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Alternate Director - An Overview


CMA. CS. Sanjay Gupta 
posted on 13 July 2011



According to the provisions of section 313 of the Companies Act, 1956, an Alternate Director is a person appointed by the Board if so authorised by the Articles or by a resolution passed by the company in the general meeting to act for a director called "the original director" during his absence for a period of not less than three months from the State in which meetings of the Board are ordinarily held. Generally, the alternate directors are appointed for a person who is Non-resident Indian or for foreign collaborators of a company.


Appointment of an alternate director at a Board meeting:

Section 313 enables any company, public or private, to have included in its articles of association a provision empowering the Board of directors to appoint an alternate director.

 

The Board may appoint an alternate director only if this is authorised by the Articles. Where the articles of a company provide that no alternate director can be appointed unless he is a nominee of the original directors, the Board of directors is not competent to reject the nomination. [D Ross Porter v Pioneer Seed Co Ltd. (1989) 66 Comp Cas 363 (Del): (1989) 2 Comp LJ 89 (Del)]

 

DCA has expressed a view that appointment of an employee as an alternate director will be governed by the provisions of sections 314, 269, 198 and 309 of the Companies Act. [DCA Circular No. 219/63-PR dated 29 June 1964]

Tenure of alternate director:


The alternate director will act as a director for a director (original director) during his absence for at least three months from the state in which Board meetings are ordinarily held. This appointment may be made at a meeting of the Board or by a circular resolution. The Articles of a private company may provide for the appointment of an alternate director.

 

Whenever the "original" director returns to the state in question, the alternate director automatically vacates his office but he may be appointed again when the original director leaves that state. The return of the original director to the state will be enough for the cessation of office of the alternate director whether or not the original director attends a Board meeting. E-Form 32 shall be filed electronically with the Registrar in respect of vacation of office and appointment on every occasion.

 

An alternate director vacates his office if and when the original director returns to the State in which the Board meetings are ordinarily held irrespective of the fact whether the original director attends a Board meeting or not. [Circular No. 6/16(313) /63-PR dated 5.2.1963]


Original director and alternate director can remain in the Board simultaneously:


The original director and the alternate director can remain on the Board so long as the above position continues and there is no need of approval by the company in general meeting.

Appointment of alternate director is subject to the maximum strength of the Board:

 

Although either the original director or the alternate director can act at a given time, it appears that an alternate director can be appointed only where the maximum strength of the Board permits such addition to the Board.

Provisions relating to the directors are also applicable on alternate director:

 

Provisions relating to vacation of office [Section 283]; removal from office [Section 284]; disqualification [Section 274]; holding of any place of profit [Section 314], will apply to an alternate director as in case of any other director and the provisions of sections 268, 269, 309, 310, 311, etc. will also apply similarly. Thus, for the purpose of compliance of the law, an alternate director is in the same position as any other director.

Whether alternate director can be appointed by circular resolution:

 

Section 313, unlike section 262, does not provide that the appointment of an alternate director shall be made at a meeting of the Board of directors. Unless, therefore, the articles of a company provide otherwise, an alternate director may be appointed by the Board by a circular resolution. The Company Law Board held that the appointment of an alternate director by means of a circular resolution was in complete violation of the provisions of section 313. [Hemant D. Vakil v RDI Print & Publishing Pvt. Ltd. (1993) 11 CLA 86 (CLB): (1993) 2 Comp LJ 113 (CLB): (1995) 84 Comp Cas 838 (CLB)] However, section 313 does not require a resolution to be passed at a Board meeting, unlike section 262, which provides that a casual vacancy may be filled by the Board of directors at a meeting of the Board.

 

In Hemant D. Vakil v RDI Print & Publishing Pvt. Ltd. (1993) 11 CLA 86 (CLB) the CLB held that the appointment of an alternate director by a circular resolution was in violation of the provisions of section 313.

Specimen of Board resolution for appointment of Alternate Director:

RESOLVED THAT pursuant to the provisions of section 313 of the Companies Act, 1956 and in terms of the provisions of the Article No. ___________ of the Article of Association of the Company, Shri _______________ be and is hereby appointed as an alternate director to Shri ________ during his absence from the state of West Bengal and who shall vacate his office as and when Shri ______________ returns to the said state.

Specimen of Ordinary Resolution passed in General Meeting for giving Authority to Board to Appoint Alternate Director:

RESOLVED THAT pursuant to section 313 of the Companies Act, 1956, the Board of directors of the Company be and is hereby authorised to appoint an alternate director to act for a director (hereinafter called 'the original director') during his absence for a period of not less than 3 months from state of West Bengal and an alternate director shall vacate his office as and when original director returns to the said state.

Explanatory Statement:

Section 313 of the Companies Act, 1956 provides that 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 an alternate director to act for a director during his absence from the state of West Bengal. Since the Articles of Association of the Company do not provide for the appointment of alternate director, the proposed resolution seeks the necessary authority of the general meeting to enable the Board of directors to appoint alternate director as and when necessary arises.

Specimen for alteration of article for incorporation in the Articles of Association for incorporation of new clause for appointment of an alternate director:

The Board of Directors may appoint an Alternate Director to act for a Director (hereinafter called "the original Director") during his absence for a period of not less than three months from the State in which meetings of the Board are ordinarily held.

 

An Alternate Director appointed under Sub-Article (a) shall vacate office if and when the original Director returns to the State in which meetings of the Board are ordinarily held.

 

If the term of office of the original Director is determined before he so returns to the State aforesaid, 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.


SOME IMPORTANT POINTS RELATED TO ALTERNATE DIRECTOR:-

 

1. The alternate director can only be appointed by the board of directors if authorised by the articles or by an ordinary resolution passed at the general meeting. The members of the company can not themselves appoint the alternate director but they can empower board to appoint alternate director. Also the original director doesn’t have any right to appoint alternate director.

 

2. An alternate director ceases to hold the office as soon as the original director returns to the state (in which the board meetings are ordinarily held).

 

3. If at any board meeting both original and alternate directors are present then they shall counted as one for quorum and vote of original director shall be counted only as the alternate director ceases to hold office as soon as the original director returns.

 

4. While counting number of directorships for the purpose of sec. 275, 276 & 277 alternate directorship shall be excluded.

 

5. An person can be appointed alternate director for more than one director, if he is appointed so then he will be entitled to vote for all original directors but sitting fees shall be paid in respect one director only.

 

6. Alternate director can be appointed only where the maximum strength of the Board permits such addition to the Board.

 

7. An alternate director cannot be appointed on place of managing director due to various legal requirements.




Regards
CMA. Sanjay Gupta


Published in Corporate Law
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