Meaning of Director
Under Section 2(34) of the Companies Act, 2013, a director means a director appointed to the Board of a company. Every company must have a Board of Directors. Under Section 149: minimum 3 directors for a public company, 2 for a private company, and 1 for an OPC. Maximum 15 directors (extendable by special resolution). At least one director must ordinarily reside in India.
A. Appointment of Directors
1. First Directors (Section 152(1)): The first directors are named in the AoA, or, if not named, the subscribers to the memorandum who are individuals are deemed to be first directors. They hold office until directors are appointed at the first general meeting.
2. Appointment by Shareholders (Section 152(2) & (6)): Directors are appointed by the company in its general meeting by ordinary resolution. At least 2/3 of the total directors of a public company must be liable to retire by rotation; not less than 1/3 of such rotational directors retire at each AGM and are eligible for re-election.
3. Director Identification Number — DIN (Section 154): Every person intending to be appointed as a director must obtain a DIN by applying in Form DIR-3 to the Central Government. Appointment without a valid DIN is invalid.
4. Consent to Act (Section 152(5)): A person proposed to be appointed must file his written consent in Form DIR-2 with the company before appointment, and the company must file it with the RoC.
5. Additional Directors (Section 161(1)): The Board may appoint additional directors, who hold office until the next AGM, when they must be confirmed by shareholders.
6. Alternate Directors (Section 161(2)): Appointed in place of a director who is absent from India for not less than 3 months; vacates office when the original director returns.
7. Nominee Directors (Section 161(3)): Nominated by third parties — banks, financial institutions, or subscribers to the AoA — as per the conditions of loan agreements or AoA provisions.
8. Independent Directors (Section 149(4) & (6)): Certain classes of public companies must have at least 1/3 of the total board as independent directors. An independent director must have no material or pecuniary relationship with the company except for the director's fee.
Qualifications of Directors
- Must be a natural person (individual) — Section 149(1).
- Must have a valid DIN — Section 154.
- Must not be disqualified under Section 164.
Disqualifications (Section 164)
| # | Ground |
|---|---|
| 1 | Adjudged by a court to be of unsound mind |
| 2 | Undischarged insolvent |
| 3 | Applied to be adjudicated as insolvent with application pending |
| 4 | Convicted of offence involving moral turpitude / fraud, sentenced to imprisonment of 6+ months; 5-year cooling-off after release |
| 5 | An order disqualifying him from acting as director passed by a court |
| 6 | Has not paid calls due on shares for 6 months |
| 7 | Director of a company where financial statements or annual returns not filed for 3 consecutive years — disqualified for 5 years (Section 164(2)(a)) |
| 8 | Director of a company that has defaulted in repayment of deposits, debentures, or interest, or payment of dividends for 1 year (Section 164(2)(b)) |
B. Removal of Directors
1. Removal by Shareholders — Section 169:
- A company may by ordinary resolution remove any director (other than one appointed by the NCLT under Section 242 or one appointed by proportional representation under Section 163) before the expiry of his term of office.
- Special Notice: 28 days' prior notice of the intention to move the resolution must be given to the company by the member.
- The company must send a copy of the notice to the director concerned immediately.
- The director has the right to make written representation to the company, which must be circulated to members before the meeting.
- The director has the right to be heard at the meeting.
- A vacancy created by removal may be filled at the same meeting by election, and the new director holds office until the director in whose place he is appointed would have vacated.
2. Removal by NCLT (Section 242): On an application for relief from oppression and mismanagement, the NCLT may, as part of its relief, direct the removal of a director responsible for such oppression.
3. Vacation of Office — Section 167: A director's office automatically becomes vacant if:
- He incurs any disqualification under Section 164.
- He is absent from all board meetings for 12 months (even with leave of absence granted).
- He enters into a contract with the company without disclosing his interest (Section 184 violation).
- He is adjudicated as bankrupt.
- He fails to comply with Section 152(3) (consent not filed).
Conclusion
The Companies Act, 2013 provides a comprehensive framework for the appointment and removal of directors, balancing the interests of management stability with the democratic right of shareholders to determine who manages their company. The DIN system, disclosure requirements, and disqualification provisions ensure accountability and integrity of the Board.