Chapter XI of Companies Act – Appointment and Qualification of Directors

161 to 164

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 Companies Act 2013 -> Section 161 (1) – Appointment of Additional, Alternate and Nominee Director

Appointment of Additional Director

To appoint any person except that person who has

The company may give power earlier failed to get appointed as a director in a
to the board of directors general meeting, as an additional director at any time
through artices of Association

Additional Director shall hold office up to the date of

the next annual general meeting

Note: Please note that earlier we discussed in section 152 that all the directors need to be appointed in general
meeting except those for which otherwise is mentioned in the Act. Now Additional Director is such case which can
be appointed by Board of Directors without it being approved in general meeting

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 Companies Act 2013 -> Section 161 (2) – Appointment of Additional, Alternate and Nominee Director

Appointment of Alternate Director

To appoint a person to act as an alternate director for

The company may give a director during his absence for a period of not less
authorize to the board of than three months from India
directors through artices of
Association or by passing a The person being appointed
special resolution 1. shall not be a person holding any alternate
directorship for any other director in the
company or
Alternate director shall not hold office for a period longer 2. Shall not be a person holding any directorship in
than that permissible to the director in whose place he the same company
has been appointed 3. The person if being appointed as alternate director
Alternate Director shall vacate office when the director in for independent director then he must meet the
whose place he has been appointed returns to India criteria for independent director

Note: Please note that earlier we discussed in section 152 that all the directors need to be appointed in general
meeting except those for which otherwise is mentioned in the Act. Now Alternate Director is such case which can be
appointed by Board of Directors without it being approved in general meeting
 Companies Act 2013 -> Section 161 (3) – Appointment of Additional, Alternate and Nominee Director

Appointment of Nominee Director

The company may give

appoint any person as a director nominated by any
authorize to the board of
institution as a nominee Director
directors through artices of
Association
Term of Nominee Director is not mentioned

Nominee Directors are normally appointed by large

shareholding institutions like Investment bank to act
as their representative

Note: Please note that earlier we discussed in section 152 that all the directors need to be appointed in general meeting
except those for which otherwise is mentioned in the Act. Now Nominee Director is such case which can be appointed by
Board of Directors without it being approved in general meeting
 Companies Act 2013 -> Section 161 (4) – Appointment of Additional, Alternate and Nominee Director

Appointment in case of Vacancy

Unless and until something else To appoint any person as director in the meeting of the
is mentioned in Articles, by board to fill the casual vacancy
default the board has powers
This must be approved in next annual general meeting

Any person so appointed shall hold office only up to the

date up to which the director in whose place he is
appointed would have held office if it had not been vacated

Casual Vacancy means sudden vacancy caused due to Disqualification, Removal, Death and resignation. In this office gets
vacated by the person before his/her term ends. Retirement is not a casual vacancy

Note: Please note that earlier we discussed in section 152 that all the directors need to be appointed in general meeting
except those for which otherwise is mentioned in the Act. Now Director in case of Casual Vacancy is such case which can be
appointed by Board of Directors without it being approved in same meeting but in next annual general meeting
 Companies Act 2013 -> Section 162 – Appointment of Directors to be Voted Individually

Appointment of Directors to be Voted Individually Shall not apply to Private company, IFSC Public
Company and Fully owned Govt Company

At a general meeting of a company, a motion for the appointment of two or more persons as directors of the company by a
single resolution shall not be moved i.e. the voting for approval for appointment of 2 or more directors should not be
done in one go, it should be done separately for each director

Exception: The appointment of 2 or more directors can can be done in one go only if the prior approval has been taken for
it and while taking prior approval not even a single person raised objection

Any appointment done by violating above provision will not be a valid appointment
 Concept Check

The board of the company gets its powers through special resolution to appoint which of the following directors?

1. Additional Director
2. Alternate Director
3. Nominee Director
4. Any of the above

Ans: Option 2

Alternate director can be appointed

1. Only in place of independent directors

2. In place of all directors except independent directors
3. In place of any director during his absence from India
4. In place of any director during his absence for a period of min of 3 months from india

Ans: Option 4
 Companies Act 2013 -> Section 163 – Option to Adopt Principle of Proportional Representation for Appointment of
Directors.

Option to Adopt Principle of Proportional Representation for Shall not apply to fully owned Govt.
Appointment of Directors Companies

First, please note that this is optional and not mandatory and if company opts for this then it must be mentioned in
articles of association

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

Term in this case shall be 3 years

Any Casual vacancy shall be filled as per subsection 4 of section 161

Term Explainer: Proportional representation is a system used to elect a country's government. If proportional
representation is used in an election, a political party that wins 10% of the vote, will win 10% of the seats in parliament
and a party that wins 20% of the vote, will win 20% of the seats
 Companies Act 2013 -> Section 164(1) – Disqualifications for Appointment of Director

Disqualifications for Appointment of Director

1)A person shall not be eligible for appointment as a director of a company, if

(a) he is of unsound mind and stands so declared by a competent court;

(b) he is an undischarged insolvent;
(c) he has applied to be adjudicated as an insolvent and his application is pending

(d) he has been convicted by a court of any offence and has been sentenced to imprisonment for not less than six months,
but less than 7 years and a period of five years has not elapsed from the date of expiry of the sentence:

if a person has been convicted of any offence and sentenced to imprisonment for a period of seven years or more then he
shall not be eligible to be appointed as a director in any company;

(e) an order disqualifying him for appointment as a director has been passed by a court or Tribunal

(f) he has not paid any call money in respect of any shares of the company held by him, whether alone or jointly with
others, and six months have elapsed from the last day fixed for the payment of the call;
 Companies Act 2013 -> Section 164(1) – Disqualifications for Appointment of Director

Disqualifications for Appointment of Director

(g) He has been convicted of the offence dealing with related party transaction at any time during the last preceding
five years

(h) He has not complied with requirement of subsection(3) section 152 i.e. he is not having a DIN or if he an existing
director at the time of commencement of this act, then he has not applied for DIN

(i) Has not compiled with provision of subsection (1) of section 165 ( Section 165 is related to number of
directorships)
 Companies Act 2013 -> Section 164(2) – Disqualifications for Appointment of Director

Disqualifications for Appointment of Director Shall not apply to government company

If a person is a director or was a director in the company which

1. has not filed financial statements or annual returns for any continuous period of three financial years or
2. has failed to repay or redeem the following continuously for 1 year or more
I. Deposits accepted by it or Pay interest on the deposits or
II. Redeem any debentures on the due date or pay interest on this debentures on due date
III. Any dividend declared but not paid

Then the director of this company which has done of the above things shall not be eligible to be re-appointed as a
director of this same company for a period of five years from the date on which the said company is doing such
defaults

Then the director of this company which has done of the above things shall not be eligible to be appointed as a
director of any other company for a period of five years from the date on which the said company is doing such
defaults

If someone else is appointed as a director in the company which has defaulted on above mentioned points shall not be
disqualified from existing position for a period of six months from the date of his appointment
 Companies Act 2013 -> Section 164(4) – Disqualifications for Appointment of Director

Disqualifications for Appointment of Director

Private Company can through by its articles provide for any disqualifications for appointment as a director in addition
to those specified in sub-sections (1) and (2):

Note: We have earlier studied the stringent conditions for appointment of Independent director, so for independent
director those are in addition to these requirements that we have studied in section 164
 Concept Check

A person who has been imprisoned for 7 years or more cannot be appointed director till completion of ______years from
date of expiry of sentence

1. 5
2. 7
3. 8
4. NOTA

Ans: Option 4 (he is not eligible for lifetime if he has been imprisoned for 7 years or more)

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. Which company is exception to this?

1. Private Company
2. All Unlisted Public Companies
3. All Listed Companies
4. Government Companies

Ans: Option 4
Thanks
Chapter XI of Companies Act – Appointment and Qualification of Directors
165 to 168

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 Companies Act 2013 -> Section 165 (1) – Number of Directorships

Number of Directorships Exception: Section 8 Company

A person can be a director (including alternate directorship) in maximum of 20 companies subject to that he can be a
director in maximum of 10 Public companies

Note:

When we count directorship of max in 20 companies then dormant companies must not be included

For the limit of directorship of max 10 in public companies, directorship in private companies that are either holding or
subsidiary company of a public company shall be included.
 Companies Act 2013 -> Section 165 (2) – Number of Directorships

Number of Directorships

The members of a company may, pass a special

resolution to specify any lesser number of
companies in which a director of the company may
act as directors

Example: A special resolution can be passed that all

the directors of this company shall not hold more
than 15 directorships. In this case for the directors
of this company the max limit shall become 15 and
not 20. This is done to make directors give decent
amount to time to this company
Companies Act 2013 -> Section 165 (3 and 4) – Number of Directorships

Number of Directorships

At the time of commencement of this act if any

director is violating provisions related to this then
with in one year
1. He should resign from directorship in certain
companies
2. He should intimate regarding this to the
Registrar and other companies where he
intends to continue
3. He should not be director anymore as soon as
he dispatches the information to the concerned
company regarding his resignation
 Companies Act 2013 -> Section 165 (5) – Number of Directorships

Number of Directorships

Penalty for violation of subsection (1) of 165

The person shall be liable to a penalty of two

thousand rupees for each day after the first day
during which such contravention continues,
subject to a maximum of two lakh rupees.
 Concept Check

A person is director in 20 companies, out of which 9 are public and rest are private. Among the private companies in this
case how many at maximum would be subsidiaries of Public companies
1. 1
2. 3
3. 10
4. 11

Ans: Option 1

A person is a director in 23 companies, out of which 8 are public, 7 are dormant and all dormant are private. Assuming no
private company is subsidiary of public company then in how many more private companies he can become a director

1. 1
2. 2
3. 3
4. 4

Ans: Option 4
 Concept Check

If a person is holding directorship in 12 private companies then he is liable for penalty of

1. five thousand rupees for each day of violation
2. Ten thousand rupees for each day of violation
3. Fifteen thousand rupees for each day of violation
4. NOTA

Ans: Option 4 (Holding directorship in 12 private companies is not a violation)

 Companies Act 2013 -> Section 166 – Duties of Director

Duties of Directors

Subject to the provisions of this Act

1. A director of a company shall act in accordance with the articles of the company.
2. A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its
members, and in the best interests of the company, its employees, the shareholders, the community and for the
protection of environment.
3. A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts,
or possibly may conflict, with the interest of the company.
4. A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to
his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to
pay an amount equal to that gain to the company.
5. A director of a company shall not assign his office and any assignment so made shall be void.

Penalty
If a director of the company contravenes the provisions of this section such director shall be punishable with fine
Min of one lakh rupees, but which may extend to five lakh rupees.
 Companies Act 2013 -> Section 167 (1)– Vacation of Office of Director

Vacation of Office of Director

The office of Director shall become vacant

1. If director incurs any of the disqualifications specified in section 164 (in section 164 we discussed about Disqualification
of director)

If the Disqualification is with respect to section 164

and subsection (2) then the office of the director
shall become vacant in all the companies, other than
the company which is in default under that sub-
section
 Companies Act 2013 -> Section 167 (1)– Vacation of Office of Director
Vacation of Office of Director

The office of Director shall become vacant

1. If director incurs any of the disqualifications specified in section 164 (in section 164 we discussed about Disqualification
of director)
Apart from this point which we discussed in previous slide there are other points also as mentioned below

2. He absents himself from all the meetings of the Board of Directors held during a period of twelve months with or
without seeking leave of absence of the Board

3. He acts in contravention of the provisions of section 184 relating to entering into contracts or arrangements in which he
is directly or indirectly interested (Section 184 is about that directors disclose his interest in other companies)

4. He fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested, in
contravention of the provisions of section 184

5. He is convicted by a court of any offence and sentenced to imprisonment for not less than six months

6. He is removed as per section 169 (Section 169 is related to removal of director)

7. He was appointed as a director by virtue of his holding any office or other employment in the holding, subsidiary or
associate company, so he would cease to be a director when he ceases to hold such office
 Companies Act 2013 -> Section 167 (1)– Vacation of Office of Director

Vacation of Office of Director

2. He absents himself from all the meetings of the Board of

Directors held during a period of twelve months with or
For Points 5 and 6
without seeking leave of absence of the Board
1) he shall not vacate office for thirty days
3. He acts in contravention of the provisions of section
from the date of conviction or order of
184 relating to entering contracts or arrangements in which
disqualification
he is directly or indirectly interested
2) If an appeal or petition is preferred within
4. He fails to disclose his interest in any contract or
thirty days against the conviction, then he
arrangement in which he is directly or indirectly interested,
shall not vacate office until expiry of
in contravention of the provisions of section 184
seven days from the date on which such
appeal or petition is disposed of
5. he becomes disqualified by an order of a court or the
Tribunal
3) If Any further appeal against the order of
first appeal with in 7 days, he shall not
6. He is convicted by a court of any offence and sentenced to
vacate office until this further appeal is
imprisonment for not less than six months
disposed of
 Companies Act 2013 -> Section 167 (2)– Vacation of Office of Director

Punishment in case Non-Vacation of Office of Director

If a person, functions as a director even when he

knows that the office of director held by him has 1. He shall be punishable with fine which shall not be
become vacant on account of any of the less than one lakh rupees, but which may extend
disqualifications specified in subsection (1) to five lakh rupees
 Companies Act 2013 -> Section 167 (3)– Vacation of Office of Director

Vacation of Office of All or some directors

In general the vacation of office of director is filled by

casual vacancy provision as discussed in 161 (4) earlier

The promoter shall become the director or if

promoter is not there then central government shall
But In case all the directors of the company vacate
appoint required number of directors till new
office for disqualification under subsection (1)
directors are appointed by the company in general
meeting
 Companies Act 2013 -> Section 167 (4)– Vacation of Office of Director

Private Companies Additional Conditions – Vacation of Office

Private Company can also add conditions to what is specified in subsection(1) of this section related to vacation of
director
Concept Check
 Concept Check

Which of the section deals with provisions regarding number of directorship a director can hold?
1. 164
2. 165
3. 166
4. 167

Ans: Option 2

What is the maximum period a director can abstain from attending meetings to prevent himself from being forced to vacate
the office of director
1. Period of 12 months without taking approval from board
2. Period of 18 months with approval of board
3. Period of 2 years in case of serious illness and taking approval from board
4. Period of 12 months with or without taking approval from board

Ans: Option 4
Thanks
Chapter XI of Companies Act – Appointment and Qualification of Directors
169 to 172

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 Companies Act 2013 -> Section 168 (1)– Resignation of Director

Resignation of Director - Procedure

Director can resign By Notice to Company

Board of the company shall inform the registrar

within thirty days from the date of receipt of notice
of resignation from a director using Form DIR 12

Board shall also include the details of resignation in

the following General Meeting of the company

The director who has resigned can himself also forward a copy of his resignation along with detailed reasons for the
resignation to the Registrar within thirty days of resignation using FORM DIR 11

The foreign director can authorize in writing a practicing-chartered accountant or cost accountant in practice or
company secretary in practice or any other resident director of the company to sign Form DIR-11 and file the same on
his behalf intimating the reasons for the resignation.
 Companies Act 2013 -> Section 168 (2)– Resignation of Director

Resignation of Director – Effective Date of Resignation

The resignation of a director shall take effect from the date on which the notice is received by the company or the date, if
any, specified by the director in the notice, whichever is later:

But the director even after his resignation remains liable for the offences that occurred during his tenure
 Companies Act 2013 -> Section 168 (3)– Resignation of Director

Resignation of Director – All Directors Resigning

The promoter shall become the director or if

In case all the directors of the company resign from promoter is not there then central government shall
office for any reason appoint required number of directors till new
directors are appointed by the company in general
meeting
 Concept Check

Form DIR-11 is used by which of the following entity to inform registrar regarding the resignation of Director
1. Company
2. Board of Directors
3. Director himself who has resigned
4. Any of them

Ans: Option 3
 Companies Act 2013 -> Section 169 (1)– Removal of Director

Removal of Director

By Passing an ordinary Resolution before the expiry of his

A company can remove a director term after giving him an opportunity to present his case

Exception: If a director has been appointed by Tribunal

then it cannot be removed

Term Explainer

What are directors appointed by Tribunal: Tribunal is a body that settles disputes related to companies. Now if tribunal
in certain cases feel that it needs to appoint director(s) to the company who can report to tribunal regarding the
function of the company then tribunal can appoint such directors
 Companies Act 2013 -> Section 169 (1)– Removal of Director

Removal of Director

A company can remove a director By Passing an ordinary Resolution before the expiry of his
term after giving him an opportunity to present his case

More Exceptions:

1. An independent director re-appointed for second

term under sub-section (10) of section 149 shall be
removed by the company only by passing a special
resolution and after giving him a reasonable
opportunity of being heard
 Companies Act 2013 -> Section 169 (1)– Removal of Director

Removal of Director

A company can remove a director By Passing an ordinary Resolution before the expiry of his
term after giving him an opportunity to present his case

More Exceptions:

Nothing contained in this sub-section(1) of section 169

shall apply where the company has availed itself of the
option given to it under section 163 to appoint not less
than two thirds of the total number of directors according
to the principle of proportional representation.
 Companies Act 2013 -> Section 169 (3,4)– Removal of Director

Removal of Director - Procedure

A special notice shall be required to remove a The company shall forward a copy of notice related to the
director under this section, or to appoint resignation of director to the director who is to be
somebody in place of a director so removed removed

If director wants, he can represent his case and he can ask

this representation to be send to the members

If the time permits, then company needs to send this

representation to the members, but if time is less to send
the same before the meeting then director can ask for
this to orally read out in the meeting
 Companies Act 2013 -> Section 169 (5,6 and 7)– Removal of Director

Removal of Director – Filling up of Vacancy

A vacancy created by the removal of a director under this section may be filled by the appointment of another director in his place at the
meeting at which he is removed subject to that special notice was served for the same

A director so appointed shall hold office till the date up to which his predecessor would have held office if he had not been removed.

If the vacancy is not filled as mentioned above it may be filled as a casual vacancy as discussed in subsection (4) of section 161 subject to
that the director removed shall not be appointed as the director again
 Concept Check

An independent director who has been appointed for the first time in a company
1. Cannot be removed
2. Can be removed by passing a ordinary resolution
3. Can be removed by passing a special resolution
4. Can be removed just by board of directors

Ans: Option 2

Who all are exempted from being removed as a director from company?
1. Directors appointed by Tribunal
2. Directors appointed under optional scheme where the company has availed itself of the option given to it under section
163 to appoint not less than two thirds of the total number of directors according to the principle of proportional
representation.
3. Independent directors appointed for the second term
4. Both 1 and 2
5. All of the above

Ans: Option 4
 Companies Act 2013 -> Section 170 – Registration of Directors and Key Management Personnel

Registration of Directors and Key Management Personnel Not applicable in case of government
company

A Every company shall keep at its registered office a register containing such particulars of its directors and key
managerial personnel which shall include the details of securities held by each of them in the company or its holding,
subsidiary, subsidiary of company’s holding company or associate companies

A return containing the particulars of appointment of new director or key managerial personnel and if there are changes
in details of existing director or key Management Personnel, shall be filed with the Registrar in Form DIR-12 within thirty
days of such appointment or change, as the case may be.

Exception:
In case of IFSC public company or IFSC private company, the details of new director or key managerial personnel or
change in details of existing director or key Management Personnel shall be filed in 60 days instead of 30 days
 Companies Act 2013 -> Section 171 – Member Right to Inspect

Member Right to Inspect Not applicable in case of government

company

The register containing information as discussed in section 170

1. shall be open for inspection during business hours and the members shall have a right to take extracts therefrom and
copies
2. On a request by the members, the register shall be provided to them free of cost within thirty days
3. shall also be kept open for inspection at every annual general meeting of the company and shall be made accessible
to any person attending the meeting.

If access to register is refused or if copy on request is not provided with in 30 days, then aggrieved party can make a
request to the Registrar and registrar can then direct the company to comply immediately
 Companies Act 2013 -> Section 172 – Penalty where no penalty is provided

Generic Punishment for violation of sections 149 to 171

For violations of many sections, we have already discussed the penalty

For violation of certain sections, no penalty has bee mentioned, in such cases the penalty shall be

The company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees, and
in case of continuing failure, with a further penalty of five hundred rupees for each day during which such failure
continues, subject to a maximum of

1. three lakh rupees in case of a company

2. One lakh rupees in case of an officer who is in default
 Concept Check

What is the penalty in such cases where no specific penalty has been defined?
1. Min fine of five thousand rupees and maximum up to five lakh rupees
2. Min fine of five thousand rupees and maximum up to ten lakh rupees
3. Min fine of fifty thousand rupees and maximum up to five lakh rupees
4. Min fine of ten thousand rupees and maximum up to two lakh rupees
5. None of the above

Answer: Option 5
Thanks