Companies Rules - Appointment and Qualification of Director

The Government of India (GOI) introduced The Companies (Appointment and Qualifications of Director) Rules. The appointment and qualification of the director rules were set to lay down the process of appointment and qualification of the directors of a company. The rules detail the appointment of women directors, independent directors, small shareholders' directors and KYC directors. This article deals with the Companies Appointment and Qualifications of Directors Rules in detail.

Women Director on Director on Board

The following class of company should appoint at least one women director:

All the eligible listed company under the Companies Act, 2013
Other public company
A paid-up share capital which is of Rs.100 crores
Turnover of Rs.300 crores

If there is any intermittent vacancy then the Board should fill it up. The Board should fill the vacancy after the immediate meeting or within 3 months of the vacancy.

Number of Independent Directors

The following class of companies should have at least two directors:

A paid-up share capital of Rs.10 crores or more by a public company
Turnover of Rs.100 crores by a public company
A public company that has aggregate, outstanding loans, deposits and debentures that exceeds Rs.50 crores

However, the public company is necessary to appoint more number of independent directors because of its composition of the audit committee. Moreover, if the company does not fulfil the above conditions for 3 years, then such company need not comply with the provisions of the rules until it fulfils the conditions. If a law specifies certain company to have more independent directors, then such company should follow that law. The following are the unlisted public companies that are not applicable to the above conditions:

A joint venture
Dormant company
Fully owned company

Qualification of Independent Director

An Independent director must possess skill and experience. They should also have knowledge in one or more topics like law, finance, sales, management, administration, marketing, research, technical operations, corporate governance or other disciplines that relate to the business of the company. The relatives of the independent director should not owe anything to the company, subsidiary, its holding, associate company, promoters or the directors. They should also give any guarantee of security in connection to the debt to any third person for an amount of Rs.50 lakhs during the two immediate financial years.

Necessary Compliance for the Independent Director

Every appointed independent director or intends to be appointed director must apply online to the institute for including the name in the data bank. The name inclusion can be for a period of 1 year, 5 years or lifetime. Moreover, any individual even the individual without the DIN can voluntarily apply for their name in the data bank. The individual can apply for renewal within 30 days of their expiry. Every independent director must the compliance declaration. To include the name, the individual has to pass the online proficiency self-assessment test within a year of inclusion. If they fail, there will be a removal of the name. Moreover, if the individual has been a director or managerial personnel for 10 years or more in a listed public company, an unlisted public company that has a paid-up share capital of Rs.10 crores or more or body corporate under the stock exchange, then they need not pass the online test. However, if the individual has work experience in two or more place then only one is taken for consideration.

Small Shareholders' Director

The small shareholders' can elect a director if they are less than 1000 or 1/10th of the total number. However, nothing prevents the listed company from having a director for small shareholders. The shareholders must intimate the company through a notice at least before 14 days of meeting regarding the person they are nominating. They should mention the name, address, shares and also the folio number of the proposed director. The proposed director must have a signed statement along with the notice stating the DIN, qualifies according to the Companies Act, 2013 and consent to be a director. Such a director cannot retire by rotation. The tenure of the director will not exceed 3 years. After the tenure, there is no re-appointment. The director cannot hold office in two different companies. After the appointment, the director cannot associate with any other company.

Non-Eligibility

Disqualifies under Section 164 of Companies Act, 2013
The office becomes vacant under Section 167
Does not meet the eligibility criteria of independence

Consent to Act as a Director

The appointed director must submit the consent to the company in Form DIR-2. Moreover, the company has to file the consent within 30 days to the Registrar in Form DIR-12.

Application for Allotment of DIN

The appointed director of the existing company must apply for the DIN through Form DIR-3 online with a certain fee amount. However, if the proposed directors do not have approved DIN then the company can mention three directors and all three will receive DIN through Form Spice. Form DIR-3 will be available in the portal of the Ministry of Corporate Affairs. After filling the form, the applicant must attach the photograph, identity proof and residence proof. The applicant must sign through a digital signature certificate and submit it. The company secretary, managing director, CEO, CFO or the director will verify the form. if the applicant does not have a surname, then his father or grandfather's name will be taken as surname through Form DIR-3A.

Allotment of DIN

The applicant will receive an application number after filing the form. The Central Government processes the application after generating the application number. Moreover, the Central Government decides on the approval or rejection of the DIN within a month. But if there is any defect in the application the Central Government gives intimation to the applicant. The applicant must rectify the defects and resubmit the form within 15 days. In the case of a defect, the Central Government can ask the applicant to file a new form. There will be no refund in case of rejection. However, the alloted DIN is valid for a lifetime.

Intimation of DIN to Company

As per Form DIR-3B, the director must intimate the company or companies the DIN. After receiving the intimation the company will intimate the director's DIN through Form DIR-3C.

Cancellation, Surrender or Deactivation of DIN

There can be a cancellation of the DIN for the following purposes:

If there is a duplication of the DIN
Receiving of DIN through fraudulent manner
Death of the individual
The Court declares the person as an unsound mind person
Adjudged as an insolvent person. But such a person will have an opportunity of speaking
The DIN holder can make an application in Form DIR-5 to surrender the DIN stating that there was no usage of the DIN. Central Government checks before deactivation
If the applicant does not intimate the particulars in Form DIR-3-KYC then the authorised directors will deactivate the DIN

Filing the form DIR-3-KYC can reactivate the DIN with a certain amount of fees.

Intimation of Changes in Particulars

If there are any changes in the DIN application, then the applicant can intimate it through Form DIR-6. A chartered accountant or a company secretary or a cost accountant in practice must digitally sign the form. The Central Government after satisfaction of the changes will incorporate it. The Ministry's DIN cell will also intimate about the changes. The applicant then has to intimate the company within 15 days.

Notice for Candidature of a Person for Directorship

Before 7 days of the general meeting, the company must intimate the candidate for the post of director. They should intimate to all the members electronically and in writing. They should also update on the website of the company. However, there is no need for individual intimation to the members if they post it in a vernacular newspaper or English newspaper.

Disqualification of Directors

The directors must intimate the company regarding his disqualification in Form DIR-8. The company should file in Form DIR-9 if it fails to file the financial statements or the annual returns, fails to repay the deposits, dividends, interest or fails to redeem the debentures. After the failure of such actions if the company fails to file the Form DIR-9 within 30 days, then there will be disqualification of the directors. Furthermore, Form DIR-10 is for the application for disqualification of the directors.

Notice and Copy of Resignation

After receiving the notice of resignation from the director the company must intimate the Registrar in Form DIR-12 within 30 days. When the director resigns after 30 days of his resignation he should send a copy to the Registrar. He should send the copy in Form DIR-11 mentioning the reason for resigning along with a certain fee amount. In the case of a foreign director the chartered accountant or a company secretary, a cost accountant in practice or resident director must certify and also sign the Form DIR-11.