The Companies Act, 2013, allows a company to appoint only a fixed minimum and maximum number of directors. A private company must appoint at least two directors to function, and a public company must have three. A one person company must employ at least one director. However, all these companies can employ only a maximum of fifteen directors. Only an individual can be appointed as a Director in a company. This excludes another company, or any association, firm or any other body with artificial legal personality from the ambit of being appointed as a director.

Typically, the founders or the promoters of the company become the first directors of the company. All other directors and additional directors are appointed by the Board of Directors subsequently. Typically, an Additional Director is appointed by the Board of Directors to fill a casual vacancy of a Director and/or considering the necessity of another Director on the Board taking into account the recent vital projects taken up by the company. However, if by appointing additional director(s) the company is exceeding the maximum number of directors, they must have a special resolution passed to that effect. The additional directors can hold office only until the next general meeting. However, it must be considered that one cannot be a Director in more than twenty companies (out of which maximum ten can be public) at the same time.

Appointment of an Additional Director

The key points to appointing an Additional Director are listed below:

1. Check the Articles of Association of the Company to see whether they authorize the Board of Directors of the Company to Appoint Additional Director. If not, alter the Articles of Association accordingly.
2. Obtain a written consent [Section 264(1)] from the person who is to be appointed as an AD.
3. Ensure that the person who is to be appointed as AD must have Director Identification Number before being appointed as Director under Section 266A.
4. Convene Board Meeting after giving notice to all the directors [Section 286] to discuss besides others the following matters. To consider and approve the appointment of an additional director. (Section 260)
5. Inform the Stock Exchange about which shares of the company are listed on the date of this meeting before the board meeting.
6. Inform the said Stock Exchange within 15 minutes of the Board Meeting, and of the outcome of the meeting by letter or fax.
7. Pass the necessary Resolution for the appointment of Additional Director to hold the office up to the date of Annual General Meeting. (Section 260)
8. Check that the Director makes an intimation within twenty days of his appointment to the other companies in which he is already a director, Managing Director, Manager, Secretary. [Section 305(1)].
9. File e-form no 32 with the concerned ROC within 30 days from the date of Appointment.
10. Pay the requisite fee at the prescribed rates.
11. Make necessary entries in the Register of Directors and the Register of Director’s Shareholding. [Section303(1) & 307].
12. Check that the number of directors including the Additional Director does not exceed the maximum strength fixed for the Board by Articles of Association of the Company. (Section 260)
13. Notify the Stock Exchange with which shares of the Company are listed about the change in the company directors.

The Additional Director has the same rights and liabilities as the permanent directors; however, he can hold office only up to the date of the next Annual General Meeting. But this does not mean that he can hold office till the conclusion of next general meeting. He must vacate the office on the date the Annual General Meeting supposed to happen, whether or not it occurred.

When one is offered a position of an Additional Director in any company, be it public or private, he also must follow some protocols before he can be deemed fit to accept the same.

1. A person who is intended to become a Director must apply to the Registrar for obtaining a Director Identification Number in Form No DIR-3
2. An individual who has been appointed as a Director must notify the company about his consent to act as Director in Form No DIR-2
3. The prospective Director should give a declaration to the company that he holds a DIN and if not disqualified to become a Director in Form No DIR-8
4. Film Form MBP-1 for disclosure of interest of the Director as required under Section 184(1) read with rule 9(1) of Companies (Meetings of Board and its Powers) Rules, 2014
5. Form No DIR-12 must be submitted to the Registrar within thirty days of appointment.

If the Director fails to notify the Registrar of his appointment within the specified time, he can be imprisoned for six months or may have to pay a fine which may extend to fifty thousand rupees.  The position of Additional Director is not meant to enable the company to keep on its Board a person as Additional Director for an indefinite period. It is so that the companies can benefit from the services of a person, who is otherwise suitable for serving on the Board, and whose presence in the Board is desirable in the interests of the company till the next Annual General Meeting is held.

Duties and Liabilities of an Additional Director

The duties and liabilities of the additional directors are the same with the permanent and independent directors, which include but are not limited to:

• A Director of a company shall act in accordance with the Articles of Association (AOA) of the company.
• A Director of the company shall act in good faith, in order to promote the objects of the company, for the benefits of the company as a whole, and in the best interests of the stakeholders of the company.
• A Director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
• A Director of a company shall not involve in any situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
• A Director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or 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.
• A Director of a company shall not assign his office, and any assignment so made shall be void.
• If a Director of the company contravenes the provisions of this section, the Director shall be punishable with fine which shall not be less than one Lakh Rupees but which may extend to five Lac Rupees.

If he so wishes, an independent Director can resign by giving a notice in writing to the company and the board. The effect will take place from the date when the company has received the notice, or from the date the Director has conveyed it to the company, whichever is later. He also must inform the Registrar about his resignation along with the reason within thirty days from the date of resignation. Also, if the board finds out the Additional Director is acting in a fraudulent or irresponsible manner, or he is acting against the interest of the company, or is, in general, a bad fit – he can be removed from office by passing an ordinary resolution with a majority vote from the shareholders, anytime before the completion of his term. However, the Director must have a reasonable opportunity of being heard before he is terminated.

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References:

• Study material of NUJS diploma course in Entrepreneurship Administration and Business Law
• Company Law by Avtar Singh, ‘Company Law’, 16^th edition
• www.topcafirms.com/index.php/white-paper/4736-provisions-related-to-appointment-of-additional-director-section-260