Appointment and Resignation of Directors of the Company

‘The company itself cannot act in its own person, for it has no person; it can only act through its directors, and the case as is, as regards those directors, merely the ordinary case of principal and agent.’
Shivani Ps
March 16, 2021

Introduction

‘The company itself cannot act in its own person, for it has no person; it can only act through its directors, and the case as is, as regards those directors, merely the ordinary case of principal and agent.’

A company is an artificial person created by law with perpetual existence and a common seal. Therefore, a company being an artificial person, it cannot have the body and mind to act independently and can act only through human agents, who are called the ‘directors’.

Definition

According to Section 2(34) of the Companies Act, 2013, director means “a director appointed to the board of a company” (The corresponding section 2(13) of the companies act, 1956) defines a director as ‘director’ includes any person occupying the position of director, by whatever name called.

The directors of a company play an important role in the administration and management of the company. The success of the company and the welfare of the shareholders depends on the efficient administration of the directors as the directors are the backbone of the company.

Now arises the question with respect to who qualifies as a director, the procedure of appointment and resignation of the directors of a company.

Qualification

The companies act, 2013 does not prescribe any specific qualification to become a director of a company. One need not necessarily be a shareholder to become a director of a company. The articles of association of a company prescribe qualifications for a person to be appointed as a director.

To become a director,

  • He/she must be a natural person.
  • Must be competent to contract (according to the competency to contract mentioned in section 11 of the Indian contract act 1872).
  • He/she must not have been disqualified by any court on the grounds of insolvency or conviction.

Appointment of a director

Section 152 of the companies Act, 2013 provides for the provision relating to the appointment of directors of a company.

According to the provision,

  • In case there is no provision made In the articles of association of a company for appointment of first directors, the subscribers to the memorandum shall be deemed to be the first directors of the company until the directors are duly appointed. In case of a one-person company, the individual member of the company shall be deemed be its first director until the director is duly appointed by that member in accordance with the provision mentioned in section 152 of the said act.
  • Every director shall be appointed by the company in the general meeting. The person so appointed shall furnish his/her Director Identification Number (or any number so prescribed) along with a declaration that he/she is not disqualified to become a director.

only that person who is allotted the director identification number under section 154 (or any other number as may be prescribed under section 153) is eligible to be appointed as director of a company.

  • A person shall not act as a director unless he/she gives their consent to hold the office as a director of the company and such consent has been filed with the registrar (according to the manner so prescribed) within 30 days of the appointment as director.
  • In cases of vacancy due to retirement of a director, and even if at the adjourned meeting also the vacancy is not filled up, the retiring director shall be deemed to have been re-appointed at the adjourned meeting unless A)at that meeting or at the previous meeting a resolution for the re-appointment of such director has been put to the meeting and lost or, B)the retiring director has expressed his unwillingness to be so re-appointed or, C) the retiring director is disqualified for an appointment or, D)a resolution(whether special or ordinary) is required for the re-appointment or, E)section 162 Is applicable to the particular case.

Ways of appointment

The directors of a company may be appointed in any one of the following ways:

  1. By the articles of association as first directors: the first directors of a newly formed company are to be appointed by the subscribers of the memorandum. If not done, the subscribers who are individuals are deemed to be the first directors and they hold office up to the date of first annual general meeting of the company where the appointment of directors is made.
  2. By the company in annual general meeting: section 255 of the companies act provides directors of a company are to be appointed at its annual general meetings.
  3. By the board of directors: The general power to appoint the director sis vested In the general meeting of the shareholders/members but in two cases, the board of directors can also appoint new directors.
  4. By lenders(section 161(3)): under certain conditions, the articles may empower the debenture holders, a banking company or a financial corporation to appoint their nominees to the board of directors. However, the number so appointed must not exceed 1/3rd of the total strength of the board of directors.
  5. By the central government: the central government has the power to appoint directors to prevent oppression or mismanagement and the appointment of such directors may be made for a period not exceeding three years at a time.

Minimum and maximum number of directors

The law requires that each company must have at least 2 directors in case of private companies, minimum of 3 directors in case of public companies and a minimum of 1 director in case of one-person companies. A company cannot have more than a maximum of 15 directors. However, The company can appoint more than 15 directors by passing a special resolution in its general meeting (central government approval not required).

Resignation of a director

Section 168 of the Companies Act, 2013 contains the provision relating to the resignation of directors of a company and its process.

A director of a company may resign from his/her office of directorship by giving written notice to the company and board. The intimation of such resignation must be made to the Registrar of companies in the manner and within such time so prescribed.

Steps involved in the resignation of a director:

  • Notice of registration to be given by the director to the company.
  • Call for a board meeting
  • Filing of Return of Registration by the Company as well as by the director with the Registrar of Companies (ROC).

Liability

The resigning director is liable for all the offences occurred due to him/her during his/her tenure, even after resignation.

The effective date of Resignation is provided under section 168(2) of the said Act.

According to this provision, the resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, Whichever Is Later.

Companies (Appointment and Qualification of Directors) Rules, 2014

Rule 15 provides that the company should inform the Registrar about the resignation in the Form DIR-12 and Rule 16 provides that the Director shall inform the registrar about the resignation in the form DIR-11.

Law has imposed a duty upon the resigning director to File Form DIR- 11

> He/she has to mention the reason(s) for Resigning, attach the copy of Notice sent to the Company, Enclose Proof Of Dispatch and file the said form within 30 days of resignation along with the prescribed filing fees.

Similarly, the law has also imposed a duty upon the company with respect to a resigning director (provided in section 168(1))

> A director may resign from his office by giving a notice in writing to the company and the Board. The company shall, on receipt of such notice, take note of the same by passing a board resolution to that effect and according to the Rule 15 of the aforementioned Act, the company shall intimate the Registrar through the filing of form DIR 12 within 30 Days from the Effective date of Resignation on its website, if any. The company is also required to Place the Fact of Such Resignation in the Report of Directors laid in the immediately following general meeting by the company.

Conclusion

The directors of a company are responsible for the company’s corporate policies and they play a vital role in its governance, management and mainly, setting the right direction for the company. The companies Act, 2013 has provided for a detailed process of appointment and resignation of the directors of a company. There has been a setup of strict legal standpoint with respect to the appointment and resignation of directors, and both the company as well as the directors have to comply with them, to ensure and facilitate the smooth functioning of a company.

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