Appointment and Qualification of Directors

Introduction

The Companies (Appointment and Qualification of Directors) Rules, 2014 supplement the Companies Act of 2013 and also prescribe the procedures, Qualifications, disclosures, and compliance requirements relating to Directors.

General Definition:

A director is an individual who is appointed to the Board of Directors of a company and is responsible for managing, supervising, and directing the affairs of the company. He acts as the brain and guiding force of the company and helps to make important decisions regarding business policies and Strategies, financial management, appointments, compliance with laws and regulations, and formulates ideas for protecting the interests of the Shareholders.

Multiple positions as a Director of a Company:

• Agent: acts on behalf of the Company.

• Trustee: the Company's assets and powers are under the control of the director.

• Fiduciary: the prime work of a director is to act honestly, in good faith, and in the best interest of the company.

• Officer: he is the part Companies management structure.

Eligibility of Directors

A person proposed to be appointed as a director must:

• Be a natural person and competent to enter into a contract and understand all terms and conditions that are mentioned and accordingly comply with them.

• Not suffer from any disqualification under Section 164 of the Companies Act, 2013; if the conduct of the director falls under any disqualification that is mentioned under the given section, then he shall be removed from his office or shall be barred from being appointed as a director.

• There should be valid consent given by the director to act in his term of office; consent should not be obtained through Undue Influence, Mistake, Coercion, Fraud, or Misrepresentation.

• The director must disclose all his existing directorships and interests in other entities to the Company before joining or signing any documents to avoid any clashes later.

• Possess a valid Director Identification Number (DIN); it refers to an identification number that is allotted by the Central government to any individual intending to be appointed as a director or to any existing director of a company.

Director Identification Number (DIN) Section 153

It is a unique identification number that is allotted by the Central Government to an individual who intends to become a director of a company. DIN remains valid for the lifetime of the individual

Allotment of DIN:

• Under Rule 9 of the Companies (Appointment and Qualification of Directors) Rules, 2014, a person intending to become a director in an existing company must apply electronically in Form DIR-3 along with prescribed fees and supporting documents. Documents generally required: PAN Card (mandatory for Indian nationals), Passport (for foreign nationals), Address proof, Photograph, Digital Signature Certificate (DSC).

• After generation of the provisional DIN, the Central Government shall process the applications received, decide on the approval or rejection thereof, and communicate the same to the applicant along with the DIN allotted in case of approval by way of a letter by post or electronically or in any other mode, within a period of one month from the receipt of such application.

• If the DIN application is defective or incomplete, the Central Government gives the applicant 15 days to rectify and resubmit it.

• If defects are only partly corrected or information remains defective, the application is rejected, and a fresh application must be filed.

• If defects are not removed within 15 days, the application is treated as invalid.

• The applicant is informed of the rejection or invalidation through post, electronic mode, or any other prescribed manner.

• The provisional DIN lapses automatically, and the fee paid is neither refunded nor adjusted. DINs allotted before the commencement of these Rules are deemed to have been allotted under these Rules.

Consent & Disclosures

Consent to Act as a Director

A person appointed as a director shall not act as a director unless he has given his consent to hold the office as director and such consent has been filed with the Registrar within the prescribed time. Every person appointed as a director must give prior written consent in Form DIR-2, and the company must file it with the ROC in the form of DIR-12 within 30 days of appointment.

Disclosure of Interest

Section 184(1) of the Companies Act, 2013

Every director shall disclose his concern or interest in any company, body corporate, firm, or other association of individuals:

• At the first Board Meeting in which he participates as a director;

• At the first Board Meeting of every financial year; and

• Whenever there is any change in the disclosures already made.

The disclosure is made in Form MBP-1.

Consequences of Non-disclosure: If a director fails to disclose his interest or participates in a contract in which he is interested, he may be liable under Section 184(4), and the contract may become voidable at the option of the company.

Declaration of Non-Disqualification: Directors must declare that they are not disqualified under Section 164 of the Act.

Board Composition Requirements

Minimum Number of Directors: Under Section 149:

• Public Company: Minimum 3 directors

• Private Company: Minimum 2 directors

• One Person Company (OPC): Minimum 1 director

Resident Director:  Every company must have at least one resident director who has stayed in India for the prescribed period during the financial year.

Independent Directors: Certain classes of public companies must appoint at least two independent directors if they meet any of the following thresholds:

• Paid-up share capital of ₹10 crore or more; or

• Turnover of ₹100 crore or more; or

• Outstanding loans, debentures, and deposits exceeding ₹50 crore.

• Exceptions include certain joint ventures, wholly-owned subsidiaries, and dormant companies.

Woman Director on the Board: Section 149(1) of the Companies Act, 2013 read with Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014

The following classes of companies must appoint at least one woman director:

Every listed company; and Every other public company having:

• Paid-up share capital of ₹100 crore or more, or

• Turnover of ₹300 crore or more.

Vacancy: Any intermittent vacancy of a woman director must be filled:

• At the earliest, but

• Not later than the immediate next Board Meeting or three months from the date of vacancy, whichever is later.

Register of Directors and Key Managerial Personnel

Section 170 of the Companies Act, 2013 read with Rule 17 of the Companies (Appointment and Qualification of Directors) Rules, 2014

Every company shall keep at its registered office a Register of Directors and Key Managerial

Personnel (KMP) containing prescribed particulars of:

• Directors

• Managing Director (MD)

• Whole-time Director (WTD)

• Manager

• Chief Executive Officer (CEO)

• Company Secretary (CS)

• Chief Financial Officer (CFO)

Contents of the Register

• Name, DIN, PAN, and address

• Nationality and occupation

• Date of appointment and cessation

• Details of other directorships

• Shareholding and other prescribed particulars

Inspection: The register shall be:

• Kept at the registered office of the company.

• Open for inspection by members during business hours.

Author: Madhurima Gope , in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.