Compliance Requirement for Directorships

Maximum Directorship Limits

• No person shall hold office as director, including any alternate directorship, in more than 20 companies at the same time after the commencement of the Act.
• Within the overall limit of 20 companies, the maximum number of public companies in which a person can be appointed as director shall not exceed 10.
• A person can hold directorships in a maximum combination totaling 20 companies, of which no more than 10 can be public companies. The remaining directorships (up to 10) may be in private companies.

Calculation Methodology and Inclusions

• Alternate directorships are included in the count for determining compliance with the 20-company limit.
• For reckoning the limit of public companies (maximum 10), directorships in private companies that are either holding or subsidiary companies of a public company shall be included in the public company count.
• This ensures that persons serving on boards of private companies that are part of public company groups are subject to the same restrictions, recognizing the substantive governance responsibilities in such positions.
• For reckoning the limit of 20 companies, directorships in dormant companies shall not be included.

Definition: Dormant companies are those with no significant accounting transactions, effectively inactive but maintaining corporate existence. Excluding these from the count recognizes the minimal governance burden they impose.

Shareholder Override Provision

• Special Resolution Power: Members of a company may, by passing a special resolution, specify any lesser number of companies in which a director of that company may act as director.
• Company-Specific Restriction: This provision enables shareholders to impose stricter limits on their directors based on:
  • Company’s complexity and governance requirements
  • Director’s time commitment expectations
  • Industry-specific considerations
  • Company’s size and operational demands
• Subordination to Statutory Limits: Such restrictions must be within (lesser than or equal to) the statutory limits of Section 165(1). Shareholders cannot authorize directors to exceed statutory maximums.
• Application: The special resolution applies only to directors of the specific company passing the resolution, not universally across all companies where the director serves.

Transitional Provisions for Existing Directors

• Grace Period: Persons holding directorships exceeding specified limits immediately before the Act’s commencement were given a one-year transition period to achieve

Prohibition on Exceeding Limits Post-Transition

• Dual Trigger for Prohibition: No person shall act as director in more than the specified number of companies after the earlier of:
  • Dispatching resignation from excess directorships pursuant to transitional provisions, OR
  • Expiry of one year from the Act’s commencement
• Absolute Bar: Once either trigger occurs, the person is absolutely prohibited from acting as director in companies exceeding specified limits, regardless of whether all compliance steps were completed.
• Continuing Effect: This prohibition continues indefinitely; the person must maintain compliance throughout their directorship tenure.