Who Can Be Appointed as a Director Under Section 152?

A company’s Board of Directors appoints a director to manage its affairs under Section 2(34) of the Companies Act, 2013. Directors play a central role in:

• Corporate governance
• Decision-making
• Strategic planning

They also ensure that the company complies with laws, protects shareholder interests, and achieves its business objectives.

Section 152 of the Companies Act 2013 governs the appointment, tenure, and eligibility of directors. It specifies how companies appoint directors, the process for reappointment, and the maximum number of directorships a person can hold. This section ensures that companies maintain a balanced board structure and that qualified individuals guide corporate management.

Directors act as the link between the company and its stakeholders.

Which Companies Must Appoint a Director?

Section 203 of the Companies Act 2013 requires certain companies to appoint key managerial personnel. This includes a managing director, manager, or whole-time director, a company secretary, and a chief executive officer. The rule applies to:

• Every listed company.
• Any public company with paid-up share capital exceeding Rs. 10 crore.
• Any other company not falling in the above two categories but with paid-up share capital over Rs. 5 crore.

Every company must also have a board of directors made up of real individuals. Section 149 specifies the minimum number of directors:

• Public company: At least 3 directors.
• Private company: At least 2 directors.
• One Person Company (OPC): At least 1 director.

A company can have a maximum of 15 directors by default. It may appoint more than 15 directors if it passes a special resolution.

Note: Companies must ensure that all directors meet the eligibility criteria under Sections 164 and 167. They must avoid disqualified individuals and maintain accurate records of appointments, resignations, and tenure to stay compliant.

Types of Directors in a Company

Directors can hold different roles based on their responsibilities, authority, and legal requirements. Understanding the types of directors helps businesses stay compliant, make better decisions, and maintain strong corporate governance. The following are the main types of directors recognized under the Companies Act, 2013.

1. Residential Director

Every company must appoint at least one resident director. The director must have stayed in India for a minimum of 182 days in the preceding calendar year. They ensure the company has a legal presence in India and act as a point of contact for authorities.

2. Independent Director

Independent directors are non-executive board members. They do not engage in daily operations but oversee corporate governance. They help improve transparency, protect shareholder interests, and enhance the company’s reputation.

3. Women Director

Certain companies must appoint at least one woman director. This applies if the company:

• Is publicly listed on a stock exchange
• Has a paid-up capital of Rs. 100 crore or more and an annual turnover of Rs. 300 crore or more.
• Women directors ensure gender diversity and contribute to stronger governance practices.

4. Managing Director (MD)

A managing director has significant management powers assigned by the board, the company’s general meeting, or the articles of association. They run the company’s day-to-day operations and implement strategic decisions.

5. Nominee Director

Shareholders, banks, financial institutions, or the government appoint nominee directors in specific cases. They represent the interests of the nominating party and ensure compliance with contractual or statutory requirements.

6. Executive Director

Executive directors work full-time in the company. They manage business operations directly and report to the board. They have higher responsibilities, must exercise diligence, and ensure all company actions comply with laws and regulations.

7. Non-Executive Director

Non-executive directors do not participate in daily management. They focus on strategy, policies, and oversight. They advise executive directors and ensure decisions align with the company’s long-term goals.

8. Alternate Director:

The company appoints an alternate director temporarily to act on behalf of a director who is absent for a long period. They exercise the same rights and responsibilities as the original director during this time.

9. Shadow Director

A shadow director is not officially appointed but influences the board by giving instructions that the board usually follows. The law can hold them responsible for decisions made by the board in certain contexts.

10. Additional Director

The Board can appoint additional directors between general meetings. These directors serve until the next annual general meeting and help fill immediate requirements on the board.

Provisions of Appointment of Director

The appointment of directors is a key step in running a company. The Companies Act, 2013, lays down clear rules for who can be appointed, how they are appointed, and their tenure. Following these provisions ensures legal compliance and smooth corporate governance.

a. Appointment of First Director:

The Articles of Association (AoA) usually specify rules for appointing the first director of a company. If the AoA does not provide such rules, the following individuals are considered the first directors:

• In a One Person Company (OPC), the sole individual becomes the first director.
• In other companies, the first directors are usually the individuals who signed the company’s Memorandum of Association.

These initial directors hold office until the company appoints directors formally through a general meeting of members.

b. Requirement of DIN:

Every person appointed as a director must have a Director Identification Number (DIN). The Central Government issues the DIN within one month of applying. Before the appointment, the individual must submit a declaration confirming they are not disqualified for the position, along with the DIN.

c. Consent and Filing With ROC:

The appointed director must give written consent in Form DIR-2 before assuming office. The company must file Form DIR-12 with the Registrar of Companies (ROC) within 30 days of the appointment.

If the individual is appointed as an independent director, the Board must attach an explanatory statement in the general meeting notice, confirming the individual’s eligibility to serve as an independent director.

d. Retirement by Rotation

Public companies must define retirement rules in their AoA. At every Annual General Meeting (AGM):

• At least 2-3 of the total directors retire by rotation.
• The remaining directors are appointed at the AGM according to the AoA.
• Independent directors are excluded from these rules.

Process:

• One-third of the retiring directors leave office each AGM.
• Directors with the longest tenure retire first.
• If multiple directors joined on the same day, the retirement order is decided by mutual agreement or by lot.
• The company must fill these vacancies in the same AGM.

Example:
A company has twelve directors. Out of these, eight directors are subject to retirement by rotation. At the Annual General Meeting, one-third of these eight directors, which is approximately two directors, will retire.

e. Re-appointment of Director

If a retiring director’s post remains vacant after an AGM:

1. The meeting is adjourned to the same day and time the next week (or next working day if it’s a holiday).
2. If the post is still vacant after the adjourned meeting, the retiring director is re-appointed unless:
   • The resolution for re-appointment was lost previously.
   • The director submits a written refusal.
   • The director is disqualified.
   • A Special or Ordinary Resolution is required for the post.
   • The director was originally appointed by unanimous votes at a general meeting.

What are the Other Provisions Related to the Appointment of Directors?

Beyond the basic rules of appointment, several additional provisions guide how directors function and maintain accountability in a company. These provisions ensure transparency, proper governance, and alignment with regulatory requirements.

a. Eligibility and Qualification Checks

Companies must verify that potential directors meet all eligibility criteria. This includes ensuring they:

• Are not disqualified under Section 164 of the Companies Act.
• Do not hold directorships beyond the legal limit in multiple companies.
• Possess the skills, experience, or expertise necessary for the company’s business.

b. Conflict of Interest Disclosure

Directors are required to disclose any potential conflicts of interest before appointment and throughout their tenure. Hence, this ensures that decisions are made objectively and protects shareholder and company interests.

c. Code of Conduct Compliance

Certain companies, especially listed ones, mandate that directors follow a prescribed code of conduct. This covers:

• Ethical business practices
• Insider trading restrictions
• Confidentiality obligations

d. Training and Orientation

Independent and first-time directors must undergo orientation or training programs. This ensures they understand:

• Corporate governance standards
• Responsibilities under the Companies Act
• Company policies and operational structure

e. Board Committees Appointment

Directors may be assigned to specialized board committees such as:

• Audit Committee
• Nomination and Remuneration Committee
• Risk Management Committee
  Membership in these committees ensures that directors contribute in areas of their expertise and enhance board efficiency.

f. Remuneration and Benefits

The Companies Act and Articles of Association govern directors’ remuneration. Companies must:

• Approve remuneration in board or shareholder meetings as applicable
• Maintain transparency regarding perquisites and bonuses
• Ensure compliance with any statutory limits

g. Removal of Directors

Apart from resignation, directors can be removed under specific conditions:

• Non-compliance with statutory duties
• Breach of the Articles of Association
• Shareholder resolution passed in a general meeting, following the procedure under Section 169

h. Reporting Obligations

Directors must ensure the timely submission of various filings and disclosures with the Registrar of Companies (ROC), including:

• Changes in directorship
• Annual returns and board resolutions
• Disclosures regarding related-party transactions

Disqualifications for Appointment of Directors

The Companies Act prevents certain individuals from being appointed as directors. A person cannot hold the office if they fall under any of the following categories:

• A person of unsound mind or legally declared mentally incapacitated.
• An undischarged insolvent.
• A person with an ongoing application to be declared bankrupt.
• Anyone sentenced to six months or more in prison for a crime involving moral turpitude.
• A person barred by a court or tribunal from being appointed as a director.
• Anyone who has failed to pay calls on shares in any company or firm.
• A person found guilty of a crime involving a related party transaction.
• Anyone who has not obtained or complied with DIN requirements.
• A person who has failed to file financial statements or annual returns for three consecutive financial years.
• A person who has failed to repay deposits, redeem debentures, or pay declared dividends or interest for one year or more.
• A person who does not comply with Section 152(3) regarding DIN requirements.
• A person who exceeds the maximum permitted number of directorships under Section 165 (holding directorships in more than 20 companies at the same time).

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Frequently Asked Questions (FAQs)

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

Before acting as a director, an individual must provide written consent in Form DIR-2. The company must file this consent with the Registrar in Form DIR-12 within 30 days of the appointment. This process ensures legal compliance and confirms that the individual agrees to hold office as a director.

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

The Board can appoint a director who is nominated by a government institution, shareholder, or financial body under applicable law. The Central or State Government may also nominate directors in companies where it holds ownership. The appointment must follow the procedure in the Companies Act to ensure proper authorization and governance.

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

A director must be at least 25 years old and no more than 70 years old. If the company passes a special resolution at a general meeting or obtains consent from the Central Government, this age limit does not apply. The individual must also meet qualifications under the Companies Act.

Q. Can a director be chosen without holding a meeting?

The Board may appoint a director at a board meeting or by passing a written resolution. In every case, the company must provide proper notice containing the agenda, consent letters, and necessary documents. This ensures transparency and legal compliance during the appointment process.

Q. Who is eligible to appoint a director?

Only an individual can serve as a director. Shareholders usually choose directors during a general meeting. Companies, associations, or other legal entities cannot be appointed because a director must be a real person with legal capacity, not an artificial entity.

Q. Who appoints directors in a company?

Shareholders usually appoint directors during general meetings. The Board may also appoint directors under provisions of the Companies Act, government nomination, or agreements. Proper notice, agenda, and consent letters must accompany all appointments to ensure legal compliance.

Q. How can a director resign from office?

A director can resign by submitting a written notice to the company. The company must file Form DIR-11 with the Registrar within 30 days. Resignation takes effect from the date the company receives the notice or a later date specified in the notice.

Q. What happens if a director fails to obtain DIN?

The company cannot legally appoint a person as a director without a valid Director Identification Number (DIN). Non-compliance leads to disqualification, and the individual cannot perform any director duties until the DIN is issued and submitted to the company.

Q. Can directors be reappointed after retirement?

Yes, retiring directors can be reappointed at the AGM unless shareholders explicitly reject the reappointment. If the position remains vacant after the adjourned meeting, the retiring director may be deemed reappointed, subject to legal exceptions under the Companies Act.

Q. How does retirement by rotation work?

In public companies, one-third of directors retire at every AGM. Directors with the longest tenure leave first. Directors who joined on the same day decide among themselves who retires; if no agreement exists, the decision is made by lot. The company fills vacancies immediately at the AGM.

Q. Can a director hold directorships in multiple companies?

Yes, an individual can hold up to 20 directorships simultaneously, including private, public, and Section 8 companies. Exceeding this limit leads to disqualification. Companies must track directorships to ensure compliance.

Q. How can a director be removed before term completion?

Shareholders may remove a director by passing an ordinary resolution at a general meeting. The company must follow notice and procedural requirements. Independent directors can only be removed under specific legal conditions outlined in the Companies Act.