Appointment of Directors

In this article, we will discuss the topic of Appointment of Directors and What are the Modes of appointing a Director.

Who can be a director? State the modes of appointment of directors.

Who can be appointed as a director?

According to Section 253, no body corporate, association or firm shall be appointed director of a company, public or private, and only an individual shall be so appointed.

Subject to any regulations in the Articles of a company, subscribers of the Memorandum, who are individuals, shall be deemed to be the directors of the company, until the directors are duly appointed in accordance with Section 255.

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Modes of Appointment of Directors

The following are the different modes of appointment of Directors:

1. Appointment of first Directors [Section 254]: Persons named in the Articles of Association as directors become the first directors of the company.

If no person is named in the Articles as directors, the persons who sign the Memorandum of Association of the Company become the first directors. The persons so signing the Memorandum must be individuals, not companies.

2. Appointment of Directors at general meeting [Section 255]: In case of a public company or a private company which is a subsidiary of a public company, at least two-third of the total number of the directors shall be liable to retirement by rotation unless the Articles provide for the retirement of all directors at every annual general meeting.

In case of a private company which is not a subsidiary of a public company, if the articles are silent as to the appointment of directors, then the directors are to be appointed in general meeting by the shareholders.

Section 256 provides that one-third of the directors who are subject to retirement by rotation must retire at an annual general meeting.

3. Appointment of Directors by the Board of Directors: The Board of Directors has the power to appoint directors in cases noted below:

(a) Appointment of Additional Director [Section 260]: If the Articles authorize, the Board has the power to appoint Additional Directors who are entitled to hold office only up to the date of the next annual general meeting of the company.

(b) Filling up Casual Vacancies [Section 262]: The Board of Directors are empowered to fill casual vacancies in the case of a public company or private company which is a subsidiary of a public company. A casual vacancy arises otherwise than by retirement or expiration of the time fixed for an appointment.  

(c) Alternate Directors [Section 313]: 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 of not less than three months from the state in which meeting of the Board are generally held.

4. Appointment of Directors by third parties: These are the cases of nominee directors. This happens when Government, holding companies, financial institutions etc. nominate a director to represent their interest on the Board. The appointment of nominee directors has become an important feature of corporate development of India.

5. Appointment of Directors by the Central Government: The central government has been empowered to appoint directors on an order passed by the National Company Law Tribunal (NCLT) in order to effectively safeguard the interests of the company or its shareholders or in public interest. Such directors may hold office as directors thereof for such period, not exceeding three years on any occasion. 

6. Appointment of Directors by proportional representation [Section 265]: Majority shareholders having control of 51 percent or more votes may elect all directors. As a result the minority, as high as 49 percent may not have any representation on the Board. Section 265 of the Companies Act comes to the rescue of minority shareholders by providing for an option to the companies to appoint directors through a system of proportional representation. Under the system of single transferable vote a quota of votes is fixed. The quota shall be obtained by dividing the total number of votes, cast by the total number of seats plus one and adding one with the result. A person will get elected if he gets the requisite number of votes fixed as quota.   

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