This article is written by Mr.Archak Das, BBALLB student studying in Adamas university, Kolkata. The author is a 2nd year law student.
INTRODUCTION
Under the Companies Act 2013, the appointment of directors of a company is a crucial process that needs to be carried out in accordance with the provisions of the law. The Act provides for the appointment of directors in various ways, which are explained below:
- Appointment by Shareholders: The shareholders of a company can appoint directors by passing an ordinary resolution in a general meeting. The resolution must be passed by a simple majority of the shareholders present and voting.
- Appointment by Board of Directors: The board of directors of a company can appoint additional directors, subject to the maximum limit prescribed under the Articles of Association of the company. Such appointments must be approved by the shareholders at the next general meeting.
- Appointment by Nomination: A company can also appoint directors through nomination. This is usually done when a company has a joint venture or collaboration with another company, and the nominee of the collaborating company is appointed as a director.
- Appointment by Proportional Representation: A company can also appoint directors by a system of proportional representation. This is done to ensure that the minority shareholders are also represented on the board of directors. The procedure for appointment by proportional representation is prescribed in the Companies Act 2013.
- Appointment of Independent Directors: The Companies Act 2013 also provides for the appointment of independent directors on the board of directors. The independent directors are not affiliated with the company or its management and are appointed for a fixed term to bring in an independent and objective perspective to the functioning of the company.
In all cases, the appointment of directors must be done in accordance with the provisions of the Companies Act 2013, the Articles of Association of the company, and the guidelines issued by the SEBI. The appointment process must also comply with the principles of corporate governance, transparency, and accountability.
What minimum and maximum number of directors in a company according to the companies acts 2013?
Section 146 of the companies Act provides the minimum and the maximum number of directors in a company:
- Minimum Number of Directors: Every company must have at least three directors in the case of a public company, and two directors in the case of a private company. However, in the case of a One Person Company (OPC), the minimum number of directors is one.
- Maximum Number of Directors: A corporation may name up to fifteen directors. After enacting a special resolution at the general meeting, a company may select more than fifteen directors; Central Government approval is not necessary. For the businesses to be able to adhere to this obligation, a year has been provided.
It is important to note that while appointing directors, a company must also ensure that the composition of the board of directors meets the requirements of Section 149 of the Companies Act 2013. The section requires that the board of directors of a company must have at least one woman director (in case of certain classes of companies), at least one director who is a resident of India, and at least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year. Additionally, the section requires that the board of directors must have a mix of executive and non-executive directors, and at least one-third of the board must comprise independent directors (in case of certain classes of companies).
Disqualifications
Section 164 of the Companies Act 2013 provides for disqualifications of directors of a company. The following are the disqualifications of directors under this section:
- If the director has been convicted of an offence involving moral turpitude and sentenced to imprisonment for at least six months or more, and a period of five years has not elapsed from the date of his release from prison.
- If the director is declared to be of unsound mind by a competent court. If the director is an insolvent or has been declared bankrupt.
- If the director has not paid any calls due on shares held by him/her, and six months have elapsed from the last date of payment.
- If the director has been disqualified by the Securities and Exchange Board of India (SEBI) or any other regulatory authority.
- If the director has failed to repay any deposits accepted by the company or to redeem any debentures on the due date.
- If the director has been convicted of an offence related to the promotion, formation or management of a company and sentenced to imprisonment for a period of at least six months.
If any of these disqualifications occur, the person concerned cannot be appointed or continue as a director in any company for a period of five years from the date of occurrence of such disqualification.
Defects in appointment of directors
In some cases, a director of a company may be disqualified from holding the position of director due to certain legal or regulatory requirements, such as being an undischarged bankrupt or having a disqualification order made against them by a court. Additionally, a director may have defects in their appointment, such as not being properly elected or appointed according to the company’s articles of association or applicable laws.
Despite such disqualifications or defects, the acts of a director would still be valid and effective, unless the company’s articles of association or applicable laws provide otherwise. This is because the law recognizes the principle of “indoor management,” which means that third parties dealing with the company can assume that the acts of the directors are valid and binding, unless they have reason to suspect otherwise. However, it is important to note that this principle has limitations. For example, if the disqualification or defect was known to the director or to the person dealing with the company, then the validity of the director’s acts may be affected. Additionally, if the company’s articles of association or applicable laws provide specific requirements for the appointment or qualification of directors, then failure to comply with such requirements may affect the validity of the director’s acts.
In summary, disqualifications or defects in the appointment of directors of a company may not necessarily invalidate their acts, provided that third parties dealing with the company can assume that the acts of the directors are valid and binding. However, the validity of the director’s acts may be affected if the disqualification or defect was known or if there was a failure to comply with specific requirements for the appointment or qualification of directors.
CONCLUSION
The appointment of directors in a company is a crucial process that involves identifying and selecting individuals who have the necessary skills, experience, and expertise to guide the organization towards its goals. The process typically involves a thorough assessment of the candidate’s qualifications, including their education, work experience, and professional achievements. It may also involve background checks, interviews, and reference checks.
Overall, the appointment of directors is a critical process that can have a significant impact on the success or failure of a company. By selecting qualified and competent individuals, companies can ensure that their leadership is well-equipped to steer the organization towards growth and success.
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