Introduction

A company is an artificial person in the eyes of law so, company cannot act at its own i.e not as a human being. Therefore, there must be some human network to carry on the company’s business. So, the company needs to appoint some living persons through whom the company can may act and carry on business and such persons are usually called as ‘Directors’. This notes provides some key highlights on the topic of Directors.

Definition : The term ‘Director’ is defined in Section 2(34) of the Companies Act, 2013 as, “Director means a director appointed to the Board of a company.

Position of Directors : They are professionals hired by the company for the management of company affairs. Directors are often regarded as the brains of a company. They hold a pivotal position in a company’s structure as they make important decisions for the company. Directors are persons who has been elected or appointed in accordance with the law. A director is in fact a controller of the company’s affairs. He is not a servant. A director may, however, work as an employee in a different capacity (eg as held in Lee v. Lee’s Farming Ltd.).

Director as an agent : In 1866, in Ferguson v. Wilson, the Court said, “The company has no person;(means not a living person) it can act only through directors and the case is, as regards those directors, merely the ordinary case of principal and agent.

Director as trustee : In 1965, in Ramaswamy Iyer v. Brahamayya & co,

the court held that directors can be held liable as trustees if they misuse the power conferred upon them or if they disregard the power of applying the company’s funds. The court further said that even after the death of the accused director, the cause of action remains with the legal representatives of the director.

In the modern times, the directors are not only agents or trustees; but, they are often regarded as the organs of the company. The courts in various judgements have opined that the directors function like the brain of the company, and it is through the directors that the company acts.

Board of Directors : As discussed above, the persons responsible for managing the affairs of a company are known as directors, and collectively they are termed as ‘Board of Directors’ and accordingly, section 2(34) defines director as ‘Director means a director appointed to the Board of a Company.

Section 149 of the Companies Act, 2013 is related to the complete details of “Company to have Board of Directors.” As per section 149, every company shall have a Board of Directors consisting of individuals as directors and shall have a minimum three directors in case of public company and two directors in case of a private company and one director in case of One Person Company and a maximum number of fifteen directors. Company may appoint more than fifteen directors only after passing a special resolution. Further it also provides that in certain class of classes of companies as may be prescribed, shall have at least one woman director.

Director Identification Number (DIN), ( Section 153 to 159)

DIN i.e. Director Identification Number is a unique identification number assigned to an individual who acts as a director or intends to become a director of a company. The concept of DIN was introduced in the Companies Act, of 2006 and continues thereafter.

The main purpose of DIN is to maintain a database of directors whereby their activities in corporate governance can be traced.

Every individual who wishes to get appointment as a director of a company is required to apply to Ministry of Corporate Affairs (MCA) in prescribed format. Upon scrutiny of application and supporting documents as prescribed, MCA assigns a unique DIN to the applicant. This DIN remains the same throughout the life time even if the director changes the companies.

Requirement of DIN is mandatory to all individuals who wants to be appointed as director. Individuals identity and background can be traced preventing fraudulent practices thereby protecting the interest of shareholders of the company.

Directors are required to quote their DIN in all financial documents, filings and communications related to company. Example, annual reports, financial statements, returns, etc.

In the Companies Act, 2013, the provisions related to DIN is covered under section 153.

Section 153 : Application for allotment of DIN : Every individual intending to be appointed as director of a company shall make an application for allotment of Director Identification Number to the Central Government in such form and manner and along with such fees as may be prescribed.

Provided that the Central Government may prescribe any identification number which shall be treated as Director Identification Number for the purposes of this Act and in case any individual holds or acquires such identification number, the requirement of this section shall not apply or apply in such manner as may be prescribed.

As per Section 154, Central Government should allot a DIN, as prescribed within one month of receipt of application

Section 155 prohibits to obtain more than one DIN.

As per Section 156, every director on receipt of DIN, within one month should inform the company or companies where he is a director and Section 157 says that the company on receipt of DIN, should inform DIN of director to the Registrar within 15 days. Failure to inform, the company will be liable to penalty.

Section 158 makes it obligatory to every person or company to mention the DIN where the information pertains to a director or contains a reference to any director.

Section 159 prescribes a penalty for not complying the provisions related to DIN. The penalty may extend to 50 thousand and on continuation, five hundred rupees per day.

Types of Directors

The Companies Act, 2013 recognizes different types of directors based on their roles, responsibilities and qualifications. Important types of directors are :

1. Executive Director :

An executive director is a director who is in full-time employment of the company and involved in day to day business. They   c vn miu   8 , are actively involved in the operations and process of decision making.

Executive Directors are of two types i) Managing Director and ii) Whole-time Director.

i) Managing Directors are executive directors, where considerable power of managing the affairs of a company is given to a director either by way of article, agreement with company, resolution passed in general meeting or by it’s board of directors.

ii) Executive director is a whole time director which is defined in section 2(94) of the Companies Act, 2013 as, “whole-time director” includes a director in the whole-time employment of the company.

2. Non-Executive Director :

 Non-executive directors are external professionals. They does not have a full-time employment. There is no specific definition of non-executive director in the Companies Act, 2013. Though they are not involved in day to day business, they are still in the board of directors. Non-executive directors come to the company only to make certain decisions at the Board meeting.

There are two types of non-executive director i) Independent Director and

ii) Nominee Director.

i) 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. They play a vital role in ensuring the board’s independence, providing unbiased judgment, and safeguarding the interests of minority shareholders. As per Section 149(4) of the Companies Act, 2013, every listed public company must have at least 1/3^rd of the total number of directors as independent directors. Independent directors are not paid remuneration but are eligible for fees for the meetings they attend. An independent director must comply with the functions and duties mentioned in the Code of Conduct provided under Schedule IV of the Companies Act, 2013. 

ii) Nominee Director : Nominee directors play an important role in the structure of a company. They are individuals appointed by a specific entity, such as a financial institution, government body or shareholder, to represent their interests on the board of directors of another company.

Explanation of Section 149(7) states that for the purposes of this section, “nominee director” means a director nominated by any financial institution in pursuance of the provisions of any law for the time being in force, or of any agreement, or appointed by any Government, or any other person to represent its interests.

Section 161(3) states that, subject to the articles of a company, the Board may appoint any person as a director nominated by any institution in pursuance of the provisions of any law for the time being in force or of any agreement or by the Central Government or the State Government by virtue of its shareholding in a Government company.

A nominee director is appointed to ensure the protection of the interests of the financial institution involved. The nomination can be made if the Articles of Association (AOA) of the company allow for such nominations. Nominee directors act as a liaison between the appointing entity and the company’s board.

3. Additional Director :

An additional director is appointed by the board between two annual general meetings i.e. AGM’s to fill a casual vacancy. Their appointment is provisional and requires subsequent confirmation by shareholders at the next AGM.

Section 161(1) states that, 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.

4. Alternate Director :

Provisions of Section 161(2) of the Companies Act, 2013 deal with Alternate directors.  The Board of Directors of a company may, if so authorised by its articles or by resolution in general meeting, appoint an alternate director in place of original director, if the original director is out of India for a period of not less than 3 months. An alternate director cannot be appointed as an alternate director for some other director in the same company.

An alternate director holds office only till the original director comes back to India. All decisions taken by alternate director during his tenure will be valid.

5. Casual Vacancy Director :

Casual vacancy means any vacancy created may be due to death, resignation, disqualification, incapacity, and removal. In such cases, ‘Casual Vacancy Director is appointed. Casual vacancy director shall hold office only up to the date till the time which original director was supposed to hold office. This appointment can be done by The Board of Directors. If AOA has prescribed any specific provision, then that should be applied.

Section 161(4) of the Companies Act deal with a casual vacancy director. 

6. Residential Director :

Section 149(3) of the Companies Act deals with this concept of residential director. As per this section, ‘Every company shall have at least one director who stays in India for a total period of not less than one hundred and eighty days during the financial year. This section applies, to all companies, both private and public.

7. Women Director :

Proviso of Section 149(1) and rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014 states that, such class or classes of companies, as may be prescribed, shall have at least one woman director.

If this provision is violated then it is punishable under Section 172 of the Companies Act, 2013. 

8. Small Shareholders Director :

Section 151: Appointment of director elected by small shareholders : A listed company may have one director elected by such small shareholders in such manner and with such terms and conditions as may be prescribed.

Explanation .—For the purposes of this section “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.

A small shareholder director can be appointed by listed company having at least 1000 or more small shareholders.

The appointment of such director is optional. A small shareholder director can be appointed for a maximum period of 3 three years. Small shareholder director is allowed to hold office in 2 companies at the same time but not more than 2.