Appointment and Qualification of Directors

A director is a person duly appointed to the Board of a Company, collectively called as Board or Board of Directors. The Board is responsible for the management of affairs of a company. They have the responsibility to act in the best interest of the company. Although, directors act on behalf of the company but the individual acts done by a director cannot bind the company, unless the director is authorized by a Board Resolution.

As per Section 149(1) of Companies Act, 2013 every company shall have at least three directors in case of a Public Company, two directors in case of a Private Company and One Director in case of One Person Company (OPC). A company may appoint maximum of fifteen directors, however, a company may appoint more than fifteen directors after passing a Special Resolution at the general meeting of the company.

Appointment of Director at General Meeting

Where the Articles of Association of the company are silent regarding the appointment of First Directors the subscriber to the memorandum of association who are individuals shall be deemed to be the first directors of the company and they shall hold the office until the directors are duly appointed by members in the general meeting.

As per Section 152(2) of the Companies Act, 2013 every director shall be appointed at the general meeting of the company, unless otherwise expressly provided in this act.

Conditions for Appointment

  • Only an Individual natural person can be appointed as a Director.
  • A person shall not be appointed as a director unless he has an active Director Identification Number (DIN).
  • A person shall obtain a Digital Signature Certificate (DSC) from certifying authority to be appointed as a director.
  • Every person proposed to be appointed as a director shall furnish his DIN and a declaration that he is not disqualified to be appointed as a director under the Companies Act, 2013.
  • Every person shall furnish his consent to act as a director in Form DIR-2 on or before his appointment.
  • A person shall not be eligible for appointment as a director, if he is disqualified under sub-section (1) of Section 164 of the Companies Act, 2013.
  • A person shall not hold directorship in more than twenty companies at the same time including any alternate directorship. Further, maximum number of public companies in which a person can be appointed as a director shall not exceed ten.

Appointment of Director by Board

Additional Director: Section 161(1)

Where there is a power in the Articles, the board may appoint director as additional director. The tenure of additional director is up to the date of the annual general meeting or the last date on which AGM should have been held, whichever is earlier. The vary purpose of appointment of additional director is to ease the burden of work. A person whose proposal to be appointed as a director in the AGM is rejected by the shareholders cannot be appointed as an Additional Director.

Alternate Director: Section 161(2)

The board may appoint a person as an alternate director provided they have a power to do so in the Articles of Association or by a resolution passed in the General Meeting in this regard.

An alternate director is appointed where a director remains outside India for a period of not less than 3 months and that person shall not be an alternate director for any other director of the company. The term of office of an alternate director shall terminate when the original director returns to India or where the term of original director expires before his return to India the term of alternate director shall also expires at that time.

Where due to the requirements of any law or terms of an agreement, it is mandatory to appoint a person as a nominee director to the board of the company, the board may appoint a person as a nominee of such bank or financial institution or government, provided board has power to do so in the Articles of Association of the company.

There are situations where a bank provides financial assistance on the term that a person of their bank shall be appointed at the Board to keep a watch that the funds are not misused. The nominee director does not have any active role in the board.

Appointment of Director in Casual Vacancy: Section 161(4)

Where a vacancy has arisen due to the death or resignation by a director appointed in the general meeting before expiry of his term, the Board may fill such vacancy by appointing a director. The tenure of such casual vacancy director shall be only up to the term of the director in whose place he is appointed.

There is no qualification prescribed under Companies Act, 2013 for appointment of a person as a Director, however, Section 164 provides certain disqualifications for appointment of directors. Where a person is disqualified under Section 164 he shall not be eligible to be appointed as a Director in a company.