Unit - 3
Management
As per Section 2(34) of Companies Act 2013 Director means a director appointed to the Board of a Company. The classification of directors are discussed below-
- Residential Director:
As per Section 149(3) of Companies Act,2013 every company shall at one director who has stayed in India for a total Period of not less than 182 days in the Previous calendar year.
2. Independent Director:
As per section 149(6) an independent director in relation to a company, means a director other than a Managing Director, Whole Time Director or Nominee Director. Companies which have to appoint Independent Director: As per Rule 4 of Companies (Appointment and Qualification of Directors) Rules,2013 the following class of companies have to appoint atleast two independent directors: -
- Public Companies having Paid up Share Capital-Rs.10 crores or more
- Public Companies having Turnover- Rs.100 Crores or More;
- Public Companies have total outstanding loans, debenture and deposits of Rs. 50 crores or more.
3. Small Shareholders Directors:
A listed Company may have one director elected by small shareholders. May appoint upon notice of not less than 1000 Shareholders or 1/10th of the total shareholders, whichever is lower have a small shareholder director which elected form small shareholder.
4. Women Director:
As per Section 149 (1) (a) second proviso requires certain categories of companies to have at least one-woman director on the board. Such companies are any listed company, and any public company having-
- Paid Up Capital of Rs. 100 crore or more, or
- Turnover of Rs. 300 crore or more.
5. Additional Directors:
Any Individual can be appointed as Additional Directors by a company under section 161(1) of the New Act.
6. Alternate Directors:
As per Section 161(2) A company may appoint, if the articles confer such power on company or a resolution is passed (if a Director is absent from India for atleast three months).
- An alternate Director cannot hold the office longer than the term of the Director in whose place he has been appointed.
- Additionally, he will have to vacate the office, if and when the original Director returns to India.
- Any alteration in the term of office made during the absence of the original Director will apply to the original Director and not to the Alternate Director.
7. Shadow Director:
A person, who is not appointed to the Board, but on whose directions the Board is accustomed to act, is liable as a Director of the company, unless he or she is giving advice in his or her professional capacity.
8. Nominee Directors:
They can be appointed by certain shareholders, third parties through contracts, lending public financial institutions or banks, or by the Central Government in case of oppression or mismanagement.
Key Takeaways
- As per section 2(34) of companies act 2013 director means a director appointed to the board of a company.
The concept of a Director Identification Number (DIN) has been introduced for the first time with the insertion of Sections 266A to 266G of Companies (Amendment) Act, 2006. As such, all the existing and intending Directors have to obtain DIN within the prescribed time-frame as notified. Director Identification Number or DIN (MCA) is an 8-digit unique identification number, which is allotted by the central government to each individual who wants to be a director of any company or who already is a director of any company. Once allotted the DIN number has lifetime validity. With the DIN number government also maintain a database of all the director. An individual can have only one DIN but he can be the director of 2 or more companies.
How is DIN Number Allotted?
The central Government and its delegated authority process and authenticate the received Form DIR-3. Among other things, they consider the rules given in Section 154 of the Companies Act, 2013 and Rule 10 of the Companies Rules 2014 (Appointment and Qualification of Director) when considering DIN number allotment to an applicant.
By considering these rules and provisions the form will be processed and the DIN number will be allotted within a month. The central Government and its delegated authority to accept or reject the form and in the same matter, they communicate with the applicant using the electronics or any other medium of communication. Central Government Communicate the Allotted DIN of the applicant within one month. That’s how the DIN is allotted to an individual.
SPICe Form:
Any person (not having DIN) proposed to become a first director in a new company shall have to make an application through eForm SPICe. The applicant is required to attach the proof of Identity and address along with the application. DIN would be allocated to User only after approval of the form.
DIR-3 Form:
Any person intending to become a director in an existing company shall have to make an application in eForm DIR-3 and should follow the following procedure:
- Supporting Documents:
Attach the photograph and scanned copy of supporting documents. i.e., proof of identity, and proof of residence as per the guidelines.
Physical documents are not required to be submitted at DIN cell.
2. Digital Signature
Form DIR-3 is mandatory to be signed by the Applicant and shall be verified digitally by a Company Secretary in full time employment of the company or by the Managing Director or Director or CEO or CFO of the existing company in which the applicant is intended to be appointed as a director.
3. Fee Payment
Upon upload, make the payment of filing fee of eForm DIR-3. Only electronic payment of the fees shall be allowed (i.e., Net banking / Credit Card/Debit Card/Pay later/ NeFT).
The user is required to get himself / herself registered on the MCA21 Portal to obtain Login ID. Login to the MCA21 portal and click on 'eForm upload' link available under the 'eForms' tab for uploading the eForm DIR- 3.
EForm DIR-3 will be processed only after the DIN application fee is paid.
4. Generation of DIN
Upon upload and successful payment, in case Form DIR-3 details have not been identified as potential duplicate, Approved DIN shall be generated and if the details have been identified as potential duplicate, Provisional DIN shall be generated.
5. Verification of e Form:
In case, details of eForm DIR-3 are found as potential duplicate, the same gets routed to DIN cell for back-office processing. Upon approval of the form, provisional DIN becomes approved DIN and would be available for further use.
6. Common Causes of Rejection:
A provisional DIN is approved only after scrutiny of the documents attached with the application.
Some of the common mistakes committed by applicants and on account of which the DIN application gets rejected are as under:
Non-submission of supporting documents
•The proof of identity of the applicant is not submitted.
•The proof of father's name of the applicant is not submitted.
•The proof of date of birth of the applicant is not submitted.
•The proof of residential address of the applicant is not submitted.
•The copy of passport (for foreign nationals) is not submitted.
Invalid Application/supporting Documents
•The supporting documents are invalid or expired.
•The proof of identity submitted has not been issued by a Government Agency.
•The application/enclosed evidence has handwritten entries.
•The submitted application is a duplicate DIN application and already one application of that applicant is pending or approved.
•The submitted application does not have photograph affixed.
•The signatures are not appended to the prescribed place.
•The applicant's name filled in application form does not match with the name in the enclosed evidence.
•The applicant's father's name filled in application form does not match with the father's name in the enclosed evidence.
•The applicant's date (DD/MM/YY) of birth filled in application form does not match with the date of birth in the enclosed evidence.
•The address details filled in the application do not match with those contained in the enclosed supporting evidence.
•The gender is not entered correctly in Form DIR-3.
•Identification number entered in application does not match with the identity proof enclosed.
•If enclosed documents are not self-attested.
DIR-6 Form:
- If there is any change in the particulars submitted in form DIR-3/SPICe with respect to Directors, applicant can submit e-form DIR-6. For instance, in the event of change of address of a director, he/she is required to intimate this change by submitting e-form DIR-6 along with the required attested document.
Digital Signature:
- The e-Form DIR-6 is required to be digitally signed by the Applicant and further certified by a Chartered Accountant or a Company Secretary or a Cost Accountant in whole- time practice or company secretary (member of ICSI)/Director of existing company in which applicant is proposed to be the director.
Key Takeaways
- The concept of a director identification number (din) has been introduced for the first time with the insertion of sections 266a to 266g of companies (amendment) act, 2006.
The provisions related to appointment of different types of directors are discussed below-
1. First Director
The first directors of most of the companies are named in their articles. If they are not so named in the articles of a company, then subscribers to the memorandum who are individuals shall be deemed to be the first directors of the company until the directors are duly appointed. In the case of a One Person Company, an individual being a member shall be deemed to be its first director until the director(s) are duly appointed by the member in accordance with the provisions of Section 152.
General provisions relating to appointment of directors
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.
4. 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)
5. 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.
2. Appointment of Additional Director- Section 161 (1)
The board of directors can appoint additional directors, if such power is conferred on them by the articles of association. Such additional directors hold office only upto the date of next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier. A person who fails to get appointed as a director in a general meeting cannot be appointed as Additional Director.
3. Appointment of Alternate Director- Section 161 (2)
Section 161(2) of the Act allowed the followings:
(i) The Board of Directors of a company must be authorised by its articles or by a resolution passed by the company in general meeting for appointment of alternate director.
(ii) 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.
(iii) 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.
(iv) 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.
(v) 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.
(vi) 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.
4. Appointment of Directors by Nomination Section 161(3)
This new sub-section now provides for appointment of Nominee Directors. It states that subject to the articles of a company, the Board may appoint any person as a director nominated by any institution in pursuance of the provisions of any law for the time being in force or of any agreement or by the Central Government or the State Government by virtue of its shareholding in a Government Company.
5. Appointment of Directors in causal vacancy- Section 161 (4)
If any vacancy is caused by death or resignation of a director appointed by the shareholders in General meeting, before expiry of his term, the Board of directors can appoint a director to fill up such vacancy. The appointed director shall hold office only up to the term of the director in whose place he is appointed.
6. Appointment of directors to be voted individually Section 162(1)
A single resolution shall not be moved for the appointment of two or more persons as directors of the company unless a proposal to move such a motion has first been agreed to at the meeting without any vote being cast against it. A resolution moved in contravention of aforesaid provision shall be void, whether or not any objection was taken when it was moved. 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.
7. Proportional representation for appointment of directors- Section 163
The articles of a company may provide for the appointment of not less than two-thirds of the total number of the directors of a company in accordance with the principle of proportional representation, whether by the single transferable vote or by a system of cumulative voting or otherwise and such appointments may be made once in every three years and casual vacancies of such directors shall be filled as provided in sub-section (4) of section 161.
Section 169 of the companies act provides provisions regarding removal of directors. A company may, remove a director except the director appointed by National Company Law Tribunal u/s 242, before the expiry of the period of his office after giving him a reasonable opportunity of being heard after passing the ordinary resolution.
Provided that nothing contained in this sub-section shall apply where the company has availed itself of the option given to it under section 163 to appoint not less than two thirds of the total number of directors according to the principle of proportional representation.
A special notice shall be required of any resolution, to remove a director under this section, or to appoint somebody in place of a director so removed, at the meeting at which he is removed.
On receipt of notice of a resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director, whether or not he is a member of the company, shall be entitled to be heard on the resolution at the meeting.
Where notice has been given of a resolution to remove a director under this section and the director concerned makes with respect thereto representation in writing to the company and requests its notification to members of the company, the company shall, if the time permits it to do so, —
(a) in any notice of the resolution given to members of the company, state the fact of the representation having been made; and
(b) send a copy of the representation to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representation by the company), and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company’s default, the director may without prejudice to his right to be heard orally require that the representation shall be read out at the meeting.
Provided that copy of the representation need not be sent out and the representation need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the Tribunal is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory matter; and the Tribunal may order the company’s costs on the application to be paid in whole or in part by the director notwithstanding that he is not a party to it. A vacancy created by the removal of a director under this section may, if he had been appointed by the company in general meeting or by the Board, be filled by the appointment of another director in his place at the meeting at which he is removed, provided special notice of the intended appointment has been given under sub-section (2).
A director so appointed shall hold office till the date up to which his predecessor would have held office if he had not been removed.
If the vacancy is not filled under sub-section (5), it may be filled as a casual vacancy in accordance with the provisions of this Act: Provided that the director who was removed from office shall not be re-appointed as a director by the Board of Directors.
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.
Section 166 of the Companies Act, 2013 provides duties of directors. A director of a company shall:
— Act in accordance with the articles of the company.
— 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.
— Exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
— 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.
— 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.
— Not assign his office and any assignment so made shall be void.
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 Rs. 1,00,000 but which may extend to Rs. 5,00,000.
Key Takeaway
- The first directors of most of the companies are named in their articles. If they are not so named in the articles of a company, then subscribers to the memorandum who are individuals shall be deemed to be the first directors of the company until the directors are duly appointed.
The Board of Directors of the following companies shall constitute Nomination and Remuneration Committee.
1. Every Listed Public Company.
2. The Following Class of Companies
- All public companies with a paid-up share capital of Rs. 10/- crores or more; or.
- All public companies having turnover of Rs. 100/- crore or more; or
- All public companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding Rs. 50/- crore.
Constitution of the committee
The Board of Directors of the Company (Board) constituted the committee to be known as the Nomination and Remuneration Committee consisting of three non-executive directors out of which two shall be the Independent Directors. The Chairman of the Committee shall be an Independent Director.
Objective and purpose of the policy
The Objective and purpose of the policy are:
To guide the Board in relation to appointment and removal of Directors.
2. Formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy relating to the remuneration of directors and Key Managerial personnel.
3. Formulation of criteria for evaluation of Board of Directors including the Independent Director.
4. To Recommend the Board on Remuneration payable to the directors, Key Managerial Personnel and Senior Management.
5. To retain, motivate and promote talent and to ensure long term sustainability of talented managerial persons and create competitive advantage.
6. To assist the Board in fulfilling all related responsibilities.
Policy for appointment and removal of director, key managerial personal and senior management
The Committee shall identify and ascertain the integrity, qualification, expertise and experience of the person for appointment as Director or key managerial personal and recommend to the Board his/her appointment.
A person should possess adequate qualification, expertise and experience for the position he/she is considered for appointment. The Committee has discretion to decide whether qualification, expertise and experience possessed by a person is sufficient /satisfactory for the concerned position.
The Committee shall identify whether the director is willing to serve on one or more committees of the Board as also devote such time as necessary for proper performance of his duties.
The Committee shall analyse whether the Independent Director being considered is willing to and shall be able to carry out the duties which every independent directors are required to follow. The Committee shall check whether the prospective Director / key managerial personal shall be able to follow the code of conduct of the Company or not.
Key Takeaways
- The board of directors of the company (board) constituted the committee to be known as the nomination and remuneration committee consisting of three non-executive directors out of which two shall be the independent directors.
References:
- Gowar, LCB, Principles of Modern Company Law, Stevens & sons, Londan.
- Hanningan, Brenda, Company Law, Oxford University Press, U.K
- MC Kuchhal Corporate Laws, Shri Mahaveer Book Depot. (Publishers)
- J.P. Sharma, An Easy Approach to Corporate Laws, Anne Books Pvt. Ltd., New Delhi
- Ramaiya, A Guide to Companies Act, LexisNexis, Wadhwa and Buttersworth
- Kannal, S. AND V.S. Sworirajan, Company Law Procedure, Taxman Allied Services(P) Ltd., New Delhi
- Singh, Harpal. Indian Company Law, Galgotia Publishing, New Delhi
- Companies Act and Corporate Laws, Bharat Law House Pvt. Ltd, New Delhi
