The appointment of directors shall be made as per the provisions of section 152 of the Companies Act, 2013. Section 152 of CA 2013 has come into force on 1st April, 2014 vide Notification No. S.O. 902(E) issued dated 27.03.2014.
This new section provides for the appointment first directors and filling up the vacancy of retiring directors by rotation and re-appointment of directors of public as well as private companies. Section 152 corresponds to the following sections of the Companies Act, 1956:
i) Section 254 of the Companies Act, 1956 i.e. subscribers of memorandum deemed to be directors;
ii) Section 255 of the Companies Act, 1956, i.e. appointment of directors and proportion of those who are to retire by rotation;
iii) Section 256 of the Companies Act, 1956 i.e. ascertainment of directors retiring by rotation and filling of vacancies;
iii) Section 259 of the companies Act, 1956 i.e. increase in number of directors to require Government sanction; and
iv) Section 264 of the Companies Act, 1956 i.e. consent of candidate for directorship to be filed with the company and consent to act as director to be filed with the Registrar.
Appointment of Directors in Private and Public Company
Appointment of First Director of a Company [Section 152(1)]:
The provisions regarding appointment of first director of a company are generally mentioned in the Articles of that company. You may refer section 5 of CA 2013 for more details about the articles of a company.
However, if there is no provision made in the articles of a company for the appointment of the first director, the following individuals shall be deemed to be the first directors of the company:
i) In case of One Person Company: An individual being member;
ii) In other case: the subscribers to the memorandum who are individuals.
Such deemed first director or directors hold office until the director or directors are duly appointed by the member in accordance with the provisions of section 152 of the CA 2013.
Appointment of Directors of a company [Section 152(2)]:
In accordance with the provisions of section 152(2) of the CA 2013, every director shall be appointed by the company in general meeting. Note that other provisions may expressly provide for the appointment of directors in company.
Compulsory requirement of DIN [Section 152(3) & 152(4)]:
If any person wants to be appointed as a director in any company, then he/she must have Director Identification Number (DIN). DIN shall be allotted under section 154 by the Central Government (CG) within one month from the receipt of the application under section 153.
You may refer Rule 9-12 of the Companies (Appointment and Qualification of Directors) Rules, 2014 for more details like Application for allotment of Director Identification Number, Allotment of DIN, Cancellation or surrender or Deactivation of DIN, and Intimation of changes in particulars specified in DIN application.
Before appointment as a director of a company the proposed person shall furnish DIN along with a declaration that he/she is not disqualified to become as a director. Note that DIN also includes the Designated Partnership Identification Number (DPIN) issued under section 7 of the Limited Liability Partnership Act, 2008.
Filing Consent with ROC [Section 152(5)]:
A consent in writing to hold office as a director shall be given in Form DIR-2 by the appointed director before acting as a director in the company. Such consent shall be filed with the registrar in Form DIR-12 within 30 days from the date of appointment of director. You may refer Rule 8 of the Companies (Appointment and Qualification of Directors) Rules, 2014.
However, in the case of appointment of an independent director in the general meeting, a statement shall be included in the explanatory statement annexed to the notice of the GM that in the opinion of the Board, he fulfils the conditions specified in the CA 2013 for such an appointment.
Did you know? In the Old CA 1956, such consent was not required for a director of a private company unless it is a subsidiary of a public company. But, now the same has also been made compulsory for every Director in a private Company to give his consent for appointment as such and the consent shall be filed with the Registrar of Companies.
Retirement of Directors by Rotation of a Company [Section 152(6)]
The article of a public company shall provide for the retirement of all directors at every Annual General Meeting (AGM) of the company. Otherwise, not less than 2/3 of the total number of directors of a Public Company shall be persons whose period of office is liable to determination by retirement of directors by rotation and be appointed by the company in general meeting.
The remaining directors of such public companies shall also be appointed by the company in GM subject to any regulations in the articles of that company.
Note that as per the explanation of section 152(6) of the CA 2013, total number of directors shall not include independent directors. Further, as per sub-section (13) of section 149, the requirement of retirement by rotation pursuant to sub-section (6) and (7) of Section 152 shall not be applicable to appointment of independent directors.
At the first AGM of a public company held next after the date of the GM at which the first directors are appointed and at every subsequent AGM, 1/3 of such of the directors for the time being as are liable to retire by rotation, or if their number is neither three nor a multiple of three, then, the number nearest to one-third, shall retire from office.
For Example: If a Company have 6 directors then a) the directors liable to retire by rotation shall be equal to 6*2/3 i.e. 4; and b) No. of directors to retire shall be 4*1/3 i.e. 1.33 or nearest to one third is 1.
The directors who have been longest in office shall retire by rotation at AGM. However, those persons who became directors on the same day shall retire as per the agreement among themselves otherwise the same shall be determined by lot. However, the company may fill up such vacancy at the AGM at which the director retires by appointing the retiring director or some other person thereto.
Re-appointment of Director of Company [Section 152(7)]
In accordance with the provisions of sub-section (7) of section 152 of the CA 2013, if the vacancy of the retiring director is 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.
However, the retiring director shall not be deemed to have been appointed at the adjourned meeting in the following five cases:
- Resolution Put and Lost: If a resolution for the re-appointment of retiring director has been put to that meeting or at the previous meeting and lost;
- Unwillingness for re-appointment: If the retiring director by a notice in writing has expressed his unwillingness to be so re-appointed;
- Disqualified: If the retiring director is not qualified or is disqualified for appointment as a director of company;
- Requirement of Resolution: If a Special Resolution (SR) or an Ordinary Resolution (OR) is required for his appointment or re-appointment by virtue of any provisions of CA 2013; or
- Applicability of Section 162: If the provisions of section 162 (Appointment of directors to be voted individually) is applicable to the case.
As per the explanation given under section 152(7) of the CA 2013 the expression “retiring director” means a director retiring by rotation.