A director is appointed by the shareholders of a company to oversee its operations in accordance with the Memorandum of Association (MOA) and Articles of Association (AOA). To be eligible for this role, an individual must possess a Digital Signature Certificate (DSC) and a Director Identification Number (DIN).
Anyone aged 21 or older can serve as a director. The company’s AOA must include guidelines for appointing new directors. The Companies Act, 2013 outlines the necessary procedures for adding a director. A private company is required to have at least two directors but can have no more than fifteen directors at any given time.
Meaning of Companies (Appointment and Qualification of Directors) Amendment Rules, 2022
Rule 8 amendment – Consent to act as a director
MCA inserted a new proviso to sub-rule (1) of rule 8 of the Companies (Appointment and Qualification of Directors) Rules, 2014 vide Amendment Rules, 2022
- Every person who has been appointed as a director must give written consent to the company to act as a director in Form DIR-2 at or before the appointment.
- The company will have to submit this consent to the registrar in form DIR-12 along with the fee as prescribed in the Companies (Registrations and Fees) Rules, 2014 within 30 days of the director’s appointment.
As per the Companies (Appointment and Qualification of Directors) Additional Rules, 2022, in case the person seeking appointment is a national of a country that shares a land border with India, he must have the necessary security clearance from the Ministry of Home Affairs, India governments also attach with consent.
Rule 10 amendment – Allotment of DIN
As per the Companies (Appointment and Qualification of Directors) Rules, 2014, to get a Director Identification Number (DIN), a company has to file Form DIR-3 on the MCA portal and pay the required amount of fees through the online mode. After successful payment of the form, the system will automatically generate an application number.
Now the MCA has said that no application number will be generated if the person applying for the Director Identification Number is a national of a country that shares a land border with India unless a security clearance is required from the Ministry of Home Affairs, Government of India was attached with the application for the director’s identification number.
Note: Before security clearance by the Ministry of Home Affairs, the Government of India is required to obtain a DIN from every person who is a national of a country that shares a land border with India.
Declaration details on form DIR-2 and DIR-3- amendment
Under the Companies (Appointment and Qualification of Directors) Amendment Rules 2022, a person appointed as a director of a company will be required to submit the following declaration:
- I am not required to obtain security clearance from the Ministry of Home Affairs, Government of India before applying for appointment as Director
- Before I apply for appointment as Director I have to obtain security clearance from the Ministry of Home Affairs, Government of India, and I have obtained the same and attached
Changes in details of the declaration on form DIR-3-
To obtain a DIN from the Ministry, the director will need to submit the following declaration:
- I am not required to obtain security clearance from the Ministry of Home Affairs, Government of India under Sub-Rule (1) of Rule 10 before applying for Director Identification Number
- I am required to obtain a security clearance from the Ministry of Home Affairs, Government of India under sub-rule (1) of rule 10 before applying for Director Identification Number I have obtained the same and it is attached
Under the new rules, it will be mandatory for companies to seek permission from the government before appointing directors from countries sharing a land border to their boards.
Basic Qualifications for Directors
- Age requirement: The candidate should be above 18 years as law has excluded minors from directorship
- Compliance with the Companies Act, 2013: Such a person does not fall under any of the disqualifications contemplated by the Companies Act,2013
- Consensual Agreement: It should be an agreement consensual in nature and supported by the Board of Directors and the shareholders along with the individual proposed for the position of a director.
Nationality and Residency Requirements
The Indian Companies Act establishes specific provisions regarding the nationality of directors. It allows for the appointment of foreign directors, provided they comply with the relevant nationality laws and regulations. Directors must also meet residency requirements, which ensure that the company has sufficient oversight from individuals who are accessible within India.
Foreign Directors on Indian Boards
Foreign nationals are permitted to hold offices of directors in Indian companies provided they meet the residence conditions that are applicable. For foreign directors, they have to ensure that they are compliant with the law so that they are found in all respects compliant with relevant regulations and maintain character as well as the standard of governance that is expected in Indian corporate law.
FAQs
What is the qualification required to become a Director in a company?
The qualification required to become a director in a company varies depending on the company type and the role of the director. However, some general qualifications include:
- Age: The individual must be at least 21 years old and not exceed the age of 70 years.
- Director Identification Number (DIN): The individual must obtain a DIN from the Ministry of Corporate Affairs (MCA) before becoming a director.
- Proficiency: No specific educational qualifications are required for most directors, but certain positions, such as Independent Directors, may require experience or knowledge in a specific field (e.g., finance, law).
- Disqualification Criteria: Certain legal disqualifications apply, such as not being an undischarged insolvent, not being convicted of certain offenses, or not being declared to be of unsound mind by a court.
Who can appoint a Director in a company?
A director can be appointed by:
- Shareholders: In the Annual General Meeting (AGM) or Extra-ordinary General Meeting (EGM), shareholders can vote to appoint directors.
- Board of Directors: In some cases, the Board of Directors can appoint directors to fill casual vacancies or in the case of an increase in the number of directors, subject to shareholder approval at the next meeting.
- Company Articles of Association (AOA): A company’s AOA may lay out specific guidelines for the appointment of directors, which must be followed.
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