Appointment of Director under Section 152: A Complete Guide

Shivani Jain | Updated: Jul 09, 2020 | Category: Compliance

A company is an artificial person who has no body or mind, and it needs human agents or trustees to perform its action. The term “Human Agents” over denotes “Directors” of a company. A director acts as a brain for a company and is responsible for managing its affairs. In this blog, we will discuss the Appointment of Director under Section 152 of the Companies Act, 2013.

Table of Contents

Concept of Director

As per section 2(34) of the Companies Act, any person appointed by the Board of Directors is known as Director of a Company. Every director is responsible for managing the affairs of the company. He/she also plays a significant role in governance and setting the strategic direction of the company.

A person who wants to become a director in a company needs to obtain DIN (Director Identification Number) from MCA. Any person below the age of 18 years will not be allotted DIN.

A director needs to perform his/her duties as per the provisions of the Companies Act, 2013. The key duties of a director are as follows:

To determine the strategic objectives and policies of the company;
To monitor the progress towards achieving the objectives and policies;
To appoint senior management;
To manage the activities of the company towards relevant parties, like shareholders,

Further, under section 149(1) of the Companies Act, 2013 [1] , a company must appoint Board of Directors.

Companies Eligible for Appointment of Director under Companies Act 2013

The companies eligible for appointment of director under section 152 of the Companies Act, 2013 are as follows:

Type of Company	Appointment Made
Public Company; Private Company (Subsidiary of a Public Limited Company)	2/3^rd of the total directors appointed by the shareholders;Remaining 1/3^rd appointment is made as per the Articles of Association. In case the appointment of 1/3^rdis not made as per articles, shareholders will do the same.
Private Company (which is not a Subsidiary of a Public Limited Company)	Articles of Association prescribethe manner of appointment of Directors.Shareholders can appoint the directors, in case, there is no procedure prescribed by the AOA.

Note:

In the case of Mismanagement or Oppression, the Central Government has the power to appoint Nominee Directors.

Minimum Number of Directors

The minimum number of directors required by different companies can be summarised as:

Type of Company	Directors Required
Private Limited Company (Pvt Ltd Co.)	A minimum of Two Directors
Public Limited Company	A minimum of Three Directors
One Person Company (OPC)	Only One Director

Note:

After passing SR (Special Resolution) in the EGM, a company is eligible to appoint more than fifteen Directors.
Only a living person can become the director of a company. That means a corporate entity cannot become a director in a company.
A foreign national or an NRI can become the Director of a company. However, as per section 149(3) of the Companies Act, 2013, a company must have one Resident Director. The term “Resident Director”denotes a person who has lived in India for at least 182 days in the last financial year.
Section 152 of the Companies Act, 2013, deals with the Appointment of Director.
Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2020, deals with the Appointment of Director.

Qualification for Appointment of Director under Companies Act 2013

The provisions of the Companies Act, 2013, do not provide any qualifications for being the director of a company. However, it specifies the share qualification for Directors.

The term “Share Qualification” denotes the number of shares that a director must hold within two months of his/her appointment.

Further, the value of shares must not exceed Rs 5000 except when the nominal value is more than the amount of share. Furthermore, a director is eligible to hold only shares, not share warrants.

A director will be held disqualified if he fails to hold shares in a company. He/she can be punished in either of the manners as follows:

His/her office can fall Vacant;
If he continues to hold the office, he will be liable to pay the penalty.

Types of Directors under Companies Act 2013

In India, the different type of directors under the Companies Act, 2013 can be summarised as:

Resident Director: According to section 149(3), every company must have a Resident Director. The term “Resident Director”denotes a person who has lived in India for at least 182 days in the last financial year.
Independent Director: According to section 149(6), an independent director means a director other than a WTD (Whole Time Director), MD (Managing Director), or Nominee Director. Further, as per Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2020, the companies that need to appoint independent director are as follows:
- A Public Limited Company having Rs 10 crores as Paid-up Share Capital;
- A Public Limited Company having Rs 100 crore as Turnover;
- A Public Limited Company having Rs 50 crores as outstanding loans, debentures, and deposits.
Small Shareholders Director: A director appointed by small shareholders in a listed company is a small shareholders director. This director is appointed either by 1000 Shareholders or 1/10^th of the total shareholders, whichever is lower.
Women Director: Section 149 (1) (a) second proviso of the Act provides specific categories of companies that need to have at least one woman Director. Such companies include a listed company or any public company having:
- Rs 100 crores as Paid-up Capital;
- Rs 300 crores as Annual Turnover.
Additional Directors: Section 161 (1) of the Companies Act, 2013, governs the appointment of additional directors.
Alternate Directors: Section 161(2) governs the appointment of alternate directors. A company appoints alternate directors when a director of a company is out of India for at least three months. However, a company needs to pass a resolution for the appointment.
Shadow Directors: Shadow Directors means a director who is although not accustomed to act, but is liable as a director. However, if a director is giving professional advice, he/she will not be a shadow director.
Nominee Directors: In the case of Mismanagement or Oppression, the Central Government can appoint Nominee Directors. A Nominee Director denotes Public Financial Institutions or banks.
Managing Director: A MD means a Director appointed either through AOA, an agreement, or passing a resolution in the general meeting. Board of Directors can also appoint this director. A Managing Director is entrusted with substantial powers to manage the affairs of the company.
Whole Time or Executive Director: A Whole-Time or Executive Director is someone who is in full-time employment of the company.
Professional Director: A Director who possesses professional qualifications and does not have any monetary interest in the company is known as a Professional Director.

Procedure to obtain Director Identification Number (DIN)

A person proposed to become a director needs to apply for DIN on the MCA (Ministry of Corporate Affairs) portal;
He/she needs to file DIR-3 on the MCA portal, together with fees of Rs 500. The documents required as attachments for DIR-3 are as follows:
Latest Passport-size photograph;
Copy of Passport;
A copy of National ID of the country where he is a citizen. The ID must be attested by Indian Embassy / Consulate / High Commission;
A copy of PIO Card (Person of Indian Origin) is needed for a foreigner of Indian Origin;
A copy of the OCI (Overseas Citizen of India) card issued by the GOI (Government of India);
Latest bank account statement;
NRI bank account statements.
After the allotment of DIN, the proposed director needs to file Form DIR-12 with the ROC. He/she needs to submit this form within 30 days from the date of appointment. The attachments to be filed with this form are as follows:
DIR- 2 (Consent to Act as Director);
DIR- 8 (Intimation about the interests of the Director);
Letter of Appointment given by the company;
Copy of Board Resolution passed by the company for the appointment.

Restriction on Number of Directors

As per Companies Act, 2013, a person cannot become a director for more than fifteen companies at the same time. However, the companies excluded from the count of maximum companies are as follows:

A ‘Pure’ Private Company;
An Association carrying business for no-profit, and prohibits the payment of any dividend;
A Company in which the said person is only appointed as an ‘Alternate Director’.

Note: If in case, a director fails to comply with the regulations prescribed, he/she will need to pay a penalty of Rs 50000. Further, this fine will be for each company the said person is a director after the first fifteen so determined.

Conclusion

The Appointment of Director plays a significant role in the management and growth of a company. These people act in a fiduciary relationship with the company and have the authority to manage its day-to-day affairs.

We at Swarit Advisors, have qualified, proficient, and experienced professionals to assist you in Appointment of Director. Our experts will plan ideally and make sure that the process of appointment is completed successfully.

Also, Read:Appointment of Independent Director

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