Compliance Checklist for appointment of Additional Director and Alternate Director

 

In the ordinary sense, a Board of Directors is a group of people elected by the owners of a business entity who have decision-making authority and specific responsibilities which in each case is separate and distinct from the authority and responsibilities of owners and managers of the business entity. The precise name for this group of individuals depends on the law under which the business entity is formed. In the case of a company incorporated under the Companies Act, 2013 (“Act”), “Board” is a group of directors elected to manage a company by those holding shares in the company. Directors are the members of a Board of Directors. Directors must be individuals. Directors can be owners, managers, or any other individual elected by the owners of the business entity.

This article is a compilation and analysis of the relevant provisions for appointment and reappointment of Additional Director and Alternate Director. The article provides for the checklist on the appointment of such Directors. For listed companies, in addition to the Act, 2013, the company shall also comply with the Securities and Exchange Board of India (Listing Obligation and Disclosure Requirement) Regulations, 2015 “SEBI Listing Regulations” as well.

Provisions for appointment of Additional Director: Sub-section (1) of Section 161 of the Companies Act states that:

The Articles of Association of (“AoA”) a company may confer on its Board of Directors the power to appoint any person, other than a person who fails to get appointed as a director in a General Meeting (“GM”), as an additional director at any time who shall hold office up to the date of the next Annual General Meeting (“AGM“) or the last date on which the AGM should have been held, whichever is earlier.

Checklist for appointment of Additional Director

(i) Any company — private company or public company — can appoint an additional director.

(ii) The appointment of additional director shall be authorised by the AoA of the company.

(iii) The power to appoint additional director is conferred on the Board of Directors. The Board can appoint such Director by passing a resolution in its meeting or by passing a circular resolution.

(iv) The tenure of additional director shall be up to the date of the next AGM. If the AGM is not held, then the tenure of the additional director shall be up to the last date on which such meeting should have been held.

(v) At the time of appointment, the Board shall confirm the maximum number of directors as per the AoA of the company.

(vi) The proposed appointee is not disqualified to be director of the company under Section 164 of the Act.

(vii) A person who fails to get appointed as a director in a GM shall not be eligible for appointment as an additional director.

(viii) If such director is further appointed as an independent director, the company shall comply with the requisite compliance under sub-section (6) of Section 149 of the Act and Rules made thereunder.

(ix) If such director is further appointed as a Managing Director, the company shall comply with the requisite compliance under the Act and Rules made thereunder.

(x) The proposed appointee shall give his consent [as prescribed under Section 152(5) of the Act] to hold the office as a director of the company.

(xi) In case of a public company (whether listed or not), the remuneration to such director shall not exceed the limits prescribed under Section 197 of the Act.

(xii) If the company is a public company (listed or not), the company shall comply with the provisions relating to the approval of Nomination and Remuneration Committee (as prescribed under Section 178 of the Act).

(xiii) The appointed director shall disclose his interest or concern (as provided under Section 184 of the Act).

(xiv) If there is an increase in the number of directorships of a director in a company — confirm if the company is required to comply with the provisions of the Act and SEBI Listing Regulations as well.

(xv) As a part of good corporate secretarial practice, the Board of Directors of the company may issue an appointment letter to the appointed director.

(xvi) Requisite disclosures shall be made in Board’s report regarding the appointment/reappointment/remuneration to additional directors.

(xvii) Confirm whether requisite particulars have been entered in the register of directors and key managerial personnel and their shareholding (maintained under Section 170 of the Act).

(xviii) Confirm whether requisite particulars have been entered in the register of contracts or arrangements in which directors are interested, if any (maintained under Section 189 of the Act).

(xix) Confirm whether the company has filed a return (Form DIR-12) with the Registrar of Companies for the appointment of such directors.

Provisions for appointment of Alternate Director: Sub-section (2) of Section 161 of the Act states that:

The Board of Directors of a company may, if so authorised by its articles or by a resolution passed by the company in GM, appoint a person, not being a person holding any alternate directorship for any other director in the company or holding directorship in the same company, to act as an alternate director for a director during his absence for a period of not less than three months from India:

Provided that no person shall be appointed as an alternate director for an independent director unless he is qualified to be appointed as an independent director under the provisions of this Act:

Provided further that an alternate director shall not hold office for a period longer than that permissible to the director in whose place he has been appointed and shall vacate the office if and when the director in whose place he has been appointed returns to India:

Provided also that if the term of office of the original director is determined before he so returns to India, any provision for the automatic reappointment of retiring directors in default of another appointment shall apply to the original, and not to the alternate director.

Checklist for appointment of Alternate Director

(i) Any company — private company or public company — can appoint an alternate director.

(ii) The appointment of an alternate director shall be authorised by the AoA of the company or by a resolution passed by the company in GM (i.e. annual general meeting or extraordinary general meeting).

(iii) The power to appoint alternate director is conferred on the Board of Directors. The Board can appoint such director by passing a resolution in its meeting or by passing a circular resolution.

(iv) An alternate director can be appointed for a director (usually referred to as “original director”) during his absence for a period of not less than three months from India.

(v) The proposed alternate director shall not be an appointed director in the same company.

(vi) The alternate director shall not hold office for a period longer than that permissible to the director in whose place he has been appointed. The alternate director shall vacate the office if and when the director in whose place he has been appointed returns to India.

(vii) A person shall not be appointed as an alternate director for an independent director unless he is qualified to be appointed as an independent director under the provisions of the Act.

(viii) If the term of office of the original director is determined before he so returns to India, any provision for the automatic reappointment of retiring directors in default of another appointment shall apply to the original director, and not to the alternate director.

(ix) The proposed appointee is not disqualified to be director of the company under section 164 of the Act.

(x) The proposed appointee shall give his consent [as prescribed under Section 152(5) of the Act] to hold the office as a director of the company.

(xi) In case of public company (whether listed or not), the remuneration to such director shall not exceed the limits prescribed under Section 197 of the Act.

(xii) If the company is a public company (listed or unlisted), the company shall comply with the provisions relating to the approval of Nomination and Remuneration Committee (as prescribed under Section 178 of the Act).

(xiii) The appointed director shall disclosure his interest or concern (as provided under Section 184 of the Act).

(xiv) As there is an increase in the number of directorships of a director in a company — confirm the compliance of the same under the Act and SEBI Listing Regulations as well.

(xv) As a part of good corporate secretarial practice, the Board of Directors of the company may issue an appointment letter to the appointed director.

(xvi) Requisite disclosures shall be made in Board’s report regarding the appointment/reappointment/remuneration to alternate directors.

(xvii) Confirm whether requisite particulars have been entered in the register of directors and key managerial personnel and their shareholding (maintained under Section 170 of the Act).

(xviii) Confirm whether requisite particulars have been entered in the register of contracts or arrangements in which directors are interested, if any (maintained under Section 189 of the Act).

(xix) Confirm whether the company has filed a return (Form DIR-12) with the Registrar of Companies for the appointment of such directors.

 

Gaurav N Pingle, Practising Company Secretary, Pune. He can be reached at gp@csgauravpingle.com.

 

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