Directors

G Usha, Practising Company Secretary

 Definition of Independent Director
Section 149(6) + Reg.16(1)(b) defines ID

Non-executive
• Other than MD/WTD/nominee

Expertise
• Person of integrity, possesses relevant expertise and experience
• Rule 5 shall possess appropriate skills, experience and knowledge in one or
more fields of finance, law, management, sales, marketing, administration,
research, corporate governance, technical operations or other disciplines
related to the company’s business.
Not a Promoter
• is or was not a promoter / related to promoter / director of the
co./holding/subsidiary/associate
• Additional condition in Reg.16(1)(b) - is/was not a promoter of promoter
group member
 Definition of Independent Director
Pecuniary relationship
•No pecuniary relationship other than remuneration as director / transaction <= 10% of his
total income with co./holding/subsidiary/associate/their promoters/directors – past 2 FY +
current FY (For listed entities: no pecuniary relationship other than remuneration as
director at all; w.e.f. 01.01.2022 past 3 FY + current FY)
•Not applicable to Government companies

Relatives of proposed ID should not:

•Hold security or interest with co./holding/subsidiary/associate – past 2 FY + current FY
(upto FV Rs. 50 lakhs or 2% of paid-up capital or higher prescribed amount permitted)
•Indebted to co./holding/subsidiary/associate/their promoters/directors – past 2 FY + current
FY beyond prescribed limit (Rs. 50 lakhs)
•Given guarantee/security w.r.t. 3rd party in favour of co./holding/subsidiary/associate/their
promoters/directors of holding co. associate – past 2 FY + current FY beyond prescribed
limit (Rs. 50 lakhs)
•Have any other pecuniary transaction with co./holding/subsidiary/associate amounting to
2% or more of its gross turnover or total income singly or in combination with above
transactions (For listed entities: w.e.f. 01.01.2022 all the above criteria for the past 3 FYs;
Transactions other than holding security / indebtedness/ guarantee/security – limit up to
2% of its gross total income; All transactions including security, indebtedness, etc.: up to 2%
of its gross total income or Rs. 50 lakhs, whichever is lower)
 Definition of Independent Director
Proposed ID/relatives should not:
• should NOT hold / held the position of a KMP/employee of
co./holding/subsidiary/associate / (promoter group company in case of
listed co. from 1.1.2022)in past 3 FY + current FY. (relative can be employee
during past 3 FY but not presently for unlisted cos.) (listed cos. →
restriction applies only if relative is employed as KMP w.e.f. 1.1.2022)
• be/have been an employee/proprietor/partner, in past 3 FY + current FY,
of—
(A) a firm of auditors or company secretaries in practice or cost auditors of
co./holding/subsidiary/associate ; or
(B) any legal or a consulting firm that has or had any transaction with the
co./holding/subsidiary/associate amounting to 10% or more of the gross
turnover of such firm

Shareholding
• Together with his relatives should NOT hold >= 2% of the total voting
power of the company;
 Definition of Independent Director

In respect of NGO, ID/his relatives

• Should not be Chief Executive or director, by whatever name called, of any
nonprofit organisation that
• receives >= 25% of its receipts from the
company/promoters/directors/holding/ subsidiary/associate company OR
• holds 2% or more of the total voting power of the company; or

who possesses such other qualifications as may be prescribed.

• An independent director shall possess appropriate skills, experience and
knowledge in one or more fields of finance, law, management, sales,
marketing, administration, research, corporate governance, technical
operations or other disciplines related to the company’s business.
 Definition of Independent Director
Additional conditions in LODR Reg.16(1)(b)
• ID/relative should not be a material supplier, service
provider or customer or a lessor or lessee of the listed
entity;
• Not be less than 21 years of age.
• Not a non-independent director
(i.e.MD/WTD/nominee/NED other than ID) of another
company on the board of which any non-independent
director of the listed entity is an independent director
X- X-
ID WTD

ABC Ltd. XYZ Ltd.

Y- Y-
MD ID
 Other requirements relating to ID
Declaration
•Provide Declaration stating meeting of independence criteria during:
•First meeting he attends as ID
•Every first Board meeting of every FY
•Any change affecting his status as ID

Term of office
•Term up to 5 consecutive years
•Eligible for reappointment after passing of special resolution
•Disclosure in Board’s Report on reappointment
•Maximum 2 consecutive terms
•Can be reappointed after cooling period of 3 years
•Retirement by rotation not applicable to IDs
•Explanatory statement to contain declaration from Board on independence criteria.
•On resignation / removal, new ID within 3 months (under LODR, 3 months or next BM, whichever is later);
not reqd. if ID requirements satisfied.

Remuneration
•To be approved by members
•Sitting fees for Board and committee meetings
•Reimbursement of expenses for attending meetings
•Profit-related commission
•Not entitled to stock option
 Other requirements relating to ID
Meetings
•At least one meeting of IDs without presence of other directors

Duties
•Specified in Schedule IV – Code for Independent Directors

Liability
•Only for acts of omission/commission which occurred with his knowledge/connivance/recklessly

Performance evaluation
•By entire Board except ID being evaluated

Other requirements under LODR

•The appointment, re-appointment or removal of an independent director of a listed entity, shall be
subject to the approval of shareholders by way of a special resolution w.e.f. 1.1.2022.
•No alternate director for ID w.e.f. 01.10.2018
•Appointment of new ID in case of resignation/removal within 3 months.
•Familiarisation programme for IDs
•Board shall assess veracity of declaration given by ID and then take on record.
•Directors and Officers’ Insurance for IDs w.e.f. 01.10.2018 for Top 500 listed entities. Top 1000 listed entities
w.e.f. 01.01.2022.
•No ID who resigns from a listed entity, shall be appointed as an ED/ WTD on the board of the listed entity,
its holding, subsidiary or associate company or on the board of a company belonging to its promoter group,
unless a period of 1 year has elapsed from the date of resignation as an ID.
 ID Databank – Sec. 150
• ID may be selected from a databank containing details of persons willing to
be appointed as ID maintained by an institution notified by Central
Government.
• On 22.10.2019, MCA notified the Companies (Creation and Maintenance of databank
of Independent Directors) Rules, 2019 and amended the Companies (Appointment
and Qualification of Directors) Fifth Amendment Rules, 2019.
• The Companies (Creation and Maintenance of Databank of Independent Directors)
Rules, 2019 effective from 01.12.2019 authorised Indian Institute of Corporate Affairs
(IICA) to act as the institute or association, responsible for the creation and
maintenance of the online databank of potential IDs. IICA was also entrusted with the
duty to conduct an online proficiency self-assessment test of the Independent
Directors, which would be available from 01.03.2020.
• Responsibility of due diligence before selecting a person as ID lies with company.
• Section 150 is not applicable to Section 8 company.
• The following persons shall apply for inclusion in online database of ID:
o Every person who was ID as on 01.12.2019 , shall within a period of 13 months
from such commencement;
o Any person who intends to get appointed as an independent director in a
company after such commencement, shall before such appointment,
• Any individual, including an individual not having DIN, may voluntarily apply to the
institute for inclusion of his name in the data bank.
 Obligation of ID
• Registration shall be valid for 1 or 5 years or lifetime. It shall be renewed within a period of 30 days from the
date of expiry. Renewal not applicable if he has paid life-time fees.
• Every independent director shall submit a declaration of compliance with the above to the Board, each time
he submits the declaration required under sub-section (7) of section 149 of the Act.
• Above individuals shall pass an online proficiency self-assessment test conducted by the institute
within a period of 2 years from the date of inclusion of his name in the data bank, failing which, his
name shall stand removed from the databank of the institute:
• Exception from online proficiency self-assessment test when he has served for a total period of not
less than three years as on the date of inclusion of his name in the data bank,-
• (A) as a director or key managerial personnel, as on the date of inclusion of his name in the databank, in one
or more of the following, namely:-
o (a) listed public company; or
o (b) unlisted public company having a paid-up share capital of rupees ten crore or more; or
o (c) body corporate listed on any recognized stock exchange or in a FATF country; or
o (d) bodies corporate incorporated outside India having a paid-up share capital >= US$ 2 million; or
o (e) statutory corporations set up under an Act of Parliament or any State Legislature carrying on
commercial activities; or
• (B) in the pay scale of Director or above in any Ministry of CG/SG and having experience in matters relating to
commerce, corporate affairs, finance, industry or public enterprises, or the affairs related to Govt. cos. O
statutory corporations and carrying on commercial activities;
• (C) in the pay scale of Chief General Manager or above in SEBI / RBI / IRDAI / PFRDA and having
experience in the matters relating to corporate laws or securities laws or economic laws :
• For the purpose of calculation of the period of three years, any period during which an individual was acting
as a director or as a key managerial personnel in two or more companies or bodies corporate or statutory
corporations at the same time shall be counted only once.
• Exemption from test also for advocate, CA, Cost Accountant, CS in practice for at least 10 years
 MCA clarification on
liability of NEDs and IDs
• Sec. 149(12) – Non-obstant clause – NEDs not being promoter
or KMP and IDs liable only for acts of omission/commission
which occurred with his knowledge/connivance/recklessly
• General Circular 1/2020 dated 02.03.2020 – Circular, inter alia,
states that in case lapses are attributable to board or its
committees, all care must be taken to ensure that
civil/criminal proceedings are not unnecessarily initiated on
the above said directors, unless sufficient evidence exists to
the contrary.
• Further, Form DIR-12 and other data available with RoC offices
should be checked to ascertain whether a person was a
director on the date of default.
• Such proceedings must be initiated only after receiving due
sanction from MCA in case of any doubts with regard to the
liability of any person.
• Above SOP should be followed for all ongoing cases also.
 Questions on ID
• Mr. A is an ID of ABC Ltd. a listed entity for the past 2
years. Is Mr. A required to enroll himself in ID
databank and pass the necessary exam?
• Mr. B is 20 years old. ABC Ltd. a listed entity and XYZ
Ltd., an unlisted entity want to appoint him as ID.
Give your views on this.
• ABC Ltd. has total share capital of Rs. 1,00,000
consisting of 10,000 shares of Rs.10 each. Mr. A and
Mrs. A hold 100 shares of ABC Ltd. each. Mr. C, son
of Mr. A used to work in ABC Ltd. during 2018-19 but
resigned on 31.03.2019. Can Mr. A be appointed as
ID in ABC Ltd.?
 DIN
Sections 153-159 + Rules 9 to 12 of Companies (Appointment and
Qualifications of Directors) Rules, 2014

DIN is compulsory to become a director; other identification no. may be

prescribed by Central Government

Application for DIN

•New company – SPICE + - maximum 3 DINs

•Existing company – Form DIR-3
•Documents required – attested proof of identity, proof of residence, photo, board resolution
for existing companies, specimen signature duly verified; if no last name, mention father's or
grandfather's surname in Form DIR-3A
•Notarization / apostille requirements
•Form to be signed by own DSC of applicant + MD/Director/Secretary/CEO/CFO
•CG to allot DIN within one month
•Not more than one DIN per director

DIN to be mentioned in return, information, etc.

 DIN
Changes in directors’ details
• Director to MCA within 30 days; Form DIR-6
• Director to company within 15 days
Directors without DIN on or before 30 June, 2007
• Director to company within 30 days of obtaining DIN in Form DIR-3B
• Company to RoC within 15 days in Form DIR-3C
Directors’ KYC – Rule 12A
• Holding DIN as on 31st March – file on or before 30 September
• Web-based DIR-3 KYC :If Form DIR-3 KYC already filed + no changes in particulars
• Form DIR-3 KYC – For first time; for changes in mobile and e-mail; if changes in other
particulars, file Form DIR-6 then file Form DIR-3 KYC
• If not filed, DIN – deactivated; Re-activated only on filing the Form with fees
Surrender of DIN
• Duplicate DIN
• DIN obtained by fraudulent means/wrongful manner (opportunity of being heard to be
given)
• Death
• Insolvency
• Person of unsound mind by Court
• Surrender when not used in any company/LLP in Form DIR-5 with declaration
 Appointment of Directors
First director
•Sec. 152 - In articles; otherwise subscribers to MoA deemed to be directors until duly appointed.
•In OPC, individual member deemed to be first director if not specified.

Appointment by Board
•Alternate director
•Additional director
•Nominee director
•Appointment to fill casual vacancy

Appointment in general meeting

•Save as otherwise provided, directors should be appointed in general meeting.
•Directors retiring by rotation
•Regularisation of additional director

Small Shareholders’ director

Form DIR-12
•For all appointment/change in designation/resignation – within 30 days
•For appointment – consent from director in DIR-2, furnishing of DIN, declaration of not being
disqualified (Form DIR-8)
 Appointment by Board – Sec. 161
• Additional director
o Power in AoA mandatory
o Any person other than person who fails to get appointed in general meeting
o Holds office upto next AGM or last date of AGM, whichever is earlier.
• Alternate director
o Authorised by AoA/resolution in general meeting
o Appointed in the place of a director during his absence from India for at least three
months
o Appointee should not hold any directorship in company and should not be alternate
director for any other director in the company
o If alternate director for ID, appointee should also satisfy independence criteria
o Term upto original director’s office and vacates once original director returns to India
o Any provision for automatic reappointment applies to original director not to
alternate director
o No alternate director for IDs for listed companies w.e.f. 01.10.2018
• Nominee director
o Subject to articles, Board to appoint any person as director
o Nominated by Institution in pursuance of law/agreement (OR) Central/State
Government in Government company (OR) IFSC companies: by body corporate
• Appointment to fill casual vacancy
• Subject to articles, In case of vacation before term of office expires
• To be subsequently approved by members in immediate next general meeting
• Holding office only upto term of original director
 LODR Amendment
• W.e.f. 1.1.2022
• Approval of shareholders for appointment of a
director or manager shall be taken within 3 months
from the date of appointment or at the next
general meeting, whichever is earlier.
• A person earlier rejected by shareholders shall be
appointed by the board only with the prior
approval of the shareholders; along with justification
by NRC and board for appointment of such person.
 Directors retiring by rotation
Applicability
•Public companies
•Not applicable to unlisted Government companies and their subsidiaries, IFSC public companies
Calculation
•Min. 2/3rd of total number of directors – liable to retire by rotation and be appointed in general
meeting.
•Total no. not to include IDs
•At every AGM, 1/3rd of those liable to retire by rotation, shall retire from office. (nearest to 1/3rd)
•Longest term in office
•If appointed on same day, by agreement or by lot
Articles
•Articles may provide for all directors to be liable to retire by rotation. Remaining directors also in
general meeting unless otherwise specified.
Vacancy
•May be filled up by same director/others.
•If not filled up, AGM adjourned to next week, same day, same place; if national holiday, next day.
•If not filled up during adjourned AGM, deemed to be reappointed unless:
•Resolution put to vote and lost
•Retiring director – unwilling – by notice in writing
•Disqualified
•Resolution is specifically required for reappointment
•Section 162 is applicable.
Appointment of Directors to be Voted Individually
– Sec. 162
• (1) At a general meeting of a company, a motion for the appointment of
two or more persons as directors of the company by a single resolution
shall not be moved unless a proposal to move such a motion has first
been agreed to at the meeting without any vote being cast against it.
• (2) A resolution moved in contravention of sub-section (1) shall be void,
whether or not any objection was taken when it was moved.
• (3) A motion for approving a person for appointment, or for nominating a
person for appointment as a director, shall be treated as a motion for
his appointment.
• Exceptions/ Modifications/ Adaptations
• 1. In case of private company - Section 162 shall not apply
• 2. In case of Government Company - Section 162 shall not apply to :-
o (a) a Government Company in which the entire paid up share
capital is held by the Central or State Government, or both;
o (b) a wholly-owned subsidiary of above Government company.
• 3. In case of Specified IFSC Public Company - Section 162 shall not
apply.
 Appointment by Proportional Representation –
Sec.163
• Notwithstanding anything contained in this Act
• The articles of a company may provide for the appointment of the
directors of a company in accordance with the principle of
proportional representation,
• Minimum 2/3rd of the total number of directors
• Method of voting
o by the single transferable vote or
o by a system of cumulative voting
o or otherwise
• and such appointments may be made once in every three years
• casual vacancies of such directors shall be filled as provided in sub-
section (4) of section 161.
• . In case of Government Company- Section 163 shall not apply to :-
o (a) a Government Company in which the entire paid up share capital is held by
the Central or State Government, or both;
o (b) a wholly-owned subsidiary of above Government company.
 Small Shareholders’ Director
• Section 151 + Rule 7 - A listed company may have one director elected by such small
shareholders
• “Small shareholders” means a shareholder holding shares of nominal value of not
more than twenty thousand rupees or such other sum as may be prescribed
• Notice by min. 1000 or 1/10th of small shareholders, whichever is lower or suo motu
• In case of notice, at least 14 days before meeting with name, address, shares, folio of
proposed director (need not hold shares)
• Statement from proposed director with DIN, consent, not being disqualified.
• Shall be considered as independent director provided satisfying independence criteria
and giving declaration.
• Not liable to retire by rotation
• Maximum three consecutive years
• Not eligible for re-appointment
• As small shareholders’ director in max. 2 companies (second company not competing
with first company)
• Not to be associated with the company for three years after ceasing to be director
• Vacation in following cases:
o Disqualification u/s 164
o Vacation u/s 167
o Not meeting criteria of independence u/s149(6)
 Right of Persons Other than Retiring Directors to
Stand for Directorship – Sec. 160 r/w Rule 13
• Appointment of person who is not a retiring director u/s 152
• Notice of at least 14 days by himself or some member proposing him as a director.
• Notice in writing to be left at the registered office of the company,
• Along with the deposit of Rs. 1 lakh or such higher amount as may be prescribed
• Deposit shall be refunded if the person proposed gets elected as a director or gets
more than 25% of total valid votes cast either on show of hands or on poll.
• The company shall inform its members of the candidature at least 7 days before
general meeting by individual notices – e-mail/in writing or advertisement in one
English and one vernacular newspaper circulating in the district and on website
• Exceptions
o Deposit of amount not applicable to appointment of ID / director recommended
by NRC / Board if not required to have NRC
o 1. In case of private company - Section 160 shall not apply
o 2. In case of Section 8 company - Section 160 shall not apply to companies whose
articles provide for election of directors by ballot.
o 3. In case of nidhi company, deposit amount shall be only Rs.10,000/-.
o 4.In case of Government Company - Section 160 shall not apply to :-
o (a) a Government Company wholly owned by Government;
o (b) a wholly-owned subsidiary of above Government company.
o 5. In case of Specified IFSC Public Company - Section 160 shall apply as per the
articles framed by the company.
Appointment of Directors
by Tribunal
• While making order on an application under sec. 241
• NCLT may provide an order for appointment of persons as
directors of company
• To provide relief in cases of oppression and mismanagement
• Can ask the directors to report to NCLT on certain matters
• Such directors may or may not be members of the company
• Such directors need not be taken into account while
calculating 2/3rd for rotation of directors.
• NCLT-appointed directors are also not liable to retire by
rotation.
• They can be removed by NCLT at any time.
• NCLT can issue necessary directions to the company in this
regard.
 Secretarial procedure for appointment of directors
by Board followed by regularization at AGM
Preliminary
• Ensure proposed director has DIN – if not pass a Board resolution proposing to apply for DIN for the proposed
director and apply in Form DIR-3 along with requisite documents
• Ensure proposed director is not disqualified u/s 164 – Get declaration in Form DIR-8
• Obtain consent of director in Form DIR-2
• Obtain list of entities in which the director is interested

Board Meeting
• Ensure AoA permits appointment of additional director by the Board. If not, procedure for amendment of AoA must
be followed.
• Convene a Board Meeting by giving at least 7 days notice to all the directors and circulate complete agenda of the
meeting.
• Pass Board resolution
• (Term of office ends at ensuing AGM)

File resolution
• File Form DIR-12 within 30 days of board meeting along with CTC of board resolution, DIR-2, DIR-8 certified by a
practicing professional

General Meeting
• Convene AGM after following proper procedure – notice of AGM to be sent at least 21 clear days before AGM;
explanatory statement to be annexed to notice.
• Follow the provisions of Sec. 160, if applicable, relating to notice of candidature and deposit.
• Ensure the director provides consent in Form-DIR-2 and Form DIR-8 on non-disqualification.
• Circulate a copy of notice as mentioned in Sec. 160 at least 7 days before the meeting. This can also be combined with
the notice of AGM.
• Ordinary resolution needs to be passed for regularization of director at AGM.
• File Form-DIR-12 within 30 days along with necessary attachments.
 Questions on
appointment of directors
• The board of XYZ Private Limited wants to appoint
Mr. Z as an additional director. What will be the term
of his office and what are the necessary conditions
to be satisfied. What will be your answer if the board
wants to appoint him as an alternate director?
What must be done to extend his term of
appointment?
• The board of ABC Limited has 10 directors. Discuss
the provisions of retirement by rotation given under
Sec. 152(6) as applicable to the company.
• A company wants to put the resolution of election
of 5 directors in one resolution. Is this tenable? In
which circumstances, will this be acceptable?
 Disqualifications – Sec. 164(1)
• Unsound mind and declared by Court
• Undischarged insolvent
• Application for adjudication as insolvent
• Convicted by court for offence and sentenced for imprisonment of at
least 6 months and 5 years has not elapsed from date of expiry of
sentence –(d)
• If convicted of any offence and sentenced in respect thereof to
imprisonment for a period of seven years or more, he shall not be
eligible to be appointed as a director in any company
• an order disqualifying him for appointment as a director has been
passed by a court or Tribunal and the order is in force– (e)
• 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
• he has been convicted of the offence dealing with related party
transactions under section 188 at any time during the last preceding
five years – (g)
• he has not complied with sub-section (3) of section 152.
• he has not complied with the provisions of sub-section (1) of section
165.
• Disqualifications referred to in clauses (d), (e) and (g) of sub-section (1) shall continue to
apply even if the appeal or petition has been filed against the order of conviction or
disqualification
 Disqualifications – Sec. 164(2)
• No person who is or has been a director of a company which—
(a) has not filed financial statements or annual returns for any continuous
period of 3 financial years; or
(b) has failed to repay the deposits accepted by it or pay interest thereon or to
redeem any debentures on the due date or pay interest due thereon or pay
any dividend declared and such failure to pay or redeem continues for 1
year or more,
shall be eligible to be re-appointed as a director of that company or appointed in other
company for a period of 5 years from the date on which the said company fails to do so.
• Where a person is appointed as a director of a company which is in default of clause (a)
or clause (b), he shall not incur the disqualification for a period of six months from the
date of his appointment.
• A private company may by its articles provide for any disqualifications for appointment
as a director in addition to those specified in sub-sections (1) and (2)
• Section 164(2) is not applicable to Government companies.
• Every director shall inform to the company concerned about his disqualification under
sub-section (2) of section 164, if any, in Form DIR-8 before he is appointed or re-
appointed.
• In case of companies covered u/s 164(2), the company shall immediately file Form DIR-9,
to the Registrar furnishing therein the names and addresses of all the directors of the
company during the relevant financial years.
• Upon receipt, RoC shall immediately place it in the document file for public inspection.
• Any application for removal of disqualification of directors shall be made in Form DIR-
10.
 Vacation – Sec. 167
• 167. (1) The office of a director shall become vacant in case—
• (a) he incurs any of the disqualifications specified in section 164; in case of Sec. 164(2)
the office of the director shall become vacant in all the companies, other than the
company which is in default under that sub-section.
• (b) he absents himself from all the meetings of the Board of Directors held during a
period of twelve months with or without seeking leave of absence of the Board;
• (c) he acts in contravention of the provisions of section 184;
• (d) he fails to disclose his interest in any contract or arrangement under section 184;
• (e) he becomes disqualified by an order of a court or the Tribunal;
• (f) he is 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:
• Provided that the office shall not be vacated by the director in case of orders referred
to in clauses (e) and (f)-
o (i) for thirty days from the date of conviction or order of disqualification;
o (ii) where an appeal or petition is preferred within thirty days as aforesaid
against the conviction resulting in sentence or order, until expiry of seven days
from the date on which such appeal or petition is disposed of; or
o (iii) where any further appeal or petition is preferred against order or sentence
within seven days, until such further appeal or petition is disposed of.
• (g) he is removed in pursuance of the provisions of this Act;
• (h) he, having been appointed a director by virtue of his holding any office or other
employment in the holding, subsidiary or associate company, ceases to hold such
office or other employment in that company.
 Vacation
• (2) If a person, functions as a director even when he knows of
vacation, he shall be punishable with imprisonment for a term
which may extend to one year or with fine which shall not be less
than one lakh rupees but which may extend to five lakh rupees, or
with both.
• (3) Where all the directors of a company vacate their offices under
any of the disqualifications specified in sub-section (1), the promoter
or, in his absence, the Central Government shall appoint the
required number of directors who shall hold office till the directors
are appointed by the company in the general meeting.
• (4) A private company may, by its articles, provide any other ground
for the vacation of the office of a director in addition to those
specified in sub-section (1).
• G. Vasudevan v. Union of India Madras HC, 02.12.2019, Proviso to
Sec. 167(1)(a) is not violative of Articles 14, 19(1)(g) of the
Constitution of India. The provision is not arbitrary nor does it
offend the fundamental rights. Excluding vacation in the defaulting
company has been done with a view to avoid a situation of
perpetual vacancy owing to application of Sec. 167(1)(a).
 Resignation – Sec. 168
• Voluntary; by way of notice in writing to company
• Board to take note of the same
• Company to intimate RoC in Form DIR-12 within 30 days
• Disclosure in Board’s Report
• Director may forward copy of resignation in Form DIR-11 to
RoC within 30 days of resignation
• Date of taking effect: Date of receipt of notice by company
or the date specified in notice, whichever is later.
• Director liable even after resignation for offences during his
tenure.
• Where all the directors of a company resign from their offices,
or vacate their offices under section 167, the promoter or, in
his absence, the Central Government shall appoint the
required number of directors who shall hold office till the
directors are appointed by the company in general meeting.
• Harish Jain v. Haveli Restaurant & Resorts Ltd. and others
dated 26.02.2020, NCLAT dismissed the claim of appellant on
the ground that he failed to prove his resignation letter is a
forged document.
 Removal – Sec. 169
• Ordinary resolution required
• Notwithstanding mode of appointment, provisions of AoA or agreement with
director.
• ID reappointed for 2nd term – special resolution
• Other than director appointed by NCLT under Sec. 242
• Reasonable opportunity of being heard
• Above not applicable in case of Sec. 163 – proportional representation availed by
company
• Special notice required for removal of director or to appoint another person in his
place
• Copy of special notice to director and right to be heard and right to make
representation
• Company to state fact of representation and circulate a copy; if insufficient time to
circulate, to read out the contents in general meeting.
• Representation need not be sent/read out if application to NCLT by company or
aggrieved person and it is satisfied – needless publicity for defamatory matter.
NCLT may order costs on the director even though he is not party to the
application.
• For filling vacancy created by removal, special notice is required. The new
director’s term only upto original director’s term.
• It can also be filled as casual vacancy u/s 161.
• Nothing in this section shall be taken—
(a) as depriving a person removed under this section of any compensation or
damages payable to him in respect of the termination of his appointment as
director as per the terms of contract or terms of his appointment as director, or of
any other appointment terminating with that as director; or
(b) as derogating from any power to remove a director under other provisions of
this Act.
 Other matters relating to removal
• In case of listed company, send notice of general
meeting to stock exchanges within 24 hours
• Hold the general meeting and pass the resolution
• Forward copy of proceedings within 24 hours to stock
exchanges in case of listed company.
• File particulars of removal in Form DIR-12 within 30 days
of removal.
• Particulars of director must be entered in the Register
maintained under Sec. 170 and 189.
• Give general notice in newspaper regarding removal of
director if required to protect interests of the company.
• In cases of application made under sec. 241 for
prevention of oppression and mismanagement, NCLT
has power to remove directors
• S. Varadarajan and Anr. V. Udhayem Leasing and
Investments Pvt. Ltd. – omission to serve notice – denial
of justice – resolution vitiated.
 Duties of directors – Sec. 166
• (1) Subject to the provisions of this Act, a director of a company shall
act in accordance with the articles of the company.
• (2) A director of a company shall act in good faith in order to promote
the objects of the company for the benefit of its members as a whole,
and in the best interests of the company, its employees, the
shareholders, the community and for the protection of environment.
• (3) A director of a company shall exercise his duties with due and
reasonable care, skill and diligence and shall exercise independent
judgment.
• (4) A director of a company shall not involve in a situation in which
he may have a direct or indirect interest that conflicts, or possibly
may conflict, with the interest of the company.
• (5) A director of a company shall not achieve or attempt to achieve
any undue gain or advantage either to himself or to his relatives,
partners, or associates and if such director is found guilty of making any
undue gain, he shall be liable to pay an amount equal to that gain to the
company.
• (6) A director of a company shall not assign his office and any
assignment so made shall be void.
• (7) If a director of the company contravenes the provisions of this
section such director shall be punishable with fine which shall not be
less than one lakh rupees but which may extend to five lakh
rupees.
 Disclosure of interest
Disclosure of interest
•Sec. 184(1) - Every director shall disclose his concern or interest (including shareholding) in Form
MBP-1
•any Company or Companies; Bodies Corporate; Firms; other Association of Individuals
•i. At the first meeting of the Board in which he participates as a director and
•ii. at the first meeting of the Board in every financial year ; or
•iii. whenever there is any change in the disclosures already made, then at the first meeting held
after such change,

Interest in any contract or arrangement

•every director of a company who is any way, whether directly or indirectly, concerned or interested
in a contract or arrangement or proposed contact or arrangement entered into or to be entered into-
•i. with a body corporate –
•in which such director or such director in association with any other director, holds more than
2% shareholding of that body corporate; or
•is a Promoter, Manager, CEO of that Body corporate.
•ii. with a firm or other entity in which, such director is a partner, owner or member, as the case
may be.
•shall disclose the nature of his concern or interest at the meeting of the Board in which the contract
or arrangement is discussed and shall not participate in such meeting.
•If a director concerned or interested at the time of entering into such contract or arrangement, he
shall disclose his concern or interest forthwith when he becomes concerned or interested or at the
first meeting of the Board of Directors held after he becomes so concerned or interested.
 Disclosure of interest
Exceptions
•In case of Private Company Section 184(2) shall apply with exception that the interested
director may participate in such meeting after disclosure of his interest
•In case of Section 8 companies, Section 184(2) of the Act shall apply only if the transaction
with reference to Section 188 on the basis of terms and conditions of the contract or
arrangement exceeds Rs 1 lakh
•In case of Specified IFSC Public Company - Sub-section (2) of section 184 shall apply with
the exception that interested director may participate in such meeting provided the
disclosure of his interest is made by the concerned director either prior or at the meeting
•Nothing in this section shall apply to any contract or arrangement entered into or to
be entered into between two companies or between one or more companies and one or more
bodies corporate where any of the directors of the one company or body corporate or two or
more of them together holds or hold not more than two per cent. of the paid-up share
capital in the other company or the body corporate.

Consequence of non-disclosure of interest

•A contract or arrangement entered into by the company without disclosure under sub-
section (2) or with participation by a director who is concerned or interested in any way,
directly or indirectly, in the contract or arrangement, shall be voidable at the option of the
company.
•If a director of the company contravenes the provisions of sub-section (1) or subsection (2),
such director shall be punishable with imprisonment for a term which may extend to one
year or with fine which 4[Omitted] may extend to one lakh rupees, or with both.
 Disclosure of interest
• (1) Every director shall disclose his concern or interest in
any company or companies or bodies corporate
(including shareholding interest), firms or other
association of individuals, by giving a notice in writing
in Form MBP 1.
• (2) It shall be the duty of the director giving notice of
interest to cause it to be disclosed at the meeting held
immediately after the date of the notice.
• (3) All notices shall be kept at the registered office and
such notices shall be preserved for a period of eight
years from the end of the financial year to which it
relates and shall be kept in the custody of the company
secretary of the company or any other person authorized
by the Board for the purpose.
 Loan to directors Sec. 185
Exemption from Sec. 185
• Section 185 not applicable to private companies which satisfy all 3 conditions: no
body corporate is a member, borrowings from banks/FIs/body corporates < Rs.
50crores or <2x capital, whichever is less; no subsisting default in repayment of such
borrowings.
• Nidhi companies provided loans are given to director/relative in their capacity as
members and disclosure is given in annual accounts as a note.
• Government company if such company obtains approval of Ministry/Dept. of CG/SG
governing it.

Prohibited categories
• Giving loans including any loan represented by a book debt /guarantee/security in
connection with any loan taken by the following, directly or indirectly, is prohibited:
• Any director
• Any director of holding co.
• Any partner of such director
• Any relative of such director
• Any firm in which such director is a partner
• Any firm in which the relative of any such director is a partner
 Loan to directors Sec. 185
Permitted categories subject to the following conditions:
• Giving loans including any loan represented by a book debt /guarantee/security
in connection with any loan taken by the following, directly or indirectly, is
permitted, subject to the conditions mentioned below:
• Any private co. of which such director is a director or member
• Any body corporate at general meeting of which at least 25% of total voting
power exercised by any such director or two/more such directors together
• Any body corporate, the Board/MD/manager or which is accustomed to act in
accordance with the instructions of the Board or any director of the lending
company

Conditions
• Special resolution in general meeting
• Loans utilized by borrowing company for its principal business activities.
 Loan to directors
Exceptions
•Loan to MD or WTD pursuant to any scheme approved by special resolution or part of conditions
of service extended to all employees
•Companies which give loans in the ordinary course of its business Eg.: banking companies and
loan-giving NBFCs – RoI >= prevailing yield of 1/3/5/10 year Govt. security closest to the tenor of
loan
•Loan/provision of security/guarantee in respect of any loan by holding co. to WOS – loan to be
utilized only for principal business activities
•Guarantee/security in favour of bank or financial institution by holding co. to subsidiary– loan to
be utilized only for principal business activities
•Prohibition/restriction under this section does not apply to entities not covered under this section.

Punishment
•Lending co. – only fine
•Officer in default – Fine or imprisonment
•Recipient director/entity – Fine or imprisonment or both

Other provisions
•Sec. 177 AC shall scrutinize inter-corporate loans and investments
•Sec. 179 – Power to give loans only at meeting of the Board
•Sec. 180 – Special resolution required to remit / give time for repayment of debt due from director
•Sec. 186 – loans and investments by co.
 Register of Directors and Key Managerial Personnel and their
Shareholding
Register under Sec. 170
•(1) Register of its directors and KMP at registered office containing details of securities
held by each of them in company/holding/subsidiary/fellow subsidiary/associate.
•(2) A return containing such particulars and documents in Form DIR-12, of the directors
and the key managerial personnel shall be filed with the Registrar within 30 days from the
appointment/change of every director and KMP.

Exceptions/ Modifications/ Adaptations

•1. In case of Government Company - Section 170 shall not apply to Government
Company wholly owned by Government.
•2. In case of Specified IFSC Company- for DIR-12 time limit is 60 days.

Members right to inspect

•The register shall be open for inspection during business hours and the members shall
have a right to take extracts and copies, on a request by the members, be provided to
them free of cost within 30 days; and
•The register shall also be kept open for inspection at every AGM of the company and shall
be made accessible to any person attending the meeting.
•If any inspection is refused, or if any copy required under that clause is not sent within 30
days from the date of receipt of such request, the Registrar shall on an application made to
him order immediate inspection and supply of copies required thereunder.
•In case of Government Company - Section 171 shall not apply to Government Company
wholly owned by Government.
 Other requirements
Form INC-20A – Declaration of commencement of business – Sec. 10A + Rule 23A
•To be filed within 180 days of incorporation
•Commencement of business / exercise of borrowing powers only after filing of form
•Declaration filed by a director confirming receipt of subscription money from subscribers to MoA
and filing of verification of registered office
•Sectoral approvals must also be obtained and attached with the Form.
•Certified by practicing professional.
•If declaration has not been filed within 180 days and RoC has reason to believe that company is not
carrying on business, he may initiate action for striking off the company.
Form ACTIVE – Rule 25A of Incorporation Rules
•Every company incorporated on or before the 31st December, 2017 shall file the particulars of the
company and its registered office, in e-Form ACTIVE (Active Company Tagging Identities and
Verification) 2[on or before 15.06.2019
•Rule 12B of Appointment of Director Rules
•(1) Where a company governed by Rule 25A of the Companies (Incorporation) Rules, 2014, fails to
file the e-form ACTIVE within the period specified therein, the Director Identification Number
(DIN) allotted to its existing directors, shall be marked as “Director of ACTIVE non-compliant
company”.
•(2) Where the DIN of a director has been marked as “Director of ACTIVE non-compliant company”,
such director shall take all necessary steps to ensure that all companies governed by rule 25A of the
Companies (Incorporation) Rules, 2014, where such director has been so appointed, file e-form
ACTIVE.
•(3) After all the companies referred to in sub-rule (2) file the e-form ACTIVE, the DIN of
such director shall be marked as “Director of ACTIVE compliant company
 Questions for practice
• ABC Private Limited has not filed its annual financial
statements and annual returns with RoC for the Fys
2016-17, 2017-18 and 2018-19. Mr. X and Mr. Y are
the directors of the company. XYZ Limited wants to
appoint Mr. X as one of its directors. Mr. Z is
proposed to be appointed as one of the directors
of ABC Private Limited. Comment.
• MNO Ltd. is the subsidiary of PQR Ltd. Mr. M is a
director in both the companies. Mr. M does not hold
any shares in PQR Ltd. Can MNO Ltd. provide loan
to PQR Ltd.? What would be your answer if the
holding company is a private limited company?