DIRECTORS (Composition, Qualification & Appointment) – COMPANY LAW
A director in Company Law is the one who directs. This significant term follows the normal meaning under the Company Law as well. A Company being an artificial juridical person cannot act by itself. It is the individuals who severally and jointly run the business as representatives of the company and act on behalf of it.
The concept of the Board of Directors under Company Law, it is an extensive topic. Especially the Companies Act, 2013 which brought many new concepts of directors in order to be consistent with other laws in force such as Listing Regulations.
This article will cover the basics of directors, Board of Directors, the composition of Board of Directors, qualification of Director and appointment of Director, etc. Being one of the vast topics, it is hard to line up all about directors in one brief article. Let us begin with the basic terms:
BOARD OF DIRECTORS
Section 2(10) – “Board of Directors” or “Board”, in relation to a company, means the collective body of the directors of the company
As mentioned earlier, the company being an artificial person, its decisions are made by the group of individuals who are collectively called as Board of Directors, where it cannot be a body corporate or association or firm. Section 149 specifically states it is individuals who can become directors.
Section 2 (34) – “director” means a director appointed to the Board of a company;
This definition is more of a circular reference; it just tries to convey that one who is being appointed by the Board to be part of it is termed as director. It can be construed as a director is a person appointed to perform the duties and functions of the director of a company following the provisions of the Companies Act, 2013.
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COMPOSITION OF BOARD OF DIRECTORS
Section 149 deals with the composition of the Board of Directors and a few specific provisions in relations;
1. The Minimum Number of Directors provision requires the companies to have at least:
a. Private Limited – two directors
b. Public Limited – three directors
c. One Person Company – one director
2. The maximum number of Directors provision limits that a company can have a maximum of 15 directors. However, a company can pass a special resolution to appoint directors more than 15 as limited in the provision.
Note: Section 8 companies do not have the limit of the maximum number of directors.
Apart from this basic composition, there are specific provisions that require compliances namely:
3. RESIDENT DIRECTOR – Section 149(3) provides that every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days during the financial year. This was one of the new provisions that were brought by the Companies Act, 2013.
4. WOMEN DIRECTOR – Provision of Women Director requires certain classed of companies to have at least one woman directors in its Board. Under the Companies Act, 2013, the following companies shall be required to appoint at least one women director, namely
a, All Listed Companies
b. Public Companies with paid-up capital of `100 crores or more
c. Public Companies with a turnover of `300 crores or more
5. INDEPENDENT DIRECTOR – The provision of Independent Director under the Companies Act, 2013 was a significant inclusion. The provisions of Section 149(6), Rules and Schedule IV providing the Code for Independent Directors have in detail covered the requirement and qualifications for appointment of Independent Director.
These provisions of composition are quite simpler as far as the Companies Act, 2013. But for a listed company it has the obligation to ensure compliance with Listing Regulations as well. Similar to the Board of Directors, there exist separate provisions for the composition of the Audit Committee (Section 177) and the Nomination & Remuneration Committee and Stakeholders Relationship Committee (Section 178). Few key provisions on the relation to this study are given below for the benefit of the students.
SEBI (LODR) REGULATIONS, 2015
Board Composition: SEBI (LODR) Regulation 17
1. Board of directors shall have an optimum combination of executive and non-executive directors with at least one woman director and not less than fifty percent. of the board of directors shall comprise of non-executive directors.
2. Where the chairperson of the board of directors is a non-executive director, at least one-third of the board of directors shall comprise of independent directors.
3. Board of Directors of top 2000 listed entities (with effect from April 1, 2020) shall comprise of not less than six directors.
Audit Committee: SEBI (LODR) Regulation 18
1. Audit Committee shall have a minimum of three directors as members – two/third (2/3) shall be independent directors.
Nomination & Remuneration Committee: SEBI (LODR) Regulation 19
a. NR Committee shall comprise of at least three directors.
b. all directors of the committee shall be non-executive directors.
c. at least fifty percent of the directors shall be independent directors.
Stakeholder Relationship Committee: SEBI (LODR) Regulation 20
1. At least three directors, with at least one being an independent director.
NUMBER OF DIRECTORS
According to Section 165 of the Companies Act, 2013, no person shall hold office as a director, in more than twenty companies at the same time. The maximum number of public companies in which a person can be appointed as a director shall not exceed ten.
For reckoning the limit of public companies in which a person can be appointed as director, the directorship in private companies that are either holding or subsidiary company of a public company shall be included. For reckoning the limit of directorships of twenty companies, the directorship in a dormant company shall not be included.
Additionally for listed entities, SEBI vide recent notification provides that the directors of listed entities shall comply with the following conditions with respect to the maximum number of directorships, held by them at any point of time –
1. A person shall not be a director in more than eight listed entities with effect from April 1, 2019, and in not more than seven listed entities with effect from April 1, 2020. Further, it has been provided that a person shall not serve as an independent director in more than seven listed entities.
2. Notwithstanding the above, any person who is serving as a whole-time director/managing director in any listed entity shall serve as an independent director in not more than three listed entities. For the purpose of this sub-regulation, the count for the number of listed entities on which a person is a director / independent director shall be only those whose equity shares are listed on a stock exchange.
QUALIFICATION OF DIRECTOR
As far as a qualification of Director, it has quite a few provisions that are scattered across sections the key provisions are collated below:
1. Director Identification Number – As per Section 153 of the Act, every individual intending to be appointed as director of a company shall make an application electronically in Form DIR-3 for allotment of Director Identification Number to the Central Government along with the prescribed fees.
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. No person shall continue or be appointed as a director without obtaining DIN. Section 153 read with the Companies (Appointment and Qualification of Directors) Rules, 2014, provides for the procedure for making an application for allotment of DIN.
2. Not being Disqualified – Section 164(1) Provides that a person shall not be eligible for appointment as a director of a company, if –
a. He is of unsound mind and stands so declared by a competent court;
b. He is an undischarged insolvent;
c. He has applied to be adjudicated as an insolvent and his application is pending;
d. He has been convicted by a court of any offense, whether involving moral turpitude or otherwise and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence. Provided that if a person has been convicted of any offense 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.
e. An order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force;
f. He has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;
g. He has been convicted of the offense dealing with related party transactions under section 188 dealing with Related Party Transactions at any time during the last preceding five years; or
h. He has not complied with provisions of section 152.
Note: Every director shall inform the company concerned about his disqualification if any, in Form DIR-8 before he is appointed or re-appointed.
1. Apart from this, when it comes to appoint or continue the employment of any person as managing director, whole-time director, or manager no company shall appoint a person who is below the age of twenty-one years or has attained the age of seventy years.
APPOINTMENT OF DIRECTOR
As mentioned earlier Directors is a vast topic under Company Law, even in appointment though Section 152 predominantly pitches in the provision of Section 149(6) dealing with the appointment of Independent Directors, Section 162 dealing with the appointment of Additional, Alternate Directors etc shall come into the purview. But to keep it simple, Section 152 alone is being handled herein below
1. Appointment of First Director – The first directors of most of the companies are named in their articles. Regulation 60 of Table F provides that the number of 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.
The provision of Section 152 applies to all companies, whether public or private.
2. Appointment of Directors by Members at General Meeting – According to Section 152, every director shall be appointed by the company in a general meeting.
A director who is appointed by the Board shall hold office until the ensuing Annual General Meeting in which he shall liable to retire unless he is appointed by the Shareholder in that AGM. Therefore, members hold the power to appoint the director.
3. Appointment of Directors to be a Separate motion – Every director appointment should move for the appointment of each director as per section 162. A motion for approving a person for an appointment or for nomination a person for appointment shall also be treated as a motion for his appointment.
Though covered only a small portion of numerous provisions pertaining to the director we may have a chance to learn every individual topic about the director in detail in articles to come.
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