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Schedule A Demo

Procedure for Appointment of Director

Background:

  • Section 149 of the Companies Act 2013 provides that every Company shall have a Board of Directors as follows:

Minimum Number of Directors:

    • 3 for a Public Company
    • 2 for a Private Company
    • 1 for OPC

and a maximum of 15 Directors

Also, a company may appoint more than 15 Directors by passing a special resolution in the General Meeting.

  • Women Director on Board – Every listed company and every public company having a paid-up share capital of Rs. 100 cr or more or turnover of Rs. 300 cr or more shall have a Woman Director on Board.

Applicable Acts/Rules/Regulations: 

  • Section 149, 151, 152,153, 159, 160,161,164, 173, 178 of the Companies Act, 2013 
  • Rule 8, 9 of the Companies (Appointment and Qualification of Directors) Rules, 2014 
  • Rule 6 of the Companies (Meetings of Boards & its Power) Rules, 2014.  
  • Rule 23 of the Companies (Management and Administration) Rules, 2014 
  • Regulation 17(1C), 30,44 and 46 of SEBI (LODR) Regulations, 2015 
  • Regulation 7 of SEBI (Prohibition of Insider Trading) Regulations, 2015. 
  • Clauses of Secretarial Standard on Board Meeting (SS-1) 
  • Clauses of Secretarial Standard on General Meeting (SS-2) 

Pre-requisites & Important Points 

  • The appointment of a director must be done subject to the limit provided under Section 149 (1) of the Companies Act, 2013.  
  • The appointed director must fulfil the eligibility criteria and must not be disqualified as per section 164 of the Companies Act, 2013.  
  • The appointed director must hold an active DIN.  
  • If a person proposed to be appointed as a Director does not have a DIN, the same may be applied for in SPICE Form at the time of incorporation of the company 
  • Directors can be appointed as Additional Directors/Alternate Directors/to fill the Casual Vacancy caused by resignation/removal of Director/Independent Director/Nominee Director. All these will be covered specifically under separate heads/articles. An Additional Director appointed by the Board needs to be regularized at the General Meeting.
  • A person who is not a retiring director U/s 152 shall be eligible for appointment as Director in any General Meeting if some member proposes him as a Director by way of Notice in writing atleast 14 days before the meeting signifying his candidature as Director along with deposit of Rs. 1 lac or such higher amount as prescribed which shall be refunded if the person gets appointed or gets more than 25% of total valid posts cast either on show of hands or on poll. Deposit requirement is not applicable in case of appointment of Independent Director or a Director recommended by NRC or Board where NRC is not there. (Section 160 of the Companies Act, 2013). 
  • For Listed Company, approval of shareholders is required for the appointment of a director at the next general meeting or within a period of three months from the date of appointment, whichever is earlier.  Any time taken for obtaining statutory approvals, etc shall be excluded in calculating this limit. (Regulation 17 (1C) of SEBI (LODR) Regulations, 2015)  
  • A public sector company shall ensure that the approval of the shareholders for appointment or re-appointment of a person on the Board of Directors or as a Manager is taken at the next general meeting. (Regulation 17 (1C) of SEBI (LODR) Regulations, 2015)  
  • With effect from April 1, 2024, the continuation of a director serving on the board of directors of a listed entity shall be subject to the approval by the shareholders in a general meeting at least once in every five years from the date of their appointment or reappointment, as the case may be. Also the continuation of the director serving on the board of directors of a listed entity as on March 31, 2024, without the approval of the shareholders for the last five years or more shall be subject to the approval of shareholders in the first general meeting to be held after March 31, 2024. This requirement is not applicable to WTD, MD, Manager, Independent Director, Retiring Director U/s 152(6) of Companies Act 2013 if the approval of the shareholders for the reappointment or continuation of the aforesaid directors or Manager is otherwise provided for by the provisions of these regulations or the Companies Act, 2013 and has been complied with. This requirement shall not be applicable to Director appointed by Court Order/Tribunal/Nominee Director of Govt of listed entity other than public sector company or nominee director of a financial regulator of listed entity or Director appointed by financial institution regulated by RBI or nominated by a Debenture Trustee registered with SEBI under subscription agreement for debentures issued by listed entity.(Regulation 17(1D) of SEBI(LODR) Regulations 2015)
  • Any vacancy in the office of a director shall be filled by the listed entity at the earliest and in any case not later than three months from the date of such vacancy subject to such provisos as provided therein (Regulation 17(1E) of SEBI(LODR) Regulations 2015)
  • The appointment, reappointment or removal of an independent director of a listed entity, shall be subject to the approval of shareholders by way of a special resolution.  (Regulation 25(2A) of SEBI(LODR) Regulations 2015)
  • It is to be noted that where a special resolution for the appointment of an independent director fails to get the requisite majority of votes but the votes cast in favor of the resolution exceed the votes cast against the resolution and the votes cast by the public shareholders in favor of the resolution exceed the votes cast against the resolution, then the appointment of such an independent director shall be deemed to have been made   
  • The recommendation of the Nomination & Remuneration Committee (NRC) as per Section 178 of the Companies Act, 2013 is required for the appointment of a director which shall be considered by the Board in case of *Listed companies and the companies specified under Rule 6 of the Companies (Meetings of  Boards & its Power) Rules, 2014.  
  • Every Director to submit Form DIR 8 and consent letter(DIR 2) and MBP1 at the time of appointment as Director of the Company.
  • No person who is or has been a directorof a company which—

(a) has not filed financial statements or annual returns for any continuous period of three financial years; or

(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more,

shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so.

Where a person is appointed as a director of a company which is in default of clause (a) or clause (b), he shall not incur the disqualification for a period of six months from the date of his appointment.

  • Retirement of Directors by Rotation – Unless the AOA of a public limited company provide for retirement of all Directors at every AGM, not less than 2/3rd of total number of Directors shall be persons whose period of office is liable to determination by retirement of directors by rotation and save as otherwise provided in the Act be appointed by the company in general meeting. At every subsequent annual general meeting, one-third of such of the Directors for the time being as are liable to retire by rotation, or if their number is neither three nor a multiple of three, then, the number nearest to one-third, shall retire from office. The Directors to retire by rotation at every annual general meeting shall be those who have been longest in office since their last appointment, but as between persons who became Directors on the same day, those who are to retire shall, in default of and subject to any agreement among themselves, be determined by lot. 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. For the purposes of this sub-section, “total number of Directors” shall not include independent Directors, whether appointed under this Act or any other law for the time being in force, on the Board of a company.

Procedure: 

  • Meeting of Nomination and Remuneration Committee: In case of Listed companies and Public Companies having a paid-up share capital of Rs. 10 cr or more or turnover of Rs. 100 cr or more or aggregate o/s loans/debentures/deposits exceeding Rs. 50 cr, a meeting of Nomination and Remuneration Committee shall be held for identifying the persons who are qualified to become Directors as per the criteria laid down and recommend to the Board their appointment.

 

  • After considering the recommendations of NRC (in case of Listed and prescribed public companies) a Meeting of Board of Directorsto be convened for considering the proposal of appointment of new Director/re-appointment of retiring Directors/regularization of additional director subject to approval of members at the AGM.

BM to be convened as per Section 173 of the Companies Act, 2013 and Secretarial Standard-1: 

  • Notice of the Board Meeting shall be issued to all Directors at their registered addresses by post or hand delivery or by electronic means at least 7 days before the date of the board meeting, with provision for shorter notice in case of urgent business. 
  • The notice shall include Agenda, Notes to Agenda, and Draft Resolution. 
  • The Board Meeting shall consider and pass resolutions for:
    • Appointment of a new director /re-appointment of retiring Directors/regularization of additional director subject to approval of members at the AGM
    • Fix the day, date, time, and venue of the General Meeting. 
    • Approve the draft notice convening the General Meeting with explanatory statement as per Section 102. 
    • Authorize a director or Company Secretary to sign and issue the notice of the General Meeting. 
  • Listed companies shall disclose the outcome of the Board Meeting to the Stock Exchange within 30 minutes of Board Meeting /12 hours of Board Meeting / 3 hours as applicable*[Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015] and also on website of the Company within 2 working days from the date of passing of resolution for the appointment. [Regulation 46 (3) of LODR 2015]. The listed entity may provide the exact link to the webpage of each of the recognized stock exchanges where such information has already been made available by the listed entity. 

*If the Board meeting is concluded after normal trading hours but more than 3 hours before the beginning of the normal trading hours the outcome to be disclosed within 3 hours from the closure of the board meeting. 

  • At the Board Meeting itself or prior to BM, the proposed Director shall furnish Consent letter, DIR 8 and MBP 1
  • Draft Minutes shall be prepared and circulated within 15 days from the conclusion of the Board Meeting. 
  • Obtaining DIN and DSC [Section 153 of the Companies Act 2013]
  • The proposed appointee shall have a valid DIN and DSC . Application for allotment of DIN can be submitted to MCA through the Company where he intends to be appointed.
  • Application for allotment of DIN to be made to MCA through Form DIR-3 along with ID and Address proof, copy of resolution approving the proposal for appointment as Director and prescribed attachments

General Meeting Procedure

As per Sections 96 and 100 of the Companies Act, 2013 and Secretarial Standard-2:  

  • A notice of general meeting shall be given at least 21 days prior to the conduct of meeting in writing/by hand/post/courier/fax/e-mail/any electronic means(as per Section 101 of the Companies Act, 2013 and Rule 18 of the Companies (Management & Administration) Rules, 2018). A shorter notice can be issued with the consent is given as specified under Section 101 of the Companies Act, 2013. (consent of members holding 95% of the paid-up capital of the company entitled to vote)
  • The Notice shall be sent to all the directors, members and auditors (incl Secretarial Auditors), Debenture Trustees and all other persons entitled to receive Notice of GM of the company. 
  • The notice shall specify the day, date, time, full address of the venue, and include a statement on the business to be transacted. 
  • The General Meeting shall pass an ordinary resolution for the appointment of the Director/re-appointment of retiring Director/regularization of Additional Director 
  • At the time of passing of the resolution the quorum has to be maintained, and auditor must be present. In case the auditor is absent then it has to be checked whether leave for absence has been granted or not. 
  • The company shall issue a letter of appointment to the director stating terms, conditions, and remuneration. 
  • Listed companies shall disclose the outcome of the General Meeting to the Stock Exchange within 12 hours from conclusion of General Meeting [Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015] and also on website of the Company within 2 working days from the date of passing of resolution for the appointment. [Regulation 46 (3) of LODR 2015]. The listed entity may provide the exact link to the webpage of each of the recognized stock exchanges where such information has already been made available by the listed entity. 
  • Voting results shall be submitted to the stock exchange within two working days from the conclusion of the General meeting. (Regulation 44 of the SEBI (LODR) Regulations, 2015).*

* Regulation 44(3) compliance has been made a part of Integrated Filing (Governance) now as per Circular on Ease of Doing Business for listed entities under LODR as per which Listed entities are now required to do Integrated Filing (Governance) with the Stock Exchange for Statement on redressal of investor grievances (under Reg 13(3)),Compliance  Report  on Corporate Governance(under Reg. 27(2)(a)), Reconciliation of Share Capital &AR(reg 76 of DP reg), Meeting of shareholders and voting (reg 44(3)) of LODR within 30 days of the end of Quarter

  • Minutes of meeting shall be prepared and are to be signed by the authorized person. 
  • Appointment of Directors to be Voted Individually [Section 162 of Companies Act 2013]

Post-Appointment Requirements 

  • Form DIR-12 (Return of Appointment of Directorship) shall be filed with the Registrar within 30 days of appointment, accompanied by: 
    • Certified True Copy of the Ordinary Resolution passed. 
    • Form DIR-8 Declaration by Director. 
    • Letter of Appointment. 
  • In case of appointment of Additional Director, a Form DIR-12 shall be filed within 30 days of the BM approving his appointment and another within 30 days of regularization at the AGM.
  • For companies other than OPC and Small Company, the return must be certified by a Company Secretary/Chartered Accountant/Cost Accountant. 
  • The appointed director shall disclose holdings of company securities as on the date of appointment within seven days as per Regulation 7 of SEBI (Prohibition of Insider Trading) Regulations, 2015. 
  • Necessary entries shall be made in the Register of Directors and Key Managerial Personnel under Form MBP-4. 
  • Required amendments shall be filed under applicable laws. 

Latest Amendments 

  • As per Companies (Appointment and Qualification of Directors) Amendment Rules, 2022 (dated June 1, 2022), Form DIR-2 and Form DIR-3 now include a declaration regarding security clearance from the Ministry of Home Affairs, Government of India. 

In case the person seeking appointment is a national of a country which shares land border with India(China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, Afghanistan), necessary security clearance from the Ministry of Home Affairs, Government of India shall also be attached with the application for DIN and along with the consent letter of Director.  Clearance can be obtained at E-Sahaj Sewa Portal, launched by MCA. 

  • Pursuant to Companies (Appointment and Qualification of Directors) Amendment Rules, 2023 (dated January 20, 2023): 
    • Form DIR-2 need not be separately attached to Form DIR-12 but certified within Form DIR-12 itself by the director. 
    • Form DIR-8 now requires information about personal disqualifications under Section 164(1) along with company-related disqualifications under Section 164(2). 
    • Companies shall file Form DIR-9 with the Registrar of Company within 30 days of receipt of DIR-8. 
  • Form DIR-12 includes additional purposes for appointment due to disqualification of existing directors or appointment by liquidator/Interim Resolution Professional/Resolution Professional, requiring SRN (Service Request Number) of INC-28 and NCLT order if applicable. 

Penalties & Punishments  

As per Companies Act, 2013: 

  • Section 159: If any individual or director of a company makes any default in complying with any of the provisions of section 152, section 155 and section 156, such individual or director of the company shall be liable to a penalty which may extend to fifty thousand rupees and where the default is a continuing one, with a further penalty which may extend to five hundred rupees for each day after the first during which such default continues 
  • Section 172: If a company is in default in complying with any of the provisions of this Chapter and for which no specific penalty or punishment is provided therein, 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

 

As per SEBI (LODR) Regulations, 2015:

  • Regulation 44(3)(Non-submission of the voting results within the period provided under this regulation) – Rs. 10,000/- per instance of non-compliance
  • Regulation 46 – Non-compliance with  norms  pertaining  to  functional website-Advisory/warning letter  per  instance  of non-compliance per item₹10,000 per instance for   every   additional advisory/warning letter   exceeding   the four advisory/ warning letters  in  a  financial year
  • General penalty for Regulation 30(6)/17(1E):

Listed entity/any other person who contravenes any provision of the regulations shall be liable for one or more of the following penalties/actions as deemed fit by the regulator : a) action as per Securities Law, b) fine, c) suspension of trading, d)freezing of promoter/promoter group holding of designated securities, as may be applicable, in coordination with depositories, e) any other action specified by Board

  • Regulation 17(1C) – Failure to appoint woman director – Rs 5000/- per day.

Failure for non-compliance for 2 consecutive quarters may lead to suspension of trading.

As per SEBI (PIT) Regulations, 2015:

  • Section 15A – If any person, who is required under this Act or any rules or regulations made thereunder,—
    • to furnish any document, return or report to the Board, fails to furnish the same or who furnishes or files false, incorrect or incomplete information, return, report, books or other documents, he shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees;
    • to file any return or furnish any information, books or other documents within the time specified therefor in the regulations, fails to file return or furnish the same within the time specified therefor in the regulations or who furnishes or files false, incorrect or incomplete information, return, report, books or other documents, he shall be liable to penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees;
    • to maintain books of account or records, fails to maintain the same, he shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees

Note: LODR provisions are applicable to Listed entities only.

Disclaimer: The information contained in this Article is intended solely for personal non-commercial use of the user who accepts full responsibility of its use. The information in the article is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. We make no representation or warranty of any kind, express or implied regarding the accuracy, adequacy, reliability or completeness of any information on our page/article. 

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