CLASSIFICATION OF DIRECTORS

Introduction

In corporate governance, there are several types of directors, each playing a unique role in the
management and oversight of a company. Understanding these roles is crucial for grasping
how corporate boards operate.

Composition

Under the Companies Act, 2013 in India, the requirements for the minimum and maximum
number of directors in a company are as follows:

1. Private Companies:
 Minimum Number of Directors: A Private Company is required to have a minimum
of 2 directors.
 Maximum Number of Directors: A Private Company can have a maximum of fifteen
directors. However, it can appoint more than 15 directors after passing a special
resolution.
2. Public Companies:
 Minimum Number of Directors: A public company must have at least 3 directors.
 Maximum Number of Directors: Similar to private companies, a public company can
have up to fifteen directors. It can exceed this limit by passing a special resolution.
3. One Person Companies (OPC):
 Minimum Number of Directors: An OPC needs to have a minimum of 1 director.
 Maximum Number of Directors: An OPC can have a maximum of fifteen directors,
and this limit can be extended in the same manner as private and public companies;
i.e., by passing a special resolution.

In every Company, a maximum of 15 directors can be appointed. And if a company wants to

have more than 15 directors then it can be done by passing a special resolution in the
company.

As per the Companies Act 2013, directors can mainly be classified under two subheads,
namely, managing directors (one who has substantial powers of management and control of
the affairs of the company) and full-time directors (one who is in full-time employment).
Further, the classification of the directors based on the manner in which they are appointed,
the role they play, the duties they have, the powers they possess, etc. can be under the
following subheads, namely:

Types of Directors

Based on Functions –
 Executive Director– The two types of Executive Directors -
i. Managing Director
ii. Whole Time Director
 Non – Executive Director – The two types of Non- Executive Directors –
i. Nominee Director
ii. Independent Director

Based on Appointment –

 Additional Director
 Alternate Director
 Casual Vacancy Director

Other types –

 Residential Director
 Women Director
 Small Shareholders Director
 Shadow Director
 De Facto Director
 Rotational Directors
 First Directors

Based on Functions –
 Executive Director

Executive directors are internal professionals i.e. they are internal to the organization and are
daily involved in the functions of the Company. Any person who is a full-time employee of
the Company (i.e. whole-time director) or who is responsible for the day-to-day operations of
the Company (i.e. managing director) will be called an Executive Director. Thus, an
Executive Director can be designated as Managing Director and Whole-time Director.
Generally, an executive director is paid more than a non-executive director because they are
believed to have rich expertise and experience in their field. He is usually responsible for the
executive functions in the management and administration of the company. Certain skills are
required for a person to be an executive director.

As defined in section 2(94) of Companies Act, 2013 – Rule 2(1) (k) of Companies
(Specification of Definitions Details) Rules, 2014 – Executive Director means a whole-time
director.

They are generally appointed through an appointment agreement and their qualification and
remuneration will be discussed in detail before they are appointed as Executive Directors.

Tenure – Managing director or a whole-time director can be appointed for a maximum period
of 5 (five) years. They are eligible for re-appointment. The re-appointment can be done for
the next term but not before one year of the expiry of the current term.

Age limit – The minimum age of a director should be 21 years. And the maximum age should
be 70 years. For a person above 70 years, shareholder’s approval in the General meeting is
required.

A Company (public or private) cannot appoint a manager along with a managing director but
can appoint a whole-time director along with a managing director or manager.

i. Managing Director – He is an executive director. When considerable power of

managing the affairs of a company is given to a director either by way of –
 Articles of Association of the Company (AOA) or
 An agreement with the Company or
 A resolution passed in its general meeting or
 By its Board of Directors

Then he will be a Managing Director of that Company. The Managing Director can be
appointed for a maximum period of five years. A Managing Director of a pre-existing
company can be appointed as a managing director of another company as long as the board of
directors of the first company approve and are aware of this new appointment.

ii. Whole Time Director – Director + Whole Time Employee of the company = Whole
Time Director. As per Clause 2(94) of Companies Act, 2013 - whole-time director
includes a Director in the whole-time employment of the company. He is also an
executive director of the company.
 Non-Executive Director
Non-executive directors are external professionals. The Companies Act, 2013 does not define
non-executive directors but we can understand the meaning from the definition of executive
directors. Directors who are not involved in the day-to-day functions or activities of the
Company are called non-executive directors. Despite not being involved in the day-to-day
business they are still on the Board. The reason is that the Board needs their inputs in certain
areas or sometimes only because there is a legal requirement to have them on the Board.
Non-executive directors come to the company only to make certain decisions at the Board
meeting.

Two types of Non-executive directors are –

i. Independent Director – Directors who have knowledge or network in a

particular area or a particular field can be termed independent directors. Usually,
companies hire ex-officials for such roles because they have the industrial
expertise and experience which is required for a company to run smoothly.
Women directors can also be appointed as independent directors. Independent
directors help maintain transparency which is the need of the hour, especially in
the corporate regime.

As per section 149(2) – an independent director is a director other than managing

director, whole-time director or nominee director and in the Board’s opinion
possesses relevant expertise and experience.

As per section 149(4) of the Companies Act, 2013 – every listed public company
must have at least 1/3rd of the total number of directors as independent directors.
This will include companies listed on the SME segment of the stock exchange.

The Central Government also prescribes the minimum number of independent

directors in the case of unlisted public companies.

The Central Government vide Rule 4 of Companies (Appointment and

Qualification of Directors) Rules, 2014 – states that unlisted public companies
must appoint at least 2 (two) directors as independent directors in the following
circumstances –

 If the paid-up share capital exceeds Rs. 10 crores.

 If the turnover exceeds Rs. 100 crores.
  If the aggregate of all the outstanding loans, debentures and deposits, exceeds
Rs. 50 crores.

A declaration by an independent director that he meets the criteria of independence is a must.

 At the first meeting of the Board in which he participates as a director and

 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
Qualification – Independent Directors are required to meet criteria set out in Section
149(6) of the Act. They should not have any material pecuniary relationship with the
company, its holding, subsidiary, or associate companies, or their promoters or
directors. An independent director must-have skills, experience and knowledge in one
or more fields of law, management, sales, marketing, corporate governance,
administration, research, technical operations or other disciplines related to the
company’s business.
Tenure – The term of independent director must not exceed 5 (five) years. They can
be elected again for a second term by passing a special resolution with the disclosure
in the Board’s report. A cooling period of 3 years is compulsory after the expiry of the
second term. Companies are allowed to appoint independent directors for less than 5
years however a person cannot be appointed for more than 2 (two) terms.

All independent directors should meet at least once annually in the absence of non-
independent directors and other members of the company so that they can evaluate the
performances of the company’s chairperson, other director’s and the Board.

An independent director must comply with the functions and duties mentioned in the Code of
Conduct provided under Schedule IV of the Companies Act, 2013.

Independent directors are not paid remuneration but are eligible for sitting fees for the
meetings they attend. Their nature is independent, they cannot receive any stock option.

As per Regulation 25 of SEBI Regulations, 2015 – an independent director cannot be a

director of more than 7 (seven) listed companies.

ii. Nominee Director – Section 149(7) and section 161(3) of the Companies Act,
2013 deal with a Nominee director. If it is authorized by the Articles of
Association (AOA) of a company then the Board may appoint any person as a
 director nominated by any institution in pursuance of the provisions of any law for
the time being in force or any agreement or by the Central Government or the
State Government under its shareholding in a Government company. If the
Articles of Association of a Company authorizes only then can a nominee director
can be appointed by the Board.

They represent the stakeholders on the board of directors. To put it in simple

terms, a nominee director is a representative of the stakeholder who protects the
stakeholder’s interest. Their job is to see that the company does not function in a
manner detrimental to the interest of the stakeholders they represent.

Appointment - Nominee directors are appointed by an agreement (either

Shareholder’s agreement or financing agreement) between the company and the
stakeholder. The stakeholders are responsible for the payment of such nominee
directors they may appoint.

A Nominee director must act in good faith and the interest of the Company even if
they are nominated by the stakeholders.

Case Law: In the landmark judgment of Tata Consultancy Services Limited v. Cyrus
Investments Private Limited & Ors. – It was made clear by the Court that while a
nominee director is entitled to take care of the interests of the nominator but he is
duty-bound to act in the best interests of the company and not fetter his discretion.

Bhardwaj Thiruvenkata Venkatavaraghavan v. Ashok Arora - the Delhi High Court

held that Nominee Directors must act in the best interest of the Company and its
shareholders and not only in the interest of their Nominators.

Based on Appointment –

 Additional Director – Provisions of section 161(1) of the Companies Act, 2013 deal
with the Additional Director. Where there is heavy pressure of work on the Board of
directors then the Board of directors can appoint an additional director, if authorized
by the Articles of Association of that company.
Mode of appointment - Additional directors can be appointed by passing a resolution
at the board meeting or through circulation.
Who can appoint? - The power to appoint an additional director rest with the Board of
directors and this power is given to the Board by the Company’s Articles of
 Association (AOA). If the AOA of the company does not confer the powers on the
Board then the Board cannot appoint an additional director.
Tenure – Additional director holds office only up to the date of next Annual General
Meeting (AGM) or the last date, on which the annual general meeting should have
been held, whichever is earlier. If a person does not get appointed as a director in a
general meeting then he cannot be appointed as Additional Director.
An additional director can be a managing or a whole-time director. An additional
director can also be considered a rotational director. The powers and rights of the
additional directors will be the same as other directors of the Company.
Case Law: T.M. Paul vs. City hospital Pvt. Ltd (2000) – It was held that an additional
director cannot be appointed on extraneous considerations such as strengthening the
position of the majority in the Board.

 Alternate Director – Provisions of section 161(2) of the Companies Act, 2013 deal
with Alternate directors. When a director of a company is not in India for more than
(3) three months then an alternate director can be appointed on the original director's
behalf. An alternate or an alternative director acts on behalf of the director who is not
in the office due to being away for more than 3 months.

Thus, the alternate director exercises his duties for a limited time only i.e. only till the
time the principal director returns to his duties. In other words, alternate directors are
appointed by the Board as a replacement for a director who is going to be away from
India and is unable to board meetings for this reason. Even though a director can be
present through video conferencing but still at times the shareholders might find the
need to have a physical presence on the Board, that’s when an alternate director gets
appointed.

If in the absence of an independent director, an alternate director is to be appointed on

his behalf then that alternate director also needs to be independent. Further, an
alternate director cannot be appointed as an alternate director for some other director
in the same company.

Tenure – An alternate director will hold office only till the time the original director
comes back to India. While in office as an alternate director, he will be responsible for
all practical purposes and will be entitled to all notices of the meetings along with the
 original director. The decisions taken by him in his capacity as an alternate director
will be valid.
Mode of appointment - The AOA of the Company must authorize the Board to
appoint an alternate director or he can be appointed by passing a resolution in the
general meeting or through circulation.

If the original director resigns or is removed then the alternate director will also vacate his
office unless the Board appoints him as an additional director.

An alternate director can be considered as a rotational director only if the original director is
rotational. An alternate director cannot be considered as a proxy of the original director.

An alternate director can be appointed as a Managing director because there is no provision

in the Companies Act 2013, which will prohibit alternate directors to be appointed as
Managing director provided that he must comply with sections 195,196 and schedule V of
company act 2013.

 Casual Vacancy Director – Provisions of section 161(4) of the Companies Act, 2013
deal with a casual vacancy director. Before understanding who is a casual vacancy
director, it is important to understand the meaning of casual vacancy.

Casual vacancy means a vacancy in the office due to the reasons of death, resignation,
disqualification, incapacity and removal. Thus, a director assuming office due to any
of these reasons will be considered as a casual vacancy director. The vacancy arising
in the office of the director shall be considered as a casual vacancy if such a director
was appointed by a shareholder in a general meeting. Only the shareholder will have
to make a valid appointment with such a director.

The concept of a casual vacancy director applies only to public companies.

How to fill a casual vacancy?

 The AOA need not authorize the Board to fill the casual vacancy.
 If AOA has prescribed a procedure as to how to fill such a casual vacancy then that
procedure needs to be followed.
 If AOA has not mentioned any procedure for such filling of casual vacancy then the
Board can pass a resolution in the Board meeting but not by way of circulation.
Thus, even if the AOA is silent on filling in the casual vacancy, the Board has the power to
fill such vacancy.

Appointment – The Board of directors can appoint a casual vacancy director. AOA
need not expressly state for filling in the casual vacancy. Such a director needs to be
appointed in the Board meeting only.
Tenure – Casual vacancy director shall hold office only up to the date up to which
director in whose place he is appointed would have held office if he had not vacated.

The concept of reappointment applies to the original director not to the Casual vacancy
director.

A casual vacancy director can be appointed as a Managing director but he cannot be

considered as a rotational director.

Other types –

 Residential Director – Provisions of section 149(3) of the Companies Act, 2013 deal
with the residence of a Director. The new Companies Act introduced this concept of
Resident Director. The Act makes the residence of a Director in India mandatory.

It states that every Company shall have at least 1 (one) Director who has resided in
India for a total period of not less than 182 days in the previous financial/ calendar
year. This provision applies to all companies, both private and public.

In the case of Companies that are newly incorporated, the requirement of 182 days
shall apply proportionately at the end of the financial year in which it is incorporated
– (proviso to section 149(3) inserted w.e.f. 7-5-2018).

Due to the Covid-19 pandemic, the MCA General Circular No. 36/2020 dated 20-10-
2020 states that the minimum residency in India for a period of 182 days for the
financial year 2020 – 2021 will not apply.

Declaration of a Resident Director is not required. A Resident Director is like any

other Director and he is required to attend at least 1 Board Meeting in a year.

The presence of a residential director is often required by law in many jurisdictions to

ensure that the company maintains a physical and accountable presence in the country
of operation. He ensures that the company adheres to the legal and regulatory
requirements of the country where it operates. A Residential Director is particularly
 important in multinational corporations, where local knowledge and presence are
essential.
 Women Director – The Companies Act, 2013 made it mandatory for certain
companies to appoint a woman director. As per the provisions of Section 149 (1) of
the Act and Rule 3 of the Companies (Appointment & Qualification of Directors)
Rules, 2014 – The Companies that need to appoint a women director are as follows:
a. Every Listed Company.
b. Every Public Company having paid-up share capital of Rs. 100 crores or more.
c. Every Public Company has a minimum turnover of Rs. 300 crores or more.
The time limit for an appointment – The existing Companies (i.e. old companies
under the previous Companies Act, 1956) shall appoint women directors within 1
(one) year from its commencement. The new Companies (i.e. under the new
Companies Act, 2013) has to appoint women directors within 6 (six) months from the
date of its incorporation. If this provision is violated then it is punishable under
Section 172 of the Companies Act, 2013.
Case Law – Jalpower Corporation v. ROC (2016) 138 SCL 124 – In this case, there
was a delay of 6 months in appointing a woman director. Jalpower Corporation stated
that the delay was committed due to unavoidable circumstances and it was not
deliberate. While admitting to the offence, it stated that the said offence did not cause
any harm to the public interest. Due to this delay, the ROC had issued a show-cause
notice to Jalpower Corporation for the non-appointment of a woman director. The
Court held that not appointing a woman director is a compoundable offence and
punishable under Section 172 of the Companies Act, 2013. A fine of Rs. 50,000/- was
imposed as a compounding fee which was to be paid within 3 weeks from the date of
receipt of the order.
Tenure – The tenure of women director is till the next Annual General Meeting
(AGM) from the date of her appointment. She can resign any time she wishes by
giving notice to the Company.

The women director can be appointed during the time of registration of the Company or
after the incorporation of the Company by the Board of Directors and the shareholders.

Any intermittent vacancy of a women director shall be filled by the Board of Directors
within 3 months from the date of such vacancy or not later than the immediate next board
meeting, whichever is later.
 Declaration of a woman director is not required.

 Small Shareholders Director – Any person who holds shares of the nominal value of
not more than Rs. 20,000 in a Public Company is called a small shareholder. These
small shareholders are allowed to elect a director in a listed company. Thus, directors
elected by these small shareholders are called Small shareholders Director’s.
According to Section 151 of the Companies Act, 2013 every listed company may have
1 (one) director elected by such small shareholders.

Thus, a small shareholder director can be appointed by a Company if –

a. The Company is a Public Company;

b. The Company has at least 1000 or more small shareholders;

Only if these two criteria exist, the listed company can have one director elected by a
small shareholder.

Appointment – The appointment of such a director is optional and that is why there
are hardly any companies that have a small shareholder director. The Company can
appoint a small shareholder director either on its own or on the application made by a
small shareholder.

Rule 7 of Companies (Appointment and Qualification of Directors) Rules, 2014 lays

down certain provisions relating to Small Share-Holder Director which are as follows –

I. At least 1000 small shareholders or 1/10th of the small shareholders whichever is less
should provide a written notice to the Company. But the notice should be provided 14
days before the General Meeting.
II. The said notice must contain details of the proposed director. Details such as name,
address, folio number, shares held etc.
III. The said notice must be signed by the person proposing to be the director.
IV. The said notice should be accompanied by a statement signed by the proposed
director stating that he has a Director Identification Number (DIN), he is not
disqualified to be a director and he has given his consent to act as a director.

Other provisions related to a small shareholder director are as follows –

I. A small shareholder director is eligible for an independent director as per the

provisions of section 149 (6) & (7) of the Companies Act, 2013.
 II. A small shareholder director shall not be considered as a retiring director.
III. A small shareholder cannot be appointed as a Managing Director or a Whole Time
Director.
IV. A person shall not hold office as a small shareholder director in more than 2 (two)
companies at the same time i.e. he is allowed to hold office in 2 companies at the
same time but not more than 2.
Tenure – A small shareholder director can be appointed for a maximum period of 3
(three) years. He is not liable to retire by rotation and he is also not eligible for
reappointment after the expiry of his tenure. Further, he cannot be associated with the
Company for 3 (three) years after he has finished his service.

 Shadow Director – A shadow director is nowhere mentioned in the Companies Act,

2013. A shadow director is someone who is not appointed officially as a Director of
the Company but the Board follows his directions and orders. They are very
influential just like any other Director of a Company but they manage to avoid the
liability that arises thereof. They give orders and their orders are followed but they do
not have any managerial position in the Company. Such Directors are known as
Shadow Directors.

Example – Mr Robin is not a Director in TCS Ltd. Nor is he an employee or has any
contractual association with TCS Ltd. Before taking any major decision, the Board of
TCS Ltd., consults Mr Robin. And only after Mr Robin’s directions, TCS Ltd. goes ahead
with the business. In this case, Mr Robin will be a Shadow Director of TCS Ltd.

Section 2(59) of the Companies Act, 2013 defines officer which is similar to a Shadow
Director. It means “any person under whose directions or instructions the Board of
Directors or any one or more of the Directors are accustomed to act”. Also, Section 2(60)
(v) – a similar kind of person is mentioned known as an “officer in default”. The Shadow
Director can also be an officer in default.

Case Law: Re Hydrodan (Corby) Ltd [1994] 2 BCLC 180 is a UK company law case,
which explains the meaning of a shadow director. This case laid down a few
characteristics of a Shadow Director –
a. A person who is not a director in the Company;
 b. A person who instructs the Board of Directors concerning the management of the
Company;
c. The Board follows the instructions and directions given by such a person and then
acts.

It is important to note that if the Board is acting and following the directions given by a
person who is not the director in a company and the Board is doing it continuously and
the majority is following those directions only then that person can be referred to as a
Shadow Director or Deemed Director.

Thus, the following points need to be established for a person to be called a Shadow Director-

 Not in official Capacity – Such a person is not a Director in his official capacity.
 Direct Involvement – The person is involved directly in the affairs of the Company.
He is not merely advising but is directly involved in the Company’s management.
 Continuity – The Board of Directors are following the instructions of such a person
continuously and not just once or twice.
 Majority Following – The majority of the members of the Company are following the
instructions and directions given by such a person.

 De Facto Director: A person who has not been officially appointed as a director by
the company but acts as a director and is also held out as a director by the company is
classified as a ‘de facto director’.

 Rotational Directors: In a public company or a private company that is a subsidiary

of a public company, at least two-thirds of the directors are supposed to retire by
rotation, and the ones retiring through such a process are referred to as “rotational
directors”. Further, if the articles of the company provide so, they can be reappointed.

 First Directors: As per the rules and norms laid down in the Article of Association or
any charter or constitution of the company, the ones who have signed the
Memorandum of Association of the company are considered to be as first directors,
and they hold the office until any other directors are officially appointed by the
company in the first annual general meeting.

There are some additional points that should be considered for being a Director:
Residential Status and DIN Requirement: At least one director in an Indian company should
be a resident of India. According to the Act, a resident is someone who has stayed in India for
at least 182 days in the previous financial year. Every person intending to become a director
in an Indian company must obtain a Director Identification Number (DIN). These provisions
in the Companies Act, 2013, outline the basic framework for the composition of boards of
directors in Indian companies, ensuring a mix of flexibility and governance standards.

Eligibility
Following persons are not eligible to become a director of a company:
 Company Auditor
 A Director who has been banned
 An individual under the age of 16 years
 An undischarged bankrupt/insolvent

Conclusion:

The famous American Lawyer, Charles Keating once said – “A director’s role is to create an
atmosphere where his company can be created.” And rightly so because every director in a
company whether it is a residential director, women director, shadow director, independent
director or any other director discussed above. They all have a specific role to play and all
these types of directors must work in a way that will benefit the Company’s growth.

Like it’s said directors are the brain of a company and a company acts only through them. All
these directors represent their Company and their position is very important for the company.
The Companies Act, 2013 has given certain powers to the Directors so that they can
contribute their best to the company. Along with these powers, the Act also imposes certain
restrictions only to avoid any misuse of such powers.