CHAPTER XI

Appointment &
Qualifications Of Directors
Presented By:- Ruhi Shaikh
 Introduction
• According to Section 2 (10) of the Companies Act, 2013, "Board of
Directors" or "Board", in relation to a company, means the collective body of
the directors of the company.
• According to Section 2(34) "director" means a director appointed to the
Board of a company.
• The directors are the individuals who are appointed to manage the business
affairs of a company.
• A company is an artificial person created by law having separate legal
existence but without any physical body or mind of its own. It needs to be
managed through the human beings.
• Though the shareholders being owners are physically available to manage their
company but as their number grows, all of them together may not be able to
manage the affairs; and if they do so it shall be mismanagement and nothing
else. That’s why the concept of directors has emerged.
• The directors (within the permissible limit) may be elected from among the
shareholders or outsiders, if required, may also be appointed as directors.
• The collective body of the directors is called the ‘Board of Directors’ or simply
the ‘Board’.
• It is the Board which takes decisions at its meetings and not any individual
director.
• This is the reason why a quorum (i.e. presence of minimum directors at the
Board meetings) is prescribed so that collective decisions are taken. At times, if
permitted, the decisions can be taken by the Board without calling a meeting
but in that case too they are collective decisions.
 Company to have Board of Directors (Sec 149)
• Section 149 of the Act contains provisions which require every company to
have a duly constituted Board of Directors. These provisions are stated as
under:
• Number of Directors: According to Section 149(1), every company shall have
a Board of Directors consisting of individuals as directors. Thus, any person
other than individuals like a body corporate, firm or association of persons
cannot be appointed as director.
Every company shall have-
1. Minimum number of directors:
• in case of a Public Company - 3,
• in case of a Private Company - 2, and
• in case of a One Person Company (OPC) - 1
2. Maximum number of directors: 15
Note: If the company wants to appoint more than 15 directors, it can do so after
passing a special resolution. Number of directors in company

Minimum Maximum

15
Public company Private company OPC
(more directors
can be appointed
by passing a
3 2 1 special resolution)
• Limit of 15 directors and their increase in limit by SR shall not apply to
Government Company.
• Provisions related to minimum and maximum number of directors is not
applicable to Section 8 Companies. .
• However, the exemption will not be available if company has defaulted in the
filing of annual returns or financial statements to ROC.
3. Women Directors:-
 • Vacancy in office of Women Director:- Filled by BOD (Next Board meeting
or 3 months whichever is later).
4. 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.
5. Independent Director:-
A. An independent director in relation to a company, means a director other
than a managing director or a whole-time director or a nominee director,—
 who, in the opinion of the Board, is a person of integrity and possesses relevant
expertise and experience;
 who is or was not a promoter of the company or its holding, subsidiary or
associate company;
 who is not related to promoters or directors in the company, its holding,
subsidiary or associate company;
 who has or had no pecuniary relationship with the C/H/S/A/P/D (Company/
Holding/ Subsidiary/ Associate company/ their Promoters/ Directors), during
the 2 immediately preceding financial years or during the current financial
year;
 none of whose relatives has or had pecuniary relationship or transaction with
C/H/S/A/P/D amounting 2% or more of its gross turnover or total income or
Rs.50 lakh or such higher amount as may be prescribed, whichever is lower,
during the two immediately preceding financial years or during the current
financial year.
 who possesses such other qualifications as may be prescribed.
 An Independent Director neither himself nor any of his relatives—
a. holds or has held the position of a key managerial personnel or is or has
been employee of the C/H/S/A in any of the 3 financial years immediately
preceding the financial year in which he is proposed to be appointed;
b. is or has been an employee or proprietor or a partner, in any of the 3
financial years immediately preceding the financial year in which he is
proposed to be appointed, of—
• a firm of auditors or company secretaries in practice or cost auditors
of the C/H/S/A; or
• any legal or a consulting firm that has or had any transaction with the
C/H/S/A amounting to 10% or more of the gross turnover of such
firm;
c. holds together with his relatives 2% or more of the total voting power of
the company; or
d. is a Chief Executive or director, by whatever name called, of any Non-
Profit Organisation that receives 25% or more of its receipts from the
C/H/S/A/P/D or that holds 2% or more of the total voting power of the
company; or
B. Every listed public company shall have at least one-third of the total number
of directors as independent directors and the Central Government may
prescribe the minimum number of independent directors in case of any class
or classes of public companies.
C. Every company existing on or before the date of commencement of this Act
shall, within 1 year from such commencement or from the date of notification
of the rules in this regard as may be applicable, comply with the requirements
of the above provisions mentioned in Point B.
D. Every independent director shall at the first meeting of the Board in which he
participates as a director and thereafter at the first meeting of the Board in
every financial year or whenever there is any change in the circumstances
which may affect his status as an independent director, give a declaration that
he meets the criteria of independence.
E. Independent director should hold position of a key managerial personnel in
any of the 3 financial years.
F. Every independent director at the first meeting of the Board shall give a
declaration that he meets the criteria of independence.
G. Nominee director means a director nominated by any financial institution OR
any Government.
H. An independent director shall not be entitled to any stock option.
I. Independent Director may receive remuneration by way of sitting fee, and
reimbursement of expenses for participation in the Board and other meetings
and profit related commission as may be approved by the members.
J. An independent director shall hold office for a term up to five consecutive
years on the Board of a company.
K. An independent shall be eligible for reappointment on passing of a special
resolution by the company and disclosure of such appointment in the Board's
report.
L. No independent director shall hold office for more than two consecutive
terms, but shall be eligible for appointment after the expiration of three
years of ceasing to become an independent director.
M. Provided that an independent director is NOT associated with the company in
any other capacity during the three years period.
N. The company and independent directors shall abide by the provisions
specified in Schedule IV.
Manner of selection of Independent Directors
& Maintenance of Databank of Independent
Directors (Sec 150)
• An independent director may be selected from a data bank containing names,
addresses and qualifications of persons who are eligible and willing to act as
independent directors.
• Data Bank is maintained by any body, institute or association, as may be
notified by the Central Government, having expertise in creation and
maintenance of such data bank and put on their website for the use by the
company making the appointment of such directors.
• The appointment of independent director shall be approved by the company in
general meeting.
• The data bank shall create and maintain data of persons willing to act as
independent director.
• The Central Government may prescribe the manner and procedure of selection
of independent directors who fulfil the qualifications and requirements.
 Appointment of Director elected by small
shareholders (Sec 151)
• A listed company may have one director elected by such small shareholders in
such manner and with such terms and conditions as may be prescribed.
• Small shareholders means a shareholder holding shares of nominal value of
not more than Rs.20,000 or such other sum as may be prescribed.
 Appointment of Directors (Sec 152)
• If no provision is made in the articles of a company for the appointment of the
first director, the subscribers to the memorandum who are individuals shall
be deemed to be the first directors of the company until the directors are duly
appointed.
• And in case of a One Person Company, an individual being 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 this Section.
• Every director shall be appointed by the company in general meeting.
• No person shall be appointed as a director of a company unless he has been
allotted the Director Identification Number.
• Every person proposed to be appointed as a director by the company in general
meeting, shall furnish his Director Identification Number and a declaration
that he is not disqualified to become a director under this Act.
• A person appointed as a director shall not act as a director unless he gives his
consent to hold the office as director.
• And such consent should be filed with the Registrar within 30 days of his
appointment.
• In the case of appointment of an independent director in the general meeting,
an explanatory statement for such appointment, annexed to the notice for the
general meeting, shall include a statement that in the opinion of the Board, he
fulfils the conditions specified in this Act for such an appointment.
• Rotation of Directors {Sec 152(6),(7)}:-
 This requirement is applicable only in case of Public Company.
 Atleast 2/3rd (No rounding off ) of the total number of directors shall be
rotational directors (higher is allowed).
 Independent Directors and Nominee Directors will not be counted in
Total Directors for the purpose of taking two third.
 All directors appointed by BOD are non-rotational directors.
 New Companies Act does not specifically excludes MD and WTD from
the requirement of rotation. However, in normal course they are non-
rotational.
 Appointed in G.M. by passing OR. Remaining 1/3rd directors shall be
appointed by AOA. If AOA is silent, then by members in GM.
 Exact 1/3rd of the total number of rotational directors shall retire by rotation
at every AGM(Round off to nearest decimal). FIFO method to be followed .ie.
directors who have been longest in office shall retire first. If 2 directors are
appointed on the same day, then the same shall be determined by lot.
However in case there is agreement between directors, retirement shall take
place subject to such agreement.
• 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 re-appointed at the adjourned
meeting, unless—
  at that meeting or at the previous meeting a resolution for the re-appointment
of such director has been put to the meeting and lost;
 the retiring director has, by a notice in writing addressed to the company or
its Board of directors, 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 is applicable to the case.
• Explanation:- For the purposes of this Section and Section 160, the expression
“Retiring Director” means a director retiring by rotation.
 Application for allotment of Director Identification
Number (DIN) (Sec 153)
• Every individual intending to be appointed as director of a company shall make
an application for allotment of Director Identification Number to the Central
Government in such form and manner and along with such fees as may be
prescribed.
Allotment of Director Identification Number (Sec 154)
• The Central Government shall, within 1 month from the receipt of the
application under Section 153, allot a Director Identification Number to an
applicant in such manner as may be prescribed.
 Prohibition to obtain more than One Director
Identification Number (Sec 155)
• No individual, who has already been allotted a Director Identification Number
under Section 154, shall apply for, obtain or possess another Director
Identification Number.
 Director to Intimate Director Identification Number
(Sec 156)
• Every existing director shall, within 1 month of the receipt of Director
Identification Number from the Central Government, intimate his Director
Identification Number to the company or all companies wherein he is a
director.
Company to inform Director Identification Number to
Registrar (Sec 157)
• Every company shall furnish the Director Identification Number of all its
directors to the Registrar, within 15 days of the receipt of intimation (under
Section 156).
• If a company fails to furnish Director Identification Number before the expiry
of the period specified under Section 403 with additional fee-
• The company shall be punishable with fine which shall not be less than
Rs.25,000 but which may extend to Rs.1 lakh 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 Rs.1 lakh.
 Obligation to indicate DIN (Sec 158)
• Every person or company, while furnishing any return, information or
particulars, shall mention the Director Identification Number in such return,
information or particulars (if it relate to the director).
 Punishment for Contravention (Sec 159)
• If any individual or director of a company, contravenes any of the provisions of
Section 152, Section 155 and Section 156,
• Such individual or director of the company shall be punishable with
imprisonment for a term which may extend to six 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.
 Right of persons other than Retiring
Directors to stand for Directorship (Sec 160)
• A person who is not a retiring director will be eligible for appointment to the
office of a director at any general meeting.
• Notice to be appointed as director by any person at least 14 days before GM.
• Deposit- Rs.1,00,000
• Resolution – OR
• Refund of Deposits-If he gets 25% of Vote
• Exemption to the following directors from giving deposit- Independent
director, Director whose name is recommended by NRC/BOD.
• Relaxation- Nidhi Companies only deposit of Rs.10,000 will be required.
• MCA Notification- Requirement not applicable to Pvt Co., 100% Govt Co's,
Sec 8 Co's.
Appointment of Additional Director, Alternate
Director and Nominee Director (Sec 161)

Additional Director
Sec 161(1):-
Alternate Director
Sec 161 (2) :-
• A person who is already a director in the company cannot become an alternate
director for any other director.
• Alternate director to a women director should be a women.
Nominee Director Section-161 (3)
• He is a director nominated by any Bank or Financial Institution in pursuance of
the provisions of any law for the time being in force or of any agreement or by
the CG or SG by virtue of its share holding in a Government Company.
• However, AOA must authorise the BOD to appoint nominee directors.
Director in casual
vacancy
Sec 161 (4):-
• Section 161(4) is now also applicable to a private company.
• The vacancy arising in the office of the director shall be fulfilled by the Board
which shall subsequently be approved by members in next GM.
 Appointment of directors to be voted
individually (Sec 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 above point 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.
 Option to adopt principle of proportional
representation for appointment of directors
(Sec 163)
• The articles of a company may provide for the appointment (every three
years) of more than 2/3rd of the total number of the directors as per the
principle of proportional representation.
Disqualifications for Appointment of Director
(Sec 164)
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 offence
(e) an order disqualifying him for appointment as a director has been passed by a
court
(f) he has not paid any calls in respect of any shares of the company held by him
(g) he has been convicted of the offence dealing with related party transactions
• A person who is (or has been) a director of such a company which has not filed
financial statements for any continuous period of three financial years (or has
failed to repay the deposits accepted by it) shall NOT be eligible for the re-
appointed (or appointed in other company) for a period of 5 years from the
date of default.
 Number of Directorships (Sec 165)
• 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.
• The maximum number of public companies in which a person can be
appointed as a director shall not exceed 10.
• 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.
• Any person holding office as director in companies more than the limits as
specified above, immediately before the commencement of this Act shall,
within a period of 1 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 [Sub-
section 3(b)]
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.
• Any resignation made in pursuance of clause (b) of sub-section (3) shall become
effective immediately on the despatch thereof to the company concerned.
• No such person shall act as director in more than the specified number of
companies,—
• after despatching the resignation of his office as director or non-executive
director thereof,
• after the expiry of 1 year from the commencement of this Act,
• whichever is earlier.
• If a person accepts an appointment as a director in contravention of sub-section
(1), he shall be punishable with fine which shall not be less than Rs.5,000 but
which may extend to Rs.25,000 for every day after the first during which the
contravention continues.
 Duties Of Directors (Sec 166)
• 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 Rs.1 lakh
but which may extend to Rs.5 lakh.
 Vacation of Office of Director (Sec 167)
• The office of a director shall become vacant in case—
(a) he incurs any of the disqualifications specified in Section 164;
(b) he absents himself from all the meetings of the Board of Directors held
during a period of twelve months with or without seeking leave of absence
of the Board;
(c) 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;
(d) 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;
(e) he becomes disqualified by an order of a court or the Tribunal;
 (f) 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. The office shall be vacated by the director
even if he has filed an appeal against the order of such court.
(g) he is removed in pursuance of the provisions of this Act;
(h) 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 above, he shall be punishable with imprisonment
for a term which may extend to 1 year or with fine which shall not be less
than Rs.1 lakh but which may extend to Rs.5 lakh, or with both.
• Where all the directors of a company vacate their offices under any of the
disqualifications specified above, 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 above.
 Resignation of Director (Sec 168)
• A director may resign from his office by giving a notice in writing to the
company and the Board shall on receipt of such notice shall intimate the
Registrar.
• A director shall also forward a copy of his resignation along with detailed
reasons for the resignation to the Registrar within 30 days of resignation.
• The resignation of a director shall take effect from the date on which the notice
is received by the company (or the date specified by the director in the notice,
whichever is later).
• The director who has resigned shall be liable even after his resignation for the
offences which occurred during his tenure.
• Where all the directors of a company resign from their offices, or vacate their
offices under Section 167, 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 general meeting.
 Removal of Directors (Sec 169)
• A company may, by ordinary resolution, remove a director.
• A special notice shall be required of any resolution, to remove a director.
• On receipt of notice of a resolution to remove a director, the company shall
send a copy to the director concerned.
• A vacancy created by the removal of a director be filled by the appointment of
another director in his place at the meeting at which he is removed.
 Register of Directors and Key Managerial
Personnel and their shareholding (Sec 170)
• Every company shall keep at its registered office a register containing
particulars of its directors and key managerial personnel, which shall
include the details of securities held by each of them in the company or its
holding, subsidiary, subsidiary of company’s holding company or associate
companies.
• A return containing such particulars and documents of the directors and the key
managerial personnel shall be filed with the Registrar within 30 days from the
appointment of every director and key managerial personnel (and within 30
days of any change taking place).
 Members’ Right to Inspect (Sec 171)
• The register kept under Section 170 shall be open for inspection during
business hours and the members shall have a right to take extracts therefrom
and copies thereof, on a request by the members, be provided to them free of
cost within thirty days; and
• Register shall also be kept open for inspection at every annual general
meeting of the company and shall be made accessible to any person attending
the meeting.
• If any inspection is refused, or if any copy required under that clause is not sent
within thirty days (from the date of receipt of such request), the Registrar
shall on an application made to him order immediate inspection and supply of
copies required thereunder.
 Punishment (Sec 172)
• If a company contravenes any of the provisions of this Chapter and for which
no specific punishment is provided therein, the company and every officer of
the company who is in default shall be punishable with fine which shall not
be less than Rs.50,000 but which may extend to Rs.5 lakh.
Thank you
