Qualification and Disqualification of

directors: A study with provision of

companies act, 2013
(Project Report)

Submitted to

Deepak das
Faculty Member in Companies Law

By

Pravas Naik
B. A. LL. B. (Hons.) Student
Semester – VI, Section – A, Roll No. 119

Hidayatullah National Law University

Uparwara Post, Abhanpur, New Raipur – 493661 (C.G.)
 DECLARATION

I, Pravas Naik hereby declare that, the project work entitled, ‘Qualification and Disqualification of
directors: A study with provision of companies act, 2013’ submitted to H.N.L.U., Raipur is record
of an original work done by me under the able guidance of Deepak das, Faculty Member, H.N.L.U.,
Raipur.

Pravas Naik
Roll No-119
Section A
SEM -VI

i
 ACKNOWLEDGEMENT

Thanks to the Almighty who gave me the strength to complete this project with sheer hard work and
honesty. This research venture has been made possible due to the generous co-operation of various
persons. To list them all is not practicable, even to repay them in words is beyond the domain of my
lexicon.

This project wouldn’t have been possible without the help of my teacher Deepak das, Faculty, Dept.
of companies law at HNLU, who had always been there at my side whenever I needed some help
regarding any information. He has been my mentor in the truest sense of the term. The
administration has also been kind enough to let me use their facilities for research work.

ii
 CONTENTS

Declaration I
Acknowledgement II
1. Introduction 1
1.1. Objectives of the Study 2
1.2. Scope of the Study 2
1.3. Methodology of Study 2
1.4. Organization of the Study 3

2. Background 4
2.1. History 4
2.2. Need 4

3. Land acquisition act 2013 8

3.1 What is land acquisition? 9

4. Provision 9
5. Compensation 13
5.1. Market value 13
5.2. Rehabilitation and resettlement 14

6. Benefits and effect 15

7. Criticisms 21

8. Conclusion 23

9. References 24
 1. INTRODUCTION

An Act to ensure, in consultation with institutions of local self-government and Gram Sabhas
established under the Constitution, a humane, participative, informed and transparent process for
land acquisition for industrialization, development of essential infrastructural facilities and
urbanization with the least disturbance to the owners of the land and other affected families and
provide just and fair compensation to the affected families whose land has been acquired or
proposed to be acquired or are affected by such acquisition and make adequate provisions for
such affected persons for their rehabilitation and resettlement. 60 years down the independence;
Indian economy is in transition phase. A sea change has taken place in its policy framework with
respect to different sectors of economy. But, the land remains a fundamental need for all
economic activities. The recent people's resistance against the acquisition of agricultural land
across the nation has initiated a great debate. Apart from the common man being at the centre of
debate, the respective State Governments, Political parties and civil societies are actively
participating in this discourse. The discourse arose due to this phase of massive industrialization;
transforming an essentially agrarian economy into an industrial power and concerns mainly with
location of industries, compensation and employment of the displaced person. The very
relationship between agriculture and industrialization is being questioned. Nevertheless, it is
quite bizarre to note that neither the Government nor any of the political parties are serious
enough to discuss the efficacy of colonial legislation i.e. Land Acquisition Act, 1894. The Land
Acquisition Act, 1894 remained only the important legal instrument of acquiring land for private
companies in India even after 60 years of independence. The Land Acquisition Act seems to be
very special as much legislations are based on it; facilitating awaited industrialization, giving a
solution to unemployment, widening the divide between urban and rural, threatening
environment and propagating disguised unemployment etc. The Colonial legislation had been
enacted in a different regime, for very specific purposes which suited Britishers most. But, the
irony of Indian democracy is that a successful attempt to provide a legal framework for land
acquisition had not been made for a long time. In first decade of 21st century “The Right to Fair
Compensation and Transparency in land Acquisition, Rehabilitation and Resettlement Act,
2013” was passed to ensure justice in the matter of land acquisition.

1
1.1. Aims and objectives

The aims and objectives of the Act include:

 To understand, the land aquicition act (2013) as public policy

1.2. Scope of the Study

This project report would cover the land acquisition act 2013 in India. This report
encompasses the land acquisition act as public policy system in India and what are the
pros. And cons.
The report would be limited in its context to understand the land acquisition scenario in
India only.

1.3. Methodology of Study

Given a study of this kind, a descriptive analytical method has been followed to carry out the
study. Secondary sources have been used to gather data and facts. Book, journal articles,
electronic sources such as online websites, newspaper and magazine articles and research
reports have been used to complete this project report.

1.4. Organization of the Study

The Report has been organized into 5 sections. The first section deals with the introduction of
the problem followed by objectives and methodology adopted for carrying out the study. The
second section deals with understanding the history of land acquisition in India. The third
section deals with by defining land acquisition in India and the benefits and effects. The fourth
section deals with criticism. The final section will deal with the concluding observations and
suggestions.

2
 2. BACKGROUND

New Categories and Qualifications of Directors

Resident Director: The new Act has made certain important changes in the earlier regime,
particularly in respect of the appointment of directors. For instance, as per Section 149 of the
New Act, Board of Directors of a company, must have at least one resident director, i.e. a person
who has lived not less than 182 days in India in the previous calendar year. The second proviso
added to section 149 in the New Act requires all companies to comply with section 149 within a
year.

Woman Director: Similarly, a new provision is introduced under section 149, which 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-

1. paid up capital of Rs. 100 cr. or more, or

2. turnover of Rs. 300 cr. or more.

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-

1. Person of integrity and relevant experience

2. Is not a promoter, nor has any relation with the promoters or directors of  the company,
its holding, subsidiary or associate company;
3. Has no pecuniary relationship with company, its holding, subsidiary or associate
company, its promoters or directors in the preceding two years of his appointment
4. 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
5. Neither he, nor any of his relatives have held a key managerial personnel or 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.
6. 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,

3
 subsidiary or associate company amounting to ten per cent. or more of the gross turnover
of such firm;
7. 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
8. 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
9. who possesses such other qualifications as may be prescribed.

The appointment of independent directors has to also be approved by the shareholders.

Additional Directors: Additional Directors may be appointed by a company under section 161

of the New Act. The article should confer such power on the Board of Directors of the Company.
A provision further added in 2013 with regards to such appointment is that the proposed person
should not have failed to get appointed as a Director in a General Meeting.

Nominee Director: Nominee Director is defined under an explanation to section 149. He is a

Director nominated by any financial institution pursuant to any law for the time being in force, or
of any agreement or appointed by any Government or any other person to represent its interest.

Alternate Directors: Alternate Directors, under section 161(2) of Companies Act, 2013, may be

appointed by a company if the articles confer such power or  a decision is passed by a resolution
if an independent Director is absent from India for not less than three months. He must be
qualified to become an independent director, but should not hold any Directorship. 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.

Number of Directors

The New Act, by adding 149 (1) (b), has also increased the maximum number of directors that a
company can have from twelve to fifteen. The number can be further increased by passing a
special resolution instead of requiring approval from Central Government as was under the Old
Act.

Appointment of Directors

Section 152 of the New Act governs the appointment of directors. Certain specific requirements
for appointment of director as laid down in the New Act are-

 If there is no provision for appointment of Director in the Articles (AoA), the subscribers
to the memorandum, i.e. the shareholders, who are individuals shall be deemed to be the
first directors of the company until the directors are duly appointed;

4
  Director to be appointed in a general meeting. If it is so done, an explanatory statement
for such appointment, annexed to the notice for the general meeting, shall include a
statement that in the opinion of the Board, he fulfills the conditions specified in this Act
for such an appointment;
 The proposed Director has to furnish his DIN (Director Identification Number)
mandatorily. DIN is allotted by the Central Government on application by a person
intending to be the Director of a company. DIN can be obtained in pursuance of section
153 and 154;
 The proposed Director has to also furnish a declaration stating that he is not disqualified
to be a director.
 Furthermore, such appointment should be with his consent. Earlier such consent was not
mandatory for private [Link] implies that being appointed a director and
taking the charge of the office are two different things;
 Consent has to be filed with the Registrar of Companies within 30 days of appointment

The provisions for optional proportionate representation which was earlier mandated only for
public companies and the private companies which are subsidies of a public company, has now
been extended to all private companies also (section 163 of the Companies Act, 2013). Also, the
disqualifications for appointment and reappointment of directors have been made applicable to
the private companies. Therefore, prior to appointing a director, a company must tick off the
various disqualifications for appointment as director under Section 164 of the New Act.

Xxxxxx

Day-to-day affairs of a company are run by its directors and employees. The companies act
recognizes the board of directors and key managerial personnel in the company as the persons
responsible to execute the activities of the company. Some directors may also have an
employment relationship with the company. For example, the office of the Chief Executive
Officer, the Chief Financial Officer or the Chief Operating Officer positions may be offered to
persons who are also directors. This chapter explains the provisions relating to the directors of
the company.

Number of directors

The Companies Act, 2013 fixes the minimum and maximum number of directors a company can
appoint. Under the 2013 Act, a private company is required to appoint at least two directors;
while a public company must appoint at least three directors and a one person company is
required to appoint at least 1 director. A company can appoint a maximum of 15 directors (a

5
maximum of 12 directors were allowed under the Companies Act, 1956).It is possible for a
company to increase the number of directors beyond 15 by passing a special resolution to this
effect. Moreover, one of the directors of the company must be resident in India, that is, he must
have stayed in India for a period of not less than 180 days in the previous calendar year.

How are directors appointed?

Generally for a private company, typically the promoters (i.e. the founders who are signatories to
the articles of association) of the company become the first directors of the company.

Although the articles of association should ideally mention names of the first directors of the
company, if that is not done, the subscribers to the memorandum (that is, the initial shareholders
who incorporate the company) shall be considered as the directors. In all other cases, the
directors can be appointed by the company through a resolution passed in the general meeting.
However, before such appointment can be made, the members must be informed by either email
or through postal communication at least seven days before the meeting about the candidature of
the person as a new director.

How to accept appointment as director

A person who is intended to become a director must apply to the Registrar for obtaining a
Director Identification Number (DIN) in Form No DIR-3. The prospective director should give a
declaration to the company that he holds a DIN and is not otherwise disqualified to become a
director. A person who has been appointed as a director must notify the company about his
consent to act as director in Form No DIR-2 and to the Registrar within thirty days of
appointment in Form No DIR-12.

What will happen if the director or the company fails to notify the Registrar within the specified
date?

Failure to notify the Registrar of one’s appointment as a director is an offence – if a director fails
to notify the Registrar of his appointment within the specified dates as mentioned in the previous
paragraph, he is punishable with imprisonment for a period of six months or may have to a pay
fine which may extend to fifty thousand rupees and if the non-compliance continues he might
have pay an additional fine of rupees five hundred per day of non-compliance.

Block A person cannot be a director in more than twenty companies (out of which a person can
be a director in a maximum of ten public companies) at the same time. However, a company is
allowed to fix any lesser number of companies a director is allowed to act as directors, by
passing a special resolution.

Special requirements for public companies

6
The new Companies Act has imposed additional requirements with respect to appointment of
independent directors and women directors on public companies (whether they are listed or not).
All listed companies are required to appoint special categories of directors like independent
directors, small shareholders (minority) directors and woman directors in the Board. Some of
these requirements even apply to unlisted public companies, if certain share capital, debt or
turnover thresholds are exceeded.

Independent Director – All listed public companies must appoint independent directors (i.e.
those who are not related to the promoters of the company and do not have a financial
relationship with the company) as per the listing agreement, however, the proportion of
independent directors cannot fall below more than one-third of the toal directors, for better
transparency and good governance.

Unlisted public companies must appoint at least two independent directors in the following
circumstances:

i.            If their paid up share capital exceeds Rs. 10 crores.

ii.            If their turnover exceeds Rs. 100 crores.

iii.            If the aggregate of all the outstanding loans, debentures and deposits exceeds Rs 50
crores.

Woman director – All listed companies and other public companies having a paid-up share
capital of more than Rs 100 crores or turn-over of more than three hundred crore must appoint
atleast one woman director.

Director appointed by minority shareholders– To have a fair representation of the minority

shareholders in a listed company (a shareholder having shares whose nominal value is less than
twenty thousand rupees), the minority shareholders may elect one director.

Term of appointment of directors

Generally a director is appointed in the Annual General Meeting (AGM), and can hold the post
till the next AGM. However, the articles of the company can provide for appointment of
permanent directors in the articles of the company. In case of a public company or its
subsidiaries, only one-third of the directors can be appointed as permanent directors, rest of the
directors must retire by rotation at the AGM of the company.

An independent director can be appointed for a period of consecutive five years. Such directors
can be re-appointed after passing a special resolution by the Board for a period of another 5
years. After two consecutive terms, an independent director can be re-appointed only after a gap
of three years (provided that the person was not appointed or associated with the company during
these three years).

Resignation and removal of directors

7
 A director can by giving a notice in writing to the company and the board, resign from the post
of director. The effect of resignation will take place from the date when such notice has been
received by the company or on such date as the director has conveyed to the company,
whichever is later. Moreover, a director must convey the notice of resignation along with reason
for resignation to the Registrar in Form No DIR-11 within thirty days from the date of
resignation. The company in a similar manner has to inform the Registrar and post the
information on the website of the company about the resignation of the director within thirty
days from the date of notice of resignation in Form No DIR-12.

Suppose the company found out that one of the directors is working in a manner which is
detrimental to the interest of the company, or the director is involved in fraudulent activities.
What are the steps the company can take to remove the director? Can they remove them
immediately?

A director can be removed at any time by passing an ordinary resolution (at least 51 % of the
shareholders must pass the resolution) at a shareholders meeting, at any time before the
completion of the term of the director. However, the director must be given reasonable
opportunity of being heard before the decision is taken.

For this purpose, a shareholders meeting (called a general meeting) can be specifically called
(see the chapter on meetings for further details). The notice that must be given to shareholders is
called a ‘special notice’.

3. PROVISION

Definition of public purpose under Section 2(1) of the Act defines the following as public purpose

for land acquisition within India:1

 For strategic purposes relating to naval, military, air force, and armed forces of the

Union, including central paramilitary forces or any work vital to national security or

defence of India or State police, safety of the people; or

 For infrastructure projects, which includes the following, namely:

1
"THE LAND ACQUISITION, REHABILITATION AND RESETTLEMENT BILL, 2011 – FULL TEXT OF BILL".
Ministry of Rural Development, Government of India.

8
  All activities or items listed in the notification of the Government of India in the

Department of Economic Affairs (Infrastructure Section) number 13/6/2009-INF,

dated 27 March 2012, excluding private hospitals, private educational institutions

and private hotels;

 Projects involving agro-processing, supply of inputs to agriculture, warehousing,

cold storage facilities, marketing infrastructure for agriculture and allied activities

such as dairy, fisheries, and meat processing, set up or owned by the appropriate

Government or by a farmers' cooperative or by an institution set up under a

statute;

 Project for industrial corridors or mining activities, national investment and

manufacturing zones, as designated in the National Manufacturing Policy;

 Project for water harvesting and water conservation structures, sanitation;

 Project for Government administered, Government aided educational and research

schemes or institutions;

 Project for sports, health care, tourism, transportation of space programme;

 Any infrastructure facility as may be notified in this regard by the Central

Government and after tabling of such notification in Parliament;

 Project for project affected families;

 Project for housing, or such income groups, as may be specified from time to time by the

appropriate Government;

 Project for planned development or the improvement of village sites or any site in the

urban areas or provision of land for residential purposes for the weaker sections in rural

and urban areas;

 Project for residential purposes to the poor or landless or to persons residing in areas

affected by natural calamities, or to persons displaced or affected by reason of the

implementation of any scheme undertaken by the Government, any local authority or a

corporation owned or controlled by the State.

9
When government declares public purpose and shall control the land directly, consent of the land

owner shall not be required. However, when the government acquires the land for private

companies, the consent of at least 80% of the project affected families shall be obtained through a

prior informed process before government uses its power under the Act to acquire the remaining

land for public good, and in case of a public-private project at least 70% of the affected families

should consent to the acquisition process.2

The Act includes an urgency clause for expedited land acquisition. The urgency clause may only be

invoked for national defense, security and in the event of rehabilitation of affected people from

natural disasters or emergencies.

Definition of 'land owner'

The Act defines the following as land owner:

1. person whose name is recorded as the owner of the land or building or part thereof, in the

records of the authority concerned; or

2. person who is granted forest rights under The Scheduled Tribes and Other Traditional

Forest Dwellers (Recognition of Forest Rights) Act, 2006 or under any other law for the

time being in force; or

3. Person who is entitled to be granted Patta rights on the land under any law of the State

including assigned lands; or

4. any person who has been declared as such by an order of the court or Authority;3

Limits on acquisition

2
Section 2(2) of the Act
3
 The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act,
2013

10
The Act forbids land acquisition when such acquisition would include multi-crop irrigated area.

However, such acquisition may be permitted on demonstrable last resort, which will be

subjected to an aggregated upper limit for all the projects in a District or State as notified by the

State Government. In addition to the above condition, wherever multi-crop irrigated land is

acquired an equivalent area of cultivable wasteland shall be developed by the state for

agricultural purposes. In other type of agricultural land, the total acquisition shall not exceed

the limit for all the projects in a District or State as notified by the Appropriate Authority.

These limits shall not apply to linear projects which includes projects for railways, highways,

major district roads, power lines, and irrigation canals.4

4. CONCLUSION

The Land Acquisition Act was enacted in response to the slowdown in economic growth which
was, to some extent, attributed to the archaic system of land acquisition laid down in the 1894 Act.

However, it is widely believed that this Act, in its current form, has actually exacerbated problems
instead of solving them. In its admirable haste to prevent the exploitation of land owners, the
legislature did not evaluate the viability of the entire mechanism that the new Act seeks to create for
land acquisition.

It is necessary for the government to ensure that pro-poor and pro-farmer rhetoric does not get in the
way of industrialization which is the most powerful engine of growth and the biggest source of job
creation.

The new NDA government needs to suitably alter the law in order to strike the right balance
between the interests of poor land owners and the need for industrialization.
4
Section 10 of the Act

11
Even though the new LARR Act makes an attempt to reform the land acquisition process with right
based approach measures, there are way too many gaps and loopholes in the present legislation,
which could lead to an ineffective land acquisition framework. It is important that the process of
land acquisition is transparent and accountable in the true sense, while following the various
progressive right based approach measures conceived in the new LARR Act.

5. REFERENCES

1. [Link]
2. [Link]
3. [Link]
4. [Link]

COMPANIES ACT, 2013

APPOINTMENT

AND

QUALIFICATIONS

OF

DIRECTORS

12
APPOINTMENT AND QUALIFICATIONS

OF DIRECTORS

[Link]

The supreme executive authority controlling the management and affairs of a company vests in the
team of directors of the company, collectively known as its Board of Directors. At the core of
the corporate governance practice is the Board of Directors which oversees how the
management serves and protects the long term interests of all the stakeholders of the Company.
The institution of board of directors was based on the premise that a group of trustworthy and
respectable people should look after the interests of the large number of shareholders who are
not directly involved in the management of the company. The position of board of directors is
that of trust as the board is entrusted with the responsibility to act in the best interests of the
company.

Although the Board comprises individual directors, yet the actions and deeds of directors
individually functioning cannot bind the company, unless a particular director has been
specifically authorised by a Board resolution to discharge certain responsibilities on behalf of
the company.

The Companies Act, 2013 does not contain an exhaustive definition of the term “director”. Section
2 (34) of the Act prescribed that “director” means a director appointed to the Board of a
company.

A director is a person appointed to perform the duties and functions of director of a company in
accordance with the provisions of the Companies Act, 2013.

[Link] of Directors

A company, though a legal entity in the eyes of law, is an artificial person, existing only in
contemplation of law. It has no physical existence. It has neither soul nor body of its own. As
such, it cannot act in its own person. It can do so only through some human agency. The
persons who are in charge of the management of the affairs of a

Appointment and Qualifications of Directors

company are termed as directors. They are collectively known as Board of Directors or the Board.
The directors are the brain of a company. They occupy a pivotal position in the structure of the
company. Directors take the decision regarding the management of a company collectively in

13
 their meetings known as Board Meetings or at the meetings of their committees constituted for
certain specific purposes.

Section 2 (10) of the Companies Act, 2013 defined that “Board of Directors” or “Board”, in relation
to a company, means the collective body of the directors of the company.

[Link]/Maximum Number of Directors in a Company- Section 149(1)

Section 149(1) of the Companies Act, 2013 requires that every company shall have a minimum
number of 3 directors in the case of a public company, two directors in the case of a private
company, and one director in the case of a One Person Company. A company can appoint
maximum 15 fifteen directors. A company may appoint more than fifteen directors after
passing a special resolution in general meeting and approval of Central Government is not
required.

A period of one year has been provided to enable the companies to comply with this requirement.

[Link] of directorships- Section 165

Maximum number of directorships, including any alternate directorship a person can hold is 20. It
has come with a rider that number of directorships in public companies/ private companies that
are either holding or subsidiary company of a public company shall be limited to 10. Further
the members of a company may restrict abovementioned limit by passing a special resolution.

Any person holding office as director in more than 20 or 10 companies as the case may be before
the commencement of this Act shall, within a period of one year from such commencement,
have to choose companies where he wishes to continue/resign as director. There after he shall
intimate about his choice to concerned companies as well as concerned Registrar.

Such person shall not act as director in more than the specified number of companies after
despatching the resignation or after the expiry of one year from the commencement of this Act,
whichever is earlier.

If a person accepts an appointment as a director in contravention

Appointment and Qualifications of Directors

of above mentioned provisions, he shall be punishable with fine which shall not be less than Rs.
5,000 but which may extend to Rs. 25,000 for every day after the first day during which the
contravention continues.

[Link] of a director in India

14
Section 149 (3) of the Act has provided for residence of a director in India as a compulsory i.e.
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.

[Link] Director

Every listed company shall appoint at least one woman director within one year from the
commencement of the second proviso to Section 149(1) of the Act.

Every other public company having paid up share capital of Rs. 100 crores or more or turnover of
Rs. 300 crore or more as on the last date of latest audited financial statements, shall also
appoint at least one woman director within 1 years from the commencement of second proviso
to Section 149(1) of the Act.

A period of six months from the date of company’s incorporation, has been provided to enable the
companies incorporated under Companies Act, 2013 to comply with this requirement. It is
better to say that existing companies (under the previous companies act) has to comply the
above requirements within one year and new companies (under the new companies act) has to
comply within 6 months from the date of its incorporation.

Further if there is any intermittent vacancy of a woman director then it shall be filled up by the
board of directors within 3 months from the date of such vacancy or not later than immediate
next board meeting, whichever is later.

(Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014 hereinafter

referred in this chapter as Rule)

[Link] Directors

Section 2(47) of the Act prescribed that “Independent director” means an independent director
referred to in sub section (5) of section 149 of the Act. In fact reference should have been made
to sub section

(6) of 149 as it specified the qualifications of independent director with clarity.

Appointment and Qualifications of Directors

Every listed public company shall have at least one-third of the total number of directors as
independent directors (fraction is to be rounded off to one). Central Government has prescribed
under Rule 4, public companies with specified limits as on the last date of latest audited
financial statements mentioned below shall also have at least 2 directors as independent
directors:-

paid up share capital of Rs. 10 crore or more; or

15
turnover of Rs. 100 crore or more; or

in aggregate, outstanding loans/borrowings/ debentures/ deposits/ exceeding Rs. 50 crore or more.

In case a company covered under this rule is required appoint higher number of independents
directors due to composition of its audit committee and then they shall appoint such higher
number of independent directors.

Further if there is any intermittent vacancy of an independent director then it shall be filled up by
the board of directors within 3 months from the date of such vacancy or not later than
immediate next board meeting, whichever is later.

Once the company covered under above sub-rule (i) to (iii) of Rule 4, ceases to fulfil any of three
conditions for three consecutive years then it shall not be required to comply these provisions
until such time as it meets any of such conditions.

Definition of an Independent Director – Section 149 (6)

An independent director means a director other than a managing director or a whole-time director or
a nominee director who does not have any material or pecuniary relationship with the company/
directors. Section 149(6) of the Act prescribes the criteria for independent directors which are
as follows:

(a)Who in the opinion of the Board, is a person of integrity and possesses relevant industrial
expertise and experience;

(b)Such individual shall not be a promoter or related to promoter of the company or its holding,
subsidiary or associate company;

(c)Such individuals must not have any material or pecuniary relationship during the two
immediately preceding financial years or during the current financial year with the company or
its promoters/directors/holding/subsidiary/ associate company;

Appointment and Qualifications of Directors

(d)The relatives of such person should not have had any pecuniary relationship with the company or
its subsidiaries, amounting to 2% or more of its gross turnover or total income or Rs. 50 lacs or
such higher amount as may be prescribed, whichever is less, during the two immediately
preceding financial years or in the current financial year;

(e)He must not either directly or any of his relatives

(i)hold or has held the position of a key managerial personnel or 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.

16
(ii)is or has 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;

(iii)holds together with his relatives two per cent or more of the total voting power of the company;
or

(iv)is a Chief Executive or director, by whatever name called, of any non-profit organisation that
receives 25% or more of its receipts from the company, any of its promoters, directors or its
holding, subsidiary or associate company or that holds 2% or more of the total voting power of
the company, then also he is not eligible for office of independent director; or

(f)who possesses such other qualifications as prescribed in Rule 5 as an independent director shall
possess appropriate skills, experience and knowledge in one or more fields of finance, law,
management, sales, marketing, administration, research, corporate governance, technical
operations or other disciplines related to the company’s business.

Declaration by an Independent Director- Section 149 (7)

Section 149 (7) of the Act, prescribed that every independent

Appointment and Qualifications of Directors

director shall give a declaration that he meets the criteria of independence when:

(a)he attends the first meeting of the Board as a director;

(b)thereafter at the first meeting of the Board in every financial year and

(c)whenever there is any change in the circumstances which may affect his status as an independent
director.

Further “nominee director” means a director nominated by any financial institution in pursuance of
the provisions of any law for the time being in force, or of any agreement, or appointed by any
Government, or any other person to represent its interests.

Code of Conduct for an Independent Director and Company-Section 149 (8)

Section 149 (8) of the Act prescribed that the company and independent directors shall abide by the
provisions specified in Schedule IV regarding code for independent directors. It is a guide to

17
 professional conduct for independent directors. Adherence to these standards by independent
directors and fulfilment of their responsibilities in a professional and faithful manner will
promote confidence of the investment community, particularly minority shareholders,
regulators and companies in the institution of independent directors. Code of Conduct includes
guidelines of professional conduct, role and functions, duties, manner of appointment, re-
appointment, resignation or removal, separate meetings, evaluation mechanism.

Remuneration of an Independent Director- Section 149(9)

As per section 149 (9) of the Act an independent director shall not be entitled to any stock option.
He may receive remuneration by way of sitting fee, reimbursement of expenses incurred for
participation in the Board and other committee meetings and profit related commission as may
be approved by the members as provided under section 197 (5) of the Act.

Appointment of an Independent Director- Section 149(10)

Subject to the provisions of Section 152, an independent director can be appointed for a term of up
to five consecutive years on the Board. However, in case of his reappointment for further five
year then special resolution passed in general meeting and disclosure of such appointment is
made in the Board’s report shall be required. {Section 149 (10)}

Appointment and Qualifications of Directors

Further independent director can be considered for re-appointment after expiration of three years of
ceasing to become an independent director but he must not be appointed/associated with the
company directly or indirectly in any other capacity during the said period of three years. Any
tenure of an independent director on the date of commencement of this Act is not considered
for the above term. {Section 149 (11)}

The provisions of retirement of directors by rotation are not applicable on Independent director.
{Section 149 (13)}

Further, in case of independent directors, the explanatory statement relating to their appointment
should contain a declaration from the Board that in their opinion, the independent directors
satisfy the conditions provided in the Act for such appointment. {proviso to Section 152 (5)}

Liability of an Independent Director-Section 149 (12)

An independent director and a non-executive director except the promoter or key managerial
personnel, 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.

Manner of selection of an Independent Director-Section 150

18
According to section 150 (1) of the Act, independent directors may be selected from a data bank of
eligible and willing persons maintained by the agency (Any body, institute or association as
may be authorised by Central Government). Such agency shall put data bank of independent
directors on the website of Ministry of Corporate Affairs or any other notified website.
Company must exercise due diligence before selecting a person from the data bank referred to
above, as an independent director.

This section further stipulates that the appointment of independent directors has to be approved by
members in a General meeting and the explanatory statement annexed to the notice must
indicate justification for such appointment.

Rule 6 (2) prescribed that such data bank shall contain, the following details who is eligible and
willing to be appointed as independent director:

(a)DIN (Director Identification Number);

(b)Name and surname in full;

Appointment and Qualifications of Directors

(c)Income-tax PAN ;

(d)Father’s/Mother;s/ Spouse’s name( if married) ;

(e)Date of Birth;

(f)Gender;

(g)Nationality;

(h)Occupation;

(i)Full Address with PIN Code (present and permanent)

(j)Phone number;

(k)E-mail id;

(l)Educational and professional qualifications;

(m)Experience / expertise, if any;

(n)Any legal proceedings initiated or pending against such person;

(o)List of limited liability partnerships in which he is or was a designated partner along with Name
of the LLP, Nature of Industry; and Duration- with dates;

19
(p)List of companies in which he is or was director along with Name of the company; Nature of
industry; Nature of directorship – Executive / Non-executive / Independent / Nominee Director;
and Duration – with dates.

A disclaimer shall conspicuously be displayed on the website along with the databank that a
company must carry out its own due diligence before appointment of any person as an
independent director and the agency maintaining the databank or the Central Government shall
not be responsible for accuracy of information or lack of suitability of the person whose
particulars from part of the databank. {Rule 6(3)}

Any person who desires to get his name included in the data bank of independent directors shall
make an application to the agency in Form DIR-1 Application for inclusion of name in the
databank of Independent Directors which includes the personal, educational, professional, work
experience, other Board details of the applicant {Rule 6(4)}. The agency may charge a
reasonable fee from the applicant for inclusion of his name in the data bank of independent
directors {Rule 6 (5)}. An existing or applicant of such data bank of independent

Appointment and Qualifications of Directors

directors shall intimate any changes in his particulars within fifteen days of such change to the
agency {Rule 6 (6)}.

Rule 6 (7) prescribed that the databank posted on the website shall:

[Link] accessible at the specified website;

[Link] substantially identical to the physical version of the data bank;

[Link] searchable on the parameters specified in rule 6 (2);

[Link] presented in a format or formats convenient for both printing and viewing online; and

[Link] a link to obtain the software required to view / print the particulars free of charge.

[Link] elected by Small Shareholders- Section 151

According to section 151 of the Act every listed company may have one director elected by such
small shareholders. For the purpose of this section, “small shareholder” means a shareholder
holding shares of nominal value of not more than twenty thousand rupees or such other sum as
may be prescribed.

Terms & Conditions for Small Shareholders’ Director

Rule 7 laid down the following terms and conditions for appointment of small shareholder’s
director, which are as under:

20
i.A listed company, may upon notice of not less than 1000 or one-tenth of the total number of small
shareholders, whichever is lower, have a small shareholders’ director elected by the small
shareholders. A listed company may suo moto opt to have a director representing small
shareholders.

[Link] small shareholders intending to propose a person as a candidate for the post of small
shareholder’s director shall leave a signed notice of their intention with the company at least 14
days before the meeting specifying the their details and proposed director’s details. The details
include name, address, shares held and folio number etc. If the proposer does not hold any
shares in the company, the details of shares held and folio number need not be specified in the
notice.

Appointment and Qualifications of Directors

[Link] notice shall be accompanied by a statement signed by the proposed director for the post of
small shareholders’ director stating

[Link] Director Identification Number;

[Link] he is not disqualified to become a director under the Act; and

[Link] consent to act as a director of the company.

[Link] proposed director is qualified u/s 149 (6) for appointment as an independent director and has
given declaration for his independence u/s 149 (7) then such director shall be considered as an
independent director.

[Link] director’s tenure as small shareholders’ director shall not exceed a period of 3 consecutive
years and he shall not be liable to retire by rotation. Further he shall not be eligible for re-
appointment after the expiry of his tenure.

[Link] the person is not eligible for appointment according to section 164, then he can’t be appointed
as small shareholder’s director.

[Link] shareholders’ director shall vacate the office if -

[Link] ceases to be a small shareholder, on and from the date of cessation;

[Link] incurs any of the disqualifications specified in section 164;

[Link] office of the director becomes vacant in pursuance of section 167;

[Link] ceases to meet the criteria of independence as provided section 149 (6).

21
[Link] he shall not hold the office of small shareholders’ director in more than two
companies. If second company is in competitive business or is in conflict with business of the
first company the he shall not be appointed in second company.

[Link] shall directly or indirectly not be appointed or associated in any other capacity with the
company for a period of 3 years from the date of cessation as a small shareholder’s director.

Appointment and Qualifications of Directors

[Link] OF DIRECTORS – Section 152

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

[Link] as provided in the Act, every director shall be appointed by the company in general
meeting.

[Link] Identification Number is compulsory for appointment of director of a company.

[Link] 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}

[Link] 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

22
 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

Appointment and Qualifications of Directors

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.

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. 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.

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—

(i)a resolution for the re-appointment of such director has been put to the meeting and lost;

(ii)the retiring director has expressed his unwillingness to be so re-appointed;

(iii)he is not qualified or is disqualified for appointment;

(iv)a resolution, whether special or ordinary, is required for his appointment or re-appointment by
virtue of any provisions of this Act; or

(v)section 162 i.e. appointment of directors to be voted individually is applicable to the case.

Punishment - Section 159

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.

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

Appointment and Qualifications of Directors

23
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.

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 re- appointment of retiring directors in default of another
appointment shall apply to the original, and not to the alternate director.

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.

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

Appointment and Qualifications of Directors

24
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.

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.

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.

Right of persons other than retiring directors to stand for directorship- Section 160

A person who is not a retiring director shall be eligible for appointment to the office of a director at
any general meeting, if he, or some 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 25% of total valid votes cast either on show of hands or on poll on such
resolution.

Appointment and Qualifications of Directors

Notice of candidature of a person for directorship- Section 160(2) and Rule 13

The company shall inform its members of the candidature of a person for the office of a director or
the intention of a member to propose such person as a candidate for that office, at least seven
days before the general meeting by serving individual notices to members through e-mail and
where no e-mail address is available then in writing and by placing notice of such candidature
or intention on the website of the company, if any.

25
If the company advertises such candidature/intention, not less than 7 days before the meeting at
least once in a vernacular newspaper in the principal vernacular language of the registered
office’s district and at least once in English language in an English newspaper circulating in
that district in which the registered office of the company is situated, then it shall not be
required to serve individual notices upon the members as aforesaid.

10. DIRECTOR IDENTIFICATION NUMBER (DIN)

Procedure for application for allotment of DIN - Section 153 & Rule 9

(1)Every individual, who is to be appointed as director of a company shall make an application

electronically in Form DIR-3 (Application for allotment of Director Identification Number) to
the Central Government for the allotment of a Director Identification Number (DIN).

(2)The Central Government shall provide an electronic system to facilitate submission of

application for the allotment of DIN through the portal on the website of the Ministry of
Corporate Affairs.

(3)(a) The applicant shall download Form DIR-3 from the portal, fill in the required particulars and
attaching photograph; proof of identity; proof of residence; and verification by the applicant in
Form DIR-4, specimen signature duly verified and sign the form digitally.

(b)Form DIR-3 shall be signed and submitted electronically by the applicant using his or her own
Digital Signature Certificate and shall be verified digitally by -:

(i)a chartered accountant or a company secretary in practice or a cost accountant; or

(ii)a company secretary in full time employment of

Appointment and Qualifications of Directors

the company or by the managing director or director of the company in which the applicant is to be
appointed a director;

Procedure for Allotment of DIN- Section 154 and Rule 10

The Central Government shall, within one month from the receipt of the application under section
153, allot a Director Identification Number to an applicant in such manner as mentioned below:

(1)On the submission of the Form DIR-3 on the portal and payment of the requisite amount of fees
through online mode the provisional DIN shall be generated by the system automatically which
shall not be utilized till the DIN is confirmed by the Central Government.

(2)After generation of the provisional DIN, the Central Government shall process the application. It
may approve or reject the application and communicate the same to the applicant within a

26
 period of one month from the receipt of application. The such communication may be sent by
post or electronically or in any other mode.

(3)If the Central Government, on examination, finds such application to be defective or incomplete
in any respect, it shall give intimation of such defect or incompleteness, by placing it on the
website and by email to the applicant who has filed such application, directing the applicant to
rectify such defects or incompleteness by resubmitting the application within a period of fifteen
days of such placing on the website and email:

Provided that Central Government shall-

(a) reject the application and direct the applicant to file fresh application with complete and correct
information, where the defect has been rectified partially or the information given is still found
to be defective;

(b)treat and label such application as invalid in the electronic record in case the defects are not
removed within the given time; and

(c)Inform the applicant either by way of letter by post or electronically or in any other mode.

(4)In case of rejection or invalidation of application, the provisional DIN so allotted by the system
shall get lapsed

Appointment and Qualifications of Directors

automatically and the fee so paid with the application shall neither be refunded nor adjusted with
any other application.

(5)All Director Identification Numbers allotted to individual(s) by the Central Government before
the commencement of these rules shall be deemed to have been allotted to them under these
rules.

(6)The Director Identification Number so allotted under these rules is valid for the life-time of the
applicant and shall not be allotted to any other person.

Cancellation/Surrender/Deactivation of DIN – Rule 11

The Competent Authority (Central Government/RD (North),Noida/ Authorised Officer by the RD)
may, upon being satisfied on verification of particulars or documentary proof attached with the
application received from any person, cancel or deactivate the DIN in case –

(a)the DIN is found to be duplicated in respect of the same person provided the data related to both
the DIN shall be merged with the validly retained number;

(b)the DIN was obtained in a wrongful manner or by fraudulent means;

27
(c)of the death of the concerned individual;

(d)the concerned individual has been declared as a lunatic or of unsound mind by a competent
Court;

(e)if the concerned individual has been adjudicated an insolvent.

Provided that before cancellation or deactivation of DIN pursuant to clause (b), an opportunity of
being heard shall be given to the concerned individual;

(f)on an application made in Form DIR-5 by the DIN holder to surrender his or her DIN along with
declaration that he has never been appointed as director in any company and the said DIN has
never been used for filing of any document with any authority, the Central Government may
deactivate such DIN but after verification of e-records.

Intimation of changes in particulars of Director - Rule 12

(1)Every director having DIN in the event of any change in his particulars as stated in Form DIR-3,
intimate such change(s)

Appointment and Qualifications of Directors

to the Central Government within a period of 30 days of such change(s) in Form DIR-6 (Intimation
of change in particulars of Director to be given to the Central Government). DIR-6 will be filed
along copy of the proof of the changed particulars and verification in the Form DIR-7
(Verification of applicant for change in DIN particulars) all of which shall be scanned, signed
digitally by applicant and submitted electronically. Form requires pre-certification by the
professional CA/CS/CMA in practice.

(2)The Central Government shall incorporate the said changes in the electronic database after due
verification from the enclosed proofs and confirm the applicant by post/email/any other mode.

(3)The DIN cell of the MCA shall also intimate the change(s) in the particulars of the director
submitted to it in Form DIR-6 to the concerned Registrar(s) under whose jurisdiction the
registered office of the company(s) in which such individual is a director is situated.

(4)The concerned individual shall also intimate the change(s) in his particulars to the company or
companies in which he is a director within fifteen days of such change.

General Provisions regarding DIN

According to Section 155, No individual shall apply for/obtain/ possess another Director
Identification Number who has already been allotted a Director Identification Number under
section 154.

28
Section 156 stipulated that Every existing director shall intimate his DIN to the company or all
companies wherein he is a director within 1 month of the receipt of DIN from the Central
Government.

Section 157 (1) of the Act stipulated that every company shall, within fifteen days of the receipt of
intimation under section 156, furnish the DIN of all its directors to the Registrar/authorised
office by the Central Government. every such intimation shall be furnished in such form and
manner as may be prescribed.

If a company fails to furnish Director Identification Number under section 157 (1), before the
expiry of the 270 days period from the date by which it should have been furnished with
additional fee, the company shall be punishable with fine which shall not be less than Rs.
25,000 but which may extend to Rs. 1,00,000 and every officer of the company who is in
default shall be punishable with fine

Appointment and Qualifications of Directors

which shall not be less than Rs. 25,000 but which may extend to Rs. 1,00,000.

Section 158 specified that every person or company shall mention the DIN in return, information or
particulars as required to be furnished under this act, in case such return etc relate to the
director or contain any reference of any director.

[Link] for appointment of director - Section 164

(1)A person shall not be eligible for appointment as a director of a company, if —

(a)he is of unsound mind and stands so declared by a competent court;

(b)he is an undischarged insolvent;

(c)he has applied to be adjudicated as an insolvent and his application is pending;

(d)he has been convicted by a court of any offence, whether involving moral turpitude or otherwise,
and sentenced in respect thereof to imprisonment for not less than six months and a period of
five years has not elapsed from the date of expiry of the sentence.

If a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a
period of seven years or more, he shall not be eligible to be appointed as a director in any
company;

(e)an order disqualifying him for appointment as a director has been passed by a court or Tribunal
and the order is in force;

29
(f)he has not paid any calls in respect of any shares of the company held by him, whether alone or
jointly with others, and six months have elapsed from the last day fixed for the payment of the
call;

(g)he has been convicted of the offence dealing with related party transactions under section 188 at
any time during the last preceding five years; or

(h)he has not got the DIN.

An additional disqualification is provided in sub section (2) of Section 164 relating to consequences
of non filing of financial statements or annual returns. Any person who is or has been director

Appointment and Qualifications of Directors

of any company which has not filed any financial statements and Annual Return for 3 continuous
financial year or has defaulted in payment of debentures/deposit/dividend etc, shall also not be
eligible for appointment as director of any public company and for re- appointment in the same
company for a period of five years from the date on which the said company fails to do so.

Rule 14 prescribed that every director who disqualified u/s 164 (2), shall inform to the company
concerned in Form DIR-8 (Intimation by Director) before he is appointed or re-appointed.
Whenever a company fails to file the financial statements/annual returns/fails to repay any
deposit, interest, dividend/fails to redeem its debentures as specified u/s 164 (2), the company
shall immediately file Form DIR-9 (Report by the company to Registrar), to the Registrar
furnishing therein the names and addresses of all the directors of the company during the
relevant financial years. But when a company fails to file the Form DIR-9 within a period of 30
days of the failure it would attract the disqualification u/s 164(2), officers of the company as
specified u/s 2(60) shall be the officers in default. Upon receipt of the Form DIR-9 the
Registrar shall immediately register the document and place it in the document file for public
inspection. Any application for removal of disqualification of directors shall be made in Form
DIR-10.

(3) A private company may by its articles provide for any disqualifications for appointment as a
director in addition to aforesaid mentioned

Provided that the disqualifications referred to in clauses (d), (e) and (g) of sub-section (1) shall not
take effect—

(i)for thirty days from the date of conviction or order of disqualification;

(ii)where an appeal or petition is preferred within thirty days as aforesaid against the conviction
resulting in sentence or order, until expiry of seven days from the date on which such appeal or
petition is disposed off; or

30
(iii)where any further appeal or petition is preferred against order or sentence within seven days,
until such further appeal or petition is disposed off.

[Link] of directors- Section 166

For the first time, duties of directors have been defined in the Act. A director of a company shall :

—Act in accordance with the articles of the company.

Appointment and Qualifications of Directors

—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.

[Link] of office of director- Section 167

The office of a director shall become vacant in case—

(a)He incurs any of the disqualifications specified in section 164;

(b)He absents himself from all the meetings of the Board of Directors held during a period of twelve
months with or without seeking leave of absence of the Board;

(c)He acts in contravention of the provisions of section 184 relating to entering into contracts or
arrangements in which he is directly or indirectly interested;

(d)He fails to disclose his interest in any contract or arrangement in which he is directly or
indirectly interested

(e)He becomes disqualified by an order of a court or the Tribunal;

31
(f)He is convicted by a court of any offence, whether involving moral turpitude or otherwise and
sentenced in respect thereof to imprisonment for not less than 6 months;

Appointment and Qualifications of Directors

Provided that the office shall be vacated by the director even if he has filed an appeal against the
order of such court;

(g)He is removed in pursuance of the provisions of this Act;

(h)He, having been appointed a director by virtue of his holding any office or other employment in
the holding, subsidiary or associate company, ceases to hold such office or other employment
in that company.

If a person, functions as a director even when he knows that the office of director held by him has
become vacant on account of any of the disqualifications specified above, he shall be
punishable with imprisonment for a term which may extend to 1 year or with fine which shall
not be less than Rs. 1,00,000 but which may extend to Rs. 5,00,000 or with both.

Where all the directors of a company vacate their offices under any of the disqualifications specified
above the promoter or, in his absence, the Central Government shall appoint the required
number of directors who shall hold office till the directors are appointed by the company in the
general meeting.

A private company may, by its articles, provide any other ground for the vacation of the office of a
director in addition to those specified above.

14. Resignation of director- Section 168 & Rule 15, 16

A director may resign from his office by giving notice in writing. The Board shall, on receipt of
such notice within 30 days intimate the Registrar in Form DIR-12 and also place the fact of
such resignation in the Directors’ Report of subsequent general meeting of the company and
post the information on its website. The director shall also forward a copy of resignation
alongwith detailed reasons for the resignation to the Registrar in Form DIR-11 within 30 days
from the date of resignation. The notice shall become effective 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. Provided that the director who has resigned shall be liable even after his
resignation for the offences which occurred during his tenure.

If all the directors of a company resign from their office or vacate their office, the promoter or in his
absence the Central Government shall appoint the required number of directors to hold office
till the directors are appointed by the company in General Meeting.

Appointment and Qualifications of Directors

32
15. Removal of directors- Section 169

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

Appointment and Qualifications of Directors

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).

33
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.

[Link] of Key Managerial Personnel– Section 170

(1) & Rule 17

Every company shall keep at its registered office a register of its

directors and key managerial personnel containing the following particulars:-

(a)Director Identification Number (Optional for KMP);

(b)present name and surname in full;

(c)any former name or surname in full;

(d)father’s name, mother’s name and spouse’s name(if married) and surnames in full;

(e)date of birth;

(f)residential address (present as well as permanent);

(g)nationality (including the nationality of origin, if different);

Appointment and Qualifications of Directors

(h)occupation;

(i)date of the board resolution in which the appointment was made;

(j)date of appointment and reappointment in the company;

34
(k)date of cessation of office and reasons therefor;

(l)office of director or key managerial personnel held or relinquished in any other body corporate;

(m)membership number of the Institute of Company Secretaries of India in case of Company

Secretary;

(n)PAN mandatory for KMP who is not having DIN

In addition to the details of the directors or key managerial personnel, the company shall also
include in the aforesaid Register the details of securities held by them in the company, its
holding company, subsidiaries, subsidiaries of the company’s holding company and associate
companies relating to:

(a)the number, description and nominal value of securities;

(b)the date of acquisition and the price or other consideration paid;

(c)date of disposal and price and other consideration received;

(d)cumulative balance and number of securities held after each transaction;

(e)mode of acquisition of securities ;

(f)mode of holding – physical or in dematerialized form; and

(g)whether securities have been pledged or any encumbrance has been created on the securities.

[Link] of Key Managerial Personnel- Section 170(2) & Rule 18

A return containing the particulars of appointment of director or key managerial personnel and
changes therein, shall be filed with the Registrar in Form DIR-12 within 30 days of such
appointment or change, as the case may be.

Members’ right to inspect- Section 171

The register of Key Managerial Personnel kept u/s 170(1) shall be open for inspection during
business hours. The members shall have a

right to take extracts therefrom and copies thereof, on a request by the members, be provided to
them free of cost within thirty days; and it shall also be kept open for inspection at every AGM
so that any person attending the meeting can access the register.

If any inspection as provided above is refused, or if any copy required under that clause is not sent
within thirty days from the date of receipt of such request, the Registrar shall on an application
made to him order immediate inspection and supply of copies required thereunder.

35
18. Punishment- Section 172

If a company contravenes any of the provisions of this Chapter and for which no specific
punishment is provided therein, the company and every officer of the company who is in
default shall be punishable with fine which shall not be less than Rs. 50,000 but which may
extend to Rs. 5,00,000.

36