(1)
Corporate and Economic Laws CA Final
2 | Company Law Author: CA. Aseem Trivedi
Chapter -2
APPOINTMENT oF DIRECTORS
CONCEPT-1
MODES OF APPOINTMENT OF DIRECTORS
Appointment of Director- at a Glance
CONCEPT INDEX
1. Modes of Appointment of Directors
2. Appointment of Directors in General Meetings
3. Appointment of Directors by BOD
4. Stand For Directorship
5 Single Resolution
Proportionate representation of Director
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First directors:- According to section 152(1) Where no provision
is made in the articles of a company for the appointment of the
first director, the subscribers to the memorandum who are
individuals shall be deemed to be the first directors of the
company until the directors are duly appointed and in case of a
One Person Company an individual being member shall be
deemed to be its first director until the director or directors are
duly appointed by the member in accordance with the
provisions of this section.
Corporate and Economic Laws CA Final
4 | Company Law Author: CA. Aseem Trivedi
Other Directors:- According to section 152(2) save as otherwise
expressly provided in this Act(like section 161), every director
shall be appointed by the company in General Meeting. It is
expressly provided under the act that first directors will be
appointed as discussed above and additional director, alternate
director, Nominee director and director on casual vacancy shall
be appointed by BOD (section 161).
MCQ-1. Where no provision is made in the articles of a
company for the appointment of the first director
(a) All the subscribers to the memorandum shall be deemed to
be the first directors of the company until the directors are
duly appointed
(a) The subscribers to the memorandum who agreed to
become directors and who are individuals shall be deemed
to be the first directors of the company until the directors
are duly appointed
(c) The subscribers to the memorandum who are
individuals shall be deemed to be the first directors of the
company until the directors are duly appointed
(d) The subscribers to the memorandum who are individuals
shall be deemed to be the first directors of the company for
the life time.
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Q.1. What are essential formalities to be completed
before Appointment of Director?
Following are the [Prescribed in Sec. 152 (3) to 152(5)]
Verify first that whether the person has Director
Identification Number
Every proposed Director in general meeting or otherwise
shall furnish DIN and a declaration that he is not disqualified
(u/s 164) to become a Director
Proposed Director shall give his consent in Form DIR-2 to
hold the office as director and such consent be filed with the
Registrar in Form DIR-12 within 30 days of his appointment
for example:- Mr. X appointed as a director in general
Meeting of the ABC ltd. on 25.09.2014, Mr. X filed the
consent to hold office as director to registrar on 11.12.2014,
Is Mr. X can act as director? In the given case Mr. X has
failed to file consent with registrar within 30 days of his
appointment. Hence Mr. X cannot act as a director.
MCQ-2. Following may not have DIN
(a) Proposed Director
(b) Appointed directors
(c) First Directors
(d) None of the above
Corporate and Economic Laws CA Final
6 | Company Law Author: CA. Aseem Trivedi
CONCEPT-2
APPOINTMENT OF DIRECTORS IN GENERAL MEETINGS
Q.2. Which Director of the company is required to be
appointed by shareholders in General Meeting?
As discussed in above paragraphs except First Director,
Additional Director, Alternate Director, Nominee Director and
Director to be appointed to fill casual vacancy by Board, every
other director is appointed by shareholders in their General
Meeting.
MCQ-3. Usually directors in routine appointed by
(a) BOD
(b) MD
(c) Shareholders
(d) All the above
Q.3. What do you mean by Small Shareholders and
what are requirements of Small Shareholders
Director under the Company’s Act 2013?
Small Shareholders means a shareholder holding shares of
nominal value ( please note it is not fair market value) of not
more than 20,000/- rupees or such other sum as may be
prescribed (not yet prescribed). It should be noted that it is
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optional for a listed company to have a small shareholders
directors. It is not mandatory to have such director. If company
at its own appoints the directors representing small shareholder,
the procedure given in this regard by appointment of SSD by
shareholders will not applicable.
MCQ-4. MCQ-54 Small Shareholders means
(a) Shareholder holding shares of Fair value not more than
20000/-
(b) Shareholder holding shares of nominal Value not more
than 20000/-
(c) Shareholder holding shares of net realisable value not more
than 20000/-
(d) Shareholder holding shares of Discounted value not more
than 20000/-
MCQ-5. Appointment of SSD is mandatory for
(a) Listed Company
(b) Limited Company
(c) Private Company
(d) None of the above
Corporate and Economic Laws CA Final
8 | Company Law Author: CA. Aseem Trivedi
MCQ-6. MCQ-56 If Listed entity suo motu appoints the SSD
(a) Provisions of section 151 still be applicable
(b) Provisions of section 151 may be applicable
(c) Provisions of section 151 will not be applicable
(d) Provisions of section 151 may or may not be applicable
Q.4. What are the provisions and procedures to appoint
a SSD?
According to section 151, a Listed Company may have one
director elected by such small Shareholders in such manner and
with such terms and conditions as may be prescribed.
(i) Meaning of such small shareholders:- A listed company,
may upon notice of
(a) Not less than 1000 or
(b) 1/10th of the total number of small shareholders ( not
all shareholders please note)
whichever is lower,
have a small shareholders’ director elected by the small
shareholders. Further a listed company may suo-moto
opt to have a director representing small shareholders.
(ii) How they propose company to appoint SSD:-
(a) The small shareholders intending to propose a person as
a candidate for the post of small shareholder’s director
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shall leave a signed notice of their intention with the
company at least 14 days before the meeting specifying
the their details and proposed director’s details. The
details include name, address, shares held and folio
number etc. If the proposer does not hold any shares in
the company, the details of shares held and folio
number need not be specified in the notice.
(b) The notice shall be accompanied by a statement signed
by the proposed director for the post of small
shareholders’ director stating
(a) His Director Identification Number;
(b) That he is not disqualified to become a director
under the Act; and
(c) His consent to act as a director of the company.
(c) If proposed director is qualified u/s 149 (6) for
appointment as an independent director and has given
declaration for his independence u/s 149 (7) then such
director shall be considered as an independent director.
(iii) Tenure of SSD:- The director’s tenure as small shareholders’
director shall not exceed a period of 3 consecutive years
and he shall not be liable to retire by rotation. Further he
shall not be eligible for reappointment after the expiry of
his tenure.
Corporate and Economic Laws CA Final
10 | Company Law Author: CA. Aseem Trivedi
(vi) Disqualification for SSD :- If the person is not eligible for
appointment according to section 164, then he can’t be
appointed as small shareholder’s director.
(v) Vacation of office of SSD:- Small shareholders’ director shall
vacate the office if -
(a) He ceases to be a small shareholder, on and from the
date of cessation;
(b) He incurs any of the disqualifications specified in section
164;
(c) He office of the director becomes vacant in pursuance
of section 167;
(d) He ceases to meet the criteria of independence as
provided section 149 (6).
(vi) No of SSD directorship: - Simultaneously he shall not hold
the office of small shareholders’ director in more than two
companies. If second company is in competitive business or
is in conflict with business of the first company the he shall
not be appointed in second company.
(vii) Cooling period:- He shall directly or indirectly not be
appointed or associated in any other capacity with the
company for a period of 3 years from the date of cessation
as a small shareholder’s director.
(viii) No Association with the company for next 3 years
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Special Note: - A small Shareholder Director shall not, for a
period of 3 years from the date on which he ceases to hold
office as a small shareholders director in a company, be
appointed in or be associated with such company in any other
capacity, either directly or indirectly.
MCQ-7. Notice to the company for appointment of SSD can
be given by
(a) not less than 1000 or 1/10th of the total number of all
shareholders Whichever is more
(b) not less than 1000 or 1/10th of the total number of small
shareholders whichever is more
(c) not more than 1000 or 1/10th of the total number of small
shareholders whichever is less
(d) not less than 1000 or 1/10th of the total number of small
shareholders whichever is less
MCQ-8. SSD proposed by small shareholders
(a) shall also small shareholder
(b) Shall be a Shareholder
(c) May or may not be small shareholder
(d) May or may not be shareholders
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MCQ-9. The director’s tenure as small shareholders’ director
(a) shall not exceed a period of 3 years
(b) shall not exceed a period of 3 consecutive years
(c) shall not lower than a period of 3 consecutive years
(d) shall not exceed a period of 3 years
MCQ-10. Small shareholders’ director shall vacate the office if -
(a) he ceases to be a small shareholder, on and from the date
of cessation;
(b) he incurs any of the disqualifications specified in section
164;
(c) the office of the director becomes vacant in pursuance of
section 167;
(d) All the above
MCQ-11. SSD shall not hold the office of small shareholders’
director in
(a) More than two companies
(b) More than 1 companies
(c) More than 20 Companies
(d) None of the above
♠♠♠♠
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Let’s Rehearse
Q.5. ABC Listed company want to appoint Mr.
Ghanshyam Das who is holding 1000 equity shares
of Rs. 10 each of the company , as a director of
representative of Small shareholders on the board
of the said company . State the provisions of
section 151 of the companies Act, 2013, it is further
given that Mr. Ghanshyam das hold the position of
small shareholder director already 2 companies.
Answer
According to section 151, a listed company may have one
director elected by small shareholder-
Either on its motion
Upon notice of not less than 1000 small shareholders or
1/10th of total no. such shareholders whichever is lower
But it should be noted that a person shall not hold the position
of SSD in more than two companies at the same time
In the given case, ABC ltd on its motion appoint SSD to Mr.
Ghanshayam however Mr Ghanshayam not eligible for SSD,
because he is already SSD in two companies
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Q.6. (November 2008 Modified)
The Board of Directors of M/s Ghanshyamdas Limited, listed
company having a paid-up capital of Rs. 6 crores consisting of
equity share capital of Rs.5 crores and preference share capital
of Rs. 1 crore and also 1,100 'Small Shareholders' holding equity
shares seeks your advice on the following:
(a) Is it necessary for the Company to appoint a Director to
represent the 'Small Shareholders'?
(b) In case the Company decides to appoint such a Director.
The procedure to be followed by the company for such
appointment and the period for which such appointment
can be made.
(c) Can such a director be removed by the Company before
the expiry of his period of appointment without the
consent of the 'Small Shareholders'? Advise explaining the
relevant provisions of the Companies Act, 2013 and the
Rules.
Answer
(i) As per Section 151 of Companies Act, 2013, listed company
is required to appoint small shareholders' director.
(ii) A company may either
Elect small shareholders director on its own.
Appoint small shareholders director on notice of small
shareholders.
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Notice in writing should propose the name of person
proposed as small shareholder director. Notice should be
given at least 14 days before meeting. Notice should be
given by at least 1/10th of total number of small
shareholders or by 1000 small shareholders, whichever is
lower. Notice must contain the prescribed particulars. The
person whose name is proposed as director will sign and
file with the company his consent in writing to act as a
director. The person proposed to be appointed as small
shareholders director must have obtained DIN and he
should not be disqualified to act as director.
On receipt of valid notice, company may appoint small
shareholders' director. In case of listed company
appointment of small shareholders director should be made
by passing postal ballot. Small shareholders' director can be
appointed for a maximum period of 3 years. Alternatively,
company may appoint small shareholders director on its
own. In such case, notice is not required to be given and
signed by 1000 small shareholders.
(ii) Small shareholders director can be removed by the
shareholders at a general meeting as per the provision of
Section 169 of the Companies Act, 2013 before the expiry
of his tenure.
♠♠♠♠
Corporate and Economic Laws CA Final
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CONCEPT-3
APPOINTMENT OF DIRECTORS BY BOD
Q.7. Can directors be appointed by Board of directors if
yes which type of directors can be appointed by
the board?
Yes following chart is showing situations where directors can be
appointed by board of directors.
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Q.8. Who shall be the Additional Director?
Meaning: An additional director is required to enable the
companies to have the benefit of the services of a person, who
otherwise is suitable for serving on the Board, and whose
presence in the Board is desirable in the interests of the
company till upto the time the next annual general meeting is
held.
Appointment:- As per section sec 161(1)
If authorized by the AOA of the company,
The board may appoint any person, as an additional
director any time. Additional director may be appointed by
passing a resolution at BM or by passing a resolution by
circulation. The only condition is that the Board cannot by
appointing any director exceed the maximum strength fixed
for the BOD of the company
Provision relating to Disqualification u/s 164, vacation of
office u/s 167 are apply to additional director as they apply
to other director.
While calculating the number of directors who are liable to
retirement by rotation such additional directors should not
be excluded from the total no. of directors
Tenure: - Additional director shall hold office upto the date
of Next Annual General Meeting or upto the last date when
the AGM was supposed to be held, which ever earlier for
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example Mr Ghanshyam das appointed as an additional
director in board meeting on 20/01/14. AGM of the
company to be held in 12/11/2014 which could not be held
due to some reasons. , hence in this case if the AGM is not
held within the stipulated time, the office of the additional
director shall be vacated .The words shall ‘hold office only
upto the date of next AGM ‘shall be construed as director
shall hold office upto the last date on which the next AGM
should have been held and not the actual holding of that
meeting. In the given case Mr Ghanshayamdas’s office of
director shall deemed to be vacated on 12.11.2014
MCQ-12. Additional Director can be appointed by
(a) BOD
(b) Share holders
(c) Anyone of the above
(d) Both the above
MCQ-13. Additional Director can be appointed by BOD if
(a) Authorised by Act
(b) Authorised by AOA
(c) Authorised by MD
(d) If authrised by anyone of the above
MCQ-14. Additional director shall hold office
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(a) Upto the date of Next extraordinary General Meeting or
upto the last date when the AGM was supposed to be
held, which ever earlier
(b) Upto the date of Next Annual General Meeting or upto the
last date when the AGM was supposed to be held, which
ever later
(c) Upto the date of Next Annual General Meeting or upto the
last date when the AGM was supposed to be held, which
ever earlier
(d) Upto the date of Next Annual General Meeting only that
too when meeting hold.
MCQ-15. Additional Dirctor
(a) Can be reappointed only for one more tenure
(b) Cannot be reappointed
(c) May be reappointed as many time as one desire
(d) None of the above
♠♠♠♠
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Let’s Rehearse
Q.9. Mr. Ghanshyam das appointed as an additional
director in board meeting on 20/01/14. AGM of the
company to be held in 12/11/2014 which could not
be held due to some reasons. Mr. Ghanshyam
wishes to carry the office after 12/11/2014. Advice
Answer
If the AGM is not held within the stipulated time, the office of
the additional director shall be vacated .The words shall ‘hold
office only upto the date of next AGM ‘shall be construed as
director shall hold office upto the last date on which the next
AGM should have been held and not the actual holding of that
meeting. In the given case Mr. Ghanshayam Das’s office of
director shall deemed to be vacated on 12.11.2014
Q.10. (NOV 2015, 8 MARK)
Queens Ltd is a Company listed at Bombay Stock
Exchange. Company’s Articles empower the Board of
Directors to appoint Additional Director. The Board of
Directors, therefore, appoints Mr. K, as the Additional
Director. It may, however, be pointed out that earlier, the
proposal to appoint Mr. K, as a Director on the
Company’s Board was rejected by the Members at the
Company’s Annual General Meeting. Examining the
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Provisions of the Companies Act, 2013, answer the
following:
(a) Whether Mr. K’s appointment as Additional Director by
the Board of Directors is valid?
(b) Whether the Company’s Annual General Meeting can
appoint Mr. K as the Additional Director when the
proposal to appoint comes before the Meeting for the first
time?
(c) In case the AGM of the Company is not held within the
stipulated time, decide whether Mr. K who was appointed
by the Board as Additional Director, for the first time, can
continue to act as a Director?
Answer
(1) Invalid. A person who fails to get appointed as a Director
in a General Meeting, cannot be appointed as Additional
Director by BOD.
(2) Yes. Normally, BOD has to appoint “Additional Director”.
The Company’s AGM can appoint Additional Directors, if
AOA provides such power.
The power to appoint additional directors is expressly
given to the Board of directors by section 161(1) of the
companies Act, 2013. Accordingly, it is not possible for the
members to exercise this power. Thus, additional directors
cannot be appointed in the annual general meeting or any
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other general meeting However, in some exceptional cases
like when there is a deadlock in the Board or where all the
directors become interested, the power to appoint
additional directors may be exercised by the members for
limited purpose to call general meeting etc.
(3) No. Additional Director holds office only upto the date of
next AGM or last date on which such AGM should have
been held, whichever is earlier.
Q.11. (Nov. 2014)
Mr. Nandu is appointed as an additional Director by the
Board of Directors of Munnabhai Company Limited at its
meeting held on 1st October, 2014 for a period as
permitted by the law.
Draft a resolution and state the body which appoints Nandu.
Subject - Appointment of an additional
director
Passing Authority - Board of directors
Nature of the Resolution - Resolution with simple majority
Ans
“RESOLVED” THAT Pursuant to Regulation NO.----- of the
articles of association of the Company and the provisions of
section 161(1) of the companies Act, 2013, Shri Nandu who
holds Director Identification No. -----------------, and who has
field his consent with the company as per the provisions of
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section 152 (5) of the companies Act, 2013, and who is not
disqualified as per the provisions of section 164 the Companies
Act, 2013, be and is hereby appointed as an additional director
of the company.
RESOLVED FURTHER THAT Shri Nandu shall hold office of
additional director till the next annual general meeting or the
last date on which the AGM should have been held, whichever
is earlier.”
Q.12. Who shall be the Alternate Director? [Section
161(2)]
Meaning: - This provision of companies act allows an individual
director to nominate a representative for him to carry out the
responsibilities of the director in the absence of the original
director. This provision is a facility for a temporary period and
not as a permanent solution, as it would otherwise not serve
the purpose. The purpose of allowing a director to appoint a
representative is in the interest of the subject company than the
interests of the concerned director. Appointment of such an
alternate is an attempt to ensure that the company’s business is
not hampered during the period when the original director is
unable to perform his functions as a director due to physical
unavailability. First Proviso to Section 161(2) prescribed that no
person shall be appointed as an alternate director for an
independent director unless he is qualified to be appointed as
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an independent director under the provision of this act.
Alternate director shall be considered while calculating the
number of directorship held by a director. BM notice also send
to alternate director and original director.
Appointment:-The Board of Directors of a company may,
If so authorised by its articles or
By a resolution passed by the company in general meeting,
Appoint a person, to act as an alternate director for a
director during his absence for a period of not less than 3
months from India:
It should be noted that a person holding any alternate
directorship for any other director in the same company
cannot be appointed as alternate director for any other
director of the company.
Tenure:- 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
Special Note:- It is also provided in the act that if the term of
office of the original director is determined before he so returns
to India, any provision for the automatic re-appointment of
retiring directors in default of another appointment shall apply
to the original, and not to the alternate director.
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MCQ-16. Alternate director is a
(a) Permanent appointment
(b) Temporary Appointment
(c) Normal Appointment
(d) Extraordinary appointment
MCQ-17. Alternate director is appointed by
(a) Director going abroad
(b) BOD
(c) By Shareholders
(d) Any one of the above
MCQ-18. The Board of Directors of a company may appoint
alternate director
(a) if so authorised by its articles and also by a resolution
passed by the company in general meeting,
(b) if so authorised by its articles or by a resolution passed by
the company in general meeting,
(c) if so authorised by this act or by a resolution passed by the
company in general meeting,
(d) if so authorised by this act or by a Special resolution passed
by the company in general meeting,
MCQ-19. The Board of Directors of a company may appoint
alternate director ,
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(a) if so authorised by its articles
(b) by a resolution passed by the company in general meeting,
(c) for a director during his absence for a period of not less
than 3 months from India
(d) Either of (a) and (b) with (c)
♠♠♠♠
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Let’s Rehearse
Q.13. Can an alternate director be appointed for an
independent director? If so, are there any
conditions for appointment of a person as an
alternate director to an independent director?
Ans:
Proviso to sub-section (2) to section 161 provides 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 the Act. Hence it
is possible to have an alternate director as independent director
if he fulfills all the requirements to become an independent
director.
Q.14. Does an alternate director need to obtain a
Director Identification Number under Section 153 of
the Companies Act, 2013?
Answer
As per the provisions of section 153, every individual intending
to be appointed as director of a company is required to obtain
DIN by complying with the provisions of the Companies Act,
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2013 and Director Identification Number Rules. Therefore,
alternate director is required to obtain DIN.
Q.15. Referring to the provisions of the Companies Act,
2013, examines the validity of the following:
Mr. Bablu who is not qualified to be appointed as an
independent director is appointed by the Board of
Directors of Bubbles Company Limited, as an alternate
director for an independent director, as a director.
Nov. 2014
Answer
The Board of Directors of a company may,
If so authorised by its articles or
By a resolution passed by the company in general meeting,
Appoint a person, to act as an alternate director for a
director during his absence for a period of not less than three
months from India:
It should be noted that a person holding any alternate
directorship for any other director in the same company
cannot be appointed as alternate director for any other
director of the company.
Section 161(2) also provides that a person can be appointed as
an alternate director for an independent director only if he is
qualified to be appointed as an independent director as per
section 149(6). In the given case, the appointment of Mr. Bablu
Chapter 02 Appointment of Directors
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as an alternate director for an independent director is not valid,
since Mr. Bablu is not qualified to be appointed as an
independent director.
Q.16. Nov. 2014
Referring to the provisions of the Companies Act, 2013,
examine the validity of the following:
The Board of Directors of Ajadi Limited appointed Mr.
Nandu as an alternate director a period of two months
against a director who has proceeded abroad on leave
for a period of six months. Articles of Association of the
company are silent.
Answer
The given problem relates to section 161(2) of the companies
Act, 2013. According to section 161(2)-The Board of Directors
of a company may,
If so authorised by its articles or
By a resolution passed by the company in general meeting,
Appoint a person, to act as an alternate director for a
director during his absence for a period of not less than three
months from India:
It should be noted that a person holding any alternate
directorship for any other director in the same company
cannot be appointed as alternate director for any other
director of the company.
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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
In view of the provisions of section 161(2), the appointment of
Mr. Nandu as an alternate director is not valid since the Board,
in the given case, is not authorized to appoint the alternate
director by the articles or by a resolution passed in general
meeting.
Q.17. (CA FINAL, May 2002)
Mr. Quasim, a director of Jille-ilahi Limited proceeding on
a long foreign tour, appointed Mr. Yaqoob as an alternate
director to act for him during his absence. The articles of
the company provide for the appointment of an alternate
director. Mr. Quasim claims that he has a right to appoint
an alternate director. Examine the given case in the light
of the provisions of the Companies Act, 2013.
Answer
In the present case, the appointment of Mr. Yaqoob as an
alternate director by Mr. Quasim would amount to assignment
of office which is prohibited under section 166(6) and therefore,
the appointment of Mr. Yaqoob as an alternate director is void.
The provisions to appoint alternate directors are as follows.
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According to section 161(2)-The Board of Directors of a
company may,
If so authorised by its articles or
By a resolution passed by the company in general meeting,
Appoint a person, to act as an alternate director for a
director during his absence for a period of not less than three
months from India:
It should be noted that a person holding any alternate
directorship for any other director in the same company
cannot be appointed as alternate director for any other
director of the company.
an alternate director is appointed by the Board of directors and
not by the director in whose place he is appointed (i.e. the
original director). Therefore, in the present case Mr. Quasim has
no power to nominate a person to act as an alternate director,
in his place and the appointment of Mr. Yaqoob is not in order.
While appointing the alternate director, the Board is not bound
to even consider the candidature of Mr. Yaqoob.
Q.18. (CA FINAL, DEC 1999)
X, an employee of Aabadi Ltd., was appointed as an
alternate director. In the meantime, the original director
returned and wanted to attend the Board meeting.
Advice.
Answer
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An alternate director shall not hold office for a period longer
than that permissible to the original director. The alternate
director shall vacate his office when the original director
returns, irrespective of the fact as to whether the original
directors attend the Board meetings or not. Thus, after an
original director comes back to India, only he can attend the
Board meetings. The alternate director would automatically
cease to be director. In the given case, the contention of the
original director is correct and he is entitled to attend the Board
meeting.
Q.19. Appointment of Directors by Nomination or
nominee director?
Meaning:-The concept of 'nominee directors' could be said to
be comparatively of recent origin. This concept has come into
vogue because of the loan facilities provided by the financial
institutions. Such institutions while granting loans to companies
generally impose a condition as to the appointment of their
representative(s) on the board s of the companies who avail
loan from them. A Nominee Directors is expected to safeguard
the interests of the financial institutions, whose nominee he is.
The difference between such directors and other directors
appointed by the shareholders is that the shareholders '
directors are subject to retirement by rotation and other
applicable provisions of the Act, whereas, the nominee directors
Chapter 02 Appointment of Directors
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appointment and function is governed by the respective Acts,
and they are beyond the purview supervision of the
shareholders.
Appointment:- According to Section 161(3) Subject to the
articles of a company, the Board may appoint any person as a
director nominated by
Any institution
in pursuance of the provisions of any law for the time
being in force or
of any agreement.
Or by the Central Government or the State Government by
virtue of its shareholding in a Government Company.
1. In case of Specified IFSC Public Company - In sub-section
(3)of Section 161, the following proviso shall be inserted,
namely:-
“Provided that in case of a Specified IFSC public company,
the Board may appoint, any person nominated by any
institution or company or body corporate as a director in
pursuance of the provisions of any law for the time being
in force or of any agreement or by the Central
Government or the State Government by virtue of its
shareholding in a Government company.”- Notification
Dated 4th January 2017.
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2. In case of Specified IFSC Private Company - In sub-section
(3) of Section 161, the following proviso shall be inserted,
namely:-
“Provided that in case of a Specified IFSC private company,
the Board may appoint, any person nominated by any
institution or company or body corporate as a director in
pursuance of the provisions of any law for the time being
in force or of any agreement or by the Central
Government or the State Government by virtue of its
shareholding in a Government company.”- Notification
Dated 4th January 2017.
MCQ-20. What shall be the tenure of nominee directors –
(a) 1 year
(b) 3 years
(c) 5 years
(d) Depends on the party who wants to get him appointed
Q.20. How to appoint director in case of causal
vacancy?
Meaning: - Casual Vacancy in the office of the director may be
due to
Death of the director
Resignation by director
Chapter 02 Appointment of Directors
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Disqualification of director subsequent to appointment
Removal of director before expiry of the term.
According to 161 (4) if the office of any director appointed by
the company in general meeting is vacated before his term of
office expires in the normal course, the resulting casual vacancy
may, in default of and subject to any regulations in the articles
of the company, be filled by the Board of Directors at a
meeting of the Board which shall be subsequently approved by
members in the immediate next general meeting. The board must exercise the above power at a meeting of the board. The above power cannot be exercised by passing a resolution by circulation.
Tenure of director to fill up by a casual vacancy
A person appointed as a director to fill up a casual vacancy
would continue in office until the date when retirement of the
original director in whose place the former is appointed would
fall due in the usual course, irrespective of the date of next
AGM following the date of filling of casual vacancy.
MCQ-21. Section 161(4) to fill casual vacancy is applicable to
(a) Public company only
(b) All companies including private companies
(c) All companies except OPC and Small Companies
(d) All companies except government companies
Corporate and Economic Laws CA Final
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MCQ-22. Section 161(4) can be used to fill casual vacancy of
(a) Every director
(b) Only directors appointed in general meeting
(c) only managing director
(d) all the above
MCQ-23. A person appointed as a director to fill up a casual
vacancy would continue in office until
(a) Up to conclusion of next AGM
(b) Up to remaining tenure of the person in whose place he is
appointed
(c) Up to remaining tenure of the a person who is longest in
the office of director
(d) Uncertain period
MCQ-24. Casual Vacancy under 161(4)
(a) In default of and subject to any regulations in the articles of
the company, may be filled by the Board of Directors by
resolution by circulation which shall be subsequently
approved by members in the immediate next general
meeting.
(b) In default of and subject to any regulations in the articles of
the company, be filled by the Board of Directors at a
meeting of the Board which shall be subsequently
approved by members in the immediate next general
meeting.
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(c) In default of and subject to provisions of companies act, be
filled by the Board of Directors at a meeting of the Board
which shall be subsequently approved by members in next
AGM.
(d) In default of and subject to any regulations in the articles of
the company, be filled by the Board of Directors at a
meeting of the Board which shall be subsequently
approved by members in the next AGM by special
Resolution.
♠♠♠♠
Corporate and Economic Laws CA Final
38 | Company Law Author: CA. Aseem Trivedi
Let’s Rehearse
Q.21. (CA FINAL, JUNE 2009)
The Board of directors of XYZ Ltd. filled up a casual
vacancy caused by death of Mr. Pappu by appointing
Mr. Chandu as a director on 3rd April, 2014. Unfortunately
Mr. Chandu expired on 15th May, 2014 after working
about 40 days as a director. The board now wishes to fill
up the casual vacancy by appointing Mrs. Chandni
widow of chandu in the forthcoming meeting of the
Board.Advise the Board in this regard.
Answer
According to section 161(4) of the companies Act, 2013, the
Board is authorized to fill a casual vacancy in the office of a
director only if he was appointed by the shareholders in general
meeting. In the given case, a casual vacancy is due to death of
Mr. Pappu. Assuming that Mr. Pappu was appointed as a
director in general meeting, such casual vacancy can be filled up
by the board under section 161(4) of the companies Act, 2013,
and has actually been filled up by appointing Mr. Chandu.
Further as Mr. Chandu dies and again there is a casual vacancy.
However, this casual vacancy cannot be filled up by the board
under section 161(4) of the companies Act, 2013 since the casual
vacancy arisen in the office of Mr. Chandu who was not
appointed in general meeting. Accordingly, the proposal of the
Chapter 02 Appointment of Directors
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Board to appoint Mrs. Chandni chandu to fill the casual
vacancy is not valid.
The Board may be advised to appoint Mrs. Chandni as an
additional director under section 161(1) of the companies Act,
2013, if so authorized by the articles. As additional director,
Mrs. Chandni shall hold office till the next annual general
meeting. Further if company want to have her as regular
director they can resort to procedures given in section 160.
♠♠♠♠
Corporate and Economic Laws CA Final
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CONCEPT-4
STAND FOR DIRECTORSHIP
Q.22. Can any person who is not retiring director, stand
for directorship for appointment in general
meeting?
Yes , according to section 160 (1) A person who is not a retiring
director in terms of section 152 shall, subject to the provisions
of this Act, be eligible for appointment to the office of a
director at any general meeting, if he, or some member
intending to propose him as a director, has, not less than 14
days before the meeting, left at the registered office of the
company, a notice in writing under his hand signifying his
candidature as a director or, as the case may be,
Non applicability of section 160: The MCA has clarified via
Notifications No. 463(E), 464(E) and 466(E) dated 5th June,
2015, that section 160 of the Companies Act, 2013, shall not
apply to:
(a) A Government company in which the entire paid up
share capital is held by the Central Government, or by
This section is applicable to IFSC unlisted company as per
Articles of company
Chapter 02 Appointment of Directors
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any State Government or Governments or by the Central
Government and one or more State Governments;
(b) A subsidiary of a Government company, referred to in (a)
above, in which the entire paid up share capital is held by
the Government company.
(a) A Private company
(b) Section 8 Companies whose articles provide for election of
directors by ballot.
MCQ-25. Who can Stand for directorship
(a) Only retiring director
(b) Only shareholders
(c) Only promotor
(d) Any person
MCQ-26. Provisions of section 160 not applicable to
(a) Private company
(b) 100% government company
(c) S.8 Company if AOA provides election by ballot
(d) All The above
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Q.23. What is procedure for such person’s appointment?
(1) Security Deposit Rs. 100000/-
The intention of such member to propose him as a candidate
for that office, along with the deposit of Rs. 1,00,000/-( in case
of Nidhi companies it is 10,000/-) or such higher amount as
may be prescribed
It should be further noted that requirements of deposit of
amount shall not apply in case of appointment of an
independent director or a director recommended by the
Nomination and Remuneration Committee, if any, constituted
under sub-section (1) of section 178 or a director recommended
by the Board of Directors of the Company, in the case of a
company not required to constitute Nomination and
Remuneration Committee
(2) Refund of Deposit
The amount so deposited shall be refunded to such person or,
as the case may be, to the member, if the person proposed
gets elected as a director or
gets more than 25% of total valid votes cast either on show
of hands or on poll on such resolution.
General Circular no. 38/2014 dated 14.10.2014
It has been clarified that in case of a company registered under
section 8 of the companies Act, 2013, the board of director of
such a company may decide, whether the deposit made by or
Chapter 02 Appointment of Directors
Author: CA. Aseem Trivedi Company Law | 43
on behalf of the person failing to secure more than 25% of
valid votes is to be forfeited or refunded.
Case Law: Namita Gupta v Cachar Native joint Stock Co. Ltd.
(1999)
The provision of Section 160 is mandatory. Non-compliance of
procedure prescribed under section 160 would render the
appointment invalid. Where the company failed to inform its
members about the candidature of the person proposed as
director, the appointment of director was held to invalid.
(3) Information to members:-
The company shall inform its members of the candidature of a
person for the office of director under sub-section (1) by way of
notice as follows
Rule 13 Provides that the company shall at least 7 days before
the general meeting, informs its member of the candidature of a
person for the office of a director or the intention of a member
to propose such person as a candidature for that office
By serving individual notice, on the members though
electronic mode to such members who have provided their
e-mail addresses to their company for communication
purpose, and in writing to all other members; and
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44 | Company Law Author: CA. Aseem Trivedi
By placing notice of such candidature or intention on the
website of the company, if any:
It shall not be necessary for the company to serve individual
notices upon the members as aforesaid, if the company
advertise such candidature or intention, not less than 7 days
before the meeting:
At least once in a vernacular newspaper in the principal
vernacular language of the district in which registered office
of the company is situated, and circulating in that district,
and
At least once in English language in an English newspaper
circulating in that district.
MCQ-27. Security deposit of rs. 100000/- shall be given by
(a) Independent Directors also
(b) Directors nominated by Nomination and remuneration
committee
(c) Directors appointed by BOD
(d) None of the above
MCQ-28. The companies over which this section is applicable
to follow procedures given in section 160 is
(a) Mandatory
(b) Recommendatory
(c) Optional
(d) Compulsory in first year of incorporation
Chapter 02 Appointment of Directors
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Let’s Rehearse
Q.24. [CA (Final) Nov. 1999]
Notice has been received from a member proposing
himself for appointment as a director after the issue of
notice convening the annual general meeting. As a
secretary of a public company, how will you deal with
the above situation?
Answer
Section 160 explains the right of a person, other than retiring
director, to stand for directorship. A notice received under
section 160 shall be valid, if following requirements complied
with:
The notice is given at least 14 days before the general
meeting.
It is deposited at the registered office of the company.
The notice is signed by the person eligible to give notice.
A sum Rs. 1 lakh or such higher amount as may be
prescribed, is deposited along with the notice.
The notice given by the member in this case is in accordance
with the provision 160 as it is received by the company at least
14 days before the general meeting and the notice complies
with other requirements of section 160 also. Now the company
shall inform its members about the candidature of the proposed
Corporate and Economic Laws CA Final
46 | Company Law Author: CA. Aseem Trivedi
director by serving individual notices or by advertisement in
accordance with the provisions of section 160 read with Rule 13
of the companies (Appointment and Qualification of directors )
Rules, 2014.
Q.25. [CS (Final) Dec. 2000 (modi.)]
CA. Santosh Gupta, vice-president of HMLSPL, was
appointed as an additional director in January, 2014. On
the office of managing director falling vacant he was
appointed as managing director on existing
remuneration. Whether Santosh will cease to be
managing director in the next annual general meeting?
Answer
‘Retiring director’ for the purpose of sections 152 and 160 of
the companies Act, 2013, means a director retiring by rotation.
Where a director retires by rotation, he can be reappointed
without complying with the requirements of section 160 of the
companies Act, 2013 [section 152 (6) (e)]. It should be noted
that an additional director holds office up to the date of next
annual general meeting and therefore he does not retire by
rotation. Hence we can conclude that if an additional director
seeks appointment as a regular director, he must comply with
the requirements of section 160 as follows
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1. Requirements of notice
(a) Notice proposing the appointment of additional
director must be given to the company either by the
additional director himself or by some other of the
company.
(b) Notice shall be given at least 14 days before the annual
general meeting.
(c) Notice shall be deposited at the registered office of the
company.
(d) A sum of RS. 1 lakh shall be deposited along with the
notice.
(e) The amount deposited with the company shall be
refunded, if the person proposed as a director-
(i) Gets elected as a director; or
(ii) Gets more than 25% of the total valid votes cast
(whether on a show of hands or on poll).
(2) Duty of the company to inform its members
The company shall inform its members about the candidature of
the person proposed as a director in such manner as may be
prescribed.
In the given case, Santosh will hold office up to the date of next
annual general meeting. Since, he will cease to be a Director; he
will also vacate the office of managing director. Further, even if
the annual general meeting is not held, he will cease to be an
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48 | Company Law Author: CA. Aseem Trivedi
additional director on the last day, on which the annual general
meeting ought to have been held. However, if a notice is given
of the candidature of santosh as given above he shall continue
as a managing director.
♠♠♠♠
Chapter 02 Appointment of Directors
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CONCEPT-5
SINGLE RESOLUTION
Q.26. Can there be a single resolution to appoint several
directors in a meeting?
According to section 162 (1) At a General Meeting of a
Company, a motion shall not be moved for the appointment of
two or more persons as Directors of the Company by a single
resolution, unless a resolution has first been agreed at meeting
without any vote being cast against it.
Resolution moved in contravention of section162(1),shall be
void, whether any objection was taken or not
Motion for approving a person for appointment or for
nominating a person for appointment shall be treated as a
motion for his appointment
Section 162 of the Act prohibits companies from passing a single
resolution for appointment of two or more directors unless such
a motion has first been agreed to unanimously by all the
shareholders. Now, private company is exempted from the
applicability of Sections 162 of the 2013 Act. Hence more than
one director can be appointing via a single resolution.
(1) This Section shall not apply to
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50 | Company Law Author: CA. Aseem Trivedi
Private Companies
where entire PSC is held by CG or SG or Both or More
State Govt. or Subsidiary of Govt. Company
IFSC unlisted public company
(2) Section 162 is not applicable when directors are appointed
by BOD, it applies in general meetings only
(3) If the appointment of director is not voted individually and
in contravention of section 162 , appointment will be void
MCQ-29. Directors in BOD meeting
(a) Shall be appointed by individual resolution
(b) Can be appointed by single resolution
(c) Can be appointed by single resolution if approved by
100% share holders
(d) Can not be appointed by single resolution
MCQ-30. If 3 director of a listed company appointed by single
resolution without getting unanimous permission
from shareholders
(a) Such appointments will be void
(b) Such appointment shall be valid for first name in the
resolutiona and void for others
(c) Such appointment is valid just ratification by general
meeting is required after 3 months
(d) None of the above
Chapter 02 Appointment of Directors
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MCQ-31. Section 162 is not applicable to
(a) Private Companies
(b) where entire PSC is held by CG or SG or Both or More
State Govt. or Subsidiary of Govt. Company
(c) IFSC unlisted public company
(d) All the above
MCQ-32. Section 162 is not applicable to
(a) Public Companies
(b) Government company where CG held 60% paid up share
capital
(c) IFSC listed public company
(d) None of the above
]
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Let’s Rehearse
Q.27. In Mackduck Enterprises Pvt. Ltd., Huey, Dewey
and Louie, three Directors were to be appointed.
The item was included in agenda for the Annual
General Meeting scheduled on 30th September,
2014, under the category of 'Ordinary Business'. All
the three persons as proposed by the Board of
directors were elected as directors of the company
by passing a 'single resolution' avoiding the
repetition (multiplicity) of resolutions. After the
three directors joined the Board, certain members
objected to their appointment and the resolution.
Examine the provisions of Companies Act, 2013
and decide, whether the contention of the
members shall be tenable and whether both the
appointment of Directors and the 'single resolution'
passed at the Company's Annual General Meeting
shall be void.
Answer:
The matter of appointment of directors in place of those
retiring at the annual general meeting has been correctly
stated in the agenda as the ordinary business to be transacted
at the general meeting. But in accordance with the provisions
of section 162(1) of the Companies Act, 2013, at a general
meeting of a company, a motion for the appointment of two
Chapter 02 Appointment of Directors
Author: CA. Aseem Trivedi Company Law | 53
or more persons as directors of the company by a single
resolution shall not be moved unless a proposal to move such
a motion has first been agreed to at the meeting without any
vote being cast against it. Section 162 (2) further provides that
a resolution moved in contravention of sub-section (1) shall
be void, whether or not any objection was taken when it
was moved but this provision is not applicable to private
company and in the given question the company is a private
company hence appointment even by single resolution shall be
valid.
Q.28. Raksha Pvt. Ltd. in its Annual General Meeting
appointed of three directors by passing single
resolution. No objection was made to the
resolution. Examine the validity of appointment of
directors with reference to provision of Companies
Act, 2013.
Answer:
According to section 162 (1) At a General Meeting of a
Company, a motion shall not be moved for the appointment of
two or more persons as Directors of the Company by a single
resolution. It should be further noted that This Section shall not
apply to Private Companies vide notification no. G.S.R 464(E)
dated 05/06/2015. Hence appointment of 3 directors by
passing Single Resolutions is valid.
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CONCEPT-6
PROPORTIONATE REPRESENTATION OF DIRECTOR
Q.29. What is proportionate representation of directors
and can directors appointment will be there
according with this approach?
What is such method:- Method of shareholder voting in which one
is not required to vote for a different candidate for
each available seat on a board of directors, but can
give multiple seat votes to the same candidate.
According to Section 163 The articles of a company may
provide for the appointment of not less than two-thirds of the
total number of the directors of a company in accordance with
the principle of proportional representation, whether by the
single transferable vote or by a system of cumulative voting or
otherwise and such appointments may be made once in every
three years and casual vacancies of such directors shall be filled
as provided in subsection (4) of section 161.
This Section shall not apply where entire PSC is held by CG or
SG or Both or More State Govt. or Subsidiary of Govt.
Company