RAJIV GANDHI NATIONAL UNIVERSITY OF LAW, PATIALA, PUNJAB

The Project Submitted in Fulfilment of B.A.L.L.B. (Hons.), Fifth

Semester

TOPIC:
Board of Directors: Types of Directors, Appointment and Removal

Submitted to: Submitted by:

Mr. Siddhartha Fuller Priyansh Sharan
Roll no. 15021
Group – 3
B.A.L.L.B (Hons.) 3rd Year
 Contents: -
Introduction: - ............................................................................................................ 3

Type of Directors: - .................................................................................................. 5

Resident Director: - ................................................................................................. 5

Woman Director: - ................................................................................................... 5
Director elected by Small Shareholders: - ............................................................... 5
Managing Director: - ............................................................................................... 6
Whole Time Director: - ........................................................................................... 6
Manager: -................................................................................................................ 6
Independent Director: -............................................................................................ 7

Appointment of Directors: - ................................................................................... 9

Appointment of First Directors: - ............................................................................ 9

Appointment of Directors by Members at General Meeting: - ............................. 10
Appointment of Directors by Nomination: - ......................................................... 11
Appointment of Directors in causal vacancy: - ..................................................... 11
Appointment of directors to be voted individually: - ............................................ 12
Appointment of directors by proportional representation: - .................................. 12
Appointment of Additional Director: - .................................................................. 12
Appointment by Tribunal: - ................................................................................... 13

Removal of Directors: - ......................................................................................... 14

Removal by Shareholders: - .................................................................................. 14
Removal by Company Law Tribunal: - ................................................................. 14

Bibliography: -......................................................................................................... 15

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 Introduction: -

A corporation is an artificial person, with its own powers and rights such as, perpetual
succession, its members may come and may go but the company lives till its death. It
has a seal, which is affixed on all the legal documents executed on behalf of the
company in the presence of and signed by authorised signatory or signatories. It is
empowered to hold all properties in its own name and in its own right. It can sue
others and can be sued by others in its own name.

Yet, it has no physical existence. It has no eyes to see, no ears to hear, no hands to
sign and execute documents, no brain to think and no nerves to communicate among
its various limbs. Therefore, it is necessary that there is something living, a person
acting behind the company's business. Hence, the necessity of directors.

The Companies Act, 2013 does not contain an exhaustive definition of the term
“director”. Section 2(34) of the Act prescribes that “director” means a director
appointed to the Board of a company.

“Board of Directors” or “Board”, in defined in Section 2(10) of the Companies Act,

2013 as “the collective body of the directors of the company.”

The Board of directors of a company is the nucleus of power, selected according to

the procedure prescribed in the Act and the Articles of Association. Members of the
Board of directors are known as directors, who unless especially authorised by the
Board of directors of the Company, do not possess any power of management of the
affairs of the company. Acting collectively as a Board of directors, they can exercise
all the powers of the company except those, which are prescribed by the Act to be
specifically exercised by the company in general meeting.

It is the supreme executive authority controlling the management and affairs of a

company. Although the Board comprises individual directors, yet the actions and
deeds of individual director cannot bind the company, unless a particular director has
been specifically authorised by a Board resolution to discharge certain responsibilities
on behalf of the company.

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Chapter XI broadly deals with the Directors. Section 179(1) states the Board of
Directors of a company shall be entitled to exercise all powers, and to do all acts and
things, as the company is authorised to exercise and do. The Board shall be subject to
restrictions imposed under the Act or in Memorandum or Articles or any regulation of
the Company. The Board shall not exercise any power which is required to be
exercised by the company in general meeting.

Section 149(1) requires that every company shall have a minimum number of 3
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. A company can
appoint maximum 15 fifteen directors. A company may appoint more than fifteen
directors after passing a special resolution in general meeting and approval of the
Central Government is not required.

Maximum number of directorships, including any alternate directorship a person can

hold is 20. It has come with a rider that number of directorships in public companies/
private companies that are either holding or subsidiary company of a public company
shall be limited to 10. Further the members of a company may restrict
abovementioned limit by passing a special resolution. Any person holding office as
director in more than 20 or 10 companies as the case may be before the
commencement of the Act shall, within a period of one year from such
commencement, have to choose companies where he wishes to continue/resign as
director. There after he shall intimate about his choice to concerned companies as
well as concerned Registrar.1

1
S. 165, Companies Act, 2013

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 Type of Directors: -

Resident Director: -
Section 149 (3) of the Act has provided for residence of a director in India as a
compulsory i.e. every company shall have at least one director who has stayed in
India for a total period of not less than 182 days in the previous calendar year.

Woman Director: -
Section 149 provides that such class or classes of companies as may be prescribed in
Companies (Appointment and Qualification of Directors) Rules, 2014, shall have at
least one woman director.

Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014,

prescribes 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.
A company, which has been incorporated under the Act and is covered under
provisions of second proviso to sub-section (1) of section 149 shall comply with such
provisions within a period of six months from the date of its incorporation.
However, any intermittent vacancy of a woman director shall be filled-up by the
Board at the earliest but not later than immediate next Board meeting or three months
from the date of such vacancy whichever is later.

Director elected by Small Shareholders: -

According to section 151 of the Act every listed company may have one director
elected by such small shareholders. Rule 7, Companies (Appointment and
Qualifications of Directors) Rules, 2014 lays down the terms and conditions for
appointment of small shareholder’s director.

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For the purpose of this section, “small shareholder” means a shareholder holding
shares of nominal value of not more than twenty thousand rupees or such other sum
as may be prescribed.2

Managing Director: -

Section 2(54) provides that “managing director” means a director who, by virtue of
the articles of a company or an agreement with the company or a resolution passed in
its general meeting, or by its Board of Directors, is entrusted with substantial powers
of management of the affairs of the company and includes a director occupying the
position of managing director, by whatever name called. 3

This substantial power does not include the administrative acts of a routine nature
such as the power to affix the common seal of the company to any document or to
draw and endorse any cheque on the account of the company in any bank or to draw
and endorse any negotiable instrument or to sign any certificate of share or to direct
registration of transfer of any share.

Whole Time Director: -

Section 2(94) provides that “whole-time director” includes a director in the whole-
time employment of the company.
If a whole time employee of a company is also appointed as a director of the
company, he is in the position of a whole time director of the company. This is
equally applicable in the case of an alternate director working as a whole time
director.4

Manager: -

Section 2(53) defines “manager “as an individual who, subject to the superintendence,
control and direction of the Board of Directors, has the management of the whole, or

2 S. 151(1), Companies Act, 2013

3 S. 2(54), Companies Act, 2013
4 S. 2(94), Companies Act, 2013

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substantially the whole, of the affairs of a company, and includes a director or any
other person occupying the position of a manager, by whatever name called, whether
under a contract of service or not.

Unlike the managing director, who is entrusted with substantial powers of

management of the company, a manager has the management of the whole, or
substantially the whole, of the affairs of a company.

According to section 196 of the Companies Act, 2013, no company shall appoint at
the same time, a managing director and a manager.

Independent Director: -

Independent Director in relation to company, means a Director other than:

– A managing director; or
– Whole time director; or
– A nominee director.

Section 149(4) of the act provides that every listed public company shall have at least
one-third of the total number of directors as independent directors.

The Central Government may prescribe the minimum number of Independent

Directors in case of any class or classes of public companies. Rule 4 of Companies
(Appointment and Qualification of Directors) Rules, 2014 provides that the following
class or classes of companies shall have at least two directors as independent
directors –
(i) The Public Companies having paid up share capital of ten crore rupees or more; or
(ii) The Public Companies having turnover of one hundred crore rupees or more; or
(iii) The Public Companies which have, in aggregate, outstanding loans, debentures
and deposits, exceeding fifty crore rupees.

Section 165 prescribes number of directorship an individual can hold. A maximum

limit on total number of directorship has been fixed at 20 companies including a sub

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limit of 10 for public companies. i.e., a person cannot be a director of more than 10
public companies.
For the purpose of counting such directorship in public company, directorship in
private companies that are either holding or subsidiary company of a public company
shall be included. Alternate directorship which was earlier excluded while calculating
the limit of directorship, will now be included while calculating the directorship of 20
companies.

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 Appointment of Directors: -

The workings of a company are almost entirely dependent on its board of directors.
Therefore, the appointments of said directors is strictly controlled by the act.

Section 152(3) provides, no person shall be appointed as a director of a company

unless he has been allotted the Director Identification Number under Section 154.

Director Identification Number (DIN) is a unique identification number allotted to an

existing director or a person intending to become the director of a company. DIN is a
pre-requisite for filing of certain company related documents. Any individual who is a
director or intends to be a director of a company must apply for DIN.

Every individual intending to be appointed as director of a company has to make an

application for allotment for Director Identification Number (DIN) to the Central
government. 5

Appointment of First Directors: -

According to Section 7(1)(c) read with Section 152(1), at the time of incorporation, a
company may name some person as first directors of the company. Where no
provision is made in the articles of a company for the appointment of the first
director, the subscribers to the memorandum who are individuals shall be deemed to
be the first directors of the company until the directors are duly appointed or till the
first annual general meeting of the company. Such was stated in the case of Usha
Chopra v Chopra Hospital (P) Ltd.6

In case of a One Person Company an individual being member shall be deemed to be

its first director until the director or directors are duly appointed by the member in
accordance with the provisions of this section.

5 S. 153, Companies Act, 2013

6 (2006) 130 Comp Cas 483 (CLB)

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Appointment of Directors by Members at General Meeting: -

Appointment of directors is the primary form of shareholder control in a company.

As once noted: -

“Elections of directors is the primary managerial function of stockholders in business

corporation and one that needed careful regulation in their interest.”7

According to Section 152, every director shall be appointed by the company in

general meeting. The person to be appointed has to furnish his director's identification
number and a declaration that he or she is not disqualified from becoming a director.
Once elected he has to file his consent with the registrar within 30 days of his
appointment in the prescribed manner given under Section 152.

Under section 152(6), articles of a company may provide that all directors of the
company shall be retiring by annual rotation. Otherwise only one third can be given
permanent appointment.

As observed in the case of Oriental metal pressing works P. Ltd v Bhaskar Kashinath
Thakoor,

“This provision is designed to eradicate the Mischief caused by self-perpetuating

managements.” 8
In the case of BR Kundra v Motion Picture association the Delhi High Court held that
the directors cannot prolong that the nearby not holding a meeting in time. They
would automatically retire from office on the expiry of the maximum permissible
period within a meeting ought to have been held.9

When a director is rotated out who is also holding the office of managing director, the
latter office will also go with the former, but the expiry of the term of or removal
from Managing Director ship does not contain the secession of his office as director.10

When a director retires, the company may fill up the vacancy by appointing the
retiring director or some other person thereto. If the vacancy of the retiring director is

7 Cadman, The Corporations in New Jersey (1949) 302

8 AIR 1961 SC 573
9 (1976) 46 Comp Cas 339 (Del)
10 Swapan Dasgupta v Navin Chand Suchanti (1988) 64 Comp Cas 562

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not so filled-up and the meeting has not expressly resolved not to fill the vacancy, the
meeting shall stand adjourned till the same day in the next week, at the same time and
place, or if that day is a national holiday, till the next succeeding day which is not a
holiday, at the same time and place.

If at the adjourned meeting also, the vacancy of the retiring director is not filled up
and that meeting also has not expressly resolved not to fill the vacancy, the retiring
director shall be deemed to have been re-appointed at the adjourned meeting.

Appointment of Directors by Nomination: -

This sub-section provides for appointment of Nominee Directors. It 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. 11

Appointment of Directors in causal vacancy: -

If any vacancy is caused by death or resignation of a director appointed by the

shareholders in General meeting, before expiry of his term, the Board of directors can
appoint a director to fill up such vacancy. The appointed director shall hold office
only up to the term of the director in whose place he is appointed.12

11 S. 161(3), Companies Act, 2013

12 S. 161(4), Companies Act, 2013

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Appointment of directors to be voted individually: -

A single resolution shall not be moved for the appointment of two or more persons as
directors of the company unless a proposal to move such a motion has first been
agreed to at the meeting without any vote being cast against it.

A resolution moved in contravention of aforesaid provision shall be void, whether or

not any objection was taken when it was moved. A motion for approving a person for
appointment, or for nominating a person for appointment as a director, shall be treated
as a motion for his appointment. 13

Appointment of directors by proportional representation: -

The articles of a company may provide for the appointment of not less than two-thirds
of the total number of the directors of a company in accordance with the principle of
proportional representation, whether by the single transferable vote or by a system of
cumulative voting or otherwise and such appointments may be made once in every
three years and casual vacancies of such directors shall be filled. 14

Appointment of Additional Director: -

Section 161(1) states that, the board of directors can appoint additional directors, if
such power is conferred on them by the articles of association. Such additional
directors hold office only up to the date of next annual general meeting or the last
date on which the annual general meeting should have been held, whichever is earlier.
A person who fails to get appointed as a director in a general meeting cannot be
appointed as Additional Director.

13 S. 162, Companies Act, 2013

14 S. 163, Companies Act, 2013

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Appointment by the Board: -

The two cases in which the board can also appoint new directors. Firstly, the articles
empower the directors to appoint additional directors to the maximum number fixed
by Section 161(1) and secondly the act itself by section 161 authorises with directors
to fill casual vacancy.

Appointment by Tribunal: -

The Company Law Tribunal has the power to appoint directors for prevention of
oppression and mismanagement.15

15 S. 242(J), Companies Act, 2013

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 Removal of Directors: -

Removal by Shareholders: -

Section 169 provides that a company may by ordinary resolution remove director
before the expiration of the period of office. This section is intended to do away with
arrangements under which directors were either irremovable or removable only by
extraordinary resolutions.

A special notice of a resolution to remove director is required for this. A notice of the
intention to move the resolution should be given to the company not less than 14 days
before the meeting. The companies must then send copy of it to the director
concerned, who will have the right to make a representation against the resolution and
to be heard at the general meeting.

A copy of the resolution and has to be circulated amongst the members by the
company. If that is not possible, then the representation has to be read out to the
members at the meeting.

The Supreme Court has stated that if the meeting is requisition by the shareholders for
the very purpose of removing a director, they need not state the reasons on which they
wish to proceed against director.16

This section does not deprive the person removed of any compensation or damages
payable to him on the termination of his appointment. 17

Removal by Company Law Tribunal: -

Where an application has been made to the National Company Law Tribunal under
Section 241 of the Companies Act 2013 for prevention of oppression or
mismanagement and the Tribunal has conducted its proceedings on the application, it
has the power under Section 242(2)(h) of the Act, to remove any director.

16 LIC v Escorts Ltd (1986) 1 SCC 264

17 S. 169(7)(a), Companies Act, 2013

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 Bibliography: -

Books:

1. Singh, Avtar. Company Law (2015). 16th Edition. Eastern Book Company
2. Garg. K.C. Company Law (2016). 21st Edition. Kalyani Publication
3. Kapoor G.K. Company Law (2013). 15th Edition. Taxmann Publications

Statute:

1. Companies Act, 2013

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