Section 161 Of Companies Act, 2013: Additional, Alternate, Nominee & Casual Vacancy Directors

Section 161 of the Companies Act,2013 deals with the Appointment of Additional Director, Alternate Director, and Nominee Director.

Section 161(1): Additional Director

Provisions of Section 161(1) of the Companies Act, 2013 deal with the Additional Director. Where there is heavy pressure of work on the Board of directors then the Board of directors can appoint an additional director, if authorized by the Articles of Association of that company.

The articles of a company may confer on its Board of Directors the power to appoint any person, other than a person who fails to get appointed as a director in a general meeting, as an additional director at any time. An additional director shall hold office up to the date of the next AGM or the last date on which the AGM should have been held, whichever is earlier.

Who appoints the Additional Director?

The power to appoint an additional director rest with the Board of directors and this power is given to the Board by the Company’s Articles of Association (AOA). If the AOA of the company does not confer the powers on the Board, then the Board cannot appoint an additional director.

What are the Powers of an Additional Director?

An additional director can be a managing or a whole-time director. An additional director can also be considered a rotational director. The powers and rights of the additional directors will be the same as other directors of the Company.

Section 161(2): Alternate Director

Provisions of Section 161(2) of the Companies Act, 2013 deal with Alternate directors.

What is an Alternate Director?

When a director of a company is not in India for more than (3) three months then an alternate director can be appointed on the original director’s behalf. An alternate or an alternative director act on behalf of the director who is not in the office due to being away for more than 3 months.

Thus, the alternate director exercises his duties for a limited time only i.e., only till the time the principal director returns to his duties. In other words, alternate directors are appointed by the Board as a replacement for a director who is going to be away from India and is unable to attend board meetings. Even though a director can be present through video conferencing, at times the shareholders might find the need to have a physical presence on the Board, which is when an alternate director gets appointed.

If in the absence of an independent director, an alternate director is to be appointed on his behalf, then that alternate director also needs to be independent. Further, an alternate director cannot be appointed as an alternate director for some other director in the same company.

How is an Alternate Director Appointed?

The Board of Directors of a company may, if so, authorized by its articles or by a resolution passed by the company in a general meeting, appoint a person, not being a person holding any alternate directorship for any other director in the company, to act as an alternate director for a director during his absence for not less than 3 months from.

A person shall not be appointed as an alternate director for an independent director unless he is qualified to be appointed as an independent director under the provisions of this Act. An alternate director shall not hold office for a period longer than that permissible to the director in whose place he has been appointed and shall vacate the office if and when the director in whose place he has been appointed returns to India.

If the term of office of the original director is determined before he so returns to India, any provision for the automatic re-appointment of retiring directors in default of another appointment shall apply to the original, and not to the alternate director.

Section 161(3): Nominee Director

Section 149(7) and Section 161(3) of the Companies Act, 2013 deal with a Nominee director.

What is a Nominee Director?

They represent the stakeholders on the board of directors. To put it in simple terms, a nominee director is a representative of the stakeholder who protects the stakeholder’s interest. Their job is to see that the company does not function in a manner detrimental to the interest of the stakeholders they represent.

Who Appoints the Nominee Director?

If it is authorized by the Articles of Association (AOA) of a company then the Board may appoint any person as a director nominated by any institution in pursuance of the provisions of any law for the time being in force or any agreement or by the Central Government or the State Government under its shareholding in a government company. If the Articles of Association of a Company authorizes it, only then can a nominee director be appointed by the Board.

Subject to the articles of a company, the Board may appoint any person as a director nominated by any institution in pursuance of the provisions of any law for the time being in force or of any agreement or by the Central Government or the State Government under its shareholding in a government company. Nominee directors are appointed by an agreement (either Shareholder’s agreement or financing agreement) between the company and the stakeholder. The stakeholders are responsible for the payment of such nominee directors they may appoint. A nominee director must act in good faith and in the interest of the company even if they are nominated by the stakeholders.

Section 161(4): Casual Vacancy

Provisions of Section 161(4) of the Companies Act, 2013 deal with a casual vacancy director.

What is Casual Vacancy?

Before understanding who is a casual vacancy director, it is important to understand the meaning of casual vacancy. Casual vacancy means a vacancy in the office due to the reasons of death, resignation, disqualification, incapacity, and removal.

What is a Casual Vacancy Director?

A director assuming office due to any of these reasons will be considered a casual vacancy director. The vacancy arising in the office of the director shall be considered as a casual vacancy if such a director was appointed by a shareholder in a general meeting. Only the shareholder will have to make a valid appointment with such a director.

Which Companies can Appoint a Casual Vacancy Director?

The concept of a casual vacancy director applies only to public companies. In the case of a public company, if the office of any director appointed by the company in a general meeting is vacated before his term of office expires in the normal course, the resulting casual vacancy may, in default of and subject to any regulations in the articles of the company, be filled by the Board of Directors at a meeting of the Board. Any person so appointed shall hold office only up to the date up to which the director in whose place he is appointed would have held office if it had not been vacated.