Full statutory chapter
Sections 149 to 172 - Bare Act and simple decode
The expandable text reproduces consolidated wording extracted from the official India Code Act. Amendment footnote clutter has been removed from the reading copy; the official source controls.
SECTION 149
Company to have Board of Directors
Purpose: Set the legal architecture for board size, diversity, residence and independence.
Full consolidated Bare Act text
149. Company to have Board of Directors.—(1) Every company shall have a Board of Directors
consisting of individuals as directors and shall have—
(a) a minimum number of three directors in the case of a public company, two directors in the case
of a private company, and one director in the case of a One Person Company; and
(b) a maximum of fifteen directors:
Provided that a company may appoint more than fifteen directors after passing a special resolution:
Provided further that such class or classes of companies as may be prescribed, shall have at least one
woman director.
(2) Every company existing on or before the date of commencement of this Act shall within one year
from such commencement comply with the requirements of the provisions of sub-section (1).
[(3) Every company shall have at least one director who stays in India for a total period of not less than
one hundred and eighty-two days during the financial year:
Provided that in case of a newly incorporated company the requirement under this sub-section shall
apply proportionately at the end of the financial year in which it is incorporated];
(4) Every listed public company shall have at least one-third of the total number of directors as
independent directors and the Central Government may prescribe the minimum number of independent
directors in case of any class or classes of public companies.
Explanation.—For the purposes of this sub-section, any fraction contained in such one-third number
shall be rounded off as one.
(5) Every company existing on or before the date of commencement of this Act shall, within one year
from such commencement or from the date of notification of the rules in this regard as may be applicable,
comply with the requirements of the provisions of sub-section (4).
(6) An independent director in relation to a company, means a director other than managing director or
a whole-time director or a nominee director,—
(a) who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and
experience;
(b) (i) who is or was not a promoter of the company or its holding, subsidiary or associate company;
(ii) who is not related to promoters or directors in the company, its holding, subsidiary or associate
company;
Provided that the relative may hold security or interest in the company of face value not exceeding
fifty lakh rupees or two per cent. of the paid-up capital of the company, its holding, subsidiary or
associate company or such higher sum as may be prescribed;
(ii) is indebted to the company, its holding, subsidiary or associate company or their promoters,
or directors, in excess of such amount as may be prescribed during the two immediately preceding
financial years or during the current financial year;
(iii) has given a guarantee or provided any security in connection with the indebtedness of any
third person to the company, its holding, subsidiary or associate company or their promoters, or
directors of such holding company, for such amount as may be prescribed during the two immediately
preceding financial years or during the current financial year; or
(iv) has any other pecuniary transaction or relationship with the company, or its subsidiary, or its
holding or associate company amounting to two per cent. or more of its gross turnover or total income
singly or in combination with the transactions referred to in sub-clause (i), (ii) or (iii);]
(e) who, neither himself nor any of his relatives—
(i) holds or has held the position of a key managerial personnel or is or has been employee of
the company or its holding, subsidiary or associate company in any of the three financial years
immediately preceding the financial year in which he is proposed to be appointed;
[Provided that in case of a relative who is an employee, the restriction under this clause shall
not apply for his employment during preceding three financial years.]
(ii) is or has been an employee or proprietor or a partner, in any of the three financial years
immediately preceding the financial year in which he is proposed to be appointed, of—
(A) a firm of auditors or company secretaries in practice or cost auditors of the company or
its holding, subsidiary or associate company; or
(B) any legal or a consulting firm that has or had any transaction with the company, its
holding, subsidiary or associate company amounting to ten per cent. or more of the gross
turnover of such firm;
(iii) holds together with his relatives two per cent. or more of the total voting power of the
company; or
(iv) is a Chief Executive or director, by whatever name called, of any nonprofit organisation
that receives twenty-five per cent. or more of its receipts from the company, any of its promoters,
directors or its holding, subsidiary or associate company or that holds two per cent. or more of the
total voting power of the company; or
(f) who possesses such other qualifications as may be prescribed.
(7) Every independent director shall at the first meeting of the Board in which he participates as a
director and thereafter at the first meeting of the Board in every financial year or whenever there is any
change in the circumstances which may affect his status as an independent director, give a declaration that
he meets the criteria of independence as provided in sub-section (6).
Explanation.—For the purposes of this section, “nominee director” means a director nominated by any
financial institution in pursuance of the provisions of any law for the time being in force, or of any agreement,
or appointed by any Government, or any other person to represent its interests.
(8) The company and independent directors shall abide by the provisions specified in Schedule IV.
(9) Notwithstanding anything contained in any other provision of this Act, but subject to the provisions of
sections 197 and 198, an independent director shall not be entitled to any stock option and may receive
remuneration by way of fee provided under sub-section (5) of section 197, reimbursement of expenses for
participation in the Board and other meetings and profit related commission as may be approved by the members.
[Provided that if a company has no profits or its profits are inadequate, an independent director may receive
remuneration, exclusive of any fees payable under sub-section (5) of section 197, in accordance with the
provisions of Schedule V.]
(10) Subject to the provisions of section 152, an independent director shall hold office for a term up to five
consecutive years on the Board of a company, but shall be eligible for reappointment on passing of a special
resolution by the company and disclosure of such appointment in the Board's report.
(11) Notwithstanding anything contained in sub-section (10), no independent director shall hold office for
more than two consecutive terms, but such independent director shall be eligible for appointment after the
expiration of three years of ceasing to become an independent director:
Provided that an independent director shall not, during the said period of three years, be appointed in or be
associated with the company in any other capacity, either directly or indirectly.
Explanation.—For the purposes of sub-sections (10) and (11), any tenure of an independent director on the
date of commencement of this Act shall not be counted as a term under those sub-sections.
(12) Notwithstanding anything contained in this Act,—
(i) an independent director;
(ii) a non-executive director not being promoter or key managerial personnel,
shall be held liable, only in respect of such acts of omission or commission by a company which had occurred
with his knowledge, attributable through Board processes, and with his consent or connivance or where he had
not acted diligently.
(13) The provisions of sub-sections (6) and (7) of section 152 in respect of retirement of directors by rotation
shall not be applicable to appointment of independent directors.Clause-by-clause decode
- Minimum board: public company 3, private company 2 and OPC 1; more than 15 directors requires a special resolution.
- Prescribed companies require at least one woman director; every company requires at least one director satisfying the 182-day India-stay test, proportionately for a newly incorporated company.
- A listed public company requires at least one-third independent directors, rounded up. Prescribed unlisted public companies require at least two.
- Independence is tested across promoters, relatives, group companies, employment, professional firms, voting power, nonprofit links, securities, debt, guarantees and pecuniary relationships.
- Independent directors declare independence on joining, at the first Board meeting of every financial year and whenever circumstances change.
- Independent directors may serve up to two consecutive terms of up to five years each, with special-resolution reappointment and a three-year cooling-off.
- Independent and qualifying non-executive directors receive the limited-liability protection in section 149(12), but only where the statutory knowledge/consent/diligence conditions are met.
Finin2min decode: Board composition is not a one-time incorporation check. It must be re-tested when thresholds, relationships, residence days, roles or group structures change.
Practical example: A public company with turnover of Rs 320 crore must appoint a woman director under Rule 3 even if its paid-up capital is below Rs 100 crore.
SECTION 150
Selection and databank of independent directors
Purpose: Create a transparent talent pool without shifting appointment responsibility away from the company.
Full consolidated Bare Act text
150. Manner of selection of independent directors and maintenance of databank of independent
directors.—(1) Subject to the provisions contained in sub-section (6) of section 149, an independent director
may be selected from a data bank containing names, addresses and qualifications of persons who are eligible and
willing to act as independent directors, maintained by any body, institute or association, as may be notified by
the Central Government, having expertise in creation and maintenance of such data bank and put on their website
for the use by the company making the appointment of such directors:
Provided that responsibility of exercising due diligence before selecting a person from the data bank referred
to above, as an independent director shall lie with the company making such appointment.
(2) The appointment of independent director shall be approved by the company in general meeting as
provided in sub-section (2) of section 152 and the explanatory statement annexed to the notice of the general
meeting called to consider the said appointment shall indicate the justification for choosing the appointee for
appointment as independent director.
(3) The data bank referred to in sub-section (1), shall create and maintain data of persons willing to act as
independent director in accordance with such rules as may be prescribed.
(4) The Central Government may prescribe the manner and procedure of selection of independent directors
who fulfil the qualifications and requirements specified under section 149.Clause-by-clause decode
- Independent directors may be selected from the notified databank containing qualifications and experience.
- The company must exercise due diligence before selection; appearance in the databank is not a statutory guarantee of independence or suitability.
- Appointment remains subject to section 149, the Rules, Schedule IV and member approval.
Finin2min decode: The databank supports search and learning; it does not replace conflict checks, background review, skills mapping or Board judgement.
Practical example: A candidate shown in the databank may still be ineligible because a relative has a disqualifying group-company relationship.
Mandatory appointment gate - Rule 6: For a fresh independent-director appointment, the candidate's inclusion in the IICA independent-directors databank must be active before appointment. Retain evidence of the databank term and renewal and of passing the online proficiency self-assessment test or a valid exemption. Databank inclusion does not replace the company's section 149 independence and suitability due diligence.
SECTION 151
Director elected by small shareholders
Purpose: Give listed-company small shareholders a dedicated representation route.
Full consolidated Bare Act text
151. Appointment of director elected by small shareholders.—A listed company may have one
director elected by such small shareholders in such manner and with such terms and conditions as may be
prescribed.
Explanation.—For the purposes of this section “small shareholders” means a shareholder holding
shares of nominal value of not more than twenty thousand rupees or such other sum as may be prescribed.Clause-by-clause decode
- A listed company may have one director elected by small shareholders under Rule 7.
- A small shareholder is one holding shares of nominal value not exceeding Rs 20,000 or another prescribed amount.
- The route has special notice, tenure, independence, disqualification and cross-company limits.
Finin2min decode: This is a distinct statutory category, not a nominee appointed by one investor or promoter group.
Practical example: A coalition of the prescribed minimum number of small shareholders can initiate the Rule 7 process even if no single shareholder has meaningful voting power.
SECTION 152
Appointment of directors
Purpose: Govern first directors, member appointment, consent and retirement by rotation.
Full consolidated Bare Act text
152. Appointment of directors.—(1) Where no provision is made in the articles of a company for the
appointment of the first director, the subscribers to the memorandum who are individuals shall be deemed
to be the first directors of the company until the directors are duly appointed and in case of a One Person
Company an individual being member shall be deemed to be its first director until the director or directors
are duly appointed by the member in accordance with the provisions of this section.
(2) Save as otherwise expressly provided in this Act, every director shall be appointed by the company
in general meeting.
(3) No person shall be appointed as a director of a company unless he has been allotted the Director
Identification Number under section 154 [or any other number as may be prescribed under section 153].
(4) Every person proposed to be appointed as a director by the company in general meeting or
otherwise, shall furnish his Director Identification Number [or such other number as may be prescribed
under section 153] and a declaration that he is not disqualified to become a director under this Act.
(5) A person appointed as a director shall not act as a director unless he gives his consent to hold the
office as director and such consent has been filed with the Registrar within thirty days of his appointment
in such manner as may be prescribed:
Provided that in the case of appointment of an independent director in the general meeting, an
explanatory statement for such appointment, annexed to the notice for the general meeting, shall include a
statement that in the opinion of the Board, he fulfils the conditions specified in this Act for such an
appointment.
(6) (a) Unless the articles provide for the retirement of all directors at every annual general meeting,
not less than two-thirds of the total number of directors of a public company shall—
(i) be persons whose period of office is liable to determination by retirement of directors by rotation;
and
(ii) save as otherwise expressly provided in this Act, be appointed by the company in general
meeting.
(b) The remaining directors in the case of any such company shall, in default of, and subject to any
regulations in the articles of the company, also be appointed by the company in general meeting.
(c) At the first annual general meeting of a public company held next after the date of the general meeting
at which the first directors are appointed in accordance with clauses (a) and (b) and at every subsequent
annual general meeting, one-third of such of the directors for the time being as are liable to retire by rotation,
or if their number is neither three nor a multiple of three, then, the number nearest to one-third, shall retire
from office.
(d) The directors to retire by rotation at every annual general meeting shall be those who have been
longest in office since their last appointment, but as between persons who became directors on the same
day, those who are to retire shall, in default of and subject to any agreement among themselves, be
determined by lot.
(e) At the annual general meeting at which a director retires as aforesaid, the company may fill up the
vacancy by appointing the retiring director or some other person thereto.
Explanation.—For the purposes of this sub-section, “total number of directors” shall not include
independent directors, whether appointed under this Act or any other law for the time being in force, on the
Board of a company.
(7) (a) If the vacancy of the retiring director is not so filled-up and the meeting has not expressly
resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the next week, at the
Explanation.—For the purposes of this section and section 160, the expression “retiring director” means
a director retiring by rotation.Clause-by-clause decode
- Articles govern first-director arrangements; otherwise individual subscribers are deemed first directors, with the OPC-member mechanism where relevant.
- Except where the Act provides otherwise, directors are appointed by members in general meeting.
- A person cannot be appointed without a DIN and a declaration of non-disqualification; written consent is filed with the Registrar in the prescribed manner.
- At least two-thirds of directors of a public company are rotational directors, unless the articles provide retirement of all directors at every AGM.
- One-third of rotational directors retire at each AGM, generally those longest in office; the meeting may reappoint them or appoint another person.
- If the vacancy is not filled and the meeting does not resolve otherwise, the meeting stands adjourned and the statutory deemed-reappointment rules apply, subject to exceptions.
Finin2min decode: Board appointment powers are exceptions. The default constitutional route is appointment by members with valid DIN, consent and eligibility.
Practical example: A public company with six directors may have four rotational seats; normally one-third of those four retire at the AGM, rounded using the statutory mechanics.
SECTION 153
Application for Director Identification Number
Purpose: Require a unique identity before an individual enters the statutory director system.
Full consolidated Bare Act text
153. Application for allotment of Director Identification Number.—Every individual intending to
be appointed as director of a company shall make an application for allotment of Director Identification
Number to the Central Government in such form and manner and along with such fees as may be prescribed:
[Provided that the Central Government may prescribe any identification number which shall be treated as Director
Identification Number for the purposes of this Act and in case any individual holds or acquires such identification number,
the requirement of this section shall not apply or apply in such manner as may be prescribed.]Clause-by-clause decode
- Every individual intending to become a director applies to the Central Government in the prescribed form, manner and fee framework.
- In incorporation cases, DIN applications for the permitted first directors are integrated through the incorporation form; later applications use DIR-3.
Finin2min decode: DIN belongs to the individual, not to a company or directorship.
Practical example: A person already holding DIN cannot seek a fresh number merely because a passport, address or nationality detail changes.
SECTION 154
Allotment of Director Identification Number
Purpose: Set the statutory processing obligation for DIN allotment.
Full consolidated Bare Act text
154. Allotment of Director Identification Number.—The Central Government shall, within one
month from the receipt of the application under section 153, allot a Director Identification Number to an
applicant in such manner as may be prescribed.
Clause-by-clause decode
- The Central Government must allot DIN within one month from receipt of a compliant application under section 153.
- Defects or verification issues can require correction or supporting evidence under the Rules and portal process.
Finin2min decode: The one-month rule is not permission to act as director before DIN is allotted and active.
Practical example: A Board should not pass an appointment resolution assuming that a pending DIR-3 will necessarily be approved.
SECTION 155
Prohibition on multiple DINs
Purpose: Keep one permanent director identity per individual.
Full consolidated Bare Act text
155. Prohibition to obtain more than one Director Identification Number.—No individual, who
has already been allotted a Director Identification Number under section 154, shall apply for, obtain or
possess another Director Identification Number.
Clause-by-clause decode
- A person who already has DIN cannot apply for, obtain or possess another DIN.
- Duplicate or fraudulently obtained DINs may be cancelled or surrendered under Rule 11.
Finin2min decode: Multiple companies and multiple directorships use the same DIN.
Practical example: A person who inadvertently obtained two DINs should not choose one informally; the prescribed surrender/cancellation process is required.
SECTION 156
Director to intimate DIN
Purpose: Make the individual communicate the allotted identity to every company served.
Full consolidated Bare Act text
156. Director to intimate Director Identification Number.—Every existing director shall, within one
month of the receipt of Director Identification Number from the Central Government, intimate his Director
Identification Number to the company or all companies wherein he is a director.
Clause-by-clause decode
- An existing director informs each company of the DIN within one month of receipt.
- The requirement supports company registers and Registrar filings.
Finin2min decode: Individual intimation and company filing are separate compliance steps.
Practical example: A director on three boards must intimate all three companies, not only the company that supported the application.
SECTION 157
Company to inform DIN to Registrar
Purpose: Make the company transmit director identity to the registry.
Full consolidated Bare Act text
157. Company to inform Director Identification Number to Registrar.—(1) Every company shall,
within fifteen days of the receipt of intimation under section 156, furnish the Director Identification Number
of all its directors to the Registrar or any other officer or authority as may be specified by the Central
Government with such fees as may be prescribed or with such additional fees as may be prescribed 2***
and every such intimation shall be furnished in such form and manner as may be prescribed.
[(2) If any company fails to furnish the Director Identification Number under sub-section (1), such
company shall be liable to a penalty of twenty-five thousand rupees and in case of continuing failure, with
a further penalty of one hundred rupees for each day after the first during which such failure continues,
subject to a maximum of one lakh rupees, and every officer of the company who is in default shall be liable
to a penalty of not less than twenty-five thousand rupees and in case of continuing failure, with a further
penalty of one hundred rupees for each day after the first during which such failure continues, subject to a
maximum of one lakh rupees.]Clause-by-clause decode
- The company furnishes DIN of all directors to the Registrar within 15 days of receiving the director’s intimation.
- The company and defaulting officer face section-specific penalties for delay.
Finin2min decode: Keeping DIN in an internal HR or secretarial file is not enough; the registry record must also be current.
Practical example: Where a legacy record lacks a director’s DIN, the company should use the applicable DIR filing rather than waiting for the next annual return.
SECTION 158
Obligation to indicate DIN
Purpose: Require DIN wherever a statutory filing refers to a director.
Full consolidated Bare Act text
158. Obligation to indicate Director Identification Number.—Every person or company, while
furnishing any return, information or particulars as are required to be furnished under this Act, shall mention
the Director Identification Number in such return, information or particulars in case such return,
information or particulars relate to the director or contain any reference of any director.
Clause-by-clause decode
- Any person or company furnishing a return, information or particulars under the Act must mention DIN where the document relates to or references a director.
- The rule supports identity matching across filings and enforcement records.
Finin2min decode: DIN is a statutory identifier, not optional profile information.
Practical example: DIR-12, annual returns and other director-linked forms should use the same active DIN and consistent personal particulars.
SECTION 159
Penalty for specified DIN and appointment defaults
Purpose: Create a residual penalty for non-compliance with sections 152, 155 and 156.
Full consolidated Bare Act text
[159. Penalty for default of certain provisions.—If any individual or director of a company makes
any default in complying with any of the provisions of section 152, section 155 and section 156, such
individual or director of the company shall be liable to a penalty which may extend to fifty thousand rupees
and where the default is a continuing one, with a further penalty which may extend to five hundred rupees
for each day after the first during which such default continues.]
Clause-by-clause decode
- The individual or director may face penalty up to Rs 50,000.
- Continuing default may attract up to Rs 500 per day after the first day.
Finin2min decode: A defective appointment can create both governance consequences and a personal monetary penalty.
Practical example: Continuing to function after failing to comply with mandatory appointment identity requirements compounds exposure.
SECTION 160
Right of non-retiring persons to stand for directorship
Purpose: Allow member-driven candidature outside the retiring-director route.
Full consolidated Bare Act text
160. Right of persons other than retiring directors to stand for directorship.— (1) A person who
is not a retiring director in terms of section 152 shall, subject to the provisions of this Act, be eligible for
appointment to the office of a director at any general meeting, if he, or some member intending to propose
him as a director, has, not less than fourteen days before the meeting, left at the registered office of the
company, a notice in writing under his hand signifying his candidature as a director or, as the case may be,
the intention of such member to propose him as a candidate for that office, along with the deposit of one
lakh rupees or such higher amount as may be prescribed which shall be refunded to such person or, as the
case may be, to the member, if the person proposed gets elected as a director or gets more than twenty-five
per cent. of total valid votes cast either on show of hands or on poll on such resolution.
[Provided that requirements of deposit of amount shall not apply in case of appointment of an
independent director or a director recommended by the Nomination and Remuneration Committee, if any,
constituted under sub-section (1) of section 178 or a director recommended by the Board of Directors of
the Company, in the case of a company not required to constitute Nomination and Remuneration
Committee.]
(2) The company shall inform its members of the candidature of a person for the office of director under
sub-section (1) in such manner as may be prescribed.Clause-by-clause decode
- The candidate or a member must give written notice at the registered office at least 14 days before the meeting.
- A deposit of Rs 1 lakh accompanies the notice unless a statutory exemption applies.
- The deposit is refunded if the candidate is elected or secures more than 25% of valid votes cast.
- Deposit is not required for an independent director or a candidate recommended by the NRC or, where no NRC is required, by the Board.
Finin2min decode: Section 160 is a member nomination route, not a Board power to bypass sections 152 or 161.
Practical example: A shareholder proposing a non-retiring director 10 days before the AGM is late even if the company can circulate the name electronically.
SECTION 161
Additional, alternate, nominee and casual-vacancy directors
Purpose: Define limited Board appointment powers and their expiry.
Full consolidated Bare Act text
161. Appointment of additional director, alternate director and nominee director.—(1) The
articles of a company may confer on its Board of Directors the power to appoint any person, other than a
person who fails to get appointed as a director in a general meeting, as an additional director at any time
who shall hold office up to the date of the next annual general meeting or the last date on which the annual
general meeting should have been held, whichever is earlier.
(2) The Board of Directors of a company may, if so authorised by its articles or by a resolution passed
by the company in general meeting, appoint a person, not being a person holding any alternate directorship
for any other director in the company [or holding directorship in the same company], to act as an alternate
director for a director during his absence for a period of not less than three months from India:
Provided that no person shall be appointed as an alternate director for an independent director unless
he is qualified to be appointed as an independent director under the provisions of this Act:
Provided further that an alternate director shall not hold office for a period longer than that permissible
to the director in whose place he has been appointed and shall vacate the office if and when the director in
whose place he has been appointed returns to India:
Provided also that if the term of office of the original director is determined before he so returns to
India, any provision for the automatic re-appointment of retiring directors in default of another appointment
shall apply to the original, and not to the alternate director.
(3) Subject to the articles of a company, the Board may appoint any person as a director nominated by
any institution in pursuance of the provisions of any law for the time being in force or of any agreement or
by the Central Government or the State Government by virtue of its shareholding in a Government
company.
(4) 4*** If the office of any director appointed by the company in general meeting is vacated before his
term of office expires in the normal course, the resulting casual vacancy may, in default of and subject to
any regulations in the articles of the company, be filled by the Board of Directors at a meeting of the Board
[which shall be subsequently approved by members in the immediate next general meeting]:
Provided that any person so appointed shall 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.Clause-by-clause decode
- An additional director may be appointed only if articles authorise it and the person did not fail to get appointed at a general meeting; office ends at the next AGM or its due date, whichever is earlier.
- An alternate director requires articles or general-meeting authority and absence of the original director from India for at least three months. An alternate to an independent director must itself qualify as independent.
- A nominee director may be appointed where permitted by law, agreement, government or another person’s nomination rights.
- A public-company casual vacancy in a director appointed in general meeting may be filled by the Board, subject to the statutory approval and remaining-term framework.
- An alternate cannot simultaneously act as alternate for another director in the same company and must vacate when the original director returns.
Finin2min decode: Each Board-appointed category has a different trigger and sunset. Labeling every interim appointment “additional director” is unsafe.
Practical example: A lender nominee and an alternate director are legally distinct even if both are non-executive and attend the same meetings.
SECTION 162
Directors to be voted individually
Purpose: Protect member choice by preventing bundled appointments.
Full consolidated Bare Act text
162. Appointment of directors to be voted individually.—(1) At a general meeting of a company, a
motion for the appointment of two or more persons as directors of the company by a single resolution shall
not be moved unless a proposal to move such a motion has first been agreed to at the meeting without any
vote being cast against it.
(2) A resolution moved in contravention of sub-section (1) shall be void, whether or not any objection
was taken when it was moved.
(3) A motion for approving a person for appointment, or for nominating a person for appointment as a
director, shall be treated as a motion for his appointment.Clause-by-clause decode
- A single resolution appointing two or more directors is prohibited unless the meeting first unanimously agrees to move the bundled motion.
- A resolution moved in breach is void, whether or not any objection was raised.
- A motion to approve a person’s appointment, or nominate the person, counts as an appointment motion.
Finin2min decode: Members should ordinarily be able to approve or reject each candidate separately.
Practical example: An AGM resolution appointing a slate of four directors in one vote is invalid unless the required unanimous preliminary consent was first obtained.
SECTION 163
Proportional representation
Purpose: Permit minority representation through an articles-based election model.
Full consolidated Bare Act text
163. Option to adopt principle of proportional representation for appointment of directors.—
Notwithstanding anything contained in this Act, the articles of a company may provide for the appointment
of not less than two-thirds of the total number of the directors of a company in accordance with the principle
of proportional representation, whether by the single transferable vote or by a system of cumulative voting
or otherwise and such appointments may be made once in every three years and casual vacancies of such
directors shall be filled as provided in sub-section (4) of section 161.
Clause-by-clause decode
- Articles may provide for appointment of not less than two-thirds of directors by proportional representation.
- Methods include single transferable vote, cumulative voting or another method.
- Appointments may be made once every three years, with casual vacancies filled under section 161(4).
Finin2min decode: This is an optional constitutional design tool and must be embedded in the articles.
Practical example: A joint-venture company may use cumulative voting to preserve representation of a minority investor without creating a contractual nominee seat.
SECTION 164
Disqualifications for appointment
Purpose: Prevent legally or financially disqualified persons from entering or continuing on boards.
Full consolidated Bare Act text
164. Disqualifications for appointment of director.—(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 otherwise,
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.
[(i) he has not complied with the provisions of sub-section (1) of section 165.]
(2) No person who is or has been a director of a company which—
(a) has not filed financial statements or annual returns for any continuous period of three financial
years; or
(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 so:
(3) A private company may by its articles provide for any disqualifications for appointment as a director
in addition to those specified in sub-sections (1) and (2).
[Provided that the disqualifications referred to in clauses (d), (e) and (g) of sub-section (1) shall
continue to apply even if the appeal or petition has been filed against the order of conviction or
disqualification.]Clause-by-clause decode
- Personal grounds include declared unsound mind, insolvency, pending insolvency application, specified convictions/sentences, disqualification orders, unpaid calls, recent section 188 conviction, missing DIN and breach of section 165.
- A company-default disqualification arises when a company has not filed financial statements or annual returns for three continuous financial years, or has failed for one year to repay deposits/interest, redeem debentures/pay interest or pay declared dividend.
- A director of such defaulting company becomes ineligible for reappointment there or appointment elsewhere for five years; a newly appointed director gets the statutory six-month window.
- Private-company articles may add further appointment disqualifications.
- DIR-8, DIR-9 and DIR-10 support declaration, reporting and removal-of-disqualification processes.
Finin2min decode: Disqualification is person-level and can spread beyond the defaulting company. It must be screened before appointment and monitored continuously.
Practical example: A company that misses annual filings for three continuous financial years can affect every director’s eligibility, even where another company they serve is fully compliant.
SECTION 165
Number of directorships
Purpose: Cap board overload and concentration.
Full consolidated Bare Act text
165. Number of directorships.—(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.
[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.
[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 non-executive 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.
[(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.]Clause-by-clause decode
- A person may hold directorships, including alternate directorships, in no more than 20 companies at the same time.
- Within that total, no more than 10 may be public companies; private companies that are holding or subsidiary companies of a public company count as public for this sub-limit.
- Directorship in a dormant company is excluded when counting the 20-company ceiling.
- Members may adopt a lower cap by special resolution.
- A director must choose compliant offices and intimate companies/Registrar under the transition and Rule framework; contravention attracts a daily penalty subject to the statutory maximum.
Finin2min decode: The cap is individual, group-wide and includes alternate seats. “Non-executive” or “nominee” labels do not remove the seat from the Act’s count.
Practical example: A person with 12 private companies, 7 public companies and 2 dormant companies has 19 counted directorships, not 21, but must still test the public-company sub-limit.
SECTION 166
Duties of directors
Purpose: Codify the fiduciary and care obligations owed by every director.
Full consolidated Bare Act text
166. Duties of directors.—(1) Subject to the provisions of this Act, a director of a company shall act
in accordance with the articles of the company.
(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 assignment 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.Clause-by-clause decode
- Act according to the articles and in good faith to promote the company’s objects for members as a whole.
- Consider the company, employees, shareholders, community and environmental protection.
- Exercise due and reasonable care, skill, diligence and independent judgement.
- Avoid actual or possible conflicts of interest and do not obtain undue gain for self, relatives, partners or associates.
- Any undue gain may be disgorged to the company; assignment of office is void.
- Contravention currently carries a fine between Rs 1 lakh and Rs 5 lakh.
Finin2min decode: Nomination by a promoter, investor, government or lender does not replace the director’s duties to the company.
Practical example: A nominee director cannot vote solely on the nominator’s instruction where doing so conflicts with the company’s interests and statutory duties.
SECTION 167
Vacation of office
Purpose: Identify events that automatically terminate a directorship.
Full consolidated Bare Act text
167. Vacation of office of director.—(1) The office of a director shall become vacant in case—
(a) he incurs any of the disqualifications specified in section 164:
[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 sub-section];
(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;
(f) he is convicted by a court of any offence, whether involving moral turpitude or otherwise and
sentenced in respect thereof to imprisonment for not less than six months:
[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
*** with fine which shall not be less than one lakh rupees but which may extend to [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).Clause-by-clause decode
- Office vacates on section 164 disqualification, subject to the special current rule for section 164(2) defaults.
- Absence from all Board meetings for 12 months causes vacation, with or without leave.
- Contravention or non-disclosure under section 184, court/Tribunal disqualification, qualifying conviction, statutory removal and loss of the underlying ex-officio employment can trigger vacation.
- Appeal-related provisos defer vacation for specified conviction/order periods.
- Knowingly functioning after vacation is punishable; if all directors vacate, promoter or Central Government appoints interim directors.
Finin2min decode: Vacation is automatic when the statutory event occurs; the Board resolution records the consequence rather than creating it.
Practical example: Granting leave of absence does not prevent vacation where a director misses every Board meeting for a continuous 12-month period.
SECTION 168
Resignation of director
Purpose: Set the effective date, filing and continuing-liability framework.
Full consolidated Bare Act text
168. Resignation of director.—(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 prescribed and shall
also place the fact of such resignation in the report of directors laid in the immediately following general
meeting by the company:
Provided that a [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 prescribed.
(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.Clause-by-clause decode
- The director gives written notice; the Board takes note and the company files with the Registrar and discloses the fact in the next Board’s Report.
- The director may also file the resignation and detailed reasons with the Registrar within 30 days.
- Resignation takes effect on the later of company receipt or the date specified in the notice.
- The director remains liable for offences occurring during tenure.
- If all directors resign or vacate, promoter or Central Government appoints temporary directors until members act.
Finin2min decode: A Board cannot reject a valid resignation to postpone its effective date, although filing and handover obligations remain.
Practical example: A notice received on 5 May specifying 31 May takes effect on 31 May; a notice specifying 1 May takes effect on 5 May.
SECTION 169
Removal of directors
Purpose: Balance member removal power with due process and protected categories.
Full consolidated Bare Act text
169. Removal of directors.—(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:
[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:]
[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.
(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),
2020).
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 application 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 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 re-appointed 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.Clause-by-clause decode
- Members may generally remove a director before term by ordinary resolution after special notice and a reasonable opportunity of being heard.
- A second-term independent director requires a special resolution.
- The route does not apply to Tribunal-appointed directors or directors protected by a section 163 proportional-representation system.
- The director can make written representation and be heard; Tribunal may restrain abusive defamatory circulation.
- The same meeting may fill the vacancy if proper special notice was given; the replacement serves the balance of the term.
- Removal does not automatically eliminate contractual compensation rights, and the removed director cannot be reappointed by the Board into the vacancy.
Finin2min decode: Removal is a member-governance process, not a simple Board termination letter.
Practical example: A promoter-controlled Board cannot remove an inconvenient independent director by passing a Board resolution; member approval and statutory hearing rights are mandatory.
SECTION 170
Register of directors, KMP and shareholding
Purpose: Maintain an inspectable, current governance register and timely registry returns.
Full consolidated Bare Act text
170. Register of directors and key managerial personnel and their shareholding.—(1) Every
company shall keep at its registered office a register containing such particulars of its directors and key
managerial personnel as may be prescribed, 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.
(2) A return containing such particulars and documents as may be prescribed, of the directors and the
key managerial personnel shall be filed with 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 change taking
place.Clause-by-clause decode
- Every company keeps the prescribed register at its registered office.
- The register includes directors/KMP particulars and securities held in the company and specified group entities.
- Appointment and every change must be filed with the Registrar within 30 days, generally through DIR-12 and related forms.
Finin2min decode: Director data must reconcile across the statutory register, DIN database, Board records, annual return and beneficial-interest disclosures.
Practical example: A change in designation from additional director to regular director should be reflected in the register and filed within the prescribed period.
SECTION 171
Members’ right to inspect
Purpose: Make the section 170 register accessible to members and AGM attendees.
Full consolidated Bare Act text
171. Members’ right to inspect.—(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.Clause-by-clause decode
- Members may inspect during business hours, take extracts and request free copies, which must be provided within 30 days.
- The register must be available at every AGM to any attendee.
- On refusal or delayed copy, the Registrar may order immediate inspection and supply.
Finin2min decode: The register is a statutory transparency record, not confidential HR data that can be withheld wholesale.
Practical example: The company may protect unrelated personal data through lawful process, but cannot deny the inspection right granted by section 171.
SECTION 172
Residual penalty for Chapter XI
Purpose: Penalise Chapter XI defaults where no specific sanction exists.
Full consolidated Bare Act text
[172. Penalty.— 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.]
Clause-by-clause decode
- Company and every officer in default face Rs 50,000 penalty.
- Continuing failure attracts Rs 500 per day.
- The continuing penalty is capped at Rs 3 lakh for the company and Rs 1 lakh for each officer.
Finin2min decode: Use section 172 only where the relevant provision has no specific penalty or punishment.
Practical example: A continuing failure to maintain an inspectable director register may attract the residual framework where the specific provision does not provide another sanction.
Companies (Appointment and Qualification of Directors) Rules
Current rule-by-rule working register
The register incorporates the operative framework and the amendment trail identified through 20 January 2023. Always confirm the MCA form and instruction kit on the filing date.
Rule 1
Short title and commencement
The Companies (Appointment and Qualification of Directors) Rules, 2014 operationalise Chapter XI.
Control example: Use the Rules together with the Act, Schedule IV, form instructions and applicable exemptions.
Rule 2
Definitions
Defined expressions follow the Act and the Rules framework.
Control example: Terms such as DIN, independent director and small shareholder retain statutory meanings.
Rule 3
Woman director
Every listed company and every other public company with paid-up share capital of Rs 100 crore or more or turnover of Rs 300 crore or more requires at least one woman director. Thresholds use the latest audited financial statements. An intermittent vacancy is filled by the next Board meeting or within three months, whichever is later.
Control example: A large unlisted public company is covered even if none of its securities are listed.
Rule 4
Number of independent directors
At least two independent directors are required for prescribed public companies meeting any of these latest-audited thresholds: paid-up share capital Rs 10 crore or more; turnover Rs 100 crore or more; or aggregate outstanding loans, debentures and deposits exceeding Rs 50 crore. Higher committee requirements prevail. Joint ventures, wholly owned subsidiaries and dormant companies receive the stated exemption.
Control example: A company that falls below thresholds must test the three-consecutive-year relief rule rather than stop compliance immediately.
Rule 5
Qualifications of independent directors
Independent directors should have appropriate skills, experience and knowledge in fields such as finance, law, management, sales, marketing, administration, research, corporate governance, technical operations or disciplines relevant to the company.
Control example: Build a Board skills matrix and document why the candidate adds required capability.
Rule 6
Databank and proficiency compliance
A person intending to become, or already serving as, an independent director enrols in the IICA databank for one year, five years or lifetime and renews before expiry where applicable. The online proficiency self-assessment test is passed within the prescribed period unless a current experience/category exemption applies.
Control example: Databank validity, test status and independence declaration are separate controls.
Rule 7
Small shareholders’ director
The Rule prescribes the minimum small-shareholder notice threshold, 14-day process, candidature particulars, three-year non-rotational tenure, no reappointment, maximum two simultaneous small-shareholder directorships, conflict limits, independence and disqualification conditions, and post-tenure restriction.
Control example: A candidate need not personally be a small shareholder, but must satisfy the Rule and DIN/consent requirements.
Rule 8
Consent to act as director
A person gives consent in DIR-2 before appointment; the company files the appointment through DIR-12 within 30 days.
Control example: Keep signed consent, non-disqualification declaration and proof of identity with the appointment record.
Rule 9
Application for DIN
DIN for permitted first directors is routed through incorporation forms; an existing company sponsors a later DIR-3 application with Board approval and professional certification.
Control example: A standalone individual cannot use DIR-3 without the required company-linked approval and certification route.
Rule 10
Allotment of DIN
The Central Government processes the DIN application and communicates approval or defects within the statutory framework.
Control example: Do not finalise appointment before the number is allotted and capable of being used.
Rule 11
Cancellation, surrender or deactivation of DIN
DIN may be cancelled for duplication, fraud, death, declared unsoundness or insolvency. Voluntary surrender generally requires that the DIN was never used for appointment or filing. Non-KYC DINs are deactivated until compliant filing and fee.
Control example: A director cannot “close” DIN merely because all directorships ended.
Rule 12
Changes in DIN particulars
Changes in name, address, nationality or other particulars are reported in DIR-6 with supporting evidence, generally within 30 days.
Control example: Update company records and linked filings after MCA approval to avoid identity mismatches.
Rule 12A
DIR-3 KYC
Every DIN holder allotted DIN on or before 31 March files annual KYC by 30 September of the immediately following financial year. The e-form or web service depends on prior filing and whether mobile/email or other particulars changed.
Control example: A DIN holder with no current directorship still completes KYC unless the DIN is in an excluded status.
Rule 13
Notice of candidature
The company informs members of a section 160 candidature at least seven days before the general meeting through individual notice or prescribed newspaper/website publication.
Control example: The candidate’s 14-day notice and the company’s seven-day member communication are different timelines.
Rule 14
Disqualification disclosures and reporting
Directors give DIR-8 before appointment/reappointment and when relevant. A defaulting company files DIR-9 with particulars of directors; DIR-10 is used for removal of disqualification through the prescribed authority.
Control example: Reconcile MCA filing history before accepting DIR-8 at face value.
Rule 15
Resignation filing
The company files DIR-12 within 30 days and places prescribed information on its website, if any. The resigning director may file DIR-11 with detailed reasons within 30 days.
Control example: A resignation letter and proof of delivery should support the effective-date analysis.
Rule 16
Register particulars
The section 170 register contains prescribed identity, appointment, cessation, office and securities-holding particulars for directors and KMP.
Control example: Reconcile it quarterly with Board minutes, DIR-12, annual return and insider-trading records where applicable.
Rule 17
Return of directors and KMP
Appointment and changes are filed with the Registrar in DIR-12 within 30 days with prescribed attachments and certification.
Control example: Designation changes and regularisation after appointment as additional director are filing events.
Independent Directors Databank Rules, 2019
| Cluster | Current working rule |
|---|
| Databank Rule 3 - Creation and maintenance | The notified institute creates and maintains the online databank of persons willing and eligible to be appointed independent directors. |
| Databank Rule 4 - Information architecture | The databank records prescribed personal, professional, qualification and experience information and enables controlled access to companies. |
| Databank Rule 5 - Institute duties | The institute performs verification/administration functions, provides learning material, conducts the online proficiency assessment and submits prescribed reports. |
| Access and consent - Privacy and sharing | Information is displayed and shared according to consent, fee and privacy controls; the individual must keep particulars current. |
| Company due diligence - Appointment responsibility | Neither inclusion nor test success relieves the company from checking section 149 independence, conflicts, reputation, skills and suitability. |
| Continuous status - Renewal and test tracking | Enrolment period, renewal, test deadlines and exemptions must be tracked throughout the tenure, not only at initial appointment. |
Databank Rule 3
The notified institute creates and maintains the online databank of persons willing and eligible to be appointed independent directors.
Databank Rule 4
The databank records prescribed personal, professional, qualification and experience information and enables controlled access to companies.
Databank Rule 5
The institute performs verification/administration functions, provides learning material, conducts the online proficiency assessment and submits prescribed reports.
Access and consent
Information is displayed and shared according to consent, fee and privacy controls; the individual must keep particulars current.
Company due diligence
Neither inclusion nor test success relieves the company from checking section 149 independence, conflicts, reputation, skills and suitability.
Continuous status
Enrolment period, renewal, test deadlines and exemptions must be tracked throughout the tenure, not only at initial appointment.
Applied learning
Practical case studies
1. Woman-director threshold crossed
Facts: An unlisted public company’s latest audited turnover rises from Rs 280 crore to Rs 315 crore.
Analysis: Rule 3 applies based on latest audited financial statements. Plan appointment within the applicable compliance period; do not wait for the next year-end.
2. Resident director day-count failure
Facts: The only India-resident director relocates abroad in July and will not complete 182 days.
Analysis: Appoint or reposition another director early enough to meet the actual financial-year day count. A designation alone cannot cure the historical day deficit.
3. Independent relative holds securities
Facts: A candidate’s spouse holds group-company securities above the statutory safe harbour.
Analysis: The Board must test section 149(6)(d), aggregation and current/two preceding years. Databank status does not cure the relationship.
4. Databank test expired
Facts: An independent director’s one-year databank subscription expires during tenure.
Analysis: Track renewal before expiry and proficiency-test status. Lapse can create Rule 6 and board-composition risk even if the original appointment was valid.
5. Additional director not regularised
Facts: An additional director continues signing after the AGM without member appointment.
Analysis: Office ended at the statutory sunset. Review validity of later acts, cease holding out and correct DIR/register records.
6. Alternate to an independent director
Facts: The original independent director leaves India for four months and the Board proposes an executive relative as alternate.
Analysis: The alternate must independently satisfy section 149(6) and cannot be chosen merely for convenience.
7. Rejected candidate returns as additional director
Facts: Members reject a candidate at the AGM; the Board appoints the same person as additional director next week.
Analysis: Current section 161 already excludes a person who failed to get appointed in general meeting. The appointment is defective.
8. Three-year filing default
Facts: Company A has not filed financial statements or annual returns for three continuous financial years. One director also serves Company B.
Analysis: Test section 164(2), DIR-9/DIR-8 and the section 167 vacation effect. Company B cannot ignore the cross-company consequence.
9. Missed all Board meetings
Facts: A director has approved circular resolutions but attended no Board meeting for 12 months.
Analysis: Section 167(1)(b) refers to meetings of the Board. Circular approvals do not replace attendance for this vacation test.
10. Nominee follows investor instruction
Facts: A fund nominee is told to block a rescue financing solely to improve the fund’s exit leverage.
Analysis: Section 166 duties are owed to the company. The nomination agreement cannot authorise bad-faith conflict conduct.
11. Director resigns with future date
Facts: Notice received 1 August states resignation effective 30 September.
Analysis: Effective date is 30 September, the later date. Board, DIR-12, authority matrix and disclosures should use that date.
12. Removal of second-term ID
Facts: Members seek to remove an independent director in the second term by ordinary resolution.
Analysis: Section 169 requires a special resolution for a second-term independent director plus hearing rights.
13. Bundled director appointments
Facts: AGM notice proposes one ordinary resolution appointing five directors.
Analysis: Unless the meeting first unanimously approves moving a bundled motion, section 162 makes the appointment resolution void.
14. Directorship-count trap
Facts: A person holds 9 public-company seats, 9 private-company seats, 2 alternate seats and 2 dormant-company seats.
Analysis: Dormant seats are excluded from the 20 ceiling, but alternate seats count. Test whether any private companies count as public for the 10-public sub-limit.
15. DIN KYC not filed
Facts: A director’s DIN is marked deactivated for non-filing KYC while the person remains on the Board.
Analysis: Complete KYC/reactivation promptly and assess filing/continuation implications. A Board cannot treat a deactivated DIN as a minor portal issue.
16. Small-shareholder candidate conflicts
Facts: A proposed small-shareholders’ director already holds that office in a competing listed company.
Analysis: Rule 7 limits simultaneous offices and competing/conflicting business. The second appointment may be impermissible.
17. Register inspection refused
Facts: A member asks to inspect the section 170 register and the company cites privacy.
Analysis: Section 171 creates an inspection and free-copy right. Use a controlled process, but do not refuse the statutory access wholesale.
18. Private articles add disqualification
Facts: A family company’s articles disqualify a director on loss of a required professional licence.
Analysis: Section 164(3) and section 167(4) permit additional private-company grounds, subject to precise drafting and other law.
Finin2min Q&A
Frequently asked questions
Does every company need a woman director?
No. Listed companies and prescribed public companies under Rule 3 do. SEBI requirements separately apply to listed entities.
Is 182 days based on calendar year?
No. Section 149(3) uses the financial year, with a proportionate rule for a newly incorporated company.
Can an independent director be paid commission?
Yes, within sections 149, 197 and 198/member approvals; stock options are prohibited. Schedule V can apply where profits are absent or inadequate.
Does databank inclusion prove independence?
No. The company must perform its own section 149 and Rule analysis and due diligence.
Can a director serve more than 20 companies if most are private?
No. The overall cap is 20 counted companies, with a separate maximum of 10 public companies and special counting rules.
Do dormant companies count toward the 20 limit?
The Act excludes dormant-company directorships when calculating the 20-company ceiling.
Does leave of absence prevent vacation after 12 months?
No. Section 167 applies whether or not leave was sought.
Can the Board reject a resignation?
A valid resignation takes effect under section 168 on the later of receipt or the specified date. The Board records and files it; continuing liability remains for tenure offences.
Can members remove any director by ordinary resolution?
Not every director. Tribunal-appointed and proportional-representation protections apply, and a second-term independent director requires special resolution.
Is DIR-11 mandatory for every resigning director?
The current wording permits the director to file; the company’s DIR-12 filing remains mandatory.
What happens when all directors vacate or resign?
The promoter, or in the promoter’s absence the Central Government, appoints required interim directors until members appoint directors.
Are the March 2026 Bill changes applicable now?
No. They are proposals until enacted and brought into force. Current Chapter XI and Rules continue to govern.
