CS Executive Directors Notes Company Laws
- 1 CS Executive Directors Notes Company Laws
- 2 DIRECTORS
- 3 Number of Directorships [Section 165]
- 3.1 Maximum Number of Directorship [Sub-section 1]
- 3.2 Members’ power to restrict the number of directorship [Sub-section 2]
- 3.3 Fine for default [Sub-section 6]
- 3.4 Woman Director [Section 149(1)]
- 3.5 Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014
- 3.6 Disqualifications for appointment of director [Section 164]
- 3.7 Personal Grounds of Disqualification [Sub-section 1]
- 3.8 Disqualification by reason of default made by a company [Sub-section 2]
- 3.9 Additional grounds of disqualification [Sub-section 3]
- 3.10 Postponement of certain grounds of disqualification
- 3.11 Rule 14 of the Companies (Appointment and Qualification of Directors) Rules, 2014
- 4 DIRECTOR IDENTIFICATION NUMBER (DIN)
- 5 General Provisions regarding DIN
- 6 APPOINTMENT OF DIRECTORS
- 6.1 Appointment of Directors [Section 152]
- 6.2 First Director
- 6.3 General provisions relating to appointment of directors
- 6.4 Retirement by Rotation in case of Public Companies only [Section 152(6)]
- 6.5 ‘Total number of directors’ shall not include
- 6.6 Minimum numbers of rotating directors which shall retire at every AGM
- 6.7 Vacancy in case of retiring director [Section 152 (7)]
- 6.8 Punishment [Section 159]
- 6.9 Notice of candidature of a person for directorship [Rule 13]
- 7 Proportional representation for appointment of directors [Section 163]
- 8 Director elected by Small Shareholders [Section 151]
- 8.1 Requirement of Director elected by Small Shareholders
- 8.2 Rule 7, Companies (Appointment and Qualification of Directors) Rules, 2014
- 8.3 Election of small shareholders’ director:
- 8.4 Notice of intention to propose a candidate for the post of Small Shareholders’ Director
- 8.5 Small shareholders’ director to be an independent director
- 8.6 Tenure of office and no retirement by rotation
- 8.7 Grounds of vacation of office
- 8.8 Number of small shareholders’ Directorship
- 8.9 No association with the company for next 3 years
- 9 APPOINTMENT OF DIRECTORS BY BOARD OF DIRECTORS
- 10 Appointment of directors to be voted individually [Section 162]
- 11 Duties of directors [Section 166]
- 12 Vacation of office of director [Section 167]
- 13 Removal of directors [Section 169]
Section 2 (34) of the Act prescribed that “director” means a director appointed to the Board of a company.
Section 2 (10) of the Companies Act, 2013 defined that “Board of Directors” or “Board”, in relation to a company, means the collective body of the directors of the company.
The term ‘Board of Directors’ means a body duly constituted to direct, control and supervise the affairs of a company.
Only individual can be appointed as Director
As per Section 149 of the Companies Act, 2013, The Board of directors of every company shall consist of individual only. Thus, no body corporate, association or firm shall be appointed as director.
Office of Director can’t be assigned
Section 166 of Companies Act, 2013 prohibits assignment of office of director to any other person. Thus, any assignment of office made by a director shall be void.
Indian resident director
Every company shall have at least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year.
Minimum/Maximum Number of Directors in a Company [Section 149(1)]
Every company shall have a Board of Directors consisting of individuals as directors and shall have—
- a minimum number of
- three directors in the case of a public company,
- two directors in the case of a private company, and
- one director in the case of a One Person Company;
- a maximum of fifteen directors
- A company may appoint more than fifteen directors after passing a special resolution.
- The restriction of maximum number of directors shall not apply to section 8 companies.
Such class or classes of companies as may be prescribed, shall have at least one woman director.
Number of Directorships [Section 165]
Maximum Number of Directorship [Sub-section 1]
No person, after the commencement of this Act, shall hold office as a director, including any alternate directorship, in more than 20 companies at the same time.
But maximum number of
- public companies +
- private companies that are either holding or subsidiary company of a public company
in which a person can be appointed as a director shall not exceed 10.
Members’ power to restrict the number of directorship [Sub-section 2]
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 directors.
Fine for default [Sub-section 6]
If a person accepts an appointment as a director in contravention of this section, he shall be punishable with fine which shall
- not be less than Rs. 5000 but which may extend to Rs. 25,000
for every day after the first during which the contravention continues.
Woman Director [Section 149(1)]
Such class or classes of companies as may be prescribed, shall have at least 1 woman director.
Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014
Following class of companies shall appoint at least one woman director-
- every listed company;
- every other public company having :-
- paid up share capital of 100 crore rupees or more; or
- turnover of 300 crore rupees or more .
- The paid up share capital or turnover, as the case may be, as on the last date of latest audited financial statements shall be taken into account.
- Any intermittent vacancy of a woman director shall be filled-up by the Board at the earliest but not later than
immediate next Board Meeting or
- 3 months from the date of such vacancy
- whichever is later.
Disqualifications for appointment of director [Section 164]
Personal Grounds of Disqualification [Sub-section 1]
A person shall not be eligible for appointment as a director of a company, if —
- he is of unsound mind and stands so declared by a competent court;
- he is an undischarged insolvent;
- he has applied to be adjudicated as an insolvent and his application is pending;
- he has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for
- not less than 6 months and
- a period of 5 years has not elapsed from the date of expiry of the sentence.
If a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be appointed as a director in any company;
- an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force;
- he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and 6 months have elapsed from the last day fixed for the payment of the call;
- he has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding 5 years; or
- he has not been allotted DIN.
Disqualification by reason of default made by a company [Sub-section 2]
No person who is or has been a director of a company which—
- has not filed financial statements or annual returns for any continuous period of 3 financial years; or
- has failed to
- repay the deposits accepted by it or pay interest thereon; or
- redeem any debentures on the due date or pay interest due thereon; or
- pay any dividend declared
and such failure to pay or redeem continues for 1 year or more,
shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of 5 years from the date on which the said company fails to do so.
- If after the disqualification under section 164(2) is attracted, the default is made good by the company, the directors shall continue to remain disqualified.
- The provisions of section 164(2) shall not apply to Government Company.
Additional grounds of disqualification [Sub-section 3]
A private company may by its articles provide for any disqualifications for appointment as a director in addition to those specified in sub-sections (1) and (2) of section 164 as stated above.
But a public company can’t provide any additional disqualifications.
Postponement of certain grounds of disqualification
The disqualifications referred to in clauses (d), (e) and (g) of section 164(1) shall not take effect—
- for 30 days from the date of conviction or order of disqualification;
- where an appeal or petition is preferred within 30 days as aforesaid against the conviction resulting in sentence or order, until expiry of 7 days from the date on which such appeal or petition is disposed off; or
- where any further appeal or petition is preferred against order or sentence within 7 days, until such further appeal or petition is disposed off.
Rule 14 of the Companies (Appointment and Qualification of Directors) Rules, 2014
- Every director who disqualified u/s 164 (2), shall inform to the company concerned in Form DIR-8 (Intimation by Director) before he is appointed or re-appointed.
- Whenever a company fails to file the financial statements/annual returns/fails to repay any deposit, interest, dividend/fails to redeem its debentures as specified u/s 164 (2), the company shall immediately file Form DIR-9 (Report by the company to Registrar), to the Registrar furnishing therein the names and addresses of all the directors of the company during the relevant financial years.
- Any application for removal of disqualification of directors shall be made in Form DIR-10.
DIRECTOR IDENTIFICATION NUMBER (DIN)
The Companies (Appointment and Qualification of Directors) Rules, 2014 provides for the procedure for making application for allotment of DIN.
Procedure for application for allotment of DIN – Section 153 & Rule 9
- Every individual, who is to be appointed as director of a company shall make an application electronically in Form DIR-3 to the Central Government for the allotment of a DIN.
- Form DIR-3 shall be signed and submitted electronically by the applicant using his or her own Digital Signature Certificate and shall be verified digitally by -:
- a chartered accountant in practice or a company secretary in practice or a cost accountant in practice; or
- a company secretary in full time employment of the company or by the managing director or by director of the company in which the applicant is to be appointed a director;
- In case the name of a person does not have a last name, then his or her father’s or grandfather’s surname shall be mentioned in the last name along with declaration in Form-DIR-3A. This declaration will be submitted along with Form DIN-3.
- The MCA vide Notification No. S.O. 1354(E) dated 21st May, 2014 delegates the powers and functions of the Central Government in respect of allotment of Director Identification Number under section 153 of the Companies Act, 2013 to the Regional Director, Joint Director, Deputy Director or Assistant Director posted in the office of Regional Director at Noida.
Procedure for Allotment of DIN[Section 154 and Rule 10]
The Central Government shall, within 1 month from the receipt of the application under section 153, allot a DIN to an applicant in such manner as mentioned below:
- On the submission of the Form DIR-3 on the portal and payment of the requisite amount of fees through online mode an application number shall be generated by the system automatically.
- After generation of the application number, the Central Government shall approve or reject the application and communicate the same to the applicant within a period of 1 month from the receipt of application.
- If the Central Government, on examination, finds such application to be defective or incomplete in any respect, it shall give intimation to the applicant, directing the applicant to rectify such defects or incompleteness by resubmitting the application within a period of 15 days.
- In case of rejection or invalidation of application, the fee so paid with the application shall neither be refunded nor adjusted with any other application.
- The DIN so allotted under these rules is valid for the life-time of the applicant and shall not be allotted to any other person.
Cancellation/Surrender/Deactivation of DIN [Rule 11]
In the following cases, DIN can be cancel or deactivate –
- the DIN is found to be duplicated in respect of the same person provided the data related to both the DIN shall be merged with the validly retained number;
- the DIN was obtained in a wrongful manner or by fraudulent means;
- of the death of the concerned individual;
- the concerned individual has been declared as a lunatic or of unsound mind by a competent Court;
- if the concerned individual has been adjudicated an insolvent.
- on an application made in Form DIR-5 by the DIN holder to surrender his or her DIN along with declaration that he has never been appointed as director in any company and the said DIN has never been used for filing of any document with any authority.
Intimation of changes in particulars of Director [Rule 12]
- Every individual having DIN in the event of any change in his particulars as stated in Form DIR-3, intimate such change(s) to the Central Government within a period of 30 days of such change(s) in Form DIR-6 (Intimation of change in particulars of Director to be given to the Central Government). Form requires precertification by the professional CA/CS/CMA in practice.
- The DIN cell of the MCA shall also intimate the change(s) in the particulars of the director submitted to it in Form DIR-6 to the concerned Registrar(s) under whose jurisdiction the registered office of the company(s) in which such individual is a director is situated.
- The concerned individual shall also intimate the change(s) in his particulars to the company or companies in which he is a director within fifteen days of such change.
General Provisions regarding DIN
Prohibition to obtain more than one DIN
According to Section 155, no individual shall apply for/obtain/ possess another Director Identification
Number who has already been allotted a Director Identification Number under section 154.
Director to intimate DIN
Section 156 stipulated that every existing director shall intimate his DIN to the company or all companies wherein he is a director within one month of the receipt of DIN from the Central Government.
Company to inform DIN to Registrar
Every company shall, within 15 days of the receipt of intimation of DIN from director, furnish the DIN to the Registrar/authorised office by the Central Government in e-form DIR-3C. The e-form is to be digitally signed by Company Secretary of the company or Company Secretary in Practice.
If a company fails to furnish Director Identification Number under section 157 (1), before the expiry of the 270 days period from the date by which it should have been furnished with additional fee,
- the company shall be punishable with fine
- which shall not be less than Rs. 25,000 but which may extend to 1 lakh rupees
- and every officer of the company who is in default shall be punishable with fine
- which shall not be less than Rs. 25,000 but which may extend to 1 lakh rupees.
Obligation to obtain DIN
Section 158 specified that every person or company shall mention the DIN in return, information or particulars as required to be furnished under this Act, in case such return etc. relate to the director or contain any reference of any director.
Intimation of reasons of resignation
- Rule 15 of Companies (Appointment and Qualification of Directors) Rules, 2014 requires that a company shall intimate resignation of a director to Registrar in Form DIR-12 within 30 days from the date of receipt of notice of resignation and to post such information on its website.
- Rule 16 of above rules requires that a resigning director shall forward a copy of his resignation along with reasons for such resignation to the Registrar within 30 days from the date of resignation in Form DIR-11 with the prescribed fees.
- In case a company has already filed Form DIR-12 with the Registrar under rule 15, a foreign director of such company resigning from his office may authorise in writing a practicing chartered accountant or cost accountant in practice or company secretary in practice or any other resident director of the company to sign Form DIR-11 and file the same on his behalf intimating the reasons for the resignation.
Punishment for Contravention
- Section 155 of the Act provides that no individual who has already been allotted a Director Identification Number under section 154, shall apply for, obtain or possess another Director Identification Number.
- Section 159 of the Act, further provides that for contravention of the provisions relating to appointment, obtaining more than one DIN or non-intimation of DIN, the individual shall be punishable
- with imprisonment for a term which may extend to 6 months or
- with fine which may extend to Rs. 50,000
and where the contravention is a continuing one,
- with a further fine which may extend to Rs. 500 for every day after the first during which the contravention continues.
APPOINTMENT OF DIRECTORS
Appointment of Directors [Section 152]
- Regulation 60 of Table F provides that the number of the directors and the names of the first directors shall be determined in writing by the subscribers of the memorandum or a majority of them.
- If they are not so named in the articles of a company, then subscribers to the memorandum who are individuals shall be deemed to be the first directors of the company until the directors are duly appointed.
- In the case of a One Person Company, an individual being a member shall be deemed to be its first director until the director(s) are duly appointed by the member in accordance with the provisions of Section 152.
General provisions relating to appointment of directors
- Except as provided in the Act, every director shall be appointed by the company in general meeting. Where any provision contained in the Act requires or specifies any other manner of appointment of directors, the appointment may be made in such manner.
- Director Identification Number (DIN) is compulsory for appointment of director of a company.
- Every person proposed to be appointed as a director shall furnish his Director Identification Number and a declaration that he is not disqualified to become a director under the Act.
- A person appointed as a director shall on or before the appointment give his consent to hold the office of director in physical form DIR-2 i.e. Consent to act as a director of a company.
- Company shall file Form DIR-12 (particulars of appointment of directors and KMP along with the form DIR-2 as an attachment within 30 days of the appointment of a director and necessary fee.
- The consent to act as director and intimation to Registrar is not required in case of section 8 company and where appointment of such director is done by the Central or State Government, as the case may be.
Retirement by Rotation in case of Public Companies only [Section 152(6)]
Minimum numbers of directors liable to retire by rotation
If there is no provision in the article, then not less than two-thirds of the total number of directors of a public company shall be persons whose period of office is liable to determination by retirement by rotation and eligible to be reappointed at annual general meeting.
But AOA of the Company may provide the provisions relating to retirement of the all directors.
‘Total number of directors’ shall not include
- independent directors
- Nominee directors appointed by a financial institution or by Central Government under section 408
But an additional director shall be included in the ‘total number of directors’.
Minimum numbers of rotating directors which shall retire at every AGM
- At the annual general meeting of a public company one-third of such of the directors for the time being as are liable to retire by rotation.
- If their number is neither three nor a multiple of three, then, the number nearest to one-third, shall retire from office.
- The directors to retire by rotation at every annual general meeting shall be those who have been longest in office since their last appointment.
- As between the persons who became directors on the same day, the directors who shall retire may be determined by agreement among themselves.
- In the absence of any such agreement the persons liable to retire shall be chosen by lot.
- Government companies have been exempted vide notification dated June 5, 2015 from the applicability of this section. Accordingly, directors in Government Companies are not liable to retire by rotation.
Vacancy in case of retiring director [Section 152 (7)]
- At the AGM at which a director retires as aforesaid, the company may fill up the vacancy by appointing the retiring director or some other person thereto.
- 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.
- 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 reappointed at the adjourned meeting, unless—
- a resolution for the re-appointment of such director has been put to the meeting and lost;
- the retiring director has expressed his unwillingness to be so re-appointed;
- he is not qualified or is disqualified for appointment;
- a resolution, whether special or ordinary, is required for his appointment or re-appointment by virtue of any provisions of this Act; or
- section 162 i.e. appointment of directors to be voted individually is applicable to the case.
Punishment [Section 159]
If any individual or director of a company, contravenes any of the provisions of section 152, such individual or director of the company shall be punishable
- with imprisonment for a term which may extend to 6 months or
- with fine which may extend to Rs. 50,000
and where the contravention is a continuing one,
- with a further fine which may extend to Rs. 500 for every day after the first day during which the contravention continues.
Right of persons other than retiring directors to stand for directorship [Section 160]
- who is not a retiring director in terms of section 152
- eligible for appointment to the office of a director at any general meeting,
- he, or some member intending to propose him as a director,
- not less than 14 days before the meeting,
left at the registered office of the company,
- a notice in writing under his hand
- signifying his candidature as a director or, as the case may be, the intention of such member to propose him as a candidate for that office,
- along with the deposit of one lakh rupees which shall be refunded to such person or, as the case may be, to the member,
- if the person proposed
- gets elected as a director or
- gets more than 25% of total valid votes cast either on show of hands or on poll on such resolution.
- if the person proposed
- In case of Nidhi Company, instead of Rupees One Lakh, the deposit of Rs 10,000 is required with the notice.
- Section 160 is not applicable to
- Government Company where the entire paid up share capital is held by Central Government jointly or severally
- Subsidiary of Government Company in which the entire paid up capital is held by that Government Company
- Private Companies,
- Section 8 Companies whose article provide for election of directors by Ballot
Notice of candidature of a person for directorship [Rule 13]
The company shall, at least 7 days before the general meeting, inform its members of the candidature of a person for the office of a director or the intention of a member to propose such person as a candidate for that office-
- by serving individual notices,
- on the members through electronic mode to such members who have provided their email addresses to the company for communication purposes, and
- in writing to all other members; and
- by placing notice of such candidature or intention on the website of the company, if any.
It shall not be necessary for the company to serve individual notices upon the members as aforesaid, if the company advertises such candidature or intention, not less than 7 days before the meeting
- at least once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the company is situated, and circulating in that district, and
- at least once in English language in an English newspaper circulating in that district.
Proportional representation for appointment of directors [Section 163]
The articles of a company may provide for the appointment of not less than two-thirds of the total number of the directors of a company in accordance with the principle of proportional representation, whether
- by the single transferable vote or
- by a system of cumulative voting or
and such appointments may be made once in every three years.
Casual vacancies of such directors shall be filled as provided in section 161(4).
The provisions of proportional representation of directors shall not apply in case of
- a Government company in which the entire paid up share capital is held by the Government, Central or State, jointly or severally or
subsidiary of a Government company, in which the entire paid up share capital is held by that Government company.
“Small shareholder” means a shareholder holding shares of nominal value of not more than Rs. 20,000 or such other sum as may be prescribed.
Every listed company may have one director elected by such small shareholders in such manner and on such terms and conditions as may be prescribed.
Rule 7, Companies (Appointment and Qualification of Directors) Rules, 2014
Following are the terms and conditions for appointment of small shareholder’s director:
A listed company may, upon notice of not less than
- One thousand small shareholders; or
- one-tenth of the total number of such shareholders,
whichever is lower; have a small shareholder’s director elected by the small shareholder.
Further, a ‘Small Shareholders’ Director’ may be elected voluntarily by any listed company.
The small shareholders intending to propose a person as a candidate for the post of small shareholder’s director shall leave a signed notice of their intention with the company at least 14 days before the meeting specifying the their details and proposed director’s details. The details include name, address, shares held and folio number etc. If the proposer does not hold any shares in the company, the details of shares held and folio number need not be specified in the notice.
Small shareholders’ director shall be considered as an independent director, if-
- he is eligible for appointment as an independent director as per sub-section (6) of section 149; and
- he gives a declaration of his independence as per sub-section (7) of section 149.
Tenure of office and no retirement by rotation
The tenure of small shareholders’ director shall not exceed a period of 3 consecutive years and he shall not be liable to retire by rotation. Further he shall not be eligible for re-appointment after the expiry of his tenure.
Grounds of vacation of office
A Small shareholders’ director shall vacate the office if –
- he ceases to be a small shareholder, on and from the date of cessation;
- he incurs any of the disqualifications specified in section 164;
- the office of the director becomes vacant in pursuance of section 167 (Vacation of office of Director);
- he ceases to meet the criteria of independence as provided section 149 (6).
A person shall not hold the office of small shareholders’ director in more than 2 companies. If second company is in competitive business or is in conflict with business of the first company, he shall not be appointed in second company.
No association with the company for next 3 years
He shall directly or indirectly not be appointed or associated in any other capacity with the company either directly or indirectly for a period of 3 years from the date of cessation as a small shareholder’s director.
- A small shareholders’ director may be removed by passing an ordinary resolution in the general meeting in accordance with the provisions of section 169 of the Act. At the time of voting on such resolution, every equity shareholders shall have a right to vote irrespective of the fact as to whether he is a small shareholder or not.
- A small shareholders’ director shall be included in the ‘total number of directors’.
APPOINTMENT OF DIRECTORS BY BOARD OF DIRECTORS
Board of Directors may appoint
- Additional Directors
- Alternate Directors
- Nominee Directors
- Directors in Casual Vacancy
If authorised by AOA, Board of Directors may 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.
Such 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.
- The number of directors and additional directors together shall not at any time exceed maximum strength fixed for the Board by the articles.
- Additional Directors can be appointed by private as well as public companies.
Alternate Director [Section 161 (2)]
The Board of Directors of a company may,
- if so authorised
- by its articles or
- by a resolution passed by the company in 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 a period of not less than 3 months from India.
Only independent director can be appointed as alternate director
No person shall 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.
- An alternate directorship in a company shall also be included while counting the number of directorship held by a director.
- Section 161(2) of the Act applies to all companies, whether public or private.
Appointment of Directors by Nomination [Section 161(3)]
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 by virtue of its shareholding in a Government company.
Appointment of Directors in causal vacancy [Section 161(4)]
In the case of a public company, if the office of any director appointed by the company in 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.
Appointment of directors to be voted individually [Section 162]
- At a general meeting of a company, a motion for the appointment of two or more persons as directors of the company by a single resolution shall not be moved unless a proposal to move such a motion has first been agreed to at the meeting without any vote being cast against it.
- A resolution moved in contravention of sub-section (1) shall be void, whether or not any objection was taken when it was moved.
- A motion for approving a person for appointment, or for nominating a person for appointment as a director, shall be treated as a motion for his appointment.
- Provisions related to appointment of directors to be voted individually shall be applicable to public companies only.
- However, a Government company in which the entire paid up share capital is held by the Government, Central or State, jointly or severally or the subsidiary of a Government company, in which the entire paid up share capital is held by that Government company and private companies are exempted from compliance of aforesaid provisions.
Duties of directors [Section 166]
- Subject to the provisions of this Act, a director of a company shall act in accordance with the articles of the company.
- A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment.
- A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
- A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
- A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.
- A director of a company shall not assign his office and any assignment so made shall be void.
If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
Vacation of office of director [Section 167]
- The office of a director shall become vacant in case—
- he incurs any of the disqualifications specified in section 164;
- he absents himself from all the meetings of the Board of Directors held during a period of 12 months with or without seeking leave of absence of the Board;
- he acts in contravention of the provisions of section 184 relating to entering into contracts or arrangements in which he is directly or indirectly interested;
- he fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested, in contravention of the provisions of section 184;
- he becomes disqualified by an order of a court or the Tribunal;
- he is convicted by a court of any offence, whether involving moral turpitude or otherwise and sentenced in respect thereof to imprisonment for not less than 6 months:
Provided that the office shall be vacated by the director even if he has filed an appeal against the order of such court;
- he is removed in pursuance of the provisions of this Act;
- he, having been appointed a director by virtue of his holding any office or other employment in the holding, subsidiary or associate company, ceases to hold such office or other employment in that company.
- If a person, functions as a director even when he knows that the office of director held by him has become vacant on account of any of the disqualifications specified in subsection (1), he shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both.
- Where all the directors of a company vacate their offices under any of the disqualifications specified in sub-section (1), the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in the general meeting.
- A private company may, by its articles, provide any other ground for the vacation of the office of a director in addition to those specified in sub-section (1).
Removal of directors [Section 169]
- A company may, by ordinary resolution, remove a director, not being a director appointed by the Tribunal under section 242, before the expiry of the period of his office after giving him a reasonable opportunity of being heard.
Nothing contained in this sub-section shall apply where the company has availed itself of the option given to it under section 163 to appoint not less than two-thirds of the total number of directors according to the principle of proportional representation.
- A special notice shall be required of any resolution, to remove a director under this section, or to appoint somebody in place of a director so removed, at the meeting at which he is removed.
- On receipt of notice of a resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director, whether or not he is a member of the company, shall be entitled to be heard on the resolution at the meeting.
- Where notice has been given of a resolution to remove a director under this section and the director concerned makes with respect thereto representation in writing to the company and requests its notification to members of the company, the company shall, if the time permits it to do so,—
- in any notice of the resolution given to members of the company, state the fact of the representation having been made; and
- send a copy of the representation to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representation by the company),
and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company’s default, the director may without prejudice to his right to be heard orally require that the representation shall be read out at the meeting.
But copy of the representation need not be sent out and the representation need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the Tribunal is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory matter.
- A vacancy created by the removal of a director under this section may, if he had been appointed by the company in general meeting or by the Board, be filled by the appointment of another director in his place at the meeting at which he is removed, provided special notice of the intended appointment has been given under sub-section (2).
- A director so appointed shall hold office till the date up to which his predecessor would have held office if he had not been removed.
- If the vacancy is not filled under sub-section (5), it may be filled as a casual vacancy in accordance with the provisions of this Act.
The director who was removed from office shall not be re-appointed as a director by the Board of Directors.
- Nothing in this section shall be taken—
- as depriving a person removed under this section of any compensation or damages payable to him in respect of the termination of his appointment as director as per the terms of contract or terms of his appointment as director, or of any other appointment terminating with that as director; or
- as derogating from any power to remove a director under other provisions of this Act.