are individuals shall be deemed to be the first directors of the company until the directors are duly appointed and in case of a One Person Company, an individual being member shall be deemed to be its first director until the director or directors are duly appointed by the member by the provisions of this section.
2. Save as otherwise expressly provided in this Act, every director shall be appointed by the company in a general meeting.
3. No person shall be appointed as a director of a company unless he has been allotted the Director Identification Number under section 154 1[or any other number as may be prescribed under section 153].
4. Every person proposed to be appointed as a director by the company in a general meeting or otherwise, shall furnish his Director Identification Number 1[or such other number as may be prescribed under section 153] and a declaration that he is not disqualified to become a director under this Act.
5. A person appointed as a director shall not act as a director unless he gives his consent to hold the office as director and such consent have been filed with the Registrar within thirty days of his appointment in such manner as may be prescribed:
6. Provided that in the case of appointment of an independent director in the general meeting, an explanatory statement for such appointment, annexed to the notice for the general meeting, shall include a statement that in the opinion of the Board, he fulfills the conditions specified in this Act for such an appointment.
   • (a) 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—
     • (i) be persons whose period of office is liable to determination by retirement of directors by rotation; and
     • (ii) save as otherwise expressly provided in this Act, be appointed by the company in general meeting.
   • (b) The remaining directors in the case of any such company shall, in default of, and subject to any regulations in the articles of the company, also be appointed by the company in a general meeting.
   • (c) 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 by clauses (a) and (b) and at every subsequent annual general meeting, one-third of such 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 one-third, shall retire from office.
   • (d) 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 among themselves, be determined by lot.
   • (e) At the annual general meeting at which a director retires as aforesaid, the company may fill up the vacancy by appointing the retiring director or some other person thereto.
   • Explanation.—For this sub-section, “a total number of directors” shall not include independent directors, whether appointed under this Act or any other law for the time being in force, on the company’s Board.
7. (a) 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.
   • (b) 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, unless—
     • (i) at that meeting or the previous meeting a resolution for the re-appointment of such director has been put to the meeting and lost;
     • (ii) the retiring director has, by a notice in writing addressed to the company or its Board of directors, expressed his unwillingness to be so re-appointed;
     • (iii) he is not qualified or is disqualified for appointment;
     • (iv) a resolution, whether special or ordinary, is required for his appointment or re-appointment by any provisions of this Act; or
     • (v) section 162 applies to the case.
   • Explanation. For this section and section 160, the expression “retiring director” means a director retiring by rotation.

Disqualifications for Appointment of Directors

• The insanity of the mind.
• Whether he is an unsolved insolvent.
• when an application to be declared insolvent is still ongoing.
• when he receives a minimum 6-month sentence in jail for a crime involving moral turpitude.
• if a tribunal or court has issued a ruling preventing his appointment as a director.
• if he has not paid his calls with regard to any firm shares.
• when he is found guilty of a crime involving a related party transaction.
• when he has not complied with the Director Identification Number criteria.

FAQs

1. What is the appointment of directors section 152 of the Companies Act 2013?

Before acting as a director for the company, the nominated director must provide Form DIR-2 with written consent to hold office. Within 30 days of the day the director was appointed, the consent must be submitted to the registrar in Form DIR-12.

2. How are directors appointed under the Companies Act, 2013?

The Board may appoint any individual as a director who has been nominated by any institution in accordance with any law currently in effect, any agreement, or by the Central Government or the State Government in light of its ownership interest in a Government.

3. What prerequisites must be met for a director to be appointed?

He or she must be at least twenty-five (25) years old but not older than seventy (70) years. However, if the appointment is approved by a special resolution voted by the company’s general meeting or the consent of the Central Government is acquired, this age restriction is not applicable.

4. Can a director be chosen without holding a meeting?
In a different scenario, a firm’s director may be chosen at a board meeting or by passing a resolution through the corporation. In all situations, the notice for the meeting should contain all the pertinent information, including the agenda for the appointment of the Director along with the consent letters and other necessary paperwork.

5. Who is eligible to appoint a director?

The Companies Act states that only an individual may be chosen to serve on the board of directors. Typically, shareholders are the ones that choose the directors. A company, association, or legal firm cannot be appointed as a director if it has an artificial legal identity. It must be a real individual.