new procedure FOR APPOINTMENT OF DIRECTOR
who can appoint a director of a company?
In the event that the Articles are silent, the directors must be appointed by the shareholders. The Companies Act also contains a clause allowing the company to appoint two - thirds of the directors of the company to be appointed on the basis of the principle of proportional representation.
Who could be named as the Director?
The appointment of a director is not only a crucial administrative requirement, but also a procedural requirement that must be met by every company. Under the Companies Act, only an employee can be appointed as a director; a company, organization, business or other entity with an artificial legal identity will not be appointed as a director.
Nomination of the Directors
Generally, in a public corporation or a private company subsidiary of a public company, two thirds of the total number of directors shall be named by the shareholders and the remaining one third shall be appointed in compliance with the process laid down in Articles, under which the remaining one third of the directors shall be appointed by the shareholders. The Articles of a public company or of a private company subsidiary of a public company that provide for the retirement of all directors at each AGM.
In a private company, which is not a subsidiary of a public company, the Articles may provide for the appointment of any or all directors. In the event that the Articles are void, the Directors shall be named by the shareholders.
The Companies Act also allows the Articles to provide for the appointment of two-thirds of the directors on the basis of the principle of proportional representation, if adopted by the company concerned.
Nominee Directors may be appointed by a third party or by the Central Government in the event of oppression or mismanagement.
Nomination of Managing Directors
The Managing Director shall be an person and may be named for a maximum term of five ( 5 ) years at a time.
A person who is already the Managing Director / Manager of a public company or a private company subsidiary of a public company the become the Managing Director / Manager of only one other company (whether private or public) with the prior unanimous approval of the Board of Directors of that company. Such restrictions do not, however, apply to the Manager or the Managing Director of "pure" private companies.
In the case of a public company or a private company which is a subsidiary of a public company, if the appointment is not in accordance with Parts I and II of Schedule XIII of the Companies Act, the Central Government must approve such appointment.
Remuneration
In the case of a public company or a private company which is a subsidiary of a public company, the remuneration payable is subject to the provisions of the Companies Act and may be determined either by the Articles or, if the Articles so provide, by a special resolution of the general meeting of the company.
Qualifications of Directors
The Companies Act does not lay down any qualifications for directors of any company. Accordingly, an Indian company can, in its Articles, provide for the qualifications of directors. The Companies Act limits, however, to five thousand rupees (Rs. 5,000/-) the specified share qualification of directors which may be prescribed by a public company or a private company which is a subsidiary of a public company.
Terms of appointment of managing directors / whole-time directors; Disqualifications
The Businesses Act, in compliance with Schedule XIII, further lays down certain requirements which must be fulfilled for the appointment of the Managing Director or whole time directoror Manager in the case of a public company and a private company which is a subsidiary of a public company. No person shall therefore be eligible for appointment as Manager, Managing Director or Whole-Time Director if he or she fails to meet the following conditions:
1. He or she should not have been sentenced to imprisonment for any period of time or to a fine imposed under any of the following statutes, namely:
i. The Indian Stamps Act, 1899;
ii. Act of Federal Excise, 1944;
iii. The Industrial Development and Regulation Act, 1951;
iv. The Food Adulteration Prevention Act, 1954;
v. The Basic Commodities Act, 1955;
Vi. The Business Act, 1956;
vii. The Securities Contracts Act, 1956;
viii. Law on Wealth Tax, 1957;
ix. The Income Tax Act of 1961;
x. The Customs Act of 1962;
xi. The Monopoly and Unfair Fair Practices Act, 1969 – now the Antitrust Act, 2002;
Xii. Foreign Exchange Regulation Act, 1973 – now Foreign Exchange Regulation Act, 1999;
xiii. Sick industrial companies (Special Provisions Act) 1985;
xiv. Indian Securities Exchange Board Order, 1992; and/or
xv. Foreign Exchange Act (Development and Regulation) 1973.
2. He or she should not have been detained or convicted for any period of time under the Act on the Conservation of Foreign Exchange and Prevention of Smuggling Act, 1974.
3. He or she was expected to be twenty-five ( 25) years of age, but less than seventy (70) years of age. However, this age restriction does not extend if the nomination is approved by a special resolution adopted by the corporation at the general meeting or if the consent of the central government is received.
4. He or she will be a manager of one or more companies and shall receive remuneration from one or more companies according to the limit set out in Section III of Part II of Schedule XIII.
5. He or she is supposed to be a resident of India. 'Resident' means a person who has resided in India for a continuous duration of not less than twelve ( 12 ) months immediately preceding the date of his or her appointment as manager and who has come to live in India for jobs in India or company or vocation in India. However, this provision does not extend to businesses in the Special Economic Region, as told from time to time by the Department of Commerce.
Restrictions on the number of directorates
The Companies Act prevents a director from being a director of more than 15 (15) companies at the same time. For the purpose of determining the maximum number of companies of which a person can be a director, the following companies are excluded:
1. A private "original" company;
2. An association which does not carry on its business for profit or which prohibits the payment of any dividends;
3. A business in which he or she is named as the Alternate Director only.
Failure of the Director to comply with these Regulations will result in a fine of 50,000 rupees (Rs. 50,000/-) for each company to which he or she is the Director after the first 15 (15) has been so determined.
Director Identification number
All directors of Indian companies are expected to obtain Director Identity Numbers (DINs). In specific, DINs are necessary to authenticate all electronic filings made by the company.
Specific disqualification in the event of a public corporation
In addition to the requirements set out above, the Companies Act also provides that a person may not be eligible to be appointed as a director of any other public company for a period of five ( 5 ) years from the date on which the public company in which he or she is a director has not filed annual accounts and annual returns or has failed to repay his or her deposits or interest thereon.
Additional disqualification for a "pure" private company
A private corporation which is not a subsidiary of a public entity may, by virtue of its Constitution, require that a individual may be ineligible for election as a director on any grounds other than those provided for under the Companies Act.
Additional disqualification for Managing and Whole-Time Directos
An person may not be named as the Managing Director or the Whole-Time Director of a company if he or she has:
1. is an insolvent or has at any time been judged by an insolvent;
2. suspends or suspends payment to its creditors at any time, or makes or has made a composition with them at any time;
3. The court is, or has at some time been, guilty of an offence causing moral turpitude.
Such standards are not only stricter than the standards of the ordinary director, but are also of an absolute and compulsory sort.
Retirement of Directors
For each public corporation or private company which is a part of a public sector, one third of the directors must resign at each AGM. However, each retiring director is liable for re-appointment. If the vacancy is not filled and the meeting has not expressly agreed to fill the vacancy, he or she shall be considered to have been re-appointed before the next election date, unless he or she is otherwise unavailable or unable to serve as a director or if no decision has been made to hold the date.
The above rule is not applicable of private limited companies
Removing Directors
The Director may be removed by ordinary resolution of the General Meeting after a special notice has been given, before the end of his term of office. However, this does not refer to directors appointed by proportional representation or to directors appointed by the central government.
Office holiday
The position of director of a public corporation or of a private company which is a subsidiary of a public company is vacant if:
1. Becomes subject to two of the three ( 3) disqualifications referred to above (with respect to disqualifications for the Managing Director or the Whole-Time Director) during his or her term in office;
2. Failure to obtain, within any time limit as provided for in the Articles (two months in the case of a public company) or at any time thereafter ceases to hold, the necessary share qualification, if any, as provided for in the Articles;
3. Absent from three ( 3) successive meetings of the Board or from all meetings of the Board for a cumulative duration of three ( 3 ) months, whichever is longer, without receiving leave of absence from the Board;
4. Whether by itself or by any person on his or her account or by any company in which he or she is a partner or company in which he or she is a director, he or she accepts a loan or a guarantee or a guarantee for a loan from the company in contravention of the requirements for loans, etc. to the directors;
5. Acts in contravention of the declaration of interests requirements;
5. is barred from service under the Companies Act;
7. Having been appointed as a director by virtue of his or her holding an office or other employment in a company (for example, that of the Managing Director), he or she is unable to hold such office or other employment.
In addition, in public companies and private companies which are subsidiaries of public companies, where the Director or his or her relative holds a profit office without the consent of the company and with the knowledge of the Director, the Director shall be deemed to have vacated his or her office.
In addition to these reasons for the vacancy of the Director's office, a "true" private corporation can, in its Articles, lay down certain such reasons.
If a person continues to act as a director, despite the knowledge that his or her office has become vacant, he or she shall be punished with a fine of up to five thousand rupees (Rs. 5,000/-) for every day that he or she continues to function and act as such.
Resignation of Director
The Companies Act is silent on the resignation of the Directors. However, in the majority of cases, the Papers call for the dismissal of directors. Even in cases where the Articles are silent, there is no absolute bar on the resignation of the Director, which shall become effective on the submission of that resignation letter and on the submission of the form necessary for such resignation to the Registrar of Companies (whether or not the Board formally accepts the same, unless otherwise provided in the Articles). The declaration of such dismissal in a manner similar to the Registrar of Companies is an requirement for the corporation involved to be discharged.
The sole exception to the provision alluded to above is in the case of Managing Directors, Wholesale Directors and Executive Directors who are employees of the company and where the terms of their respective work arrangements typically apply to resignations, notice periods and/or benefits instead.
Compensation of Loss of Office
Only the Managing Director, the Director holding the office of Managing Director and the Whole-Time Director may be compensated for loss of office or for retirement, subject to the conditions laid down in the Companies Act.
In the event that the Articles are silent, the directors must be appointed by the shareholders. The Companies Act also contains a clause allowing the company to appoint two - thirds of the directors of the company to be appointed on the basis of the principle of proportional representation.
Who could be named as the Director?
The appointment of a director is not only a crucial administrative requirement, but also a procedural requirement that must be met by every company. Under the Companies Act, only an employee can be appointed as a director; a company, organization, business or other entity with an artificial legal identity will not be appointed as a director.
Nomination of the Directors
Generally, in a public corporation or a private company subsidiary of a public company, two thirds of the total number of directors shall be named by the shareholders and the remaining one third shall be appointed in compliance with the process laid down in Articles, under which the remaining one third of the directors shall be appointed by the shareholders. The Articles of a public company or of a private company subsidiary of a public company that provide for the retirement of all directors at each AGM.
In a private company, which is not a subsidiary of a public company, the Articles may provide for the appointment of any or all directors. In the event that the Articles are void, the Directors shall be named by the shareholders.
The Companies Act also allows the Articles to provide for the appointment of two-thirds of the directors on the basis of the principle of proportional representation, if adopted by the company concerned.
Nominee Directors may be appointed by a third party or by the Central Government in the event of oppression or mismanagement.
Nomination of Managing Directors
The Managing Director shall be an person and may be named for a maximum term of five ( 5 ) years at a time.
A person who is already the Managing Director / Manager of a public company or a private company subsidiary of a public company the become the Managing Director / Manager of only one other company (whether private or public) with the prior unanimous approval of the Board of Directors of that company. Such restrictions do not, however, apply to the Manager or the Managing Director of "pure" private companies.
In the case of a public company or a private company which is a subsidiary of a public company, if the appointment is not in accordance with Parts I and II of Schedule XIII of the Companies Act, the Central Government must approve such appointment.
Remuneration
In the case of a public company or a private company which is a subsidiary of a public company, the remuneration payable is subject to the provisions of the Companies Act and may be determined either by the Articles or, if the Articles so provide, by a special resolution of the general meeting of the company.
Qualifications of Directors
The Companies Act does not lay down any qualifications for directors of any company. Accordingly, an Indian company can, in its Articles, provide for the qualifications of directors. The Companies Act limits, however, to five thousand rupees (Rs. 5,000/-) the specified share qualification of directors which may be prescribed by a public company or a private company which is a subsidiary of a public company.
Terms of appointment of managing directors / whole-time directors; Disqualifications
The Businesses Act, in compliance with Schedule XIII, further lays down certain requirements which must be fulfilled for the appointment of the Managing Director or whole time directoror Manager in the case of a public company and a private company which is a subsidiary of a public company. No person shall therefore be eligible for appointment as Manager, Managing Director or Whole-Time Director if he or she fails to meet the following conditions:
1. He or she should not have been sentenced to imprisonment for any period of time or to a fine imposed under any of the following statutes, namely:
i. The Indian Stamps Act, 1899;
ii. Act of Federal Excise, 1944;
iii. The Industrial Development and Regulation Act, 1951;
iv. The Food Adulteration Prevention Act, 1954;
v. The Basic Commodities Act, 1955;
Vi. The Business Act, 1956;
vii. The Securities Contracts Act, 1956;
viii. Law on Wealth Tax, 1957;
ix. The Income Tax Act of 1961;
x. The Customs Act of 1962;
xi. The Monopoly and Unfair Fair Practices Act, 1969 – now the Antitrust Act, 2002;
Xii. Foreign Exchange Regulation Act, 1973 – now Foreign Exchange Regulation Act, 1999;
xiii. Sick industrial companies (Special Provisions Act) 1985;
xiv. Indian Securities Exchange Board Order, 1992; and/or
xv. Foreign Exchange Act (Development and Regulation) 1973.
2. He or she should not have been detained or convicted for any period of time under the Act on the Conservation of Foreign Exchange and Prevention of Smuggling Act, 1974.
3. He or she was expected to be twenty-five ( 25) years of age, but less than seventy (70) years of age. However, this age restriction does not extend if the nomination is approved by a special resolution adopted by the corporation at the general meeting or if the consent of the central government is received.
4. He or she will be a manager of one or more companies and shall receive remuneration from one or more companies according to the limit set out in Section III of Part II of Schedule XIII.
5. He or she is supposed to be a resident of India. 'Resident' means a person who has resided in India for a continuous duration of not less than twelve ( 12 ) months immediately preceding the date of his or her appointment as manager and who has come to live in India for jobs in India or company or vocation in India. However, this provision does not extend to businesses in the Special Economic Region, as told from time to time by the Department of Commerce.
Restrictions on the number of directorates
The Companies Act prevents a director from being a director of more than 15 (15) companies at the same time. For the purpose of determining the maximum number of companies of which a person can be a director, the following companies are excluded:
1. A private "original" company;
2. An association which does not carry on its business for profit or which prohibits the payment of any dividends;
3. A business in which he or she is named as the Alternate Director only.
Failure of the Director to comply with these Regulations will result in a fine of 50,000 rupees (Rs. 50,000/-) for each company to which he or she is the Director after the first 15 (15) has been so determined.
Director Identification number
All directors of Indian companies are expected to obtain Director Identity Numbers (DINs). In specific, DINs are necessary to authenticate all electronic filings made by the company.
Specific disqualification in the event of a public corporation
In addition to the requirements set out above, the Companies Act also provides that a person may not be eligible to be appointed as a director of any other public company for a period of five ( 5 ) years from the date on which the public company in which he or she is a director has not filed annual accounts and annual returns or has failed to repay his or her deposits or interest thereon.
Additional disqualification for a "pure" private company
A private corporation which is not a subsidiary of a public entity may, by virtue of its Constitution, require that a individual may be ineligible for election as a director on any grounds other than those provided for under the Companies Act.
Additional disqualification for Managing and Whole-Time Directos
An person may not be named as the Managing Director or the Whole-Time Director of a company if he or she has:
1. is an insolvent or has at any time been judged by an insolvent;
2. suspends or suspends payment to its creditors at any time, or makes or has made a composition with them at any time;
3. The court is, or has at some time been, guilty of an offence causing moral turpitude.
Such standards are not only stricter than the standards of the ordinary director, but are also of an absolute and compulsory sort.
Retirement of Directors
For each public corporation or private company which is a part of a public sector, one third of the directors must resign at each AGM. However, each retiring director is liable for re-appointment. If the vacancy is not filled and the meeting has not expressly agreed to fill the vacancy, he or she shall be considered to have been re-appointed before the next election date, unless he or she is otherwise unavailable or unable to serve as a director or if no decision has been made to hold the date.
The above rule is not applicable of private limited companies
Removing Directors
The Director may be removed by ordinary resolution of the General Meeting after a special notice has been given, before the end of his term of office. However, this does not refer to directors appointed by proportional representation or to directors appointed by the central government.
Office holiday
The position of director of a public corporation or of a private company which is a subsidiary of a public company is vacant if:
1. Becomes subject to two of the three ( 3) disqualifications referred to above (with respect to disqualifications for the Managing Director or the Whole-Time Director) during his or her term in office;
2. Failure to obtain, within any time limit as provided for in the Articles (two months in the case of a public company) or at any time thereafter ceases to hold, the necessary share qualification, if any, as provided for in the Articles;
3. Absent from three ( 3) successive meetings of the Board or from all meetings of the Board for a cumulative duration of three ( 3 ) months, whichever is longer, without receiving leave of absence from the Board;
4. Whether by itself or by any person on his or her account or by any company in which he or she is a partner or company in which he or she is a director, he or she accepts a loan or a guarantee or a guarantee for a loan from the company in contravention of the requirements for loans, etc. to the directors;
5. Acts in contravention of the declaration of interests requirements;
5. is barred from service under the Companies Act;
7. Having been appointed as a director by virtue of his or her holding an office or other employment in a company (for example, that of the Managing Director), he or she is unable to hold such office or other employment.
In addition, in public companies and private companies which are subsidiaries of public companies, where the Director or his or her relative holds a profit office without the consent of the company and with the knowledge of the Director, the Director shall be deemed to have vacated his or her office.
In addition to these reasons for the vacancy of the Director's office, a "true" private corporation can, in its Articles, lay down certain such reasons.
If a person continues to act as a director, despite the knowledge that his or her office has become vacant, he or she shall be punished with a fine of up to five thousand rupees (Rs. 5,000/-) for every day that he or she continues to function and act as such.
Resignation of Director
The Companies Act is silent on the resignation of the Directors. However, in the majority of cases, the Papers call for the dismissal of directors. Even in cases where the Articles are silent, there is no absolute bar on the resignation of the Director, which shall become effective on the submission of that resignation letter and on the submission of the form necessary for such resignation to the Registrar of Companies (whether or not the Board formally accepts the same, unless otherwise provided in the Articles). The declaration of such dismissal in a manner similar to the Registrar of Companies is an requirement for the corporation involved to be discharged.
The sole exception to the provision alluded to above is in the case of Managing Directors, Wholesale Directors and Executive Directors who are employees of the company and where the terms of their respective work arrangements typically apply to resignations, notice periods and/or benefits instead.
Compensation of Loss of Office
Only the Managing Director, the Director holding the office of Managing Director and the Whole-Time Director may be compensated for loss of office or for retirement, subject to the conditions laid down in the Companies Act.
RESOLUTION FOR APPOINTMENT OF DIRECTOR
Minutes of the meeting of the board of Directors of M/s _______________________ PRIVATE LIMITED
Held on
The Director Mr __________________________ suggested that to broad base the board and to enrich the company with more professional expertise, it is desirable to induct some additional directors in the Company. Mr ___________________ then proposed the names of Mr.__________________ for appointment as director. The matter was discussed and it was decided to appoint this person as additional directors. The following resolutions were passed in this connection:
"RESOLVED THAT Mr. ____________________ be and is hereby appointed as Director of the Company"
"RESOLVED FURTHER THAT Mr. ___________________________, Director of the Company be and is hereby authorised to file necessary return with the Registrar of Companies to give effect to the said resolutions."
For ____________________________________ PRIVATE LIMITED
Director
Minutes of the meeting of the board of Directors of M/s _______________________ PRIVATE LIMITED
Held on
The Director Mr __________________________ suggested that to broad base the board and to enrich the company with more professional expertise, it is desirable to induct some additional directors in the Company. Mr ___________________ then proposed the names of Mr.__________________ for appointment as director. The matter was discussed and it was decided to appoint this person as additional directors. The following resolutions were passed in this connection:
"RESOLVED THAT Mr. ____________________ be and is hereby appointed as Director of the Company"
"RESOLVED FURTHER THAT Mr. ___________________________, Director of the Company be and is hereby authorised to file necessary return with the Registrar of Companies to give effect to the said resolutions."
For ____________________________________ PRIVATE LIMITED
Director
forms to be signed by incoming director
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