Directors: appointment, qualifications, types, remuneration and removal

1. Composition of the Board: section 149

• Minimum: three directors in a public company, two in a private company, one in a One Person Company. Maximum: fifteen, which may be exceeded by special resolution (section 149(1)).
• Woman director: at least one in such classes of companies as are prescribed (listed companies and larger public companies).
• Resident director: at least one director who stays in India for at least 182 days in the financial year (section 149(3)).
• Independent directors: at least one-third of the Board of every listed public company, and such number as prescribed for other classes of public company (section 149(4)).

2. Appointment

• First directors are named in the articles; if none are named, the subscribers who are individuals are deemed to be the first directors (section 152(1)).
• By the general meeting: the general rule (section 152(2)). In a public company at least two-thirds of the directors are liable to retire by rotation, one-third of them retiring at each annual general meeting, the longest in office first; a retiring director is eligible for reappointment (section 152(6)). Independent directors are excluded from the count. Appointments must be voted on individually, one resolution per director, unless the meeting first agrees unanimously to a single resolution (section 162).
• By proportional representation for up to two-thirds of the directors, if the articles so provide (section 163).
• By the Board: additional, alternate and casual-vacancy directors (section 161), below.
• By third parties: nominee directors appointed under agreement or by financial institutions or the Government (section 161(3)), and directors appointed by the Tribunal under section 242 to prevent oppression.
• Small shareholders' director: a listed company may have one director elected by shareholders holding shares of nominal value not exceeding twenty thousand rupees (section 151).

Every director must hold a Director Identification Number (sections 152(3), 153–159), must furnish it with a declaration that he is not disqualified (section 152(4)), and must file his consent to act with the Registrar within thirty days (section 152(5)). A person other than a retiring director may stand for election by giving notice fourteen days before the meeting (section 160).

3. Qualifications and disqualifications

The Act prescribes no positive qualification, and no share qualification. The articles may require qualification shares, and a private company may add further disqualifications by its articles (section 164(3)). Under section 164(1) a person is not eligible if he is of unsound mind so declared by a court; an undischarged insolvent, or has applied to be adjudicated insolvent; has been convicted of any offence and sentenced to imprisonment for six months or more and five years have not passed since the sentence expired (seven years' imprisonment or more disqualifies for life); is disqualified by an order of a court or Tribunal; has not paid calls for six months; has been convicted of an offence relating to related party transactions within five years; has no DIN; or holds more directorships than section 165 permits.

Under section 164(2) a person who is or has been a director of a company which has not filed financial statements or annual returns for three continuous financial years, or has failed for a year or more to repay deposits, redeem debentures or pay declared dividends, cannot be reappointed in that company or appointed in any other company for five years.

4. Limit on directorships: section 165

No person may hold office as director, including alternate directorship, in more than twenty companies at the same time, of which not more than ten may be public companies (section 165(1)). Directorships of private companies that are holding or subsidiary companies of a public company count as public company directorships (Explanation I). Directorships in dormant companies are not counted towards the twenty (Explanation II). Members may by special resolution specify a lower limit for their own directors (section 165(2)). Accepting an appointment in breach attracts a penalty of two thousand rupees a day, up to two lakh rupees (section 165(6), as substituted in 2020), and holding directorships beyond the limit is itself a disqualification under section 164(1)(i).

5. Types of directors

• Managing director (section 2(54)): entrusted with substantial powers of management by the articles, an agreement, or a resolution of the members or the Board.
• Whole-time director (section 2(94)): in the whole-time employment of the company. Managing and whole-time directors are key managerial personnel (section 2(51)).
• Independent director (section 149(6)): a non-executive director who is a person of integrity with relevant expertise, is not a promoter or related to promoters or directors, and has no disqualifying pecuniary relationship with the company or its group. Appointed for up to five consecutive years, eligible for a second term by special resolution, but no more than two consecutive terms; then a three-year cooling-off (section 149(10), (11)). He must follow the code in Schedule IV, and, like other non-executive directors who are not promoters or key managerial personnel, is liable only for acts of the company that occurred with his knowledge attributable through Board processes and with his consent or connivance, or where he did not act diligently (section 149(12)).
• Additional director (section 161(1)): appointed by the Board if the articles permit, holding office until the next annual general meeting; a person who failed to get appointed at a general meeting cannot be appointed additional director.
• Alternate director (section 161(2)): appointed by the Board, if authorised, to act for a director absent from India for at least three months; he vacates office when the original director returns.
• Nominee director (section 161(3)).
• Director filling a casual vacancy (section 161(4)): appointed by the Board, to be approved at the next general meeting, holding office for the unexpired term.

6. Remuneration: section 197

In a public company total managerial remuneration to directors and the manager cannot exceed eleven per cent of net profits computed under section 198, unless the general meeting approves more, subject to Schedule V. Without a special resolution, one managing or whole-time director or manager may get up to five per cent (ten per cent for all together), and non-executive directors one or three per cent. Central Government approval is no longer needed (2017 Amendment).

7. End of office

Vacation (section 167): on incurring a disqualification under section 164; absence from all Board meetings for twelve months, with or without leave; contravention of, or failure to disclose interest under, section 184; disqualification by court order; conviction with imprisonment for six months or more (with a short stay while an appeal is pending); removal; or ceasing to hold the office in a group company by virtue of which he was appointed.

Resignation (section 168): by written notice, effective on receipt or a later date specified; the company intimates the Registrar.

Removal (section 169): the company may remove a director by ordinary resolution before the expiry of his term, after giving him a reasonable opportunity of being heard. Special notice is required (section 115). The director may make a written representation, which must be circulated to members or read out at the meeting, and he is entitled to be heard. An independent director re-appointed for a second term can be removed only by special resolution. The section does not apply to a director appointed by the Tribunal under section 242, or where two-thirds of the Board were appointed by proportional representation. The vacancy may be filled at the same meeting if special notice was given, and the removed director cannot be re-appointed by the Board (section 169(5)–(7)). He is not deprived of compensation or damages due under his contract (section 169(8)).

8. Problem

‘P’ already holds office as director in fifteen companies. He wishes to become director of another company. Advise P.

Issue. Whether a sixteenth directorship is permitted under section 165.

Law. Section 165, as set out in part 4: twenty companies in all, ten public (counting private holding or subsidiary companies of public companies, excluding dormant companies), subject to any lower limit fixed by members; excess is a disqualification under section 164(1)(i).

Application. Fifteen is below the overall limit of twenty, so P may accept a sixteenth directorship, provided: (i) if the new company is a public company (or a private company that is the holding or subsidiary of one), his public company directorships, including this one, do not exceed ten; (ii) none of his existing companies has fixed a lower limit by special resolution; and (iii) he is not otherwise disqualified under section 164, holds a DIN and files his consent.

Conclusion. P can be appointed. He must check the count of public companies among his fifteen; if ten of them are already public companies, he may join only a private company that is not the holding or subsidiary of a public company.

How this is examined

The fifteen-directorships problem was set in June 2025. Essay questions ask for the appointment, qualifications and disqualifications of directors, or for the removal of directors; short notes are set on independent directors, the managing director and additional or alternate directors. In the removal answer, the three procedural safeguards (special notice, representation, hearing) carry the marks; in the disqualification answer, quote section 164(1) clause by clause and add section 164(2).