Tag Archives: section 164

Companies Act, 2013 – Board of Directors – sections 152 to 164

Some major changes have been highlighted below:

Section 152(3) – No person can be appointed as a Director unless he has been allotted a Director Identification Number. 

Previously he could be appointed a Director upon his making an application for DIN. Now his appointment can be taken by the Board only if he has a valid DIN. 

Section 152(4) & (5) – Every director is required to give a declaration that he is not disqualified to become a Director under the Act alongwith his DIN and also give his consent for appointment as Director. The consent has to be filed with the ROC within 30 days from the date of his appointment. 

Previously consent letter was required only for public companies. Now it is required for all companies. 

In case of an independent director there should be a statement in the explanatory statement attached to the notice of his appointment that in the opinion of the Board he fulfills the condition specified in the Act for his appointment as an independent director. 

This is a rigorous compliance requirement necessitating the Board to give its opinion on the suitability of the person to be appointed as an independent director. Not only should the director fit the criteria for being an independent director, but also the qualifications required under the Rules. 

Section 152 (6) – retirement of directors by rotation not applicable to private companies which are subsidiaries of public companies which was hitherto covered by the Act. 

For the purpose of calculation of two thirds of “total number of directors” independent directors shall not included in the “total number of directors”

Section 160  – The notice under section 257 of the Companies Act, 1956 which was hitherto not required for private companies by virtue of section 257(2) thereof, is now required for all companies. The notice is also required to given with a deposit of Rs.1.00 lakh (earlier Rs.500/-) which shall be refunded if candidate gets elected as a Director or gets at least 25% of the votes in his favor either by show of hands or by poll. 

Therefore private companies also have to comply with this requirement both in terms of notice u/s 160 as also cash deposit of Rs.1.00 lakh from the director/ member proposing his name. 

Section 161(2) – Alternate Director is for period of absence “from India” for not less than 3 months.

Earlier it was “absence from the state”

Alternate Director cannot be appointed for an independent director unless the alternate is also qualified to be appointed as an Independent Director.  

Section 164 deals with disqualification of Directors.

Section 164 (1) (a) – A person will be disqualified for appointment as director if he is of unsound mind and stands so declared by a competent court. The earlier clause was “he has been found to be of unsound mind by a court of competent jurisdiction and the finding is in force”  

Which means that if a person ceases to be of unsound mind, he should get a declaration to that effect by a competent court in order to be eligible for appointment as a Director. 

Section 164(1)(d) – he has been convicted by a court of any offence “whether involving moral turpitude or otherwise”. The earlier clause was restricted only to moral turpitude. 

So now he gets disqualified regardless of the nature of the offence. 

Further the sub-section goes on to state in the Proviso that “if a person becomes convicted of any offence and sentenced to an imprisonment of 7 years or more, then he shall not be appointed as a Director in any company.

So this becomes a permanent bar to the person becoming a Director if he is convicted and sentenced to a term of 7 years and more. 

Section 164(1)(e) – an order disqualifying him from appointment has been passed by a Court or Tribunal and the order is in force.

Previously the order of Court should have been passed in pursuance to section 203 of Companies Act, 1956. Now it is just an order by a court or tribunal disqualifying him from being appointed as a Director. 

Section 164(1)(g) – new clause has been added whereby Director gets disqualified if he has been convicted of an offence involving related party transactions at any time during the last 5 years. 

Section 164(1)(h) – another new clause added whereby Director gets disqualified if he has not obtained a DIN. 

This obviously applies to existing Directors who have not yet obtained a DIN because any new Director after the commencement of the Act cannot be appointed unless he has a DIN in place. 

Section 164(2) – the old section 274(1)(g) has been moved to this sub-section. It applies to all companies, not only public companies as erstwhile. Further the disqualification is attracted where the company in which he is a Director fails to file the financial statements OR annual returns for any three consecutive financial year. Earlier it was failure to file both financial statements AND annual returns. The disqualification is that he cannot be re-appointed in that company or appointed as a Director in any other company for a period of 5 years from the date on which company fails to do the filings.  

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