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Appointment of Director

What Are the Methods of Appointment of Directors in a Public Company?

Discover the intricacies of appointing directors in Indian public companies, complying with the Companies Act, 2013, and understanding crucial regulatory updates.

Introduction

In this comprehensive guide, we will explore the methods of appointment of directors and mandatory requirements for appointing directors in a public company, taking into account the regulatory landscape and essential procedures. The process of appointing directors in a public company is subject to a structured framework outlined in the Indian Companies Act, 2013. 

In the intricate world of corporate governance, the appointment of directors in a public company plays a pivotal role. These individuals are entrusted with steering the company towards its goals, safeguarding stakeholders’ interests, and ensuring compliance with legal obligations.

Understanding the Mandates

As per the Companies Act, 2013, every company must have a requisite number of directors. A public company is mandated to have a minimum of three directors, while a private company requires at least two. One-person companies, as the name suggests, can function with a sole director. The upper limit for directors is set at fifteen, with the provision for exceeding this limit requiring a Special Resolution.

Methods of Appointment of Directors in a Public Company

In India, the appointment of directors in a public company is governed by the Companies Act, 2013, and involves several methods and prerequisites. Let’s delve into these methods in detail.

  1. Appointment by General Meeting:

 One of the fundamental ways to appoint directors in a public company is through the General Meeting of its members. According to Section 152(6) of the Companies Act, 2013, not less than two-thirds of the total number of directors must be persons whose tenure is subject to retirement by rotation. Retirement by rotation means that directors retire but are eligible for reappointment.

 Procedure:

     – Convene a Board Meeting: Initially, the Board of Directors must convene a meeting to discuss and pass a resolution regarding the appointment of new directors or the reappointment of retiring directors.

     – Notice of Board Meeting: A formal notice of the Board Meeting must be issued to all directors at least seven days before the meeting date, with attached agenda and relevant documents.

     – Board Resolution: The Board passes a resolution to consider the appointment of new directors or the reappointment of retiring directors, setting the date, time, and venue of the General Meeting.

     – General Meeting: A General Meeting is held to pass an ordinary resolution for the appointment or reappointment of directors.

     – Appointment Letter: Once appointed, the director receives a letter of appointment outlining the terms and conditions of their appointment.

  1. Appointment by Special Resolution:

While the minimum and maximum number of directors for a public company is defined, if a company wishes to exceed the upper limit of 15 directors, it must pass a Special Resolution as per Section 149(1) of the Companies Act, 2013.

 Procedure:

  – Convene a Board Meeting: Similar to the appointment by General Meeting, the Board must convene a meeting to pass a resolution to hold a General Meeting for passing a Special Resolution.

  – Notice and Resolution: Formal notices are issued to directors, and a resolution is passed to approve the draft notice for the General Meeting, along with an explanatory statement.

   – Special Resolution: At the General Meeting, a Special Resolution is passed to exceed the 15-director limit.

  1. Appointment through the Nomination and Remuneration Committee:

In the case of a public company that is not required to constitute a Nomination and Remuneration Committee, directors can be appointed based on recommendations from the Board of Directors.

  Procedure:

     – The Board of Directors recommends the appointment of a director.

     – The appointment is approved through the same procedures as appointments by General Meeting or Special Resolution, as outlined above.

     – No deposit is required for this type of appointment.

Mandatory Requirements

Regardless of the method chosen for director appointment in a public company, certain mandatory requirements must be met:

  1. Active DIN (Director Identification Number):  

The appointed director must have an active DIN as per Section 152(3) of the Companies Act, 2013.

  1. Disqualification:

  Directors cannot be appointed if they are disqualified under Section 164(1) of the Companies Act, 2013.

  1. Non-filing and Non-repayment Disqualification:

  A person who has been a director of a company that has failed to file financial statements or annual returns for three consecutive financial years, or has failed to meet financial obligations, cannot be re-appointed for five years (Section 164(2)(a)).

  1. Notice of Candidature:

Any person not retiring as a director according to Section 152 and eligible for appointment must fulfill certain conditions. This includes submitting a notice of candidature at least fourteen days before the General Meeting along with a deposit, which may be refunded if the candidate is elected as director.

  1. DIN and Digital Signature Certificate:

 Directors must have a valid DIN and obtain a Digital Signature Certificate from a Certifying Authority in India.

Procedure and Documentation of Appointment of Directors 

The appointment process involves several procedural steps and document submissions:

  • Convening Board Meetings and General Meetings.
  • Issuing formal notices with agendas and resolutions.
  • Passing resolutions for appointment or reappointment.
  • Obtaining consent and declaration from the proposed director.
  • Filing necessary forms with the Registrar of Companies (RoC), including Form DIR-12.
  • Making entries in the Register of Directors.
  • Ensuring compliance with various labour and industry-specific laws.

Conclusion

Appointing directors in a public company in India is a well-defined process governed by the Companies Act, 2013, and associated regulations. It involves methods like appointment by General Meeting, appointment by Special Resolution, and appointment through recommendations. 

Alongside these methods, certain mandatory requirements and procedural steps must be adhered, consult experts from Vakilsearch to know more. In addition to this, being aware of regulatory changes is equally important to ensure that the appointment process is in accordance with the latest legal provisions.

To learn more about the legal procedure behind the appointment of directors in a public company reach out to our experts right away! Stay-up-to-date and MCA compliant  with Vakilsearch!

FAQs:

1. Can a public company have more than 15 directors without a Special Resolution?

No, a public company must pass a Special Resolution to exceed the maximum limit of 15 directors.

2. What is the significance of obtaining a Digital Signature Certificate (DSC) for directors?

A DSC is essential for digitally signing documents and filings, ensuring their authenticity and legality.

3. What are the consequences if a director is disqualified under Section 164(1) of the Companies Act, 2013?

Disqualified directors cannot be appointed in any company, and their existing directorships may also be terminated.

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