Procedure for the Appointment of an Alternate Director

Introduction

Section 161(2) of the Companies Act, 2013 (hereinafter, CA, 2013) provides that the Board of Director (BOD) of a company, if authorised by its articles of association (AOA) or by a resolution passed by the company in a general meeting, can appoint a person as an alternate director. Provided, he is not holding any alternate directorship for any other director in the company, during his absence for a period of not less than three months from India. Further, proviso to Section 161(2) provides that no person shall be appointed as an alternate director for an independent director unless he is qualified to be an independent director himself.

Important Provisions to Consider

A person cannot be appointed as a director of the company unless he has DIN (Director Identification Number) allotted by the MCA as per Section 152(3) of CA, 2013. A person cannot be appointed as a director if they have been disqualified under Section 164. W.e.f. 01/10/2018 per Regulation 25 of the SEBI LODR Regulations, 2015, no person shall be appointed or continue as an alternate director for an independent director of a listed company. Further, an alternate director cannot hold office for a period longer than the duration for which the original director has been allotted. As per third proviso to Section 161(2) if the term of office of the original director is determined before he returns to India, like any provision for automatic re-appointment of retiring directors in default of another appointment shall apply to the original and not to the alternate director. Also, in case of a listed company, the proposed alternate director must not have been debarred from appointment by order of SEBI or any other authority.

Step-by-Step Procedure

Step 1: Obtain Written Consent, Declaration, etc.

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

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 alternate 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 alternate 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.

Conclusion

Board of Director can appoint an alternate director if it is authorised by the Articles of Association or by Board resolution. The whole process of appointing an alternate director can take somewhere between 3 days to 40-47 days.