A Director of a company is a person who gives direction and who is mainly responsible for the affairs of the Company. We shall now discuss about the meaning, types and appointment of Director of the Company.
A director is mainly appointed by the Shareholders of the Company in a general meeting. As per the Memorandum and Articles of Association, the first directors of the company are those which are inducted at the time incorporation of the company.
To appoint a director, the person proposing to become a Director must obtain a Digital Signature Certificate (DSC) and Director identification number (DIN). The nationality or residency status of the DIN applicant does not matter. Hence, Indian Nationals, Non-Resident Indians and Foreign Nationals can obtain DIN and be appointed as Director of a company in India.
Types of Director in a Company
Managing Director is a Director, who by virtue of Articles of Association of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of managed of affairs of the company. He is the person who has substantial decision making power to take decisions related to business of a Company.
Ordinary Director means a simple Director who attends the Board Meetings of a company and participates in the matters put before the Board of Directors. These Directors are neither whole-time Directors or Managing Directors. The are not regularly involved in day to day operations of a Company.
Additional Director is someone appointed by the Board of Directors between two Annual General Meetings (AGM) subject to the provisions of the Articles of Association of a company. Additional Directors can hold office only upto the date of next annual general meeting of the Company.
Alternate Director is someone appointed by the Board of Directors in a general meeting to act for a Director called the original director during his/her absence for a period of not less than three months. Generally, alternate Director are appointed for a person who is a Non-Resident Indian or Foreign Collaborators of a company.
Executive Director is a Director, who is in full-time employment of the company. Hence, executive directors are regularly involved with the management of the company and managing affairs of the company.
Resignation of Director
There can be various reasons where a Director would like to resign as a Director like better career options, disagreements with the Board, Irregularities in the Company Affairs, Fear, removal given the face of resignation, withdrawal of nomination
A notice has to be served by the director to the company mentioning about the resignation. Form DIR- 11 have to be filed by the Director under his digital signature.
Upon receiving the receipt of the notice, the company has to pass the board resolution and has to intimate the RoC by filing form DIR 12 with Reason for Resigning, Proof of Dispatch and Notice that is sent to the Company (Copy) within 30 days of resignation along with prescribed fees as per Rule 15 of Companies (Appointment and Qualification of Directors) Rules, 2014 and also publish on website. In the Report of Directors of the preceding General Meeting of the Company, it is required to disclose the same.
There is a long list of compliances for the listed companies, the same is not the case with private firms and can take undue advantage. The promoters in order to safeguard the directors in an instance of default can show the resignation letter with an explanation that the director was in no way related to the company as he had resigned long back.
If all the directors of the company resign and in the absence of promotor the government can appoint director until the next General Meeting.
When a director submits a resignation, even after having liabilities incurred then it will not require Board approval unless mentioned in the AoA, although he can be held liable for his acts. When the resignation letter specifically mentions the approval of the board and the AoA is silent, the approval will be taken. There is no obligation on the director to co-opt other directors before leaving the office unless mentioned in AoA of the company.
Shareholder Agreement or Articles of Association clauses determine whether a director has to transfer his shares after resignation. If they are silent then it is totally his decision whether or not to sell his shares post-resignation. If he does not sell his shares he remains a shareholder of the company.
With frauds coming out and the directors being held personally liable, the position of a director of a company is that of responsibility. The new Companies Act has made the process of resignation more certain and unilateral providing easy exit options for directors. However, it might depend on each case with reliance on AoA of the company as to the approval of the Board.
A director may be removed by the shareholders or by the Central Government or by the Court. Procedure for removal of Director of a company according to the Companies Act 1956 are briefly discussed below.
1. Removal of Director by Shareholders
According to Sec.284 of the Companies Act 1956, the company in a general meeting may remove a director at any time by passing an ordinary resolution.
The removal of a director or appointment of a director in the place of a removed director needs a resolution requiring special notice. Hence, the proposer has to send a notice to the company not less than 14 days before the meeting and the company has to send the proposed resolution to the concerned director and the members. The director has a right to make representations and to speak at that general meeting.
He may also request that these representations be notified to the members of the company. Under such circumstances, the company shall
state the fact of the representations having been made in any notice of the resolution given to the members of the company; and
send a copy of the representations to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representations by the company).
If a copy of the representations is not sent as aforesaid because they are received too late or because of the company’s default, the director may (without prejudice to his right to be heard orally) require that the representations shall be read out at the meeting.
The removed director may get compensation or damages for the termination of his appointment. If the vacancy is not filled at the same meeting, the Board may fill it as if it is a casual vacancy. But the removed director cannot be reappointed.
2. Removal of Director by the Central Government
As per Secs. 388 B to 388 E of Companies Act 1956, the Central Government has power to remove a managerial personnel on the recommendations of the National Company Law Tribunal. The Central Government may refer the case to the National Company Law Tribunal if it is of the opinion that:
The director or directors is or are guilty of fraud, misfeasance, negligence or default in carrying out his/their functions, or
The business is carried on against sound business principles or commercial practices, or
The company is carried on in a manner likely to cause injury to the interest of the trade, industry or business to which it belongs, or
The concerned director manages the company for defrauding the creditors or members or for a fraudulent or unlawful purpose.
If the National Company Law Tribunal after inquiry decides against the director or directors, the Central Government may remove him/them from office. In this case, no compensation is payable for the loss of office.
3. Removal of Director by National Company Law Tribunal
As per Sec. 402 of Companies Act 1956, if, on hearing an application for prevention of oppression or mismanagement, the National Company Law Tribunal feels that a relief ought to be granted, it may set aside, terminate or modify any agreement of the company with a director. Such a terminated director cannot get compensation for the loss of office.