1.203
53Disqualifications for appointment of director.
54164. (1) A person shall not be eligible for appointment as a director of a company, if—
(a)he is of unsound mind and stands so declared by a competent court;
(b)he is an undischarged insolvent;
(
c)he has applied to be adjudicated as an insolvent and his application is pending;
(d)he has been convicted by a court of any offence, whether involving moral turpitude or otherwise55, and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence: Provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be appointed as a director in any company;
(e)an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force;
(f) he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;
(g)he has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years; or*
(h)he has not complied with sub-section (3) of section 152; or**
56[(i)he has not complied with the provisions of sub-section (1) of section 165.]
57(2) No person who is or has been a director of a company which—
58(a)has not filed financial statements or annual returns for any continuous period of three financial years; or
53.Corresponds to sections 202, 274 and 283(2) of the 1956 Act.
54.Enforced with effect from 1-4-2014.
55.Rule 2(1)(s) of the Companies (Specification of Definitions Details) Rules, 2014 provides that ‘or otherwise’ means any offence in respect of which he has been convicted by a Court under this Act or the Companies Act, 1956.
56.Inserted by the Companies (Amendment) Act, 2019, w.r.e.f. 2-11-2018.
57.In case of Government Companies, section 164(2) shall not apply - Notification No. GSR 463(E), dated 5-6-2015.
58. See Circular No. 41/2014, dated 15-10-2014 [Company Law Settlement Scheme, 2014, applicability to balance sheets and annual returns on or after 1-4-2014 but prior to launch of CLSS-2014]. For details, see Division Three
*Should be omitted.
**Should be inserted.
CH. XI - APPOINTMENT AND QUALIFICATIONS OF DIRECTORS S. 164(b)has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more, shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so59:
60[Provided that where a person is appointed as a director of a company which is in default of clause (a) or clause (b), he shall not incur the disqualification for a period of six months from the date of his appointment.]
(3) A private company may by its articles provide for any disqualifications61 for appointment as a director in addition to those specified in sub-sections (1) and (2):
62[Provided that the disqualifications referred to in clauses (d), (e) and (g) of subsection (1) shall continue to apply even if the appeal or petition has been filed against the order of conviction or disqualification.]
63Number of directorships.
64165.65 (1) No person, after the commencement of this Act, shall hold office as a director, including any alternate directorship, in more than twenty companies at the same time :
Provided that the maximum number of public companies in which a person can be appointed as a director shall not exceed ten.
66[Explanation I].—For reckoning the limit of public companies in which a person can be appointed as director, directorship in private companies that are either holding or subsidiary company of a public company shall be included.
59. See rule 14 and Form Nos. DIR 8 to 10 of the Companies (Appointment and Qualification of Directors) Rules, 2014 (Division Two). See also Condonation of Delay Scheme, 2018.
60.Inserted by the Companies (Amendment) Act, 2017, w.e.f. 7-5-2018.
61.For meaning of the term “disqualification”, see Appendix II
62.Substituted by the Companies (Amendment) Act, 2017, w.e.f. 7-5-2018. Prior to its substitution, proviso read as under :
“Provided that the disqualifications referred to in clauses (d), (e) and (g) of sub-section (1) shall not take effect—
(
i)for thirty days from the date of conviction or order of disqualification;
(
ii)where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting in sentence or order, until expiry of seven days from the date on which such appeal or petition is disposed of; or
(
iii)where any further appeal or petition is preferred against order or sentence within seven days, until such further appeal or petition is disposed of.”
63.Corresponds to sections 275, 276, 278 and 279 of the 1956 Act.
64.Enforced with effect from 1-4-2014.
65.Section 165(1) shall not apply to Section 8 Companies - Notification No. GSR 466(E), dated 5-6-2015.
66. Explanation renumbered as Explanation I by the Companies (Amendment) Act, 2017, w.e.f. 9-2-2018.
S. 165 COMPANIES ACT, 2013 1.2041.205 CH. XI - APPOINTMENT AND QUALIFICATIONS OF DIRECTORS S. 166
67[Explanation II.—For reckoning the limit of directorships of twenty companies, the directorship in a dormant company shall not be included.]
(2) Subject to the provisions of sub-section (1), the members of a company may, by special resolution, specify any lesser number of companies in which a director of the company may act as directors.
(3) Any person holding office as director in companies more than the limits as specified in sub-section (1), immediately before the commencement of this Act shall, within a period of one year from such commencement,—
(a)choose not more than the specified limit of those companies, as companies in which he wishes to continue to hold the office of director;
(
b)resign his office as director in the other remaining companies; and
(
c)intimate the choice made by him under clause (a), to each of the companies in which he was holding the office of director before such commencement and to the Registrar having jurisdiction in respect of each such company.
(4) Any resignation made in pursuance of clause (b) of sub-section (3) shall become effective immediately on the despatch thereof to the company concerned.
(5) No such person shall act as director in more than the specified number of companies,—
(a)after despatching the resignation of his office as director or nonexecutive director thereof, in pursuance of clause (b) of sub-section (3); or
(b)after the expiry of one year from the commencement of this Act, whichever is earlier.
68[(6) If a person accepts an appointment as a director in violation of this section, he shall be liable to a penalty of two thousand rupees for each day after the first during which such violation continues, subject to a maximum of two lakh rupees.].
69Duties of directors.
70166. (1) Subject to the provisions of this Act, a director of a company shall act in accordance with the articles of the company.
67.Inserted by the Companies (Amendment) Act, 2017, w.e.f. 9-2-2018.
68.Substituted by the Companies (Amendment) Act, 2020, w.e.f. 21-12-2020. Prior to its substitution, sub-section (6), as amended by the Companies (Amendment) Act, 2019, w.r.e.f. 2-11-2018, read as under :
“(6) If a person accepts an appointment as a director in contravention of sub-section (1), he shall be liable to a penalty of five thousand rupees for each day after the first during which such contravention continues.”
69.Corresponds to sections 312 and 388 of the 1956 Act.
70.Enforced with effect from 1-4-2014. See also SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
(2) A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment.
(3) A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
(4) A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
(5) A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.
(6) A director of a company shall not assign his office and any assignment71 so made shall be void.
(7) If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
72Vacation of office of director73
167. (1) The office of a director shall become vacant in case—
(a)he incurs any of the disqualifications specified in section 164:
74[Provided that where he incurs disqualification under sub-section (2) of section 164, the office of the director shall become vacant in all the companies, other than the company which is in default under that subsection;]
(b)he absents himself from all the meetings of the Board of Directors held during a period of twelve months with or without seeking leave of absence of the Board;
(
c)he acts in contravention of the provisions of section 184 relating to entering into contracts or arrangements in which he is directly or indirectly interested;
(d)he fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested, in contravention of the provisions of section 184;
(e)he becomes disqualified by an order of a court or the Tribunal;
71.For meaning of the term “assignment”, see Appendix II
72.Corresponds to section 283 of the 1956 Act.
73.Enforced with effect from 1-4-2014.
74.Inserted by the Companies (Amendment) Act, 2017, w.e.f. 7-5-2018.
(
(f)he is convicted by a court of any offence, whether involving moral turpitude or otherwise75 and sentenced in respect thereof to imprisonment for not less than six months:
76[Provided that the office shall not be vacated by the director in case of orders referred to in clauses (e) and (f)—
(i)for thirty days from the date of conviction or order of disqualification;
(
ii)where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting in sentence or order, until expiry of seven days from the date on which such appeal or petition is disposed of; or
(iii)where any further appeal or petition is preferred against order or sentence within seven days, until such further appeal or petition is disposed of;]
(g)he is removed in pursuance of the provisions of this Act;
h)he, having been appointed a director by virtue of his holding any office or other employment in the holding, subsidiary or associate company, ceases to hold such office or other employment in that company.
(2) If a person, functions as a director even when he knows that the office of director held by him has become vacant on account of any of the disqualifications specified in sub-section (1), he shall be punishable 76a[***] with fine which shall not be less than one lakh rupees but which may extend to 76b[five lakh rupees].
(3) Where all the directors of a company vacate their offices under any of the disqualifications specified in sub-section (1), the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in the general meeting.
(4) A private company may, by its articles, provide any other ground for the vacation of the office of a director in addition to those specified in sub-section (1).
75.Rule 2(1)(s) of the Companies (Specification of Definitions Details) Rules, 2014 provides that ‘or otherwise’ means any offence in respect of which he has been convicted by a Court under this Act or the Companies Act, 1956.
76.Substituted by the Companies (Amendment) Act, 2017, w.e.f. 7-5-2018. Prior to its substitution, proviso read as under :
“Provided that the office shall be vacated by the director even if he has filed an appeal against the order of such court;”
76a.Words “with imprisonment for a term which may extend to one year or” omitted by the Companies (Amendment) Act, 2020, w.e.f. 21-12-2020.
76b.Substituted for “five lakh rupees, or with both”, ibid.
1.207 CH. XI - APPOINTMENT AND QUALIFICATIONS OF DIRECTORS S. 167Resignation of director.
77168. (1) A director may resign from his office by giving a notice in writing to the company and the Board shall on receipt of such notice take note of the same and the company shall intimate the Registrar in such manner, within such time and in such form as may be prescribed78 and shall also place the fact of such resignation in the report of directors laid in the immediately following general meeting by the company:
79Provided that a 80[director may also forward] a copy of his resignation along with detailed reasons for the resignation to the Registrar within thirty days of resignation in such manner as may be prescribed81
(2) The resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later:
Provided that the director who has resigned shall be liable even after his resignation for the offences which occurred during his tenure.
(3) Where all the directors of a company resign from their offices, or vacate their offices under section 167, the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in general meeting.
82Removal of directors.
83169. (1) A company may, by ordinary resolution, remove a director, not being a director appointed by the Tribunal under section 242, before the expiry of the period of his office after giving him a reasonable opportunity of being heard:
77.Enforced with effect from 1-4-2014.
78. See rule 15 and Form No. DIR 12 of the Companies (Appointment and Qualification of Directors) Rules, 2014 (Division Two). See also Circular No. 3/2015, dated 3-3-2015 (Clarification relating to filing of e-form DIR-11 and DIR-12).
79.In case of an unlisted public company which is licensed to operate by RBI or SEBI or IRDA from the International Financial Services Centre located in an approved multi services SEZ set-up under the SEZ Act, in proviso to sub-section (1) of section 168 for the word “shall” read as “may”.—Notification No. GSR 8(E), dated 4-1-2017. In case of a private company which is licensed to operate by RBI or SEBI or IRDA from the International Financial Services Centre located in an approved multi services SEZ set-up under the SEZ Act, in proviso to sub-section (1) of section 168, for the word “shall” read as “may”.—Notification No. GSR 9(E), dated 4-1-2017
80.Substituted for “director shall also forward” by the Companies (Amendment) Act, 2017, w.e.f. 7-5-2018.
81. See rule 16 and Form Nos. DIR 11 and DIR 12 of the Companies (Appointment and Qualification of Directors) Rules, 2014 (Division Two).
82.Corresponds to section 284 of the 1956 Act.
83.Except sub-section (4), section 169 enforced with effect from 1-4-2014. Sub-section (4) enforced with effect from 1-6-2016.
84[Provided that an independent director re-appointed for second term under sub-section (10) of section 149 shall be removed by the company only by passing a special resolution and after giving him a reasonable opportunity of being heard:]
85[Provided further that] nothing contained in this sub-section shall apply where the company has availed itself of the option given to it under section 163 to appoint not less than two-thirds of the total number of directors according to the principle of proportional representation.
(2) A special notice shall be required of any resolution, to remove a director under this section, or to appoint somebody in place of a director so removed, at the meeting at which he is removed.
(3) On receipt of notice of a resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director, whether or not he is a member of the company, shall be entitled to be heard on the resolution at the meeting.
86(4) Where notice has been given of a resolution to remove a director under this section and the director concerned makes with respect thereto representation in writing to the company and requests its notification to members of the company, the company shall, if the time permits it to do so,—
(
a)in any notice of the resolution given to members of the company, state the fact of the representation having been made; and
(
b)send a copy of the representation to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representation by the company), and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company’s default, the director may without prejudice to his right to be heard orally require that the representation shall be read out at the meeting:
Provided that copy of the representation need not be sent out and the representation need not be read out at the meeting if, on the application87 either of the company or of any other person who claims to be aggrieved, the Tribunal is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory matter; and the Tribunal may order the company’s costs on the application to be paid in whole or in part by the director notwithstanding that he is not a party to it.
(5) A vacancy created by the removal of a director under this section may, if he had been appointed by the company in general meeting or by the Board, be
84.Inserted by the Companies (Removal of Difficulties) Order, 2018, w.e.f. 21-2-2018.
85.Substituted for “Provided that”, ibid.
86.Enforced with effect from 1-6-2016.
87. See rule 79 and Form No. NCLT-1 and Annexure B of the NCLT Rules, 2016 (Division Two). Prescribed fees under National Company Law Tribunal Rules, 2016 is Rs. 1,000 (Application for not sending copies of representation).
filled by the appointment of another director in his place at the meeting at which he is removed, provided special notice of the intended appointment has been given under sub-section (2).
(6) A director so appointed shall hold office till the date up to which his predecessor would have held office if he had not been removed.
(7) If the vacancy is not filled under sub-section (5), it may be filled as a casual vacancy in accordance with the provisions of this Act: Provided that the director who was removed from office shall not be reappointed as a director by the Board of Directors.
(8) Nothing in this section shall be taken—
(
a)as depriving a person removed under this section of any compensation or damages payable to him in respect of the termination of his appointment as director as per the terms of contract or terms of his appointment as director, or of any other appointment terminating with that as director; or
(
b)as derogating from any power to remove a director under other provisions of this Act.
88Register of directors and key managerial personnel and their shareholding.
89170.90 (1) Every company shall keep at its registered office a register containing such particulars of its directors and key managerial personnel as may be prescribed91, which shall include the details of securities held by each of them in the company or its holding, subsidiary, subsidiary of company’s holding company or associate companies.
92(2) A return containing such particulars and documents as may be prescribed93, of the directors and the key managerial personnel shall be filed with
88.Corresponds to sections 303 and 307 of the 1956 Act.
89.Enforced with effect from 1-4-2014.
90.In case of Government Companies, section 170 shall not apply to a Government Company in which the entire share capital is held by the Central Government, or by any State Government or Governments or by the Central Government or by one or more State GovernmentsNotification No. GSR 463(E), dated 5-6-2015.
91. See rule 17 of the Companies (Appointment and Qualification of Directors) Rules, 2014 (Division Two).
92.In case of an unlisted public company which is licensed to operate by RBI or SEBI or IRDA from the International Financial Services Centre located in an approved multi services SEZ set-up under the SEZ Act, in sub-section (2) of section 170 for the words “thirty days” at both places read as “sixty days”.—Notification No. GSR 8(E), dated 4-1-2017. In case of a private company which is licensed to operate by RBI or SEBI or IRDA from the International Financial Services Centre located in an approved multi services SEZ set-up under the SEZ Act, in sub-section (2) of section 170, for the words “thirty days” at both places read as “sixty days”.—Notification No. GSR 9(E), dated 4-1-2017
93. See rule 18 and Form No. DIR 12 of the Companies (Appointment and Qualification of Directors) Rules, 2014 (Division Two).
the Registrar within thirty days from the appointment of every director and key managerial personnel, as the case may be, and within thirty days of any change94 taking place.
95Members’ right to inspect.
96171.97 (1) The register kept under sub-section (1) of section 170,—
(
a)shall be open for inspection during business hours and the members shall have a right to take extracts therefrom and copies thereof, on a request by the members, be provided to them free of cost within thirty days; and
(
b)shall also be kept open for inspection at every annual general meeting of the company and shall be made accessible to any person attending the meeting.
(2) If any inspection as provided in clause (a) of sub-section (1) is refused, or if any copy required under that clause is not sent within thirty days from the date of receipt of such request, the Registrar shall on an application made to him order immediate inspection and supply of copies required thereunder.
98[Penalty.
172. If a company is in default in complying with any of the provisions of this Chapter and for which no specific penalty or punishment is provided therein, the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees, and in case of continuing failure, with a further penalty of five hundred rupees for each day during which such failure continues, subject to a maximum of three lakh rupees in case of a company and one lakh rupees in case of an officer who is in default.]
94.For meaning of the term “change”, see Appendix II
95.Corresponds to section 304 of the 1956 Act.
96.Enforced with effect from 1-4-2014.
97.In case of Government Companies, section 171 shall not apply to a Government Company in which the entire share capital is held by the Central Government, or by any State Government or Governments or by the Central Government or by one or more State GovernmentsNotification No. GSR 463(E), dated 5-6-2015.
98.Substituted by the Companies (Amendment) Act, 2020, w.e.f. 21-12-2020. Prior to its substitution, section 172 read as under :
“*172. Punishment.—If a company contravenes any of the provisions of this Chapter and for which no specific punishment is provided therein, the company and every officer of the company who is in default shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees.”
*Enforced with effect from 1-4-2014.
1.211 CH. XI - APPOINTMENT AND QUALIFICATIONS OF DIRECTORS S. 172