Appointment of Directors
Section 152 of The Companies Act, 2013 outlines the rules for appointing directors in a company. Let’s break down the provisions in simpler language.
1. Provision for First Director: If a company’s articles don’t specify the appointment of the first director, the individuals who signed the memorandum become the first directors. In the case of a One Person Company, the sole member is considered the first director until a formal appointment is made.
2. Appointment of Directors: Unless otherwise stated, every director must be appointed by the company in a general meeting.
3. Director Identification Number (DIN): No one can be a director without a Director Identification Number (DIN), as per Section 154, or any other prescribed number under Section 153.
4. Declaration and Consent: Before appointment, a proposed director must provide their DIN and a declaration stating they are not disqualified from being a director under this Act.
5. Consent Filing: A director must file their consent to hold the office within thirty days of appointment.
6. Retirement by Rotation: For public companies, unless the articles state otherwise, two-thirds of the total directors must retire by rotation. At each annual general meeting, one-third of such directors, or the nearest number, should retire.
7. Filling Vacancies: If a director retires, the company can fill the vacancy at the annual general meeting. If not filled, the meeting adjourns and is reconvened. If still not filled, the retiring director is deemed re-appointed unless certain conditions apply.
8. Exceptions:
- For Section 8 companies, a specific provision regarding director appointment does not apply.
- For government companies, specific provisions about director appointment do not apply in certain cases.
- For specified IFSC public companies, certain subsections do not apply.
Examples to Explain: Let’s say a group of people starts a company but forgets to mention the first directors in their articles. In this case, those initial people automatically become the directors until a formal appointment is made.
Now, imagine a public company with nine directors. Every year, three directors, or the closest number, must retire at the annual general meeting. The company can then appoint new directors to fill these vacancies.
Exceptions exist, like for government companies where certain rules may not apply if the entire share capital is held by the government.
In summary, Section 152 of The Companies Act, 2013 governs the appointment of directors, ensuring a structured and accountable process for managing a company’s leadership.
Section 152 of the Companies Act, 2013
(1) 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 and 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.
(2) Save as otherwise expressly provided in this Act, every director shall be appointed by the company in general meeting.
(3) No person shall be appointed as a director of a company unless he has been allotted the Director Identification Number under section 154 7[or any other number as may be prescribed under section 153.] .
(4) Every person proposed to be appointed as a director by the company in general meeting or otherwise, shall furnish his Director Identification Number 7[or such other number as may be prescribed under section 153] and a declaration that he is not disqualified to become a director under this Act.
2&5[(5) A person appointed as a director shall not act as a director unless he gives his consent to hold the office as director and such consent has been filed with the Registrar within thirty days of his appointment in such manner as may be prescribed:]
1 [Provided that in the case of appointment of an independent director in the general meeting, an explanatory statement for such appointment, annexed to the notice for the general meeting, shall include a statement that in the opinion of the Board, he fulfils the conditions specified in this Act for such an appointment.]
3,4&6[(6) (a) Unless the articles provide for the retirement of all Directors at every annual general meeting, not less than two-thirds of the total number of Directors of a public company shall—
(i) be persons whose period of office is liable to determination by retirement of Directors by rotation; and
(ii) save as otherwise expressly provided in this Act, be appointed by the company in general meeting.
(b) The remaining Directors in the case of any such company shall, in default of, and subject to any regulations in the articles of the company, also be appointed by the company in general meeting.
(c) At the first annual general meeting of a public company held next after the date of the general meeting at which the first Directors are appointed in accordance with clauses (a) and (b) and at every subsequent annual general meeting, one-third 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.
(d) The Directors to retire by rotation at every annual general meeting shall be those who have been longest in office since their last appointment, but as between persons who became Directors on the same day, those who are to retire shall, in default of and subject to any agreement among themselves, be determined by lot.
(e) At the annual general meeting at which a director retires as aforesaid, the company may fill up the vacancy by appointing the retiring director or some other person thereto.
Explanation.—For the purposes of this sub-section, “total number of Directors” shall not include independent Directors, whether appointed under this Act or any other law for the time being in force, on the Board of a company.
4&6[(7) (a) 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.
(b) 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, unless—
(i) at that meeting or at the previous meeting a resolution for the re-appointment of such director has been put to the meeting and lost;
(ii) the retiring director has, by a notice in writing addressed to the company or its Board of Directors, expressed his unwillingness to be so re-appointed;
(iii) he is not qualified or is disqualified for appointment;
(iv) a resolution, whether special or ordinary, is required for his appointment or re-appointment by virtue of any provisions of this Act; or
(v) section 162 is applicable to the case.]
Explanation.—For the purposes of this section and section 160, the expression “retiring director” means a director retiring by rotation.]
Exceptions/ Modifications/ Adaptations
- In case of section 8 company – proviso to section 152 (5) shall not apply . – Notification dated 5th june, 2015.
- In case of Government company – section 152 (5) shall not apply , where appointment of such director is done by the Central Government or State Government, as the case may be. – Notification dated 5th june, 2015.
3.In case of Government Comapny – Sub-section (6) and (7) of section 152 shall not apply to :-
(a) a Government Company in which the entire paid up share capital is held by the Central Government, or by any State Government or Governments or by the Central Government and one or more State Governments;
(b) a subsidiary of a Government company, referred to in (a)above, in which the entire paid up share capital is held by that Government company. – Notification dated 5th june, 2015.
- In case of Specified IFSC Public Company -Sub-sections (6) and (7) of section 152 shall not apply – Notification Dated 4th January, 2017.
- In case of Specified IFSC Public Company- In Sub-section (5) of section 152, For the words “thirty days” read as “sixty days”.- Notification Dated 4th January, 2017.
6.In case of Government Company – Sub-section (6) and Sub-Section (7) of section 152 shall not apply to – Notificatiopn Dated 13th June, 2017.
For Entry 15 of Exceptions/ Modifications/ Adaptations Dated 5th June, 2015 (Sub-section (6) and (7) of section 152 shall not apply to :-
(a) a Government Company in which the entire paid up share capital is held by the Central Government, or by any State Government or Governments or by the Central Government and one or more State Governments;
(b) a subsidiary of a Government company, referred to in (a)above, in which the entire paid up share capital is held by that Government company)
the following Entry shall be substituted
Sub-section (6) and (7) of section 152 shall not apply to
(a) a Government company, which is not a listed company, in which not less than fifty-one per cent. of paid up share capital is held- by- the Central Government, or by any State Government or Governments or by the Central Government and one or more State Governments;
(b) a subsidiary of a Government company, referred to in (a) above.”. – Notification Dated 13th June, 2017.
Amendment
7.Inserted by The Companies (Amendment)Act,2017 :- Amendment effective from 9th february 2018
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