If you are running a private limited company, it is obvious to have situations where you have to appoint a new director in your company. However, appointing a new director in a company is a major responsibility that requires adherence to the legal framework provided by the Companies Act, 2013. The procedure involves various steps like conducting board meetings, filing forms with the ROC-MCA, updating statutory registers, and making sure that the appointee meets the eligibility criteria under the Act. This GrowthX Article by CA Manish Mishra will take you through every step in detail, explaining the key legal provisions, forms to be filed, required documents, and the eligibility and disqualification criteria for appointing a new director.

Under the Companies Act, 2013, directors are appointed to manage the day-to-day operations of a company and ensure that the company meets its legal, financial, and strategic goals. Directors play a crucial role in decision-making and guiding the company’s activities, and their appointment must be done in accordance with the law to ensure transparency and compliance. The process for appointing a director is governed by the Articles of Association (AOA) of the company, the Companies Act, and the rules framed under it. Additionally, the appointment must be reported to the MCA through prescribed forms and procedures.

Types of Directors in a Company

The Companies Act, 2013 recognizes different types of directors, each with distinct responsibilities and appointment procedures.

Executive Directors

An executive director is involved in the day-to-day operations of the company and is responsible for implementing the company’s policies and strategies. Typically, these directors hold key managerial positions within the company.

Non-Executive Directors

Non-executive directors do not take part in the day-to-day management but are involved in providing oversight and governance. Their primary role is to ensure the interests of shareholders are protected.

Independent Directors

Independent directors are appointed under Section 149(6) of the Companies Act. They must not have any material or pecuniary relationship with the company and are appointed to provide unbiased, objective views in the board's decision-making processes.

Appointment Criteria for Independent Directors

• Must possess appropriate skills and experience.
• Cannot be related to the company's promoters or directors.
• Should not have a significant financial interest in the company.

Alternate Directors

An alternate director is appointed when a director is absent from India for more than three months. This appointment is done under Section 161(2) of the Companies Act, and the alternate director serves in place of the original director during their absence.

Eligibility Criteria for Appointment

To be eligible for appointment as a director, an individual must meet the qualifications specified under the Companies Act and the company’s Articles of Association.

Qualifications

There are no specific educational qualifications required by law, but the company may specify qualifications based on its industry or needs. Generally, companies look for directors with relevant experience, leadership qualities, and an understanding of corporate governance.

Age Requirements

The Companies Act does not impose any minimum or maximum age restrictions for directors, except for managing and whole-time directors, who must be between 21 and 70 years unless shareholders approve otherwise by passing a special resolution.

Director Identification Number (DIN)

All directors must obtain a Director Identification Number (DIN) before they are appointed. The DIN is a unique number that identifies the director and tracks their history as a company director.

Disqualifications for Appointment

Section 164 of the Companies Act, 2013, outlines several disqualification criteria that render a person ineligible for appointment as a director. These include:

Disqualification Due to Convictions

A person is disqualified if they have been convicted of an offense involving moral turpitude and sentenced to imprisonment for more than six months. Additionally, individuals who have been convicted of any offense under company law and sentenced to imprisonment are disqualified.

Undischarged Insolvency

A person cannot be appointed as a director if they have been declared insolvent by a court and have not been discharged.

Non-Payment of Dues

If a person has not paid any calls in respect of shares of the company held by them, whether alone or jointly, for a period of six months or more from the last day fixed for the payment, they are disqualified.

Non-Compliance with Annual Filing

Directors of companies that have failed to file financial statements or annual returns for three consecutive financial years are disqualified from being appointed or reappointed in that company or any other company for five years.

Obtaining Director Identification Number (DIN)

What is DIN?

A Director Identification Number (DIN) is a unique identification number required for anyone appointed as a director in a company. The DIN is issued by the MCA and serves as an identifier to track the individual’s directorships across all companies.

Procedure for Obtaining DIN

The process for obtaining a DIN involves filing an application in Form DIR-3 on the MCA portal. The application must be supported by the following documents:

• Self-attested copies of the applicant’s identity proof (PAN card for Indian nationals, passport for foreign nationals).
• Address proof (Aadhaar, voter ID, utility bill, etc.).
• A recent photograph of the applicant.
• Digital Signature Certificate (DSC) of the applicant.

After submission, the application is processed by the Central Government, and upon approval, a DIN is issued.

Filing of Form DIR-3

The applicant must file Form DIR-3 electronically along with the supporting documents and the prescribed fee on the MCA portal. The form is verified by a practicing Chartered Accountant (CA), Company Secretary (CS), or Cost Accountant.

Digital Signature Certificate (DSC)

What is DSC?

A Digital Signature Certificate (DSC) is a digital key that authenticates the identity of the director for online filings with the MCA. Since MCA filings are now completely online, every director must obtain a DSC for signing documents electronically.

Process for Obtaining DSC

DSCs can be obtained from GenZCFO. The following documents are typically required:

• Proof of identity (such as PAN card, passport).
• Proof of address (utility bill, Aadhaar card).
• A passport-sized photograph.

After video verification, the DSC is issued and linked to the individual’s PAN.

It is to be noted that only Class III Digital Signature (Signing) are accepted in all MCA Forms.

Board Resolution for Director Appointment

Conducting a Board Meeting

Once the potential director has been identified, a board meeting must be convened to discuss and approve the appointment. The meeting must comply with the provisions of the Companies Act regarding notices and quorum.

Drafting the Resolution

A Board Resolution must be passed to approve the appointment of the new director. The resolution should include:

• The name of the appointee.
• The nature of their appointment (executive, non-executive, independent, etc.).
• The effective date of the appointment.

Sample Board Resolution:

"RESOLVED THAT pursuant to the provisions of Section 152 of the Companies Act, 2013, and the Articles of Association of the Company, Mr. [Name] be and is hereby appointed as a Director of the Company with effect from [Date]."

MCA Forms for Director Appointment

Filing DIR-12 with MCA

After passing the board resolution, the company must file Form DIR-12 with the MCA within 30 days of the director’s appointment. DIR-12 notifies the Registrar of Companies (ROC) about the change in the directorship.

Attachments to DIR-12

DIR-12 must be accompanied by:

• A certified copy of the board resolution.
• The consent letter (DIR-2) signed by the director.
• Disclosure of interest (MBP-1) from the director.

Declaration and Consent from the Director

Form DIR-2: Consent to Act as Director

The newly appointed director must give their consent to act as a director by filing Form DIR-2. This form confirms that the individual is willing to take on the role and responsibilities of a director.

MBP-1: Disclosure of Interest

Under Section 184(1) of the Companies Act, every director must disclose their interests in other entities by submitting Form MBP-1 at the time of appointment and at the first board meeting of every financial year.

Filing of Return of Appointment

Within 30 days of the appointment, the company must file the return of the new director’s appointment with the MCA by submitting Form DIR-12. Failure to file this form within the prescribed time can lead to penalties.

Statutory Registers

Register of Directors and Key Managerial Personnel

As per Section 170 of the Companies Act, 2013, companies are required to maintain a Register of Directors and Key Managerial Personnel (KMP). The new director’s details must be updated in this register, including:

• DIN.
• Name.
• Address.
• Nationality.
• Date of appointment.

The company must also record the proceedings of the board meeting where the new director was appointed. The minutes should be clear and reflect the discussion and decisions taken regarding the appointment.

Provisions for Appointment of Independent Directors

Independent directors are subject to specific eligibility criteria under Section 149 of the Companies Act. In addition to possessing relevant expertise and qualifications, independent directors must:

• Not be a promoter or related to the company’s promoters.
• Not hold a material or financial interest in the company.
• Adhere to the Code of Conduct for Independent Directors, which governs their duties and obligations.

Provisions for Appointment of Women Directors

Under Section 149(1) of the Companies Act, 2013, certain categories of companies, such as listed companies and public companies with a paid-up capital of ₹100 crore or more or a turnover of ₹300 crore or more, must appoint at least one woman director.

General Meeting Requirements (If Needed)

If the appointment of a director requires approval from shareholders, as may be the case for additional directors or directors appointed by rotation, the company must include the appointment in the agenda of the next general meeting.

Compliance with Code of Conduct

Directors must adhere to the company's Code of Conduct, which outlines their fiduciary duties, including:

• Duty of care: Directors must act in good faith and with due diligence.
• Duty of loyalty: They must act in the best interests of the company.
• Duty of disclosure: Directors must disclose any conflicts of interest.

Appointment of Alternate Directors

If a director is unable to perform their duties for more than three months, the board can appoint an alternate director. The alternate director's appointment is temporary and ends when the original director returns.

Removal or Resignation of Directors

A director may be removed by the shareholders through an ordinary resolution or may resign by submitting a letter of resignation to the board. Upon resignation or removal, the company must file DIR-12 to notify the MCA and update its records.

Final Checklist

• The director’s eligibility and disqualification criteria are reviewed.
• DIN and DSC are obtained.
• The board resolution is passed and recorded.
• DIR-12 is filed with MCA.
• Statutory registers are updated.

FAQs

How long does it take to obtain a DIN?

It typically takes 1-2 working days to obtain a DIN, provided all required documents are correctly submitted and verified.

Is shareholder approval always required for appointing a director?

No, shareholder approval is not always required unless specified by the Articles of Association or if the appointment is for specific positions like independent directors or additional directors.

Can an individual be appointed as a director in multiple companies?

Yes, a person can hold directorship in up to 20 companies, but they cannot be a director in more than 10 public companies simultaneously, as per Section 165 of the Companies Act.

Can a foreign national be appointed as a director?

Yes, foreign nationals can be appointed as directors, provided they obtain a DIN and comply with all necessary legal requirements.

What is the tenure for independent directors?

Independent directors can serve for up to two consecutive terms of 5 years each.

What happens if the company fails to file DIR-12?

Failure to file DIR-12 within the prescribed time attracts penalties for both the company and the director.

Can GenZCFO help in the process of appointment of director?

Yes, we can help you in the end-to-end process of appointment of a director. Contact us to book a consultation.