Procedure for appointment of director

Written By: Anandita Singh : Procedure for appointment of director

Introduction

Director is the person who is responsible for dealing with and looking after the policies of the company. Public companies should have a minimum of three directors and private companies should have a minimum of two directors. Director is responsible for ensuring that the company is successful and its members are benefited.

Section 149 (1) of the Companies Act, 2013 affirms that there should be a Board of Directors in a company and such board should have individuals as directors. This section, therefore, states that an individual can only be a director of a company and not entities like LLP, company, etc.

This section also states the minimum number of directors (Section 149(1) (a)), which are as follows-

  1. In the case of a public company, there should be three directors.
  2. In the case of a public company, there should be two directors, and
  3. In the case of one Person Company, there should be a minimum of one director.

Before learning the procedure for the appointment of a director, let us learn about the kinds of directors.

Kinds of directors:

There are various kinds of directors who are governed by the companies act, 2013. Some of these are:

  1. Resident director: section 149(3) provides for a minimum of one resident director on the Board of Directors of a company. The resident director can be a person who has lived in the country for the last 182 days. As far as the new companies which are brought into existence are concerned, the resident director should be a resident director from the incorporation itself or should be appointed the same within 6 months of the incorporation of the company.
  2. Women directors: according to section 149 (1) (a) proviso two, it has been stated that when it comes to companies that are listed or public and have paid-up capital of Rs 100 Crore or more, or have a turnover of Rs 300 Crore or more, should have at least one women director on the board of directors. 
  3. Additional directors: section 161 of the Act states that a person can be appointed as the additional director of the company. These directors only hold the office of director till the next annual general meeting is done.
  4. Independent directors: section 149 (6) provides for independent directors. These are the director who does not have a relationship with the company and therefore, their judgment does not depend on their relationship and is solely based on their independence.
  5. Alternate directors: section 161 (2) provides for alternate directors. This is upon the discretion of the company as the word “may” has been used in the provision and if the articles of the company give such power to the company. Moreover, the alternate director cannot hold the office more than the tenure which the director in whose place he has been appointed, would hold the office. This director is appointed in case the original director has gone outside India for a period of three months and as soon as the original director returns, the alternate director has to vacate the office of the original director.
  6. Nominee director: section 161 (3) provides for nominee directors, but it is subject to the articles of the company and it is up to the board whether or not they want to appoint the nominee director. These directors are nominated by the institutions which have an interest in the company, such as the banks or any other financial institutions.

Since there are no particular qualifications as to who can become the director of the company, certain disqualifications have been provided by the companies act, 2013.

Also Read: INCORPORATION OF COMPANY

According to section 164 of the Company act, disqualifications of Director are:

  1. Court has convicted such a person
  2. Court has passed the order of disqualification
  3. Financial statements not filed by such person
  4. Did not repay deposits
  5. Such a person is barred by law
  6. He or she is of unsound mind
  7. He or she is insolvent
  8. He or she has not paid any calls for the shares of the company

Procedure for appointment of director:

  1. Meeting of Board of directors: Directors are appointed at Annual General Meeting (AGM) or when there are exceptional circumstances, in Extraordinary General Meeting (EGM) by way of vote. The notice of meeting needs to be sent to all the directors minimum 7 days before the meeting under section 173 (1). In the meeting, the appointment of the director needs to be discussed and a resolution needs to be passed to that effect.
  2. Consent: Directors need to give their consent for the position by filing the DIR 2 form together with the DIR 8[1] form which talks about his disqualification, stating that he is not disqualified from holding the position of director.
  3. Director Identification Number– Section 152 (3) of Company Act 2013 states that a person cannot be appointed as a director until and unless he has a valid and working DIN.
    • Section 153: this section provides for the Director Identification Number (DIN) to the person who desires to be the director. The application needs to be made to the central government together with the prescribed fees.
    • Section 154: within a month of such an application, the central government will give the DIN to the person who has made the application.
    • Section 155: a person who already has a DIN can make an application for getting another DIN.
    • Section 156: the applicant who has received the DIN from the government has to disclose such DIN to the company where he or she wishes to be a director.
    • Section 157: after receiving the DIN from the directors, the company has to intimate the same to the registrar within 15 days of receiving such intimation from the directors. If the company fails to notify the registrar within 15 days, it has to pay the fine of Rs 25,000 which may extend to One lakh rupees.
    • Section 403: fees to the government needs to be paid.
    • Section 158: when the company or the director is providing any security, then such a person has to mention the DIN.
    • Section 159: this section provides for a fine that can be levied if the particulars of sections 152, 155, and 156 are not complied with. The fine can be Rs 50,000 or there may be imprisonment for six months deepening upon the severity of the situation. If the situation continues, then Rs 500 will be fined every day for the continuation of the situation.
  4. Digital signature: If the person does not have a digital signature, he shall receive the same from the Certifying Authority of India. the person also has to file the DIR 3 form with the MCA, which has the following particulars-
    1. Passport size photograph
    2. Verified signature
    3. board resolution appointing him as the director
    4. ID proof
    5. Proof of residence
    6. Income Tax, PAN, Passport (for foreign directors)
  5. Forms:
    1. DIR 12 needs to be filed by the person who has been appointed as the director, together with the appointment letter, within 30 days of such appointment.
    2. DIR 12 also acts as a consent form that needs to be filed by the directors stating that they have taken this position willingly[2].
  6. Calling the AGM or the EGM: To appoint the director, an AGM needs to be held in accordance with section 152 of the Act. EGM can be called by shareholders under section 100 of the Act. The notice of the General meeting needs to be sent at least 21 days before the meeting to all the directors, auditors, members, etc.
  7. Submission of documents: After the resolution has been passed for the appointment of the directors at the AGM or the EGM, the same needs to be filed with the ROC, along with certain documents such as-
    1. Copy of the notice of the general meeting.
    2. Proof that such notice had been sent to all persons concerned.
    3. Attendance at the meeting.
    4. Total minutes of the meeting.
  8. Form MBP-1: This form needs to be filed by the director disclosing his interest in the company within 30 days of his appointment or at the first board meeting[3].
  9. Other documents:
    1. Certificate from Auditor: Auditor’s certificate needs to be provided, showing that the new directors have been appointed and that they have fulfilled all the criteria such as valid DIN and are not disqualified.
    2. Copy of DIR 12

This was all about the Procedure for appointment of director. Hope it helped.

Also Read: How to alter Memorandum of Association of a company


[1] section 164 (2), Companies Act, 2013

[2] Rule 8, Companies Appointment and Qualifications of Director Rules, 2014

[3] Section 184 (1) r/w section 189 (2) of the Companies Act, 2013 and Rule 9 (1) of the Companies (Meeting of the board and its powers) Rules, 2014 Procedure for appointment of director

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