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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Company to have Board of Directors (Section 149)

Company to have Board of Directors (Section 149)

Company to have Board of Directors (Section 149)

This section provides for the provisions for companies to have a duly constituted Board of Directors. According to this section:

Number of Directors

According to section 149 of the Companies Act, 2013, every company shall have a Board of Directors consisting of individuals as director and shall have:

(a)   Minimum number of directors (Not Applicable to Section 8 Company)

(i)                 Public Company – 3

(ii)               Private Company – 2, and

(iii)             One Person Company -1

(b)   Maximum number of directors

Company can appoint maximum number of 15 directors according to Companies, Act 2013.

Note: Provided that a company may appoint more than fifteen directors after passing a special resolution [Special resolution is required to be field in form No. MGT – 14 as per section 177(3)(a)].

As per the Notification G.S.R. 463(E) dated 5th June, 2015, the limit of maximum of 15 directors and their increase in limit by special resolution shall not apply to Government Company.

Further, as per the Notification G.S.R. 466(E) dated 5th June, 2015, the minimum and maximum limit of number of directors and their increase in limit by special resolution shall not apply to Section 8 companies.

(c)    Women Director [Section 149(1)]

At least one woman director shall be on the Board of such class or classes of companies as may be prescribed. [Second proviso to section 149(1)]

Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014 provides that the following class of companies shall appoint at least one woman director:

(1) every listed company.

(2) every other public company having:

a) paid–up share capital of one hundred crore rupees or more; or

b) turnover of three hundred crore rupees or more.

A company, which has been incorporated under the Act and is covered under provisions of second proviso to sub-section (1) of section 149 shall comply with such provisions within a period of six months from the date of its incorporation.

Further, any intermittent vacancy of a woman 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.

E.g. In ‘Z’ Ltd., an intermittent vacancy of the women director arises on 15th June, 2015. Thus, the vacancy shall be filled-up by the Board at the earliest but not later than the date of the next Board meeting or three months from the date of such vacancy whichever is later.

If after the vacancy, the immediate Board meeting was held on 14th August, 2015, then the vacancy shall be filled-up by 14th August, 2015 or by 14th September, 2015 (3 months from the date of such vacancy) whichever is later. In this case it shall be filled up by 14th September, 2015.

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

Explanation: For the purposes of this rule (woman director on board), it is clarified that the paid up share capital or turnover, as the case may be, as on the last date of latest audited financial statements shall be taken into account.

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