Introduction
A corporation is an artificial being invisible, intangible and existing only in contemplation of law. It has neither mind nor a body of its own. A living person has a mind which can have knowledge or intention and he has hands to carry out his intention. A corporation has none of these; it must act trough living persons. This makes it necessary that the company’s business should be entrusted to some human agents. Hence, the requirement of directors.
An organization needs to act through a human office. The organization as a foundation is made out of two organs, the general assortment of shareholders and the Board of Directors. The Board is the administering body. It is constituted by the general body. Constituting the board implies delegating chiefs. Chiefs must stay inside the scope of shareholders to delegate and to evacuate. Responsibility to shareholders must be guaranteed.Political accountability is assured by ensuring by ensuring that the representatives of the people come back to the electorate periodically. The same pattern has been adopted in company law. Directors must come back to shareholders periodically to seek a fresh mandate. Section 2(10) of the Companies Act, 2013 for the first time defines Board of Directors to mean the collective body of the directors of the company. According to section 149 of the Act, ‘every public company shall have at least three directors and every private company shall have at least two directors’. In the case of one Person Company, there has to be at least one director. There can be a maximum of 15 directors. Companies have been permitted to have more than 15 directors. Since the executive control is in the hands of Whole-time and Managing Directors or manager and since shareholders do not have much say in the selection of managerial personnel because they are usually appointed by the Board of Directors, the 2013 Act lays down in its schedule V the standard terms and conditions for regulating the appointment and payment of managerial remuneration and prescribing that any departure from the standardized terms and conditions would require Government approval, so also any amendment of those terms after initial approval. This became necessary to assure the standard and quality of corporate management. Special resolution has also been prescribed for increasing the number of directors beyond a certain limit. This is necessary to prevent overloading of the board.
Meaning of a Director
Section 2(13) of the Companies Act, 1956 defines a ‘director’ as including ‘any person occupying the position of a director by whatever name called’. Thus it is not the name by which a person is called rather it is the position which he occupies and functions and the duties which he discharge that determine whether in fact he is a director or not. In Re, Forest of Dean Coal Mining Co. , it was stated that function is everything, name matters nothing. So long as a person is duly appointed by the company to control the company’s business and authorized by the Articles to contract in the company’s name and on its behalf, he functions as a director. The Companies Act specifies where the company itself is to act both as principal and the agent and where the Board of Directors is to act on its behalf. In respect of the properties and assets of the company the directors or the Board of Directors acts as trustees. Therefore directors have different attributes in relation to the company depending upon the facts of each case.
Section 303(1) of the Companies Act provides that any person with whose directions or instructions the Board of Directors is accustomed to act is also deemed to be a director.Andhra Pradesh High Court held that a manager or any other managerial personnel, is however, not a director. According to section 2(30) of the Act, the definition of an ‘officer’ includes a director as well as any person under whose directions or instructions the Board or any one or more of the directors are accustomed to act. For certain purposes, the Companies Act, 1956 treats as director the person in accordance with whose directions or instructions the Board of Directors of a company is accustomed to act. This widened definition of a director. Such persons do not thereby acquire any rights or powers in connection with the management of the company. Such persons have been addressed under English Law as ‘shadow directors.’
Who may be appointed as a Director?
Section 253 of the Companies Act provides that nobody corporate, association or firm can be appointed director of a company. Only an individual can be appointed as director. However, no company shall or re-appoint any individual or director of the company unless he has been allotted a Directors Identification Number(DIN) under section 266B of the Act. In Oriental Metal Pressing Works (P) Ltd. V B.K.Thakoor Supreme Court pointed out the reason as to why it is necessary that only an individual should be director of a company. It was held that the office of the director being to some extent an office of trust, there should be somebody readily available who can be held responsible for the failure to carry out the trust, and it might be difficult to fix that responsibility if the director was a corporation or an association of persons.
Appointment of Directors
The directors may be appointed in the following heads:
1. Appointment of first Directors
2. Appointment at general meeting
3. Appointment by the Board of Directors
4. Appointment by third parties
5. Appointment by Central Government.
Appointment of first directors
The first directors are usually appointed by name in the articles or in the manner provided therein. Where the articles do not provide for the appointment of first directors, the subscribers to the memorandum, who are individuals, shall be deemed to be the first directors of the company subject to the regulations of the company’s articles. The first directors can hold office until the directors are duly appointed in accordance with the provisions of section 255 of theAct. As section 254 says that the subscribers will be deemed to be directors only subject to the regulations in the articles, if the articles provide for any share qualification, should only those subscribers who possess the necessary share qualification be deemed to be directors. A.M.Chakraborti is of the opinion that individual subscribers of the memorandum shall be deemed to be the directors even though they do not hold qualification shares and the articles of the company require that qualification shares must be held in order to be appointed as directors. This is because qualification shares are required to be held only for being appointed as directors and not for being deemed to be directors.
Appointment at general meeting
According to section 152(2) every director shall be appointed by the company in general meeting except where the Act provides otherwise.
Sub-section (6) of section 152 provides that unless the articles provide for the retirement of all directors at every annual general meeting not less than two-thirds of the total number of directors of a public company shall-
(i) Be persons whose period of office is liable to determination by retirement of directors by rotation
(ii) Be appointed by the company in general meeting except where otherwise expressly provided in this Act.
The remaining directors in the case of such a company (public company) shall in default of, and subject to any regulations in the articles of the company, also be appointed by the company in general meeting.
Appointment of directors in case of a private company
Calcutta High Court held that a private company if the articles are silent as to the appointment of directors, or do not specifically provide for appointment of directors otherwise than in a general meeting, then the directors are to be appointed in general meeting by the shareholders. Section 156(2)(c) provides that at the first annual general meeting of a public company held next after the after the date of the general meeting at which the first directors are appointed and at every subsequent annual general meeting, one-third of such of the directors for the time being as are liable to retire by rotation, or if their number is neither three nor a multiple of three, then, the number nearest to one-third, shall retire from office. The directors to retire by rotation at every annual general meeting shall be those who have been longest in office since their last appointment, but as between persons who became directors on the same day, those who are to retire shall, in default of and subject to any agreement among themselves, be determined by lot [section 152(6)(d)]. The Delhi High Court held that directors cannot prolong their tenure by not holding a meeting in time. The directors due to retire by rotation must vacate office at the latest on the last day on which an annual general meeting ought to have been held.
Appointment by Board of directors
The Board of directors can exercise the power to appoint directors in the following three cases :
(i) Additional directors
(ii) Filling up the Casual Vacancy
(iii) Alternate Directors
(iv) Nominee Directors
Appointment of additional director
The articles of a company may confer on its Board of Directors the power to appoint any person as an additional director at any time. However, a person who fails to get appointed as a director in a general meeting cannot be so appointed. It may thus be noted that without a power given by the articles, the Board cannot appoint additional directors. The section applies to all companies, public as well as private.
Filling up casual vacancy
Casual vacancy means a vacancy in the office of a director appointed by the shareholders in a general meeting and caused by the death, resignation, insolvency or disqualification. The expression does not include vacancy caused by efflux of time or retirement by rotation. Section 262 of Companies Act 1956 empowers the Board to fill the vacancies in the case of a public or private company which is a subsidiary of a public company. Thus, if the office of any director appointed by the company in general meeting is vacated before his term of office expires in the normal course, the resulting casual vacancy may, subject to any regulations in the articles of the company, be filled by the Board of directors at a meeting of the Board.
Alternate Director
The Board of Directors of a company may, if so authorized by its articles or by a resolution passed by the company in general meeting, appoint an alternate director to act for a director during his absence for a period not less than three months from India. However, a person holding any alternate directorship for any other director in the company shall not be appointed. The question of appointment of alternate director must be considered fairly in the interest of the company and its shareholders. The alternate director merely fills a temporary vacancy in the office of a director which already exists and no new office of director is created by his appointment. Many provisions of this Act do not apply to the alternate director.
Nominee Director
Subject to the Articles of a company, the Board may appoint any person as a director nominated by any institution in pursuance of the provisions of any law for the time being in force or of any agreement or by the Central Government or the State Government by virtue of its share shareholding in a Government Company.
Appointment of Directors by third parties
There might be events when executives speak to certain outsiders in the Board. This more often than not happens when the Government, remote partners, holding organizations, monetary foundations or other lenders,etc,nominate an executive to speak to their enthusiasm on the Board. The wonder of candidate executives has turned into an essential component of the present day Indian corporate scene. It is principally on account of the part of the different loaning organizations like banks,mutual assets, open monetary establishments, State money related companies and so forth. These loaning organizations, in the cutting edge corporate world have accepted a critical part in financing the different activities of the organizations. On account of their overwhelming duties, such suppliers of cash actually craving to safeguard their interests. Other than they will likewise jump at the chance to guarantee that the cash is put resources into the stipulated purposes as it were. The privilege to select the chiefs on the Boards of financed organizations is typically contained in the agreement itself. However the extraordinary enactments administering certain open money related organizations and State monetary enterprises visualize the arrangement of specific executives on the Boards of obtaining organizations and such an arrangement has a superseding appropriateness notwithstanding the typical administrative arrangements of the Companies Act, the Memorandum of Association and the Articles of affiliation. However, in British MuracSydicate Ltd v Alperton Rubber Co. Ltd. it was held that the company shall be compelled to accept the appointment unless the appointee is unfit to act as director, eg., where he has conflicting interests. This being a very old ruling, it seems the views expressed by the learned authors Perrins and Jefferys Amy be the more acceptable position.
Appointment of directors by the Central Government
The focal government has been engaged to delegate chiefs on a request went by the Company Law Board. The Company Law Board may so arrange either on a reference by the Central Government or on the use of at the very least 100 individuals from the organization or of individuals holding at least 1/10th of the aggregate voting power. Such arrangements should be so requested by the Company Law Board where it finds that the undertakings of thecompany have been directed in a way severe to any individual from the organization or in a way biased to the interests of the organization or to open interest. Such an executive might be delegated for any term yet not surpassing three years.
Conclusion
A corporation is an artificial being invisible, intangible and existing only in contemplation of law. It has neither mind nor a body of its own. A living person has a mind which can have knowledge or intention and he has hands to carry out his intention. A corporation has none of these; it must act trough living persons. This makes it necessary that the company’s business should be entrusted to some human agents. Hence, the requirement of directors.
Company as a juristic person cannot perform all of its function. The company needs hands eg., The directors to perform their function. It is the director who is responsible for the function of the company. Any person can become the director of a company. Any person of 16 years of age or above can be appointed as a director of a company. There are no prior qualifications to be appointed as a director. According to section 2(30) of the Companies Act, 1956 ‘officer’ includes any director, managing agent secretaries and treasurers, manager or secretary or any person in accordance with whose directions or instructions the board of directors or any one or more of the directors is or are accustomed to act. Every Public company shall have three directors and every private company shall have at least two directors. The success of a company depends to a very large extent upon the competence and integrity of its director. It is therefore necessary that management of companies should be held in proper hands.