Who is the Director of a Company?
A ‘director,’ according to Section 2(34) of the Companies Act of 2013, is a director appointed to a company’s Board of Directors.
The company, along with its directors and Board of Directors, is the principal agent responsible for conducting its activities within the framework of the Companies Act. The Companies Act states when the company acts as both principal and agent and when the Board of Directors acts on its behalf. The directors or the Board of Directors function as Trustees in relation to the company’s properties and assets. As a result, depending on the facts of each instance, the directors have varying qualities with respect to the firm.
As previously noted, directors, in addition to being trustees for the company’s assets and properties, are also the company’s agents, as the Board collectively acts on behalf of the business on all issues save those explicitly reserved for the company to act. However, it should be noted that, while the directors can be considered the company’s agent for cespecificurposes, the company cannot, in any way, including in the general meeting, direct the directors to take a particular decision on matters for which tBoardrectors (i.e., the Board) are empowered to make a decision—for example, share allotment, share transfer, investments, and other similar transactions.
If the shareholders‘ body does not like the decision, they have the right to remove the directors in accordance with the Act. As noted above in the chapter, a director, in addition to being the agent and trustee of the company, might also be considered an officer of the company, and therefore an employee/staff member under the Act.
A company’s articles may identify its directors as the Board of Directors, the Board of Management, or any other title, but they are simply directors under the law.
Similarly, in the case of associations or other bodies registered as companies under section 8 (that is, companies whose object is not profit but the advancement of art, science, commerce, culture, and so on), the members of the executive committee or governing body are directors for the Act, even if they are not referred to as such.
The term of an “officer” under section 2(59) of the Act includes a director as well as a Board under whose instructions the Board or any one or more of the directors are acquainted to act.
Key Takeaways
- A ‘director,’ according to Section 2(34) of the Companies Act of 2013, is a director appointed to a company’s Board of Directors.
- Except where the Act allows otherwise, every Director must be a director of the company in a general meeting, as per the Board Act 152(2).
- The Board of Directors can utilize its power and appoint directors in the following three cases. A company’s articles may grant its Board of Directors the authority to designate any person as an additional director at any time.
- Thus, if the office of any director appointed by the company in a general meeting is vacated before their term of office expires in the normal course, the resulting casual vacancy may be filled by a meeting of the Board, subject to any regulations in the company’s articles.
- The Board of Directors of a company may designate an alternate director to act for a director during his departure from India for a term of not less than three months if so authorized by its articles or by a resolution passed by the company in a general meeting.
Appointment of Directors in a Company
The following are the heads that would give the basis for the appointment of directors in a company:
1) Appointment of First Directors
The first directors are generally named in the articles or appointed in the manner specified in them. Where the articles do not permit the appointment of a Memorandum of First Directors, the individual subscriber shall be the company’s first director until the directors are officially constituted. In the event of a One Person Company, the member is presumed to be the co-director or initial Director until the Director appoints another Director ounderthe the provisions of this section.
If, for whatever reason, such as death, the people specified in the Memorandum do not take office, the subcommittee (which would be the sole members) must hold a meeting to nominate directors. Subscribers who would be entitled to request a meeting may convene the meeting if the articles contain no additional provision in that regard. Every subscriber must be served with notice of the meeting in accordance with the Act’s notice requirements.
There will be no appointment without a DIN:
No one shall be appointed as a director of a company unless he has been assigned a Director Identification Number (DIN) in accordance with section 154, Subsection (3).
Every individual nominated to be appointed as a director by the company, whether in a general meeting or otherwise, must provide their Director Identification Number as well as a certification that they are not disqualified to be a director under this Act.
Acceptance to serve as Director:
A person directed as a director may not act as a director unless he consents to occupy the position. The permission must be lodged with the Registrar in the required manner within thirty days after he is appointed, as per Section 152(5).
When an independent director is appointed at a general meeting, an explanatory statement affixed to the notice of the general meeting includes a decision that, in the Board’s view, he meets the qualifications stipulated in this Act for such an appointment.
2) Appointment at the GenDirecting
Except if the Act allows otherwise, every Director must be a director of the company in a general meeting, according to section 152(2).
Section 152, sub-section (6), states that unless the articles allow for the retirement of all directors at each annual general meeting, not less than two-thirds of a public company’s total number of directors must be present.
These shall be individuals whose terms of office are subject to the rotational retirement of directors; and
In the event of such a corporate (i.e., public company), the remaining directors shall be selected by the company in a general meeting in the absence of, and subject to, any requirements in the articles of the company.
3) Appointment by the Board of Directors
The Board of Directors can utilize its power and appoint directors in the following three cases :
(i) Additional Directors
A company’s articles may grant its Board of Directors the authority to designate any person as an additional director at any time. A person who is not elected as a director at a general meeting, on the other hand, cannot be elected.
As a result, granted by authority grant from the Board, the Articles cannot be amended to select new directors. The section applies to all enterprises, whether public or private.
(ii) Filling up the Casual Vacancy
In the event of any corporation, including a private company, Section 161(4), as modified by the Act, 17orizes the Board to fill casual vacancies. A casual vacancy occurs for reasons other than retirement or the end of an appointment’s term limit. Thus, if the office of any director appointed by the company in a general meeting is vacated before their term of office expires in the normal course, the resulting casual vacancy may be filled by the Board of Directors at a meeting of the Board, subject to any regulations in the articles of the company.
(iii) Alternate Directors
The Board of Directors of a company may designate an alternate director to act for a director during his departure from India for a term of not less than three months if so authorized by its articles or by a resolution passed by the company in a general meeting. A person holding an alternate directorship for another director in the firm, on the other hand, shall not be chosen. Again, an existing director of the business cannot be selected as an alternate director for another director of the same firm.
No one may serve as an alternate director for an independent director unless they are eligible to serve as an independent director under the requirements of the Directors.
An alternate director is not the original Director’s agency.
DirecDirectoresident Director
The notion of a resident director was introduced in the Companies Act of 2013. Section 149, sub-section (1) states that every firm must have at least one Director who has been a director for at least one hundred eighty-two days (182 days) in India during the preceding fiscal year.
Due to the COVID-19 scenario, failure to meet the minimum residence requirement in India for 182 days would not be considered a failure for the fiscal year 2020-21.
However, if a firm is freshly formed, the requirement will apply proportionally at the end of the fiscal year in which it is formed.
5) Appointment of Independent Directors
Section 149, sub-section (4), mandates that every listed public company have at least one-third of its total number of directors be independent directors, and the Central Government may specify the minimum number of independent directors for any class or classes of public businesses.
The Central Government has required & mandated the following as provided in Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014:
The following classifications or classes of corporations must have at least two independent directors:
- Public Companies with a paid-up share capital of at least 10 crore rupees; or
- Public Companies with a turnover of 100 crore rupees or more; or
- Public Companies with outstanding debts, debentures, and deposits totaling more than fifty crore rupees.
However, if a corporation covered by this regulation is compelled to nominate a greater number of independent directors owing to the composition of its audit committee, that greater number of independent directors must apply to it.
Any intermittent vacancy shall be replaced by the Board as soon as possible, but no later than three months from the date of such vacancy, whichever is later:
Explanation – For this regulation, it is now specified that the paid-up share capital or turnover, or outstanding loans, debentures, and deposits, as applicable, as of the final date of the most recent audited financial statements, shall be considered.
