A company formed under company legislation is a juristic
person and a company is operated through its board which comprises of the
directors of the company. Section 149 of the companies act mandates that every
company should have a board of directors consisting of individuals as directors. Section
2(10) of the Companies Act, 2013 defines a board as collective body of
directors. Section 149 further stipulates that every a public company would
have a minimum of 3 directors, a private company will have a minimum of two
directors and a one man company will have a minimum of one director. The
limit on the maximum no of directors in any company is 15. A company can have
more than 15 directors according to the section provided a special resolution
is passed in this regard. The act of 2013 also makes a provision for a women
director for class of companies as may be prescribed. The section 149 of the
act incorporates another new requirement according to which one of the
directors should be resident in India for a period of not less than 182 days in
the previous year.
This new requirement has been made with a view to make the directors
accountable and responsible for the defaults done by the Company.
Appointment
of Directors:
According to the new act a director can be appointed by the
promoters, through a board meeting, by shareholders, by board of directors ,
Appointment
of Board of Directors by Promoters: Section 152 of the new act stipulates that when there is no
provision in the articles of association of company regarding the appointment
of directors, the subscribers of the memorandum shall be the directors of the
company. This section implies that the promoters could have a role in the
appointment of directors as promoters are the person who decides the
subscribers of the memorandum. In addition to this by way of section 168(3)
power had been given to the promoters to appoint the directors till the general
meeting in a situation when all the directors have either resigned or vacated
their office.
Appointment of director
at the general meeting: Section 152 ,
subsection 6 lays down unless the contrary is stated in the articles of
associated two thirds of total number of
Directors
shall retire at every general meeting and new directors would be appointed .
The subsection further lays down that in default of any provisions if so laid
by the articles of association the directors will be appointed at the general
meeting.
Appointment
of directors by small share holders: A Director can also be appointed by small shareholders in
certain cases. Section 151 of the Companies Act, 2013 lays down that a listed
company can have directors appointed by the shareholders in the manner so
prescribed. The explanation to the
section further goes on to describe a small shareholder as a person means a shareholder holding
shares of nominal value of not more than twenty thousand rupees or such other
sum as may be prescribed
Appointment of Director by Board of Directors: There
may be situations where death, resignation or any other situation may cause
vacancy in the board. In such situations the board of directors is empowered to
elect the Directors for whom the position is vacant in the company. The boards of Directors of the company also
have the power to appoint the additional director, alternative director and
nominee director if such power has been conferred on the board of directors by
the articles of association of the company .
Appointment of Director by BIFR: Under section
17(4) of the Sick Industrial Companies (Special Provisions) Act, 1985, the
Board of Industrial and Financial Reconstruction could appoint one or two
special directors on the Board of Directors of a sick industrial company under
the circumstances set out in the said sub-section. This overrides the
provisions in the Companies Act 1956 and any other law for the time being in
force or provisions in the Memorandum and Articles of Association of the sick
company concerned.
Appointment of Director by
National Company Law Tribunal : In addition to the above mentioned
authorities a director can also be appointed by the National Company Law
Tribunal in the exercise of section 242(2)(k) of the new act.
Qualification to be a Director:
The new act
is silent as to qualification required to be a director. Section 152(3) states
that no person can be director unless he has a DIN (Director’s Identification
Number). Furthermore Section 153 to Section 159 of the new act lay down the
procedure for obtaining a DIN. The Companies Act, 2013 in negative terms states
that a person cannot be a director 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, 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.
(e) (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 offence dealing with related party transactions under
section 188 at any time during the last preceding five years; or
Number of Directorships:
Section 165 of the new act
states that no
person shall hold office as a director, including any alternate directorship,
in more than twenty companies at the same time. The proviso
to the section states that the maximum number of public companies in which a person can be appointed
as a director shall not exceed ten.
Duties of Directors
The
duties of the director have been incorporated in Section 166 of the new act .
According to section 166 the duties of the directors can be categorized into
the following:
a) Duty to
act in good faith promoting the objects of the company for the best interest of
the company, its employees , shareholders and the protection of the environment
b) Duty to
exercise due and reasonable care, skill and diligence
c) Not
involving in a situation where his interests conflicts with the interest of the
company
d) Duty
not to achieve or attempt to achieve any under gain or advantage for himself or
his family members
e) Duty
not to assign his office
