Who is a Director?

As per Section 2(34) of Companies Act, 2013 – “Director means a director appointed to the Board of a company.”

In common words, a director is an individual appointed to oversee and manage the overall operations, governance, and strategic direction of a company. They hold a position of trust and authority, making key decisions that shape the company’s policies, financial health, and long-term goals. Directors are legally responsible for ensuring that the company operates in compliance with all applicable laws and regulations, safeguards the interests of its shareholders and stakeholders, and upholds ethical business practices.

Qualifications to Become a Director:

The person should be a Natural Person (i.e. It should not be an artificial person such as company, LLP, etc.).

A person must obtain a Director Identification Number (DIN) before being appointed as a director.

The individual must not be disqualified from being appointed as a director under Section 164 of the Companies Act, which includes:

• Is mentally unfit, as declared by a court.
• Is bankrupt or have applied to be declared bankrupt.
• Is undischarged insolvent
• Has been convicted of a crime and sentenced to at least six months in jail (and a period of five years has not elapsed from the date of expiry of the sentence
• Has been banned by a Court/Tribunal from being a director, and the ban is still in effect.
• Hasn’t paid money they owe for company shares, even after six months from the due date.
• Has been convicted of the offence dealing with related partytransactions under section 188 at any time during the last preceding five years
• Doesn’t have a Director Identification Number (DIN).
• Is already a director in too many companies, beyond the legal limit (20 directorships, with no more than 10 in public companies)

Additionally, a person cannot be re-appointed or appointed as a director if:

• The company they were a director in:
  • Did not file its financial reports or annual returns for three years in a row.
  • Failed to pay back deposits, redeem debentures, or interests due thereon or dividends for a year or more

In such cases, they cannot be reappointed as director in same company or in any other company for five years from the date of the failure.

• Private companies can by its Articles provide for any other disqualifications for appointment as a director in addition to the above

Educational Qualifications:

• While there are no specific educational qualifications mandated for all companies, certain types of companies (like listed companies) may require directors to have relevant expertise or experience in business, finance, or other related fields.
• The individual must provide a written consent to act as a director, typically in Form DIR-2.
• Additional Qualifications for Independent Directors:
  • If the individual is to be appointed as an independent director, they must meet additional criteria as outlined in Section 149(6), which includes:
    • Being a person of integrity and possessing relevant expertise and experience.
    • Not having any material pecuniary relationship with the company, its subsidiaries, or associates.
    • Not related to promoters, directors in the company, holding, subsidiary or associate company, etc
• Section 150 of the Act and the relevant rules provide for the manner of selection of Independent Directors and maintenance of databank of independent directors.

Requirement by Companies Act, 2013 to have Directors:

* In every Company, a maximum of 15 directors can be appointed. And if a company wants to have more than 15 directors then it can be done by passing a special resolution in the company.

** such class or classes of companies as may be prescribed, shall have at least one woman director (discussed below).

*** any fraction contained in such one-third number shall be rounded off as one.

Woman Director:

The following class of companies shall appoint at least one-woman director-

(i) every listed company;

(ii) every other public company having –

(a) paid–up share capital of one hundred crore rupees or more; or

(b) turnover of three hundred crore rupees or more

Other Important Points:

• Every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days during the financial year
• Every listed public companyshall have at least one-third of the total number of Directors as independent Directors and the Central Government may prescribe the minimum number of independent Directors in case of any class or classes of public companies.
• The following class or classes of companies shall have at least two directors as independent directors –
  • Public Companies having paid up share capital of ten crore rupees or more; or
  • Public Companies having turnover of one hundred crore rupees or more; or
  • Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees

This point does not apply to a Joint Venture, a wholly owned subsidiary; and a dormant company 

Consent to act as Director

As per Rule 8 of Companies (Appointment and Qualifications of Directors) Rules, 2014, when an individual is appointed to hold the office of a director in a company, the following legal requirements must be fulfilled:

* Proviso to Rule 8 (Inserted vide The Companies (Appointment and Qualification of Directors) Amendment Rules, 2022):

Security clearance from MHA is to be obtained before appointing a person as a Director who is a national of a country which shares land border with India (China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, Afghanistan). This notification is effective from June 1, 2022. Such security clearance to be attached with the application for DIN and consent letter of Director. Clearance can be obtained at E-Sahaj Sewa Portal, launched by MCA.

This requirement applies to appointment of such Directors in existing company, new appointments during the Company Incorporation Process and also to existing directors from these countries seeking reappointment or DIN renewal. Applicable for LLPs as well.

Form DIR-6 (Rule 12(1) of the Companies (Appointment and Qualification of Directors) Rules, 2014)

1. Intimation of Change in Director’s Details:

• This form is specifically used to notify the Registrar of Companies (RoC) about changes in the particulars of a director. This includes changes such as:
  • Change of address.
  • Change of name (if the director has changed their name).
  • Any other changes in personal details as required under the Act.

2. Filing Requirements

• Filing Timeline: Form DIR-6 must be filed with the RoC within 30 days of the change in details.
• Attachments: The form may require supporting documents as evidence of the changes being reported, such as:
  • Proof of address.
  • Any legal documents validating a name change, if applicable.

Form DIR-12 (Section 7(1)(c), 168, 170(2), Rule 17of the Company (Incorporation) Rules 2014 and 8,15 and 18of the Companies (Appointment and Qualification of Directors) Rules, 2014)

Form DIR-12 is designed to streamline the process for submitting details related to the appointment, resignation, or changes in the designation of directors and key managerial personnel (KMP). Companies are required to file this webform with the Registrar within 30 days of any such appointment, cessation, or change in designation.

Small Shareholders’ Director: (Section 151, Rule 7 of Companies (Appointment and Qualifications of Directors) Rules, 2014)

A listed company may elect a Small Shareholders’ Director suo moto or upon receiving a notice from at least 1,000 small shareholders or one-tenth of the total number of small shareholders, whichever is lower.  “Small shareholders” means a shareholder holding shares of nominal value of not more than twenty thousand rupees or such other sum as may be prescribed.

Following points to be noted in this regard:

1. Form DIR 12 to be filed within 30 days of General meeting.
2.  Company to disclose the proceedings of general meeting/ postal ballot to stock exchanges (where the shares of the company are listed) as soon as reasonably possible and not later than 24 hours from the conclusion of general meeting and post the same on the website of the company within 2 working days
3. The listed entity shall submit to the stock exchange, within two working days of conclusion of its General Meeting, details regarding the voting results in the format specified by the Board.
4. Small shareholder director shall disclose his holding of securities of the company as on the date of appointment to the company within seven days of such appointment

Section 162: Appointment of Directors to be Voted Individually

At a GM, separate resolutions required for appointment of Directors unless a proposal to move such a motion has first been agreed to at the meeting without any vote being cast against it.

This provision is applicable to all companies except private company, government company in which entire paid up capital is held by Central/State/or both, a subsidiary of Government company as aforesaid where entire share capital is held by that government company and Specified IFSC Public Company.

Obligation to indicate DIN (Section 158)

Every person or company, while furnishing any return, information or particulars as are required to be furnished under this Act, shall mention the Director Identification Number in such return, information or particulars in case such return, information or particulars relate to the director or contain any reference of any director.

Penalty – If a company is in default in complying with this Section, the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees, and in case of continuing failure, with a further penalty of five hundred rupees for each day during which such failure continues, subject to a maximum of three lakh rupees in case of a company and one lakh rupees in case of an officer who is in default.

Application for Allotment of Director Identification Number (DIN) Before Appointment in an Existing Company (Section 153,154 and Rule 9 of The Companies (Appointment and Qualifications of Directors) Rules, 2014)

Every applicant, who intends to be appointed as director of an existing company shall make an application electronically in Form DIR-3, to the central Government for allotment of a Director Identification Number (DIN). Where proposed directors of a company to be incorporated are not having an approved DIN, the particulars of maximum three directors can be mentioned in Form No.INC-32 (spice) and DIN may be allotted to maximum three proposed directors through this form.