Number of Directorships
Under Section 165 of The Companies Act, 2013, there are rules regarding the maximum number of directorships a person can hold in various companies. Here’s a breakdown of the key points:
1) Limit on Directorships: According to this section, no individual can serve as a director in more than twenty companies simultaneously. However, there’s a cap of ten public companies for directorship.
2) Special Resolution: The members of a company can vote on a lesser number of directorships through a special resolution.
- Example: If the members of a company feel that the current director is overloaded with responsibilities, they can pass a special resolution to reduce the number of directorships they hold.
(3) Transition Period: Individuals who hold directorships exceeding the limits specified in subsection (1) before the commencement of this Act are given a one-year grace period to adjust.
- Example: Sarah currently serves as a director in 30 companies, including 12 public companies. She must choose to continue serving in only 20 companies (including a maximum of 10 public companies) within a year and resign from the remaining directorships.
(4) Resignation Effectiveness: Resignations from directorships become effective immediately upon submission to the respective companies.
- Example: After deciding to resign from two of the companies she serves on the board of directors for, Sarah submits her resignation letters to those companies, and they take immediate effect.
(5) Enforcement: Violations of these provisions incur penalties, with individuals facing fines for each day they continue to serve in excess of the specified limits.
- Example: If Sarah continues to serve as a director in more than 20 companies beyond the one-year grace period, she will be fined Rs. 2000 for each day of violation, up to a maximum of Rs. 2 lakhs.
These provisions aim to ensure that directors can effectively manage their responsibilities without being spread too thin across multiple companies, thus promoting accountability and efficient corporate governance.
Understanding section 165 of the companies act 2013: Number of Directorships
Section 165 of The Companies Act, 2013 lays down rules regarding the maximum number of directorships a person can hold simultaneously in various companies.
According to this law, as of its enactment, no individual can serve as a director in more than twenty companies at the same time. However, there’s a limit on the number of directorships in public companies, capped at ten. It’s important to note that when calculating directorships in public companies, those in private companies related to public companies (like holding or subsidiary companies) are also counted.
There’s a provision for companies to specify a lower limit on the number of directorships through a special resolution by its members.
For those who already held directorships exceeding the prescribed limits before this law came into effect, they have a year to adjust. Within this period, they must choose to continue serving in a limited number of companies and resign from the excess ones, notifying each concerned company and the Registrar accordingly.
Once a resignation is tendered, it takes immediate effect.
Violation of these regulations incurs penalties. Initially set at a maximum of twenty-five thousand rupees per day under earlier amendments, it has been revised to a maximum penalty of five thousand rupees per day effective from February 9, 2018. The penalty accumulates for each day the violation persists, up to a maximum of two lakh rupees.
An exception to these rules is provided for section 8 companies, exempting them from the provisions of Section 165 of The Companies Act, 2013.
Examples:
- Let’s say Ram is currently serving as a director in 25 companies, out of which 15 are public companies and 10 are private. According to Section 165 of The Companies Act, 2013, he needs to choose which 10 public companies and which 10 private companies he wants to continue serving in and resign from the excess ones within a year.
- If Sanah accepts an appointment as a director in 22 companies, she would be in violation of Section 165, subject to a penalty of two thousand rupees for each day she continues to hold these excess directorships.
Complete text of section 165 of the companies act 2013 related to number of directorships
(1) No person, after the commencement of this Act, shall hold office as a director, including any alternate Directorship, in more than twenty companies at the same time:
Provided that the maximum number of public companies in which a person can be appointed as a director shall not exceed ten.
Explanation I — For reckoning the limit of public companies in which a person can be appointed as director, Directorship in private companies that are either holding or subsidiary company of a public company shall be included.
2[Explanation II.—For reckoning the limit of Directorships of twenty companies, the Directorship in a dormant company shall not be included.]
(2) Subject to the provisions of sub-section (1), the members of a company may, by special resolution, specify any lesser number of companies in which a director of the company may act as Directors.
(3) Any person holding office as director in companies more than the limits as specified in sub-section (1), immediately before the commencement of this Act shall, within a period of one year from such commencement,—
(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.
(4) Any resignation made in pursuance of clause (b) of sub-section (3) shall become effective immediately on the despatch thereof to the company concerned.
(5) 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.
6[(6) If a person accepts an appointment as a director in violation of this section, he shall be liable to a penalty of two thousand rupees for each day after the first during which such violation continues, subject to a maximum of two lakh rupees.]
Amendment
2. Inserted by The Companies (Amendment)Act,2017 :- Amendment effective from 9th february 2018
3.Substituted by the Companies (Amendment) Ordinance,2018 dated 02.11.2018
In section 165, in sub-section (6),for the words
punishable with fine which shall not be less than five thousand rupees but which may extend to twenty-five thousand rupees for every day after the first during which the contravention continues.
the following words shall be substituted namely:-
liable to a penalty of five thousand rupees for each day after the first during which such contravention continues
4.Substituted by the Companies (Amendment) Ordinance,2019 dated 14.01.2019 [Companies (Amendment) Ordinance 2018 is repealed on 12th January 2019]
5.Substituted by the Companies (Amendment) Act,2019-: Effective From 02nd November 2018 [Companies (Amendment) Second Ordinance 2019 is repealed on 31st July 2019]
6.Substituted by the Companies (Amendment) Act, 2020. Notification dated 28th September, 2020 Amendment Effective from 21st December 2020
in rule 165,for sub rule 6,
(6) If a person accepts an appointment as a director in contravention of sub-section (1), he shall be 5[4[3[liable to a penalty of five thousand rupees for each day after the first during which such contravention continues]]]
the following shall be substituted namely:-
(6) If a person accepts an appointment as a director in violation of this section, he shall be liable to a penalty of two thousand rupees for each day after the first during which such violation continues, subject to a maximum of two lakh rupees.]
Exceptions/ Modification/ Adaptation
1. In case of section 8 company – section 165 (1) shall not apply – Notification dated 5th june, 2015
Practice area's of B K Goyal & Co LLP
Income Tax Return Filing | Income Tax Appeal | Income Tax Notice | GST Registration | GST Return Filing | FSSAI Registration | Company Registration | Company Audit | Company Annual Compliance | Income Tax Audit | Nidhi Company Registration| LLP Registration | Accounting in India | NGO Registration | NGO Audit | ESG | BRSR | Private Security Agency | Udyam Registration | Trademark Registration | Copyright Registration | Patent Registration | Import Export Code | Forensic Accounting and Fraud Detection | Section 8 Company | Foreign Company | 80G and 12A Certificate | FCRA Registration |DGGI Cases | Scrutiny Cases | Income Escapement Cases | Search & Seizure | CIT Appeal | ITAT Appeal | Auditors | Internal Audit | Financial Audit | Process Audit | IEC Code | CA Certification | Income Tax Penalty Notice u/s 271(1)(c) | Income Tax Notice u/s 142(1) | Income Tax Notice u/s 144 |Income Tax Notice u/s 148 | Income Tax Demand Notice
Company Registration Services in major cities of India
Company Registration in Jaipur | Company Registration in Delhi | Company Registration in Pune | Company Registration in Hyderabad | Company Registration in Bangalore | Company Registration in Chennai | Company Registration in Kolkata | Company Registration in Mumbai | Company Registration in India | Company Registration in Gurgaon