Resident Director Section 149(3) and Independent Director Section 149(4)

Resident Director Section 149(3) and Independent Director Section 149(4)

(a)   Resident Director [Section 149 (3)]

Every company shall have at least one Resident Director i.e. who had stayed in India for a total period of not less than 182 days in the previous calendar year.

Transition period:  Section 149 (5) provides for the transition period of one year from the date of commencement i.e., 1st April, 2014 to comply with section 149 (3).

Section 149 (3) of the Companies Act, 2013 requires every company to have at least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year. The MCA clarified that residency requirement would be reckoned from the date of commencement of section 149 of the Act i.e., 1st April, 2014. The first previous calendar year for compliance with these provisions would, therefore, be calendar year 2014. The period to be taken into account for compliance with these provisions will be the remaining period of calendar year 2014 (i.e., 1st April to 31st December). Therefore, on a proportionate basis, the number of days for which the director(s) would need to be resident in India, during Calendar year 2014, shall exceed 136 days.

Regarding newly incorporated companies it is clarified that companies incorporated between 1st April, 2014 and 30th September, 2014 should have a resident director either at the incorporation stage itself or within six months of their incorporation. Companies incorporated after 30th September, 2014 need to have the resident director from the date of incorporation itself.

(b)   Independent Director [Section 149(4)]

Every listed public company shall have at least one-third of the total number of directors as independent directors [Section 149(4)].

The Central Government may prescribe the minimum number of independent directors in case of any class or classes of public companies.

Any fraction contained in such one-third numbers shall be rounded off as one. According to the Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, the following class or classes of companies shall have at least 2directors as independent directors:

(1) the Public Companies having paid up share capital of ` 10 crore or more, or

(2) the Public Companies having turnover of ` 100 crore or more, or

(3) the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding ` 50 crore.

However, in case a company covered under the above rule is required to appoint a higher number of independent directors due to composition of its audit committee, such higher number of independent directors shall be applicable to it.

Further, any intermittent vacancy of an independent director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy, whichever is later.

If intermittent vacancy arise in 15th June, 2015 and the immediate next Board meeting after the vacancy was held on 14th August, 2015, then the vacancy shall be filled-up by 14th August, 2015 or by 14th September, 2015 whichever is later. In this case it shall be filled up by 14th September, 2015.

If the immediate next Board meeting after the vacancy was held on 14th October, 2015, then the vacancy shall be filled-up by 14th October, 2015 or by 14th Sept. 2015 whichever is later. In this case it shall be filled up by 14th October 2015.

However, where a company ceases to fulfill any of three conditions laid down above for three consecutive years, it shall not be required to comply with these provisions until such time as it meets any of such conditions.

For the purpose of the above assessment, the paid up share capital or turnover or outstanding loans, debentures and deposits, as the case may be, as existing on the last date of latest audited financial statements shall be take into account. A company belonging to any class of companies for which a higher number of independent directors has been specified in the law for the time being in force shall comply with the requirements specified in such law.

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