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Company Law Semester-IV B.Com (Hons.)

Appointment of First Director

 Covered under Section 152.
 The first directors are usually appointed by name in the Articles or in the manner provided therein.
 Where the Articles do not provide so, then the subscribers to the MOA, who are individuals, shall be
deemed the first director of the company.
 In case of an OPC, an individual being member shall be deemed to be the first director.
 Where for any reason, the persons named as the first directors do not assume office then the
subscribers to the MOA shall convene a meeting for appointment of directors.
 No person shall be appointed a director unless he has been allotted a DIN.
 As per Companies (Amendment) Act, 2017 [give the new provisions of Section 152, 153 and 157)
provided under the heading “Who may be appointed as a Director”.
 A person appointed as a director shall not act as a director unless he gives his consent and this needs
to be filed with the ROC within 30 Days of his appointment.

Appointment of Directors in General Meeting:

1) Except as provided in the Act, every director shall be appointed by the company in general meeting.
2) Director Identification Number is compulsory for appointment of director of a company. 3. Every
person proposed to be appointed as a director shall furnish his Director Identification Number and
a declaration that he is not disqualified to become a director under the Act.
3) A person appointed as a director shall on or before the appointment give his consent to hold the
office of director in physical form DIR-2 i.e. Consent to act as a director of a company. Company
shall file Form DIR-12 (particulars of appointment of directors and KMP along with the form DIR-2
as an attachment within 30 days of the appointment of a director, necessary fee. {Rule8}
4) Articles of the Company may provide the provisions relating to retirement of the all directors. If there
is no provision in the article, then not less than two-thirds of the total number of directors of a public
company shall be persons whose period of office is liable to determination by retirement by rotation
and eligible to be reappointed at annual general meeting. Further independent directors shall not be
included for the computation of total number of directors. At the annual general meeting of a public
company one-third of such of the directors for the time being as are liable to retire by rotation, or if
their number is neither three nor a multiple of three, then, the number nearest to one-third, shall retire
from office. The directors to retire by rotation at every annual general meeting shall be those who
have been longest in office since their last appointment.
5) At the annual general meeting at which a director retires as aforesaid, the company may fill up
the vacancy by appointing the retiring director or some other person thereto.
6) If the vacancy of the retiring director is not so filled-up and the meeting has not expressly resolved not
to fill the vacancy, the meeting shall stand adjourned till the same day in the next week, at the same
time and place, or if that day is a national holiday, till the next succeeding day which is not a holiday,
at the same time and place.
7) If at the adjourned meeting also, the vacancy of the retiring director is not filled up and that
meeting also has not expressly resolved not to fill the vacancy, the retiring director shall be deemed
to have been re-appointed at the adjourned meeting, unless—
 a resolution for the re-appointment of such director has been put to the meeting and lost;
 the retiring director has expressed his unwillingness to be so re-appointed;
 he is not qualified or is disqualified for appointment;
 a resolution, whether special or ordinary, is required for his appointment or re-appointment by
virtue of any provisions of this Act; or
 section 162 i.e. appointment of directors to be voted individually is applicable to the case
8) If any individual or director of a company, contravenes any of the provisions of section 152/155/156
such individual or director of the company shall be punishable with imprisonment for a term which
may extend to 6 months or with fine which may extend to Rs. 50,000 and where the contravention is a
continuing one, with a further fine which may extend to Rs. 500 for every day after the first day
during which the contravention continues
9) A person who is not a retiring director in terms of section 152 shall, subject to the provisions of this
Act, be eligible for appointment to the office of a director at any general meeting, if he, or some

Dr. Sumona Ghosh

HOD - Business Regulatory Framework Rohit Ghosal
Company Law Semester-IV B.Com (Hons.)

member intending to propose him as a director, has, not less than fourteen days before the meeting,
left at the registered office of the company, a notice in writing under his hand signifying his
candidature as a director or, as the case may be, the intention of such member to propose him as a
candidate for that office, along with the deposit of one lakh rupees or such higher amount as may be
prescribed which shall be refunded to such person or, as the case may be, to the member, if the person
proposed gets elected as a director or gets more than twenty-five per cent of total valid votes cast
either on show of hands or on poll on such resolution.
10) The company shall inform its members of the candidature of a person for the office of director
under sub-section (1) in such manner as may be prescribed.

Appointment by Board of Directors:

The directors are empowered to appoint:
 Additional directors.
 Alternate directors.
 Directors filling casual vacancy.
Additional Directors:
 Section 161(1) and Regulation (66) of Table F covers this area.
 The articles of a company may confer on its Board of Directors the power to appoint any person,
other than a person who fails to get appointed as a director in a general meeting, as an additional
director.
 Subject to the provisions of section 149, the Board shall have power at any time, and from time to
time, to appoint a person as an additional director, provided the number of the directors and additional
directors together shall not at any time exceed the maximum strength fixed for the Board by the
articles.
 Such person shall hold office only up to the date of the next annual general meeting of the
company but shall be eligible for appointment by the company as a director at that meeting subject
to the provisions of the Act.
 If there is no provision in AOA regarding the appointment of additional director then alter the AOA
of the company.
 Collect DIN from the proposed director under section 153 read with Form DIR-3.
 Obtain his consent to act as director in the Form DIR-2, disclosure of interest in Form MBP-1
pursuant to section 184(1) read with Rule 9(1) of Companies (Meetings of Boards and its Powers)
Rules, 2014 and intimation that he is not disqualified under section 164(2) of Companies Act 2013 in
Form DIR-8.
 Hold the Board Meeting and pass the resolution for the appointment of additional director. File Form
DIR-12 to Registrar of Companies within 30 days of passing of Board Resolution.
Alternate directors:
 Section 161(2) of the Act allowed the followings:
 The Board of Directors of a company must be authorized by its articles or by a resolution passed by
the company in general meeting for appointment of alternate director.
 The person in whose place the Alternate Director is being appointed should be absent for a period
of not less than 3 months from India.
 The person to be appointed as the Alternate Director shall be the person other than the person holding
any alternate directorship for any other Director in the Company.
 If it is proposed to appoint an Alternate Director to an Independent Director, it must be ensured
that the proposed appointee also satisfies the criteria for Independent Directors.
 An alternate director shall not hold office for a period longer than that permissible to the director in
whose place he has been appointed and shall vacate the office if and when the director in whose
place he has been appointed returns to India.
 If the term of office of the original director is determined before he so returns to India, any
provision for the automatic reappointment of retiring directors in default of another appointment
shall apply to the original, and not to the alternate director
 According to companies amendment act 2017- restrict a person from being appointed as an
alternate director if he is holding directorship in the same company

Dr. Sumona Ghosh

HOD - Business Regulatory Framework Rohit Ghosal
Company Law Semester-IV B.Com (Hons.)

Casual vacancy:
 In Companies Act 2013, provisions related to appointment of Director to fill up casual vacancy
are regulated by Section 161(4) of the Companies Act, 2013.
 Only Public companies or Private companies which are subsidiary of Public Companies can fill the
casual vacancy created in the office of Director under Section 161(4) of the Companies Act, 2013.
In case casual vacancy created in a Private Company, the has to be filled in the General Meeting
only read with Section 152(2) of the Companies Act, 2013. In other words the board of directors of a
Private Company has no authority to fill the casual vacancy in the office of Director.
 A casual vacancy in the office of a Director may, in default of and subject to the provisions of the
articles of the company, be filled by the Board of Directors at a meeting of the Board. To fill up a
casual vacancy prior authorization from Articles is not required just like Alternate or Additional
Director. In case Articles are silent regarding appointment of director to fill casual vacancy, board
of directors have inherent power to fill the resulting casual vacancy under section 161(4).
 Filling up of casual vacancy through resolution by Circulation (Section-175) is not allowed as casual
vacancy is compulsorily to be filled at the meeting of the Board of Directors of a Public Company.
 The person so appointed will be eligible to act as a casual director till the remaining tenure of the
director in whose place he was appointed by the company.
According to company amendment act 2017- It is also proposed that all companies including a private
company may fill up the causal vacancy by the board and casual vacancy filled by the Board shall be
subsequently approved in the immediate next general meeting.

Appointment of Directors by third parties (Nominee Directors)

 There may be occasions when directors represent certain third Parties in the board.
 The Government, foreign collaborators, holding company’s, financial institutions nominate a director
to represent their interest or the Board and to ensure that the money provided by them is invested for
the stipulated purposes only.
 Such directors can be appointed only if a provision to that effect exists in the MOA or AOA.
 They are non-rotational directors.
 It should be ensured that the total number of non-rotational directors does not exceed 1/3 rd of the total
strength of the Board.

Appointment of directors elected by Small Shareholders

 Section 151 covers this area.
 Small Shareholder mean a shareholder holding shares of nominal value of not more than Rs. 20000 or
such other sum as may be prescribed.
 Rule 7 of Companies (Appointment and Qualification of Directors) Rules, 2014, needs to be referred
to.
 A Listed Company may have a small shareholders’ director elected by them, if-
 Not less than 1000 Small Shareholders give a Notice.
 Or, 1/10th of the total number of Shareholders whichever is lower.
 The small shareholder shall leave a notice of their intention to propose a person as a candidate for the
post of a director at least 14 days before the meeting.
 The Name, Address, Shares held and Folio number of the proposed person and of the small
shareholders are to be provided.
 The Notice shall be accompanied by a statement which shall contain the proposed director’s-
 DIN.
 That he is not disqualified to become a director.
 His consent to act as a director.
 Such a director being an independent director must meet the requirements of Section 149.
 Such directors shall not be liable to retire by rotation.
 The tenure of such directors shall not exceed a period of three consecutive years.
 Such directors shall not be eligible for reappointment.
 A person has to be eligible for appointment in terms of Section 164 to be appointed Small
Shareholders’ director.

Dr. Sumona Ghosh

HOD - Business Regulatory Framework Rohit Ghosal
Company Law Semester-IV B.Com (Hons.)

 Section 164 and 167 shall apply with respect to vacation of office.
 No person shall hold the position of Small Shareholders’ director in more than two companies at the
same time.
 The companies should not be involved in such a business, which is competing.
 Such a director shall not, for a period of 3 years from the date, he ceases to hold such an office, be
appointed in or be associated with such company in any other capacity directly or indirectly.

Independent Director: Independent Director is for the first time introduced in the New Act, and has been
clearly defined as “any director other than a managing director, a whole time director, and a nominee
director.” Such a director not having any significant pecuniary relationship with the company is more
efficient. Section 149 (4) requires that one third of the directors should be independent directors. Section
149(6) lists in detail the specific qualifications for an independent director-
 Person of integrity and relevant experience;
 Is not a promoter, nor has any relation with the promoters or directors of the company, its holding,
subsidiary or associate company;
 Has no pecuniary relationship with company, its holding, subsidiary or associate company, its
promoters or directors in the preceding two years of his appointment;
 Has no relatives who have pecuniary relationship with company, its holding, subsidiary or
associate company, its promoters or directors, amounting to two percent in the preceding two years
of his appointment;
 Neither he, nor any of his relatives have held key managerial personnel, is, or has been employee of
the company or its holding, subsidiary or associate company in any of the three financial years
immediately preceding the financial year in which he is proposed to be appointed.
 Neither he nor any of his relatives have been an employee or proprietor or a partner, in any of the
three financial years immediately preceding the financial year in which he is proposed to be
appointed, of (a) a firm of auditors or company secretaries in practice or cost auditors of the
company or its holding, subsidiary or associate company; or (b) any legal or a consulting firm that
has or had any transaction with the company, its holding, subsidiary or associate company amounting
to ten per cent or more of the gross turnover of such firm;
 Neither he nor any of his relatives hold together with his relatives two per cent or more of the total
voting power of the company; or
 Neither he nor any of his relatives is a Chief Executive or director, by whatever name called, of
any nonprofit organization that receives twenty-five per cent or more of its receipts from the
company, any of its promoters, directors or its holding, subsidiary or associate company or that
holds two per cent or more of the total voting power of the company; or
 Who possesses such other qualifications as may be prescribed.
The appointment of independent directors has to also be approved by the shareholders.
According to COMPANIES AMENDMENT ACT 2017
a) In the definition of Independent Director, the words ‘pecuniary interest’ is proposed to be substituted by
“pecuniary relationship, other than remuneration as such director or having transaction not exceeding ten per
cent, of his total income or such amount as may be prescribed. (pecuniary means money related)
b) While determining the eligibility for appointment as Independent director, it is proposed to extend the
restriction related to pecuniary relationships with respect to relative of a director to include the following:
• Is holding any security of or interest in the company, its holding, subsidiary or associate company during the
two immediately preceding financial years or during the current financial year. Provided that the relative
may hold security or interest in the company of face value not exceeding fifty lakh rupees or two per cent. of
the paid-up capital of the company, its holding, subsidiary or associate company or such higher sum as may
be prescribed
• is indebted to the company, its holding, subsidiary or associate company or their promoters, or directors, in
excess of such amount as may be prescribed during the two immediately preceding financial years or during
the current financial year
• has given a guarantee or provided any security in connection with the indebtedness of any third person to the
company, its holding, subsidiary or associate company or their promoters, or directors of such holding
company, for such amount as may be prescribed during the two immediately preceding financial years or

Dr. Sumona Ghosh

HOD - Business Regulatory Framework Rohit Ghosal
Company Law Semester-IV B.Com (Hons.)

during the current financial year; or

• Has any other pecuniary transaction or relationship with the company, or its subsidiary, or its holding or
associate company amounting to two per cent. or more of its gross turnover or total income singly or in
combination with the transactions referred to in points above.
c) To allow the appointment of person as an independent director, whose relative is an employee during the
three financial years immediately preceding the financial year, in which the person is proposed to be
appointed as Independent Director

Requirement for Independent Director:

 Is Applicable on Listed Companies: 1/3rd of total directors be the Independent Director
 Public companies having capital more than 10 crore: At least two directors as Independent Directors.
Procedure for appointment:
The appointment of independent director shall be approved by the company in general meeting as provided
in sub-section (2) of section 152 and the explanatory statement annexed to the notice of the general meeting
called to consider the said appointment shall indicate the justification for choosing the appointee for
appointment as independent director.

Manner of appointment:
1) Appointment process of independent directors shall be independent of the company management;
while selecting independent directors the Board shall ensure that there is appropriate balance of
skills, experience and knowledge in the Board so as to enable the Board to discharge its functions and
duties effectively.

Dr. Sumona Ghosh

HOD - Business Regulatory Framework Rohit Ghosal
Company Law Semester-IV B.Com (Hons.)

2) The appointment of independent director(s) of the company shall be approved at the meeting of the
shareholders.
3) The explanatory statement attached to the notice of the meeting for approving the appointment
of independent director shall include a statement that in the opinion of the Board, the
independent director proposed to be appointed fulfils the conditions specified in the Act and the
rules made thereunder and that the proposed director is independent of the management
4) The appointment of independent directors shall be formalized through a letter of appointment, which
shall set out:
a. The term of appointment;
b. The expectation of the Board from the appointed director; the Board-level committee(s) in
which the director is expected to serve and its tasks;
c. The fiduciary duties that come with such an appointment along with accompanying liabilities;
d. Provision for Directors and Officers (D and O) insurance, if any;
e. The Code of Business Ethics that the company expects its directors and employees to follow;
f. The list of actions that a director should not do while functioning as such in the company; and
g. The remuneration, mentioning periodic fees, reimbursement of expenses for participation
in the Boards and other meetings and profit related commission, if any.
5) The terms and conditions of appointment of independent directors shall be open for inspection at
the registered office of the company by any member during normal business hours.
6) The terms and conditions of appointment of independent directors shall also be posted on the
company’s website.

Appointment Term of Independent Director: Term shall be of maximum 5 years. Moreover, term shall not
be more than two consecutive terms. And shall be re-appointed only by Special Resolution by the company.

Remuneration of Independent Director: May receive remuneration by way of fee provided under sub-
section (5) of section 197, reimbursement of expenses for participation in the Board and other meetings and
profit related commission as may be approved by the members.

Disclosure by Independent Director: Every independent director shall at the first meeting of the Board in
which he participates as a director and thereafter 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,
give a declaration that he meets the criteria of independence as provided in sub-section (6).

Retirement by Rotation of Independent Director in AGM: shall not be applicable.

Vacancy of Independent Director: To be filled in the next Board Meeting or within 3 months of such
vacancy, whichever is later.

MEETING OF INDEPENDENT DIRECTORS

Separate meetings:
1) The independent directors of the company shall hold at least one meeting in a year, without the
attendance of non-independent directors and members of management;
2) All the independent directors of the company shall strive to be present at such meeting;
3) The meeting shall be:
a. To review the performance of non-independent directors and the Board as a whole;
b. Review the performance of the Chairperson of the company, taking into account the views of
executive directors and non-executive directors;
c. Assess the quality, quantity and timeliness of flow of information between the company
management and the Board that is necessary for the Board to effectively and reasonably
perform their duties.
Presence of Independent Director in Committees of Board
Following are the committees where presence of Independent Director is must:
 CSR Committee: Quorum requirement is of at least three directors out of which one should be the
independent director.

Dr. Sumona Ghosh

HOD - Business Regulatory Framework Rohit Ghosal
 Company Law Semester-IV B.Com (Hons.)

 Audit Committee: In every audit committee, the quorum of three directors is must with independent
director forming the majority.
 Nomination and Remuneration Committee: For Nomination and Remuneration Committee, the
quorum required is three or more non-executive directors out of which not less than one half shall be
the Independent Directors.

Duties of independent directors:

1. Undertake appropriate induction and regularly update and refresh their skills, knowledge and
familiarity with the company;
2. Seek appropriate clarification or amplification of information and, where necessary, take and follow
appropriate professional advice and opinion of outside experts at the expense of the company;
3. strive to attend all meetings of the Board of Directors and of the Board committees of which he is
a member;
4. participate constructively and actively in the committees of the Board in which they are
chairpersons or members;
5. strive to attend the general meetings of the company;
6. Where they have concerns about the running of the company or a proposed action, ensure that these
are addressed by the Board and, to the extent that they are not resolved, insist that their concerns
are recorded in the minutes of the Board meeting;
7. keep themselves well informed about the company and the external environment in which it operates;
8. Not to unfairly obstruct the functioning of an otherwise proper Board or committee of the Board;
9. Pay sufficient attention and ensure that adequate deliberations are held before approving related party
transactions and assure themselves that the same are in the interest of the company;
10. Ascertain and ensure that the company has an adequate and functional vigil mechanism and to ensure
that the interests of a person who uses such mechanism are not prejudicially affected on account of
such use;
11. Report concerns about unethical behavior, actual or suspected fraud or violation of the company’s
code of conduct or ethics policy;
12. Acting within his authority, assist in protecting the legitimate interests of the company,
shareholders and its employees;
13. Not disclose confidential information, including commercial secrets, technologies, advertising and
sales promotion plans, unpublished price sensitive information, unless such disclosure is expressly
approved by the Board or required by law.

Responsibility of the Independent Director:

An independent director shall be held liable, only in respect of such acts of omission or commission by a
company, which had occurred with his knowledge, attributable through Board processes, and with his consent
or connivance or where he had not acted diligently.

Resident Directors
 Section 149(3) covers this area.
 Every company shall have at least One Director who has stayed in India for a Total period of not less
than 182 days in the previous calendar year.
 According to Companies (Amendment) Act, 2017, 182 Days for determining whether a director is
resident in India shall be computed with reference to the Financial Year.
 As per Companies (Amendment) Act, 2017, in case of new companies, the requirement of period of
182 Days shall apply proportionately at the end of the financial year in which it is incorporated.

COMPANIES AMENDMENT ACT 2020- Section 165(6) Number of Directorships - If a person accepts
appointment as a director in contravention of sub-section (1) of Section 165 such person shall be liable to
a penalty of Rs. 2000 for each day after the first during which such violation continues, subject to a
maximum of Rs. 2 Lakhs.".

COMPANIES AMENDMENT ACT 2019-Section 164 Disqualifications from appointment of directors A

new clause inserted, whereby a person shall be subject to disqualification if he accepts directorships

Dr. Sumona Ghosh

HOD - Business Regulatory Framework Rohit Ghosal
 Company Law Semester-IV B.Com (Hons.)

exceeding the maximum number of directorships provided in section 165.

NOTES ON DIRECTORS’ IDENTIFICATION NUMBER IS BEING SEPERETLY PROVIDED

Dr. Sumona Ghosh

HOD - Business Regulatory Framework Rohit Ghosal