In this blog post, Angela D’souza, a student pursuing her LL.B (4th year) from School of Law, Christ University, Bangalore and a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, provides the steps for the appointment of a new director on the death of an existing director.
A corporation is an artificial being, invisible, intangible and existing only in the contemplation of law.[1] This means that a company is devoid of a body or mind. This absence makes it necessary for a corporation to function through living persons. A corporation essentially functions through individuals known as directors.
Who is a Director?
Section 2(34) of the Companies Act, 2013 defi
nes a director as a director appointed to the Board of a Company. Therefore, any individual appointed to the Board and thus responsible for the functioning of the company is said to be a director. They are professional men hired by the company to direct its affairs.[2]
The success of any corporation is heavily dependent on the caliber and integrity of its directors. It is for this reason that Section 149 of the Companies Act, 2013 provides that every company shall have a Board of Directors consisting of individuals as directors.[3]
However, the role of a director is not limited to directing the company’s affairs. A director is an agent of the company. He also acts as a trustee and is the primary organ of the corporation.
Appointment of a New Director in case of Death of an Existing Director
Since the success of any corporation is heavily dependent on the caliber and integrity of its directors, the management of the company should be placed in responsible hands. As a consequence, the appointment of directors is strictly regulated by law.
Chapter XI of the Companies Act, 2013 provides extensively for the appointment and qualification of directors. However, it is essential to look at the procedure involved in appointing a new director in the event of an existing director’s death.
First, it is essential to understand what is meant by a casual vacancy.
Casual Vacancy
A casual vacancy occurs when the office of a director is vacated before the expiry of his term. Normally, there are four situations in which a casual vacancy occurs:
- Resignation by the director
- Disqualification of the director
- Death of the Director
- Insolvency of the director
In the event of the creation of a casual vacancy, it should be filled by the provisions of the Companies Act, 2013 and subject to the Articles of Association of the Company.
Death of a Director: Public Company
In the case of a casual vacancy created by the death of a director in a public company, reliance ought to be placed on Section 161(4) of the Companies Act, 2013. According to the section, the casual vacancy has to be filled in by the Board of Directors by mandatorily convening a meeting. However, as stated earlier, such appointment is subject to the provisions laid down by the Articles of Association of the company.
The director so appointed to fill in the casual vacancy should hold office only up to the date up to which the director in whose place he is appointed would have held office if it had not been vacated.[4]
This provision is also applicable to a private company that is a subsidiary of a public company. However, it is not applicable to a purely private company.
Death of a Director: Private Company
In case a director of a private company dies, then the provision for filling the casual vacancy is laid down in Section 152(2) of the Companies Act, 2013. It states that unless expressly provided under the Act, every director of the private company shall be appointed by the company in the general meeting. Therefore the casual vacancy can only be filled up through appointment in a general meeting. This also means that the directors are barred from filling up the casual vacancy by themselves.
LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join:
https://t.me/joinchat/J_
Footnotes:
[1] Dr. Avtar Singh, Company Law (14th ed. E. Book 2004), 238
[2] Id.
[3] Section 149, Companies Act 2013.
[4] Section 161(4), Companies Act 2013.
That is why it’s very important to include death clauses once an article of Association is being designed
I would think a temporary power should be bestowed on the remaining director by the article of association for the sake of smooth election of the new director (just) to normalize the functionality of the company
What if there are two shareholders in the Comppany and the two shareholders are only the diretcors i.e. Promoter Director and out of them one dies , then how is the company supposed to appoint a director wherein only there is one shareholder left. In this case how is the company suppose to appoint the new director.?
Thnk for the advise
Good particle but not completed.. What if there are only two directors, one MD and one other for support roles and the MD dies in an accident, company is in debt, not in position to function, remaining director is not calibred to run the company nor the investors have anyone to appoint or dont want to, in that case what law says