Objectives & Agenda : The Companies Act, 2013 has made several significant changes to redefine the Board governance in India. The webinar covers the statutory aspects relating to appointment and qualification of directors (first director, additional / nominee / alternate directors, re-appointment of retiring director, independent director, women director, small shareholder director, etc.), their roles and responsibilities, duties and liabilities of directors and judicial precedents.

1. Appointment and qualification of
directors
CS Meenakshi Jayaraman

2. Credits and Acknowledgments
Sundar Rajan S

3. Legends used in the Presentation
Act Companies Act, 2013
AD Alternate director
AGM Annual General Meeting
BOD Board of Directors
CA Chartered Accountant
C.A.S.H The Company, its Associate Company, its Subsidiary Company and its Holding Company
CG Central Government
CS Company Secretary
FY Financial Year
ID Independent Directors
KMP Key Managerial Personnel
Rule Companies (Appointment and Qualifications of Directors) Rules, 2014
SG State Government
SSD Small Shareholder Director
UPC Unlisted Public Companies

4. Presentation Schema
Board of directors Types of directors Limits on directors
Appointment of
directors
First directors
Independent
directors
Functions and
Duties of ID
Small shareholder
director
Additional,
Alternate and
Nominee director
Other directors Duties of directors Judicial Precedents

5. Board of directors
Every Company is managed by a person/ group of persons being elected by the owners, called as Board of
Directors. Only individuals shall be appointed as Board of Directors
Since the management of a Company cannot be entrusted to the owners who are generally huge in number, they
elect specified persons and vest them with the powers of managing the Company
There are various types of directors stipulated under Companies Act, 2013 who shall have general and specific
roles and responsibilities

6. Types of directors
Directors
First directors
Additional, Alternate
and nominee directors
Independent directors
Small shareholder
director
Other directors

7. Limits on directors
No. of directors in a
Company
Minimum number
of directors
Private Company - 2 Public Company - 3 OPC - 1
Maximum number
of directors*
15 (for all types of
Companies)
Maximum number of directors shall exceed 15 provided special resolution is passed for approving the same
*In case of Government Company and Section 8 Company, the maximum limit of directors shall not apply

8. Appointment of directors – Section 152 of the Act
Every director shall be appointed by the Company in general meeting except provided otherwise in the Act
A person shall be appointed as a director only after obtaining DIN
Every person proposed to be appointed as a director by the Company in general meeting or otherwise, shall furnish his/her
DIN and a declaration that he/she is not disqualified to become a director under the Act
A person shall not act as a director unless consent to hold the office as director is furnished by such person in Form DIR-2 and
within 30 days of appointment, Form DIR-12 is filed by the Company
Every Company shall have atleast one director who stays in India for a total period of 182 days or more during the FY whereas
in case of newly incorporated Company, the condition shall be satisfied at the end of the FY in which it is incorporated

9. First directors
Where no provision is made in the AOA of a Company for the appointment of the first director,
subscribers to the MOA who are individuals shall be deemed to be the first directors of the Company
until the directors are duly appointed by the members in accordance with the provisions of the Act

10. Independent directors – Section 149(6) & (7)
• An independent director means a director other than a managing director or a whole-
time director or a nominee director,
- who, in the opinion of the Board, is a person of integrity and possesses
relevant expertise and experience
Meaning
• An Independent Director is appointed in a Company to,
• Ensure good corporate governance
• Improve corporate credibility
Purpose
In case of Section 8 Company and Specified IFSC Public Company, the entire provisions of Independent Director is not applicableNote:

11. Limits on independent directors
Independent
directors
Listed public
Company
Other public
Companies having
Atleast 1/3rd of
the total directors
shall be ID
Aggregate loans, deposits and
debentures* > Rs. 50 Crores
Paid-up capital* >= Rs. 10 Crores
Turnover* >= Rs. 100 Crores
Atleast 2
directors shall
be ID
OR
OR
* As existing on the last date of latest audited financial statements
Rule 4

12. Contd.
Following UPCs are not required to comply with the limits of minimum requirement of ID
• A joint venture
• Wholly owned subsidiary
• A dormant Company
A private Company can also have ID in its Board but it is not mandatory
A Company shall have higher number of IDs if required due to composition of audit committee
• An audit committee shall have a minimum of 3 directors, of which, majority shall be IDs
Only if the Companies falling under Rule 4 fail to fulfil any of the conditions specified therein for 3 consecutive years, such
Companies are relieved from having IDs on their Board until they again fulfil any of such conditions
Intermittent vacancy of ID shall be filled by the Board within immediate next BOD meeting or 3 months from the date of such
vacancy, whichever is later

13. Ineligible persons to become ID
1. Promoter of C.A.S.H or relatives of promoters or directors of C.A.S.H
2. Having pecuniary relationship, other than remuneration as ID or having transaction > 10% of his total income or such amount as
may be prescribed with C.A.S.H or directors or promoters of the Company during 2 immediately preceding FYs or current FY*
3. Having relatives who hold security or interest in C.A.S.H during 2 immediately preceding FYs or current FY
However, relative may hold security or interest in the Company of face value <= Rs. 50 lakhs or
2% of the paid-up capital of C.A.S.H or such higher sum as may be prescribed
4. Having relatives who are indebted to C.A.S.H or directors or promoters of the Company in excess of Rs. 50 lakhs during the 2
immediately preceding FYs or current FY
5. Having relatives who have given a guarantee/ any security in connection with the indebtedness of any third person to C.A.S.H or
promoters of the Company or directors of holding Company for an amount of Rs. 50 lakhs during the 2 immediately preceding FYs
or current FY
6. Having relatives who has any other pecuniary transaction or relationship with C.A.S.H >= 2% of gross turnover or total income
either singly or in combination with transactions referred in (3), (4) and (5) above
Persons who are,
* In case of Government Company, this provision is not applicable

14. Contd.
Person who himself/herself or any of his/her relatives,
holds or has held the position of KMP or is or has been employee of C.A.S.H in any of the 3 immediately preceding FYs from
the year in which he/she is proposed to be appointed
• In case of a relative who is an employee, the restriction stated above shall not apply for his/her employment during
preceding 3 FYs
is or has been, in any of the immediately preceding 3 FYs from the FY in which he/she is proposed to be appointed, an
employee/proprietor/partner of,
• A firm of CA or CS in practice or cost auditors of C.A.S.H or
• any legal or a consulting firm that has or had any transaction with C.A.S.H >= 10% of the gross turnover of such firm
holds together >= 2% of the total voting power of the Company
is a CEO or a director of any NPO that receives >= 25% of its receipts from C.A.S.H or directors or promoters of the Company
or which holds >= 2% of the total voting power of the Company
An ID shall possess appropriate skills, experience and knowledge in one or more fields of finance, law, management,
corporate governance, technical operations or other disciplines related to the Company’s business

15. Roles and functions of ID
To bring an independent judgment on issues of strategy, performance, risk management,
resources, key appointments and standards of conduct
To bring an objective view in the evaluation of the performance of board and management
To scrutinise the performance of management in meeting agreed goals and objectives and
monitor the reporting of performance
To satisfy themselves on the integrity of financial information and that financial controls and
the systems of risk management are robust and defensible
To safeguard the interests of all stakeholders, particularly the minority shareholders
To balance the conflicting interest of the stakeholders
To determine appropriate levels of remuneration of various directors and recommend removal
of such directors whenever necessary

16. Duties of ID
Regularly update and refresh their skills, knowledge and familiarity with the Company
Strive to attend all meetings of BOD and of the Board committees of which ID is a member
Strive to attend the general meetings of the Company
Ensure that the Board addresses concerns that ID have about the running of the Company or a proposed action and where they are not
resolved, insist that their concerns are recorded in the minutes of the Board meeting
Keep themselves well informed about the Company and the external environment in which it operates
Pay sufficient attention and ensure that adequate deliberations are held before approving related party transactions
Assure themselves that the related party transactions are in the interest of the Company
Report concerns about unethical behaviour, actual or suspected fraud or violation of the Company’s code of conduct or ethics policy
Not disclose confidential information unless such disclosure is expressly approved by the Board or required by law

17. Small shareholder director
• “Small shareholders” means a shareholder holding shares of nominal value of <= Rs. 20,000 or
such other sum as may be prescribed
• Director elected by such small shareholder is called as small shareholder director
Meaning
• A listed Company may have one small shareholder director
• For all other Companies, this provision is not applicable
Applicability
Appointment of SSD
Upon notice of atleast 1,000 small shareholders or 1/10th of the total number of such shareholders, whichever is lower,
the Company may have a SSD elected by the small shareholders
However, listed company can have a director representing small shareholders on suo motu basis
SSD is appointed generally to protect the interests of minority shareholders

18. Terms and conditions
Special notice of atleast 14 days specifying details of name, address, shares held by the proposed SSD, etc. shall be sent by
such small shareholders to the Company expressing their intention to propose a person as a candidate for the post of SSD
The proposed SSD need not be a shareholder in the Company or any other Company
Notice shall be accompanied by a statement signed by the proposed SSD stating his/her DIN, non-disqualification to become
director and consent to act as SSD of the Company
SSD shall be considered as an independent director subject to fulfilment of conditions specified under Section 149 of the Act
SSD shall not be liable to retire by rotation and shall not be eligible for re-appointment
SSD’s tenure shall not exceed a period of 3 consecutive years
SSD shall vacate the office under the following circumstances:
- incurs any of the disqualifications specified in Section 164
- office of the director becomes vacant in pursuance of Section 167
- director ceases to meet the criteria of independence as provided in Section 149(6)

19. Contd.
No person shall hold the position of SSD in more than two companies at the same time
Also, the second company in which SSD has been appointed shall not be in a business which is competing or is
in conflict with the business of the first company
SSD shall not, for a period of 3 years from the date on which he ceases to hold office as a SSD in a Company, be
associated with such Company in any other capacity, either directly or indirectly

20. Additional, Alternate and Nominee director
• A director appointed by the Board of Directors of the Company is called as Additional Director
• Such director shall hold office up to the date of the next AGM or the last date on which the AGM should
have been held, whichever is earlier
• Additional Director’s appointment is subject to approval / regularization by the members in General Meeting
Additional Director
• A personnel who is appointed by the Board, as a substitute to a director who may be absent from India, for a
period which isn’t less than 3 months
• No person shall be appointed as an AD for an ID unless such person qualifies to be appointed as ID
• AD shall not hold office for a period longer than that permissible to the director in whose place he has been
appointed
• AD shall vacate the office if and when the director in whose place he has been appointed returns to India
Alternate Director
• 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 CG or the SG by virtue of its shareholding in a Government company
• The main purpose of appointing a nominee director is to safeguard the interest of the nominator (investor)
• Appointment of nominee director becomes essential to facilitate monitoring of operations and business of
the investee Company
Nominee Director
In all the above cases, AOA of the Company shall authorise the appointment of such directors

21. Contd.
If the office of any director appointed by the company in general meeting is vacated
before his term of office expires in the normal course
the resulting casual vacancy may, in default of and subject to any regulations in the
AOA of the Company
be filled by the Board at their meeting which shall be subsequently approved by
members in the immediate next 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

22. Contd.
Modifications
In case of Specified IFSC Public Company and Specified IFSC Private Company, nomination as a director
may be done by a Company as well as a body corporate apart from any institution or CG or SG

23. Other directors
Women Director
•The following class of companies shall appoint at least one woman director:
•Every listed company
•Every other public company having,
•paid–up share capital >= Rs. 100 Crores or
•turnover >= Rs. 300 Crores
Any intermittent vacancy of a woman director shall be filled-up by the Board within,
•immediate next Board meeting or
•3 months from the date of such vacancy, whichever is later
Paid up share capital or turnover, as the case may be, as on the last date of latest audited financial statements shall be taken into account
In case of Specified IFSC Public Company, the provisions of Women Director shall not applyNote:

24. Contd.
Re-appointment of Retiring Director
•Public company and private limited Company which is subsidiary of a public Company (Deemed Public Company)Applicability:
Provision:
•AOA may provide for the retirement of all directors at every AGM
•If not, atleast 2/3rd of the total number of directors of a public company shall be liable to retire by rotation
•At every AGM, 1/3rd of rotational directors for the time being as are liable to retire by rotation, shall retire from office
•If their number is neither 3 nor a multiple of 3, then, the number nearest to 1/3rd shall be considered
•Directors to retire by rotation at every AGM shall be those who have been longest in office since their last appointment
•At the AGM at which a director retires as aforesaid, Company may fill up the vacancy by appointing the retiring director
or some other person
Exclusions: •Independent director and small shareholders’ director are excluded from this provision
Exemptions: •In case of Specified IFSC Public Company and Government Company, this provision shall not apply

25. Duties of directors – Section 166
Director of a company shall act in accordance with the AOA of the Company
Shall act in good faith in order to promote the objects of the Company for the benefit of its stakeholders
Shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment
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
Shall not achieve or attempt to achieve any undue gain or advantage either to himself/herself or to his relatives, partners, or associates
Shall not assign his office and if any assignment so made, shall be void
Contravening the provisions of this section shall lead to a penalty of Rs. 1 lakh – 5 lakhs on such director

26. Judicial Precedents
Giju Mathai, Kerala vs. Rojer Mathew P. – [2018] 91 taxmann.com 44 (NCL-AT)
R2 was a company engaged in the business of civil construction of roads, bridges, buildings etc. Appellant, R1 were Directors and R3
was a director-cum-Managing Director of R2 Company
R1 filed oppression and mismanagement petition alleging that in respect of projects undertaken by appellant, there were gross
mismanagement and siphoning of funds leading to projects not being completed on time causing losses to Company
Tribunal was of the view that each director functions as an individual cost and profit centre and thus, by impugned order removed
appellant from directorship of company and appointed R1 as director-cum-managing director
Appellant argued that works undertaken by directors were projects of company and directors were only entrusted with responsibility
of execution and hence Tribunal had wrongly concluded that each director functioned as an individual cost and profit centre
NCLAT held that Tribunal had erred in appointing R1 as Managing Director of company while he was admittedly carrying on
competing business. Hence, Tribunal's order in appointing R1 as Managing Director was quashed and set aside

27. Thank You
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