Procedure for the Appointment of an Additional Director

Introduction

As per Section 152(3), a person can be appointed as a director of the company only if they have a DIN (Director Investigation Number). A person cannot be appointed as a director if they have been disqualified under Section 164. A person who had failed to be appointed as a director at the general meeting cannot be made the director. Articles of Association (AOA) must be referred to see if it authorizes appointment of additional director. Further, it should be ensured that the maximum number of directors is within the limit, if it is not then the limit has to be increased by amending the AOA. The additional director so appointed shall hold office up to the date of the next AGM or last date or when AGM should be held, whichever is earlier. After appointment, the directorship shall not exceed the maximum number provided under Section 165(1) of the Act. Additional requirement for appointment of an additional director in a listed company is that he should not be debarred from appointment by any order of SEBI or any other authority.

Step-by-Step Procedure

Step 1: Written Consent and Declaration from the Additional Director

Obtain Form DIR-2, a written consent from the person proposed to be appointed as an additional director of the company. Further, obtain a declaration in Form DIR-8 from the person proposed to be appointed as an additional director that he isn’t disqualified to be a director under the Act. Then obtain a disclosure of interest in Form MBP-1 from the person proposed to be appointed as additional director of the company.

Step 2: Nomination and Remuneration Committee

Section 178 of the Companies Act provides for a Nomination and Remuneration Committee (NRC) and Stakeholders Relationship Committee. In listed company, the board of directors (BOD) shall constitute NRC consisting of three more non-executive directors out of which ½ should be independent directors.

So, in case a company has to constitute NRC, then the BOD shall recommend the appointment of additional director to BOD of the company.

Step 3: Call a Board Meeting

As per Section 153, 161(1) and 173 and Secretarial Standards-1 read with rule 9 of the Companies (Appointment and Qualification of Directors) Rules, 2014, hold a meeting of the BOD or to pass resolution by circulation. It would be to consider appointment of an additional director and to authorize Company Secretary (CS) or Chief Financial Officer (CFO) or any director of the company to file requisite form and return with Registrar of Company (ROC).

In a situation where the proposed director doesn’t have DIN (Director Identification Number) then Board to give in-principle approval for appointment of the proposed additional director. Simultaneously, authorize the CS/CEO/CFO/any director to apply DIN of the appointee. OR board decides to adopt the additional director effective from the date of allotment of DIN and authorize CS/CEO/CFO any director to apply DIN of the appointee.

Step 4: Time Bound Disclosures

In conformity with the Regulations 30 and 46(3) of the SEBI (LODR) Regulations, 2015, a listed company shall submit the disclosures of such appointment to the stock exchange within 24 hours from the conclusion of the board meeting.

Also, the same should be updated on the company website within 2 working days.

Further, as per Regulation 7(1) of the SEBI (PIT) Regulations, 2015,  a listed company has to obtain disclosure in Form B within 7 days of appointment, from the director.

Step 5: Statutory Register

As per, Sections 170(1) and 189(1) read with Rule 17(1) of the Companies (Appointment and Qualification of Directors) Rules, 2014 and rule 16(1) of the Companies (Meeting of Board and its Powers) Rules, 2014, make necessary entries in register of directors and KMP (Key managerial personnel) and register of contracts or arrangements in which directors are interested in Form MBP-4.

Step 6: Form and Documents Filing

To comply with Section 170(2) read with Rule 18 of Companies (Appointment and Qualification of Directors) Rules, 2014, file a return of appointment of additional director with ROC within 30 days from the date of appointment in Form DIR-12.

Documents Required

The following documents are required for application for allotment of DIN Form DIR-3-

1. Passport size color photo.
2. Identity proof of applicant.
   1. Indian national: Income tax PAN.
   2. Foreign national: passport is mandatory.
3. Residence proof of the applicant- passport, voter ID, ration card, etc.
4. Board resolution proposing his appointment as director in an existing company.
5. Declaration in Form DIR-3A, if required.
6. For return of appointment of additional director- Form DIR 12, following documents are required,
   1. Written consent in Form DIR-2.
   2. Certified true copy of board resolution.
   3. Details of interest in other entities, if any.

Frequently Asked Questions

What is DIN and is it mandatory?

DIN stands for Director’s Identification Number. It is issued by the Ministry of Corporate Affairs (MCA), Government of India to a director of a company. Its validity is subjected to yearly KYC filing. However, DIN is a permanent number and it does not expire. Yes, DIN is mandatory for proposed director. Only after receiving a DIN can a person be appointed as a director.

What is the condition for becoming a director?

There are no specific qualifications for a person to become a director. But, he must have completed 18 years of age. Further, he must have had been allotted DIN by the MCA.

Is the director Entitled to take salary from the company?

A director can take salary from the company if it is allowed by the company rules and he is employed as a full-time employee from the company.

Who can appoint director for the company?

The board of directors is authorised to appoint director if the Articles of the company permits. Also, shareholders have the ultimate authority to appoint directors of a company at the general meeting. In some instances, even the central government is authorised to appoint directors.

Who can remove director of the company?

A director can only be removed by the majority of shareholders of the company subject to compliance with procedures in the Companies Act.

Is the additional director entitled to sign the balance sheet?

An additional director has all the rights and powers of a director of a company and hence can sign the balance sheet.

Difference between Director and Additional Director?

There is no difference between the two other than the fact that the director is appointed by the shareholders at general meeting whereas the additional director is appointed by the Board of Directors.

Conclusion

An additional director is appointed by the board in a board meeting whereas a director is appointed by the shareholders in a general meeting. An additional director has all the powers, limits and obligation like other director of the company. They are included in while counting the maximum limit of directors that a particular company can appoint. The whole process of appointment of an additional director can take somewhere between 3 days to 40-47 days.