Chapter XI (Section 149-172) of the Companies Act, 2013 (CA 2013) deals with the provisions related to Appointment and Qualifications of Directors. Section 165 of the CA 2013 provides for number of directorships. In other words, it provides for the maximum permissible number of directorships that a person can hold.
The provisions of section 165 came into force on 1st April, 2014 vide Notification No. S.O. 902(E) issued dated 27-03-2014. Section 165 of CA 2013 corresponds to the following sections of the Companies Act, 1956:
- Section 275 of the Companies Act, 1956 i.e. person to be a director of more than fifteen companies;
- Section 276 of the Companies Act, 1956 i.e. choice to be made by director of more than fifteen companies at commencement of Act;
- Section 277 of the Companies Act, 1956 i.e. choice by person becoming director of more than fifteen companies after commencement of Act;
- Section 278 of the Companies Act, 1956 i.e. exclusion of certain directorships for the purposes of sections 275, 276 and 277; and
- Section 279 of the Companies Act, 1956 i.e. penalty.
Section 165 – Number of Directorships in Companies
Directorship in Maximum 20 Companies:
In accordance with the provisions of section 165(1) of the CA 2013, a person shall not hold office as a director, including any alternate directorship, in more than twenty companies at the same time.
That means you can hold office as a director in maximum 20 companies with effect from April 2014. Note that the limit of directorships in companies has been increased to 20 companies from 15 companies as provided under the Companies Act 1956.
However, the first proviso of section 165(1) states that the maximum number of public companies in which a person can be appointed as a director shall not exceed ten. Therefore, you can only hold directorship in maximum 10 public companies out of the limit of 20 companies.
As per explanation given in sub-section (1) of section 165, the directorship in private companies that are either holding or subsidiary company of a public company shall be included for reckoning the limit of public companies in which a person can be appointed as director.
Reducing Limit of Directorship:
According to the provisions of section 165(2) of the Companies Act, 2013, the members of a company may specify any lesser number of companies in which a director of the company may act as directors.
However, such specification requires Special Resolution (SR) in General Meeting (GM) of the company. Note that the members of any company may reduce the maximum limit of directorship but it must be subject to sub-section (1) of section 165 of CA 2013.
Transitional Period for Compliance:
A transitional period of one year i.e. upto 31st March 2015 was granted under section 165(3) of the CA 2013 for compliance with section 165(1) of CA 2013 to those persons holding directorship in companies more than the specified limits immediately before the commencement of CA 2013.
Such person was required to do the following:
a) Choose not more than the specified limit of those companies, as companies in which he wishes to continue to hold the office of director;
b) Resign his office as director in the other remaining companies; and
c) Intimate the choice made by him under clause (a), to each of the companies in which he was holding the office of director before such commencement and to the Registrar having jurisdiction in respect of each such company.
Immediate effect of resignation:
As per section 165(4) of the CA 2013, any resignation made in pursuance of clause (b) of sub-section 165(3) shall become effective immediately on the despatch thereof to the company concerned.
End of Transition Period:
In accordance with section 165(5) of the CA 2013, no such person shall act as director in more than the specified number of companies:
(a) after despatching the resignation of his office as director or non-executive director thereof, in pursuance of clause (b) of sub-section (3); or
(b) after the expiry of one year from the commencement of this Act, whichever is earlier.
Directorship in More than Specified Limit:
According to section 165(6) of CA 2013, if a person accepts an appointment as a director in contravention of sub-section (1), he shall be punishable with fine which shall not be less than ₹5,000 but which may extend to ₹25,000 for every day after the first during which the contravention continues.
Thus, the penalty for non-compliance of section 165 has been changed as compare to the old Companies Act, 1956.
Is Section 165 applicable for Foreign Companies?
This question is repeatedly asked by user of AUBSP. Section 165 is applicable to private company as well as public company. The term “Company” has been defined under section 2(20) of the CA 2013. Accordingly, Company means a company incorporated under the Companies Act, 2013 or under any previous company law i.e. the Companies Act, 1956.
Whereas section 2(42) provides that any company or body corporate incorporated outside India shall be foreign company which—
(a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and
(b) conducts any business activity in India in any other manner.
Thus, the provisions of section 165 shall not be applicable to foreign companies.