Company Directors

Introduction

A company / body corporate is not a natural person, it is an artificial person created by the law. A natural person has a mind with which it can form scienter (i.e., knowledge and intent) and a body with which it can act upon the scienter so formed.  However, since a company / body corporate is an artificial person created by law, it itself, is not capable of any of the aforementioned. A company, thus, requires natural persons to act on its behalf.  Thereby, a company’s operations are entrusted to the directors of the company.

Directors in a Board of Directors

The Companies Act, 2013 (hereinafter “enactment”) which is the principal statute pertaining to companies and corporate governance in India does not precisely define a director, although Section 2 sub-section (34) thereunder states that –

“(34) “director” means a director appointed to the Board of a company; […]”

Further, sub-section (10) under the same Section states that –

“(10) “Board of Directors” or “Board”, in relation to a company, means the collective body of the directors of the company; […]”

The Section 149 sub-section (1) under the present enactment expressly mandates that every company shall have a Board of Directors consisting of individuals –

“(1) Every company shall have a Board of Directors consisting of individuals as directors […]”

Further, the same Section as above mandates the composition whereof, as follows –

“[…] (a) a minimum number of three 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; and

(b) a maximum of fifteen directors […]”

Thereby, in accordance with the above-stated provision where the company in question is a public company its Board of Directors shall consist of a minimum of 3 and a maximum of 15 directors. Where the company in question is a private company its Board of Directors shall consist of a minimum of 2 and a maximum of 15 directors. Where the company in question is a one-person company its Board of Directors shall consist of a minimum of 1 and a maximum of 15 directors.

The enactment also prescribes under the same provision that a company may appoint in excess of 15 directors, provided that a special resolution is passed to that effect –

“[…] Provided that a company may appoint more than fifteen directors after passing a special resolution […]”

Some various types of Directors

  1. Woman director

Section 149 sub-section (1) of the enactment –

“[…] Provided further that such class or classes of companies as may be prescribed, shall have at least one woman director. […]”

along with Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014, pursuant to the enactment –

“3. Woman director on the Board. – 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:”

prescribes that every listed or public company having paid-up share capital of or in excess of one hundred crore rupees or turnover of or in excess of three hundred crore rupees shall appoint at least one woman director.

2. Residential director

Section 149 sub-section (3) of the enactment prescribes that every company shall have at least one director who has resided for a specified length of time in India during the financial year:

“[…] (3) Every company shall have at least one director who stays in India for a total period of not less than one hundred and eighty-two days during the financial year […]”

3. Independent director

Section 149 sub-section (1) of the enactment prescribes that every publicly listed company is required to have at least a third of its total number of directors as independent directors.

“(4) Every listed public company shall 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.”

Sub-section (6) of the enactment goes into detail as to who qualifies as an independent director and, inter alia it includes –

“(6) An independent director in relation to a company, means a director other than a managing director- or a whole-time director or a nominee director, (a) who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience; (b) (i) who is or was not a promoter of the company or its holding, subsidiary or associate company; (ii) who is not related to promoters or directors in the company, its holding, subsidiary or associate company; (c) who has or had no [pecuniary relationship, other than remuneration as such director or having transaction not exceeding ten per cent. of his total income or such amount as may be prescribed,] with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year; […]”

4. Additional director

Section 161 sub-section (1) of the enactment prescribes that a company in accordance with its Articles may empower its Board of Directors to appoint any person apart from a person who fails to secure appointment as a director during the general meeting –

“(1) The articles of a company may confer on its Board of Directors the power to appoint any person, other than a person who fails to get appointed as a director in a general meeting, as an additional director at any time who shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier.”

Conclusion

To summarize, A company / body corporate requires natural persons to act on its behalf due to it being an artificial person created by law and this role is filled by a board of directors of the company / body corporate. The Companies Act, 2013, prescribes, inter alia, the various modalities regarding appointment to, and the composition of the board of directors. The board of directors and the individual directors that make up the board play a crucial role in managing the company’s affairs. This article was aimed at giving a brief overview of this crucial position within the company structure, the various types of directors that can be found in a company / body corporate, and the law pursuant to the same.

Sources

  1. The Companies Act, 2013, No. 18 Acts of Indian Parliament, 2013 (India).
  2. The Companies (Appointment and Qualification of Directors) Rules, 2014, Rule 3 (India).
  3. Amrit Kaur, Directors of companies under the Companies Act, 2013: an overview, IPleaders.in (Mar.15, 2:09 PM), https://blog.ipleaders.in/director-companies-under-companies-act-2013-overview/
  4. Pankhuri Anand, Position, Appointment & Powers of Directors under the Companies Act, 2013, IPleaders.in (Mar.20, 1:30 PM), https://blog.ipleaders.in/director-companies-act-2013/

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