According to the Companies Act, 2013, a company is an organisation incorporated under Company Law, 2013 or any other previous company law. A company is an artificial person formed by single or group of people to do their work efficiently and effectively. Companies include sole proprietorship, partnership, limited liability, corporation, and public limited company. In the eyes of law, Company is an artificial person having separate legal entity from its members with perpetual succession and common seal. The capital of the company is divided into different shares and the shareholders are the members of company. A company, being an artificial person, is managed and controlled by its officers called the Directors of the company. According to the inclusive definition under the Companies Act, 2013, a Director means a Director appointed to the Board of a company. The Directors are the head of a company. They are the supreme authority controlling the managerial and other affairs of the company. They are jointly known as the Board of Directors (BOD) of a company under Section 2 (10) of the Companies Act, 2013. The BOD oversees the management activities of the company as well as protects the long-term interests of the shareholders of the company.
The company law in India does not bar foreign nationals to become directors in Indian companies. A foreigner or a non-resident Indian can become an executive or a non-executive/independent director of Indian companies whether public or private. Following are the relevant laws applicable to a foreign national as a director in an Indian company.
Foreign National as a Director under Companies Act, 2013
Appointment of Directors under Sec 152 of Companies Act, 2013:
Under Indian Companies Act, 2013, six types of Directors are appointed in a company, i.e., Women Director, Independent Director, Small Shareholders Director, Additional Director, Alternative and Nominee Director. The Act does not bar a foreign national to be appointed as any of the above-mentioned directors in Indian Companies by complying with the Companies Act, 2013 read along with the Companies (Appointment and Qualifications of Directors) Rules, 2014.
Following are the criteria that are to be fulfilled by a person (including a foreign national) to become a Director of a company under the Act:
Every person (including a foreign national) shall be allotted with a Director Identification Number (DIN) before being appointed as a director; Every person (including a foreign national) who is appointed as a Director shall furnish his DIN and shall declare that he is not disqualified from becoming a Director under this Act and
The person (including a foreign national) appointed as a Director shall not act as a Director unless he gives his written consent to act as director in Form DIR-2. Such consent has to be filed with the Registrar within 30 days of his appointment.
Application & Allotment of Director Identification Number (DIN) (Sec 153 and 154) (Chapter 11, Rule 9&10)
DIN is allotted by the Central Government to the person intending to become the Director of a company. Every person (including a foreign national), intending to become a Director of a company, shall make an application to the Central Government for allotment of DIN under Section 153 of The Act. The Central Government allots the DIN to the applicant within one month from the receipt of the application. An applicant (including a foreign national), shall make an application for obtaining DIN in electronic Form DIR-3 to the Central Government along with fees of Rs.500 as provided under The Rules. The Central Government will provide an electronic system to facilitate submission of the application for allotment of DIN through the portal on the MCA (Ministry of Corporate Affairs) website. The Form DIR-3 has to be downloaded from the portal. It has to be filled and signed by the applicant using his/her own Digital Signature Certificate and shall be submitted electronically.
Following are the documents required to be attached to the application:
Proof of identity;
Proof of residence;
Verification by the applicant for applying for allotment of DIN in Form DIR-4; and
Specimen signature duly verified.
In the case of foreign national applying for DIN to become a director in an Indian company, details of a valid passport should be filled in Form DIR-3, and a certified copy of same should be attached with DIN application. All supporting documents including photograph should be certified by the Indian Embassy or a notary in the home country of the applicant or by the Managing Director / CEO / Company Secretary of the company registered in India, in which applicant is a director. If a foreign director has a valid multiple entry Indian visa or Person of Indian Origin card or Overseas Citizen of India card, then the attestation could also be done by Public Notary / Gazetted Officer in India or a practicing chartered accountant / company secretary / cost accountant.
The Form DIR-3 shall be digitally verified by:
A chartered accountant in practice or a company secretary in practice or a cost accountant in practice; or
A company secretary in full-time employment of the company or by the managing director or director of the company in which the applicant is to be appointed as director.
Immediately after submitting the DIN application online, a provisional DIN is generated automatically. Provisional DIN shall not be utilized until it is approved and confirmed by the Central Government. The Central Government processes the application so received and decides whether to accept or reject the DIN and communicate the same to the applicant within one month from the date of receiving the application. If the Central Government finds any defect or incompleteness in the application, then it shall communicate the same, by placing it on the website and by emailing it to the applicant, directing to rectify the errors within 15 days from the date of such placing it on the website and email.
In case the errors are partially corrected, or the rectified information is still defective, then the Central Government shall reject the application and direct the applicant to file a fresh application for DIN. In case the information is not rectified within a given time, then such application shall be held invalid by the Central Government. On rejection of the application, the provisional DIN shall automatically lapse, and the fees paid shall neither be refunded nor adjusted with any other application. The DIN so obtained by the applicant shall be valid till the lifetime of the applicant.
An independent director of a company means a director who is not a promoter nor related to the promoter of the company; or has no pecuniary relationship nor related to any person having pecuniary relationship with the company, its holding or subsidiary or associate company; neither himself nor his relative is a key managerial personnel or any employee in the company.
A foreign national can be an independent Director of a company if he possesses skills, experience, and knowledge in one or more fields of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations or other disciplines related to company’s business.
Managing Director or Whole-Time Director
A foreign national, intending to become a managing or a full-time director, should be a resident of India i.e. who has been staying in India continuously not less than twelve months, immediately preceding the date of his appointment. He should not be less than twenty-one years of age nor more than seventy years of age. If the person is of seventy years of age, by passing a special resolution, can be appointed so. The person should not be insolvent; nor has he, at any time, suspended payment to his creditors; or has, at any time been convicted of an offense and sentenced for more than a period of six months. Such appointment is approved by the BOD at a meeting which shall be a subject of approval in the next general meeting by passing a resolution. Approval from Central Government is needed if the person does not comply with the above-mentioned conditions.
Foreign National as a Director under Foreign Exchange Management Act (FEMA), 1999
As per Companies Act and FEMA, there are no restrictions for a foreign national to become a director in an Indian Company. He is eligible for sitting fees, remuneration, commission, travel expenses just like any other director. But, according to FEMA, a foreign national cannot acquire a property situated in India.
A foreign national as a director in an Indian company can hold and maintain a foreign currency account with a bank outside India and receive or remit the whole salary payable to him for his services. Where foreign nationals are engaged by Indian companies, the Indian companies shall make an application for remittance of remuneration to authorized dealers with a statement and undertaking certificate regarding payment of Income Tax. A foreign national intending to become a director in an Indian company shall hold a valid employment visa.
Foreign National as a Director under Income Tax Act, 1961
Any income earned in India is subjected to Income Tax. Similarly, in the case where a foreign national earns as a director of an Indian company is subjected to income tax under Income Tax, 1961. The required TDS shall be deducted from their remuneration or commission as per the provisions of Income Tax Act.
The Act does not prohibit appointment of a foreign national as the director of any Indian Company. It does not give any immunity as such just because of the fact that he/she is a Foreign National. He/she shall comply with Companies Act 2013, Companies Rules 2014, FEMA 1999 and Income Tax Act 1961.