Companies Act 2013

Section 161: Appointment of Additional Director, Nominee And Alternate Director, Companies Act 2013

calendar01 Nov, 2023
timeReading Time: 10 Minutes
Section 161 of Companies Act 2013

For internal management purposes and to help the organization make more effective company choices, the appointment of directors may be started. A private limited company must have a minimum of two directors, a one-person business must have a minimum of one director, a public limited company must have a minimum of three directors, and a public limited company may have a maximum of fifteen directors, according to legislative requirements. After adopting a special resolution, a business is permitted to select more than 15 directors.

Types Of Directors

Under Section 161 of Companies Act of 2013, any Person can be appointed as an Additional Director by a corporation. For any reason, the Board of Directors (BOD) can choose a new director if it cannot wait until the next annual general meeting (AGM) or does not wish to call an extraordinary general meeting (EGM).

General Eligibility Criteria for Additional Director

  • The individual should be of sound mind.
  • The individual should not have been undischarged insolvent.
  • Should not have filed an application to be declared insolvent for which the application is still in process.
  • The individual should not have been convicted for any crime or should have sentenced if imprisonment for that crime of at least 6 months, and five years have still not passed after this particular sentence completion.
  • The individual, who is being considered for the appointment, has not been found to be ineligible by a court or tribunal.

What is Additional Director?

A shareholder or other member of the public can add an Additional Director to a company’s board; such a person is not a member of the Board. Any person with expertise concerning their domain of responsibility can serve in this capacity; they do not necessarily have to be corporate employees.

What are the powers to appoint Additional Director?

The company’s articles of incorporation can allow the Board of Directors (BOD) authority to name additional directors. This means that the BOD can nominate any individual as a new additional director of the company.

What is the eligibility criterion for an Additional Director?

Any individual may be appointed by the BOD as an additional director. However, a person will not be qualified for an appointment for additional directors of the company if they fail to be elected as directors in a general meeting.

What is the term of Office of an Additional Director?

The last day on which the annual general meeting should have been convened or till the date of the next annual general meeting (AGM) or the, whichever comes first, the additional director appointment will remain in effect. According to the Companies Act of 1956, the additional directors may serve just until the company’s upcoming annual general meeting (AGM).

What is Alternate Director?

When the primary director of a company is otherwise not able to attend a board meeting, an alternate director is designated to represent that director. This director is referred to as an alternative director.

What are the powers to appoint Alternate Director?

The Board of Directors (BOD) can be allowed to select an alternate director in accordance with the company’s bylaws or by resolution adopted at general meetings. Therefore, if permitted by the company’s articles of association or by a resolution adopted by the company’s general meeting, the BOD can elect any individual to serve as an alternate director.

When should be the Alternate Director appointed?

An alternate director will be appointed by the board of directors of the firm whenever a director of the company is away from India for a period of at least three months.

Who is an eligible person for Alternate Director position?

When a director is not present in India, the BOD may select someone to fill in as the director. However, if a person is already serving as an alternate director for another director at the exact same company, they are ineligible to be appointed to another director’s position. It follows that it is against the law to appoint someone to serve as the alternate director for more than two directors of the same the company. Additionally, only those who meet the requirements to serve as independent directors are qualified to serve as an alternate director replacing an independent director of a corporation.

What is the term of Office of Alternate Director?

The alternate director may not serve in that capacity for any time longer than the amount of time the director in whose position he was appointed. Additionally, if and when the original director returns to India, the alternative director will have to resign from their position.

What is nominee director?

To make sure that the financial institution’s interests are properly protected, a nominee director is nominated. In financial organizations that are established under the Companies Act, a nominated director is appointed. In accordance with the company’s bylaws, the Board of Directors (BOD) can elect any individual as a director who has been nominated by one of the following: Any Institution Acting in accordance with any currently in effect law or agreement; The Central Government or the State Government in light of its ownership interest in a Government company.

Section 161 of Companies Act of 2013

A company’s articles of incorporation can grant its board of directors the authority to appoint any individual as an additional director at any time, with the proviso that it should not be someone who failed to succeed in being elected as a director in a general meeting. The individual would hold office until the date of the following annual general meeting or the last date when the next annual general meeting ought to have been conducted, whichever comes first. [Section 161 of Companies Act of 2013 – Sub-section (1)]

The directors of a company may, if permitted by its rules and regulations or by a resolution adopted by the company’s general meeting, designate an individual, who is not currently serving as any other director’s alternate director or who holds directorships in the same company, to serve as a director’s alternative while the latter is away for an extended period of not less than 3 months from India [Section 161 of Companies Act of 2013 – Sub-section (2)]

As long as they are eligible to be appointed as independent directors in accordance with the requirements of this Act, no one may be designated as an alternate director to an independent director.

Additionally, an alternate director must resign from his position if the director he has been chosen to replace returns to India and may not maintain office for a term longer than that allowed for the director in whose lieu he has been nominated.

The provision for the automatic reappointment of retiring directors in the absence of an additional appointment must apply to the original director and not the alternate director if the duration of office of the original director has been set before he returns for India.

Subject to the company’s bylaws, the Board may appoint any individual as a director who has been selected by any institution in accordance with any currently in effect law, any agreement, or by the Central Government or the State Government as a result of its ownership interest in a Government company. [Section 161 of Companies Act of 2013 – Sub-section (3)]

If a director who is appointed by the company in the general meeting resigns before the end of his term of office comes to an end in the normal course, the casual vacancy may be filled by the Board of Directors in the meeting of the Board which will be subsequently acknowledged by members in the immediately following general meeting. [Section 161 of Companies Act of 2013 – Sub-section (4)] Provided, however, that any person chosen as director shall hold the office merely up to the end of the next general meeting.

Amendments of the Section 161 of the Companies Act

In Section 161 of the Companies Act, 2013 —

In the Section 161 of Companies Act of 2013 – sub-section (2)

  • following it to be added after the words “alternate directorship for any other director in the company”
  • “or holding directorship in the same company”
  • in Section 161 of Companies Act of 2013 – sub-section (4)
  • These words are to be omitted –  “In the case of a public company,”
  • The words “which shall be subsequently approved by members in the immediate next general meeting” should be added after the words “meeting of the Board”,

Appointment Procedure of Additional Director

Appointment Procedure of Additional Director
  • A valid DIN issued by the Ministry of Corporate Affairs is a prerequisite for employment as a Director in a company.
  • For the proposed Director’s nomination to be approved, a board meeting must be called. During the meeting, the necessary decisions for the proposed appointment of as an Additional Director.
  • Following the Board meeting, a Return of Appointment of Directorship (Form DIR-12) with a copy of the Board minutes must be submitted with the Registrar within 30 days of the appointment. Resolution, consent, and declaration are all used.

Companies Act of 1956 vs. Companies Act of 2013

  Companies Act of 1956  Companies Act of 2013
  In this Section it is mentioned that the alternative director can be appointed when the primary (main) director is out of state for time period of not less than three months. At this time the BOD can appoint an alternate director. The state in which the meeting is held will be considered as state here.  In the Section 161 of Companies Act, 2013 it is mentioned that the alternative director can be appointed when the primary (main) director is out of India for time period of not less than three months. At this time the BOD can appoint an alternate director.
  This type of requirement was not mentioned in the Act.  In Section 161 of Companies Act, 2013 it is stated that for the alternative director cannot be an alternative for two different directors at the same time.
  There was absence of this kind of provision in the Act.  A director can be nominated by any institution in relation of laws which are in force at the time or with the agreement of state and central government which owns shares in the company. This director will be referred as nominee director as per Section 161 of Companies Act, 2013.
  There was absence of this kind of provision in the Act.  An individual cannot be appointed as additional directors if he has failed to get appointed as director in the annual general meeting.

Difference between Director and Additional Director

  Director    Additional Director
  Appointed with a normal resolution  Appointed through a board resolution
  The company members appoint the director.  While an additional director is appointed by the board of directors.
  The general period of appoint is of around 5 years unless mentioned otherwise.  The last date of Annual General Meeting or the upcoming Annual General Meeting.
  Section 152 of the Companies Act. 2013 oversees the appointment of director.  While Section 161of Companies Act, 2013 contains the provisions for the additional director appointment.

Common duties of Additional, Alternative and Nominee Director

  • Fiduciary Duty: All the directors like additional, nominee and alternate director have a fiduciary obligation towards the company and its stakeholders. They have to operate in the most beneficial way for the company and use their authority ethically. This obligation entails operating truthfully and in good faith, as well as avoiding conflicts of interest.
  • Compliance with Rules and Regulations: All the directors like additional, nominee and alternate director are in charge of making sure that law, rules, and corporate governance norms are complied with. They’re required to be acquainted about statutory requirements and rules related to their business that have an impact on how the business performs.
  • Involvement in Board Meetings: All the directors like additional, nominee and alternate director should add their experience, expertise, and viewpoints to the discussions that take place during board meetings. In order to represent the objectives of the director, they should go through board documents, be fully prepared, and routinely attend meetings.
  • Working in Good Faith: All the directors like additional, nominee and alternate director are required to carry out their directing responsibilities with the appropriate degree of care, competence, and effort. They should operate in a way they logically feel is best for the organization and make judgments based on the facts at their disposal.
  • Confidentiality: All the directors like additional, nominee and alternate director has a responsibility to uphold secrecy and guard private information on the company, including its customers, employees, or business plans. They must refrain from sharing private information with unauthorized people or organizations.
  • Providing information to the Appointing Director/entity: The alternate director is responsible for informing the appointing director of the events and decisions made while they were absent. They should provide pertinent papers, give frequent updates, and ask the appointing director for advice or direction as necessary.

Conclusion

In conclusion, Section 161 of Companies Act, 2013 permits the nomination of extra directors. The obligations of all directors are the same and cannot be separated, notwithstanding differences in the processes used to designate extra, alternative, and nominated directors of the firm. All different sorts of directors are crucial to the authority and day-to-day operations of the business and are essential members of the team without whom the business could not operate as it should.

Frequently Asked Questions

1. What is additional alternate and nominee director?

A shareholder or member of the public may add an Additional Director to a company’s board; such a person is not a member of the Board. Any person with knowledge in their area of responsibility can serve in this capacity; they don’t all need to be corporate employees. While a nominee director may be chosen by a certain class of shareholders, banks or lending institutions, third parties via contracts, or the Union Government in the event of tyranny or poor management..

22. What is the alternate director section of the Companies Act, 2013?

According to Section 161(2) of the Companies Act, 2013, the Board of Directors (BOD) of a company may appoint a person as an alternate director if permitted by the company’s articles of association (AOA) or by a resolution approved by the company at a public meeting.

3. What is the additional director section 161 of Companies Act, 2013?

An additional director may be selected, and that individual would hold the position until the following annual general meeting. If there was no AGM, the term would end on the day the AGM was supposed to be held.

4. Who is eligible for alternate director?

The BOD may choose a replacement director if a director is absent from India. However, a person cannot be appointed to another director’s post if they are already acting as that director’s alternate at the same corporation.

5. Who cannot be an alternate director?

The same company should not designate someone to serve as the alternate director for more than one director.

6. Which resolution is required for appointment of alternate director?

A resolution adopted at the general meeting is required for the appointment of alternate director.

7. Can alternate director be appointed as whole time director?

Yes, an alternate director can be appointed as w whole time director.

8. Who has the power to appoint an additional director?

The Board of directors has the power to appoint additional director.

9. What is the term of office of an additional director?

An additional director may hold office until the date of the following annual general meeting. Their term of appointment will expire on the day the annual general meeting would have ended if there had been no annual general meeting.

10. What is the term of office of an alternate director?

After a minimum of three months, or when the original director returns to the nation, the alternate director’s term ends.

Read Our Article: Section 114 Of Companies Act, 2013: Ordinary And Special Resolutions

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