In the absence of a provision in the Articles of Association as regards the appointment of the first

director of the company, it will be the subscribers to the Memorandum of Association will be
deemed to be the first directors of the company and in cases of a one person company, an
individual member will be deemed to be the first director.

No person can be appointed as a director of a company unless he has been assigned a Director’s
Identification Number.

Maximum number of directors: The cap on the maximum number of directors in a corporation
has been extended to 15 that can be further incremented through the passage of a special
resolution in the general meeting. The object is to impart greater flexibility to a corporation so
that its attraction and retention of talent is enhanced. The same also increases the extraction of
greater benefits from the experience and expertise of a numerically stronger board.

I) RESIDENT DIRECTOR:

The 2013 Act has introduced a new mandate according to which a company has to have at least 1
director who is an Indian resident, that is, a person who has resided in India for a minimum
period of 182 days or more in the preceding calendar year. This mandatory requirement is to be
complied with a year from the enforcement of the 2013 Act or from the notification of rules by
CG with respect to this provision.

II) WOMEN DIRECTOR:

There is a statutory requirement of having at least 1 women director in the prescribed class of
companies. Again, this has to be complied within a period of 1 year from the 2013 Act being
enforced.

III) INDEPENDENT DIRECTORS:

An independent director, with respect to a company, refers to a director other than a whole-time
director or a managing director or a nominee director:

i) who, in the Board’s opinion, is a person with dignity and in possession of significant
experience and expertise;
ii) a) who is or was neither a promoter of the company nor its associate, holding or
subsidiary company; b) who is in no way related to the promoters or directors of the
company, nor its associate, holding or subsidiary company;
iii) who has or had no relationship with the company that is of a pecuniary nature, nor
with its associate, holding or subsidiary company, or their directors or promoters,
during the period of 2 immediate previous financial years or during the current
financial year;
iv) none of whose relatives has or had any relationship with the company that is of a
pecuniary nature, nor with its associate, holding or subsidiary company, or their
directors or promoters, that amounts to a figure of 2% of its total income or gross
turnover or Rs. 5 million or any such higher amount as may be prescribed, whichever
is less, during the period of 2 of its immediate previous financial years or during the
current financial year;
v) who, neither himself nor any of his relatives-a) currently holds or has held any
position of some key managerial personnel or is or has had been an employee of the
company or its associate, holding or subsidiary company in any of the 3 immediate
previous financial years to the financial year in which he is to be given the
appointment; b) currently is or has been an employee or a partner or a proprietor, in
any of the 3 immediate previous financial years to the financial year in which he is to
be given the appointment; of: 1. an auditors’ firm or company secretary in practice or
cost auditors of a company or any of its associate, holding or subsidiary company; or
2. any consulting or legal firm that was involved in any transactions with the
company, or with any of its associate, holding or subsidiary companies, amounting to
a figure of 10% or more of the firm’s gross turnover; 3. holds, along with his
relatives, 2% or more of the total voting power of the company, or 4. is a chief
executive or any director, irrespective of the title given, of any non-profit
organization receiving 25% or more of its receipts from the company, or from any of
its associate, holding or subsidiary companies or that holding 2% or more of the total
voting power of the company; or
vi) who is in possession of such qualifications as may be prescribed. Currently, clause 49
of the Listing Agreement provides for the appointment of independent directors by
 listed companies. For the facilitation of greater autonomy in the decision making
powers of the Board of Directors, the 2013 Act provides for the following minimum
requirements for independent directors:
 Listed companies to have at least 1/3rd of their total directors as independent directors.
 A minimum number of independent directors may be prescribed by CG in the case of
any public company. It is to be noted that SEBI has put in place a proposed road map
so as to align its requirements related to independent directors as mandated in clause
49 of the Listing Agreement (Corporate Governance) with the requirements of the
2013 Act.
 An alternate director of an independent director is capable of being appointed if such
an alternate director is an independent director.
 The rule of retirement by rotation does not apply to an independent director and will
not be included in the ‘total number’ of the directors to whom the rule otherwise
applies.
 From the data bank maintained by a notified institute or an association having
relevant expertise in creation and maintenance of the same, an independent director
may be selected.
 An independent director, at a general meeting, may be appointed for a period of 5
consecutive years. The explanatory statement to the notice to the meeting shall
include the justification for appointing an independent director.
 An independent director would be eligible for re-appointment for another term of 5
years, subject to the compliance with conditions inclusive of performance evaluation
by the entire Board of Directors and the approval by members in form of a special
resolution.
 Once the two consecutive terms of an independent director come to an end, the
independent director will be eligible for re-appointment after a cooling period of 3
years, provided that he does not, either directly or indirectly, associate himself with
the company in any other capacity.
 Independent directors are not entitled to any ESOP but they are permitted to receive
remuneration in form of sitting fees, profit affiliated commission, reimbursement of
expenses for participating in meetings as approved by the company’s members.
  Non-executive director (who is not a promoter or key managerial personnel) and
independent directors shall be liable for only such acts of a company that occurred
with his cognizance, attributable through Board processes, and with his/their consent
or connivance or where he/they failed to act in a diligent manner.
 The 2013 Act includes a detailed code of conduct followed by companies and their
independent directors.
IV) DIRECTOR ELECTED BY SMALL SHAREHOLDERS

At present, the 1956 Act provides for an option for the appointment of a small shareholders’
director for a public company that has a paid up capital of an amount of Rs. 50 million or
more and have at least 1000 small shareholders. Under the 2013 Act, only Listed companies
can appoint a small shareholders’ director. In accordance with this, shareholders who hold
nominal value shares, having worth of not more than Rs. 20,000 or any such sum that may be
prescribed by a listed company, can appoint 1 director from amongst them.

V) MAXIMUM NUMBER OF DIRECTORSHIPS

1. The maximum number of directorships that can be held by a person in a company
has been increased from 15 to 20. This limit of 20 is inclusive of any alternate
directorship. However, the maximum number of public companies (inclusive of
private companies that are either a holding or a subsidiary of a public company) in
which one person can hold directorships cannot go beyond 10. This requirement
is to be fulfilled within a period of 1 year of the 2013 Act coming into force.
2. The members of a company are so authorised through a special resolution for
specifying any fewer number of companies in which a director of the company
may hold directorship. This may curtail professional managers’ ability to accept
directorship in other companies.
VI) DUTIES OF DIRECTORS

In view of the fiduciary capacity of directors, the 2013 Act lays down the duties of directors
which are inclusive of the following:

 To act according to the Articles of Association

  To act bona fide so as to promote the objects of the company and in the best interests
of the company itself, its employees, its shareholders, the environment and the
community.
 To exercise such duties with due and reasonable care, diligence and skill as well as
the exercise of independent judgment.
 To not get involved in a situation where he may have an interest, direct or indirect,
that comes into a conflict or may conflict with the company’s interests.
VII) DISQUALIFICATION OF A DIRECTOR

In order to restrict corporate delinquency occurring due to acts by directors, the 2013 Act
entails greater responsibility on the shareholders and the Board of Directors for selecting and
appointing directors in a company and provides for additional grounds for the
disqualification of the director in the form of the following:

 An individual who has been convicted of an offence that deals with related party
transactions at any point of time during the period of 5 previous years.
 Directors in a company, inclusive of a private company are disqualified if a company
failed to file its annual returns or financial statements for any consecutive 3 years
with the Registrar of Companies or fails in repaying deposits accepted by it or in
redeeming debentures on due date or in paying interest due thereon or in failing in
making a payment of a declared dividend, and that such a failure continues for a
period of at least 1 year. Unlike the 1956 Act, these disqualifications will come into
play even if the default is made by a private company. The 2013 Act provides for
additional grounds for vacation of the position of a director as follows:
 A director is to vacate the office of directorship if he is absent from all meetings of
the Board of Directors held within a period of 12 months, with or without, seeking a
leave of absence from the Board of Directors. This requirement ensures maximum
participation of directors in meetings as well as their accountability for decisions
made therein.
VIII) RESIGNATION OF DIRECTORS

The 2013 Act provides that the resigning director shall file his resignation letter with the
Registrar of Companies within a period of 30 days, in the prescribed manner, specifying
reasons for the same in detail. The resignation shall take effect from the date when the notice
of resignation is received by the company, or, the date (if any,) specified by the director in
the notice, whichever is the latter of the two.

Where all directors of a company vacate office or resign, the promoter, or in his absence, the
CG will have the responsibility of appointing the required number of directors till the general
meeting appoints new directors.