Section 165 Of Companies Act 2013: Number Of Directorships

The Act lays down the provisions regarding the appointment, rights, and duties of the directors. Any person appointed as a director of a company has the freedom to be a director in another company. However, Section 165 of the Companies Act 2013 states the provisions relating to the number of directorships a person can hold at a given time.

Number Of Directorships of a Director

Section 165(1) of the Act states that a person can hold the office of director simultaneously in 20 companies. The number of 20 companies includes the office of alternate directorship. A person cannot be a director in more than 20 companies at a given time. However, the maximum number of public companies in which a person can be a director simultaneously is 10. An individual cannot be appointed as a director in more than 10 public companies at a given time.

For calculating the number of public companies, the directorship in private companies that are either holding or subsidiary of a public company is included. However, the directorship in a dormant company is not included in calculating the limit of directorships of 20 companies.

The purpose of prescribing the number of the office of directorship is that the person who is appointed as a director can give proper and sufficient time to a company. The Act prohibits a person from holding the office of a director in more than 20 companies to provide quality time to the companies in which he is a director and discharge his functions as a director in an efficient manner.

Reduction In the Number of Directorships

Section 165(2) of the Act provides a reduction in the number of directorships held by a person. A company can specify any number less than 20 in which the directors of their company can act as directors in other companies. The members of a company can specify a smaller number of the office of directorship for its directors by passing a special resolution.

For Ex – Abc is appointed as a director in Xyz company. Xyz company has passed a special resolution stating that Xyz company’s directors can hold the office of directorship in 10 companies. Then, Abc can be a director in only 10 companies simultaneously and not beyond it. Though the Act provides that a person can hold a director’s office in 20 companies, Abc can be a director in only 10 companies due to the resolution passed by Xyz reducing the number to 10. If he holds the office of director for more than 10, it will amount to the contravention of the Act.

Section 165 of the Companies Act 2013

[Number of directorships]

(1) No person, after the commencement of this Act, shall hold office as a director, including any alternate directorship, in more than twenty companies at the same time:

Provided that the maximum number of public companies in which a person can be appointed as a director shall not exceed ten.

Explanation. [(I)]— For reckoning, the limit of public companies in which a person can be appointed as director, directorship in private companies that are either holding or subsidiary companies of a public company shall be included.

[Explanation II. —For reckoning, the limit of directorships of twenty companies, the directorship in a dormant company shall not be included.]

(2) Subject to the provisions of sub-section (1), the members of a company may, by special resolution, specify any lesser number of companies in which a director of the company may act as a director.

(3) Any person holding office as director in companies more than the limits as specified in sub-section (1), immediately before the commencement of this Act shall, within one year from such commencement, —

(a) choose not more than the specified limit of those companies, as companies in which he wishes to continue to hold the office of director;

(b) resign his office as director in the other remaining companies; and

(c) intimate the choice made by him under clause (a), to each of the companies in which he was holding the office of director before such commencement and to the Registrar having jurisdiction in respect of each such company.

(4) Any resignation made in pursuance of clause (b) of sub-section (3) shall become effective immediately on the despatch thereof to the company concerned.

(5) No such person shall act as director in more than the specified number of companies, —

(a) after dispatching the resignation of his office as director or non-executive director thereof, in pursuance of clause (b) of sub-section (3); or

(b) after the expiry of one year from the commencement of this Act, whichever is earlier.

[(6) If a person accepts an appointment as a director in violation of this section, he shall be liable to a penalty of two thousand rupees for each day after the first during which such violation continues, subject to a maximum of two lakh rupees.]