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Section 161 of the Companies Act, 2013-Additional Director

Pooja 
on 27 June 2020

LinkedIn


Generally, the director is appointed in the General Meeting of the Company. But sometimes the situation may require to appoint a director on an urgent basis and in that case, the Board cannot wait to convey the general meeting and appoint the director, as it requires lots of formality and hence, the decision may get delayed.

ADDITIONAL DIRECTOR {Section 161(1)}

As per section 149(1) of the Companies Act, 2013 only an individual can be a Director of the Company. If the Board of Directors wants one or more Directors to be appointed in a Company for any reason and cannot wait till the General Meeting, the Board of Directors may appoint an individual as an additional director only if they have given power in Articles of Association of the company. A person cannot be appointed as an additional director if his resolution proposing him as a director was not passed by the shareholders in the earlier general meeting.

For Example: If Mr. Rahul has applied for the office of director in the General Meeting of ABC Limited held on 27.07.2018, but the resolution was not passed by the shareholders, so he was not elected/appointed as a director.

Situation I: On 02.05.2019, the Board of ABC Ltd. wants to appoint Mr. Rahul as the Additional Director of the company. Can Mr. Rahul be appointed as an Additional Director of ABC Ltd???? The answer is No.

Situation II: On 02.05.2019, the Board of XYZ Ltd. wants to appoint Mr. Rahul as the Additional Director of the company. Can Mr. Rahul be appointed as Additional Director in XYZ Ltd???? The answer is Yes

Conclusion: If a person did not get appointed as a director in a company, in any of the earlier resolutions, Section 161(1) puts restrictions on the person to be appointed as an Additional Director of that company in the future. It, however, does not restrict the person to become an Additional Director in another company in which no such resolution was introduced.

Section 161 of the Companies Act, 2013- Additional Director

QUALIFICATION OF A DIRECTOR

The Act does not specify any educational qualifications to become a director. However, the proposed director must be not disqualified to act as a director as given under section 164 of the Companies Act. Also, he did not fail to get appointed as a director in the same company by the shareholders in a general meeting.

TERM OF ADDITIONAL DIRECTOR:

The additional director shall hold office from the date of appointment till the date of the ensuing annual general meeting or the last date on which annual general meeting should have been held, whichever is earlier.

For Example: If Mr. Rahul was appointed as Additional Director on 02.05.2019 and the AGM was held on 28.08.2019. His term of Additional director will end on 28.08.2019.

 

PROCEDURE FOR APPOINTMENT OF ADDITIONAL DIRECTOR:

  1. First,  we need to check the Article of Association of the Company whether it is authorized for the appointment of additional Director or not. If it is not so authorized by the Article, then we need to alter the Article of Association to insert a clause for the appointment of the Additional Director.
  1. We need to ensure that the maximum number of directors as permitted in the Articles don’t exceed after appointing additional director because the additional director is also counted in the limit prescribed under section 149(1).
  1. The appointee is not disqualified for appointment as a Director.
  1. We need to check whether the proposed director has a valid DIN(Director Identification Number). If the appointee is not holding the DIN then it required to apply the same by way of application for allotment of DIN. It can be applied through the Company in which he/she proposed to be appointed as an Additional Director. To apply for the DIN the Digital Signature Certificate (DSC) of the appointee is also required.
 
  1. Before the appointment, the Board shall obtain consent in Form DIR-2 and a declaration in DIR-8 from the proposed Director.
  1. After the above process gets over, we can now call a board meeting and pass Board Resolution for the appointment of the Additional Director of the Company.
  1. The company shall file DIR-12 to the Registrar of Companies within 30 days of passing Board Resolution. Attachments for DIR-12 are as follows:
    1. A signed copy of Board Resolution
    2. DIR-2 by such individual

Also, ask for MBP-1- Disclosure of Interest as per Section 184(1) from the additional director.

We need to make sure that MBP-1 should not be dated earlier than the date of appointment as Director.

REGULARISATION OF ADDITIONAL DIRECTOR

The Individual who is appointed as an additional director in the Company, his term will be up to the ensuing Annual General Meeting of the Company. However, after getting approval from the shareholder he can be regularized as a Director of the Company. Also, the Board can make a recommendation of the additional director to be the regular director of the company. In this case no need to comply with section 160 of the Companies Act, 2013

But if the additional director intending himself or if some member proposes him to appoint as a Director, may give notice to the Company as per section 160 of the companies act, 2013 and his appointment will be done in the manner prescribed under section 160 of the companies Act.

A detailed discussion about Section 160 can be found on the below link:
https://www.caclubindia.com/articles/section-160-companies-act-2013-41886.asp

KEY POINTS TO BE CONSIDER:

  1. Make sure that there is a clause in the Article regarding the appointment of Additional Director
  2. The Proposed person must have a DIN, if not first apply for DIN
  3. He is not rejected to be appointed as a director in an earlier resolution passed in the General Meeting.
  4. He is not Disqualified under the act.
  5. Additional Director can be appointed by passing a resolution in a Board Meeting or by Circulation.
  6. The number of directors and additional directors taken together shouldn’t exceed the number specified in the Articles of Association.

For example, if the Articles of Association of a company permits the appointment of 12 directors in total, and the company currently has 7 full-time directors, the Board of Directors may appoint 5 Additional Directors.

  1. Both a director and an additional director plays an important role in the day to the operation of the company and are key personnel of the organization without which it is not feasible to do proper execution of the company.

The duties and liabilities of the additional director are the same as that of the other directors are on Board.

 The power conferred on the directors to appoint an additional director is a temporary power vested in them, and this will be subject to revision or confirmation in the General Meeting.

The full Section 161 of the Companies Act, 2013 can be found on the link below:

https://www.youtube.com/watch?v=lg0hrPD2HOo

Disclaimer: The entire contents of this article have been prepared based on relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not professional advice and is subject to change without notice. We assume no responsibility for the consequences of use of such information. This is only a knowledge sharing initiative and the author does not intend to solicit any business or profession./span>


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