Putting directors on the board: first directors, DIN, member proposals, additional, alternate and nominee routes

The investor's term sheet demands a nominee director; the founder's co-founder lives abroad half the year; the board needs a fifth member before the next AGM. Sections 152, 160 and 161 of the Companies Act 2013 provide four distinct doors onto the board: general-meeting appointment (the default), member-proposed candidature with a lakh-rupee deposit, board-appointed additional directors holding till the next AGM, and alternates/nominees/casual-vacancy fillings. Each door has its own instrument and approval, so identify the right one before anyone signs.

Legal basis: Companies Act 2013, ss.149(3), 152–154, 160–161.

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The default door: general meeting, DIN, disqualification declaration, consent

Section 152(1) seeds the first board: "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" — individual subscribers are directors by default; OPC members likewise until they appoint. Thereafter, "save as otherwise expressly provided in this Act, every director shall be appointed by the company in general meeting" (s.152(2)) — the members' meeting is the normal appointing authority, with ss.160–161 as the express exceptions.

Three personal prerequisites gate every appointment. DIN first: "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]" (s.152(3)). Disqualification declaration second: every proposed appointee "shall furnish his Director Identification Number … and a declaration that he is not disqualified to become a director under this Act" (s.152(4)) — the s.164 cross-check on paper. Consent third: "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" (s.152(5)) — the appointee must not act until consent is filed. The consent itself is given in Form DIR-2 before or on appointment, and the company files it with the Registrar in Form DIR-12 within thirty days of appointment (rule 8, Companies (Appointment and Qualification of Directors) Rules 2014). Where an independent director is appointed in general meeting, the notice's explanatory statement must state the Board's opinion that he fulfils the conditions in the Act (proviso to s.152(5)).

The DIN is applied for by every individual intending to be appointed (s.153) in Form DIR-3 (rule 9 of the same Rules); the Central Government allots it within one month of receiving the application (s.154). Separately, every company must have at least one director who stays in India for not less than 182 days in the financial year, applied proportionately in the year of incorporation (s.149(3)) — relevant when a co-founder lives abroad.

The member's door: s.160 candidature with deposit

Section 160 gives non-retiring candidates — and the members who back them — a direct route to the general meeting: a person "not a retiring director in terms of section 152 shall … 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". Fourteen days' written notice at the registered office plus a lakh-rupee deposit — refunded "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". the company must inform members of the candidature as prescribed (s.160(2)). The deposit requirement does not apply to an independent director, a director recommended by the Nomination and Remuneration Committee, or, where the company need not constitute that committee, a director recommended by the Board (proviso to s.160(1)).

The board's doors: additional, alternate, nominee, casual vacancy

Section 161(1) lets the articles empower the board 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". The additional director holds office only up to that date — a rejected general-meeting candidate cannot be smuggled back through this door, and the office runs only to that date.

Section 161(2) covers absence: the board (articles- or resolution-authorised) may appoint an alternate "for a director during his absence for a period of not less than three months from India" — short trips do not qualify; the absentee must be out three-plus months. The alternate cannot already hold an alternate post for another director (or a directorship in the same company), must match independent-director qualifications when standing in for one, "shall not hold office for a period longer than that permissible to the director in whose place he has been appointed", and vacates when the original returns — with re-appointment defaults applying to the original, not the stand-in.

Section 161(3) covers nominee directors: "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" — an investor-nominee clause in an agreement is the kind of case this subsection addresses; it also covers nominees of the Central or State Government by virtue of its shareholding in a Government company. Section 161(4) fills casual vacancies: where a general-meeting appointee's office vacates early, "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]" — the Board fills the vacancy at a Board meeting, the appointment is subsequently approved by members in the immediate next general meeting, and the person holds office only up to the date the predecessor would have held it.

A worked scenario: the investor nominee between rounds

A Series A term sheet requires an investor-nominee director immediately, five months before the next AGM. Two doors present. The s.161(1) additional-director route seats her this week by board resolution (articles permitting), but expires at the next AGM unless members elect her — acceptable where the round's shareholders' agreement guarantees that election. The s.161(3) nominee route lets the board appoint a person nominated by an institution under a law or an agreement, but only "subject to the articles"; the section itself says nothing about how long such a nominee serves, so tenure turns on the articles and the investment agreement, which a CA should read before the term sheet is signed. Either way the s.152(3)–(5) prerequisites apply — DIN allotted, disqualification declaration furnished, consent filed with the Registrar within thirty days. A nominee seated without filed consent cannot act, whatever the term sheet says.

How the appointment file should read

A defensible ss.152/160–161 file has six layers: the door identified (general meeting, s.160 candidature, additional, alternate, nominee, or casual vacancy); the articles authority for board-route appointments; the s.152(3)–(4) DIN and disqualification papers; the s.160 fourteen-day notice plus deposit receipt (or exemption basis) where applicable; the s.152(5) consent with thirty-day Registrar filing proof; and the tenure diary (AGM date for additionals, return-of-original for alternates, predecessor-term for casual replacements, and for nominees whatever the articles and agreement provide). Six layers, four doors — the file that proves not just who sits, but by which authority and until when.

What to do now

• Next step: pick the door (general meeting, s.160 candidature, additional, alternate, nominee or casual vacancy) and check the articles authorise it where the section says they must (s.161(1), (2), (3)).
• Deadline: consent filed with the Registrar within thirty days of appointment (s.152(5); rule 8 of the Appointment and Qualification of Directors Rules 2014); a s.160 notice reaches the registered office not less than fourteen days before the meeting (s.160(1)).
• Consequence: a person appointed must not act as director until consent is filed (s.152(5)); a person without a DIN cannot be appointed (s.152(3)).

Have a CA review your facts before you act or file.

Frequently asked questions

Who are a new company's first directors?
Where the articles make no provision for the first director, individual subscribers to the memorandum are "deemed to be the first directors"; an OPC member likewise until appointing directors (s.152(1)).

Who normally appoints directors?
"The company in general meeting" — every director, "save as otherwise expressly provided in this Act" (s.152(2)); ss.160–161 are the exceptions.

What three things must every appointee have?
An allotted DIN, a furnished non-disqualification declaration (s.152(3)–(4)), and consent filed with the Registrar within thirty days — without which he "shall not act as a director" (s.152(5)).

How does a member propose an outsider?
Fourteen days' written notice at the registered office plus a one-lakh-rupee deposit, refunded on election or 25%+ votes; no deposit for independent, NRC-recommended, or Board-recommended candidates where no NRC is required (s.160).

How long does an additional director serve?
Until the next AGM date or its last due date, whichever is earlier — and never a general-meeting reject (s.161(1)).

When can an alternate be appointed?
For a director absent from India three-plus months, board-authorised, with matching independence qualifications and co-terminus tenure ending on the original's return (s.161(2)).

How do investor nominees join?
Board appointment under s.161(3), subject to the articles, of a person nominated by an institution under a law or an agreement; casual vacancies by board-meeting fill with next-general-meeting member approval, serving the predecessor's remaining term (s.161(4)).

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See Also

• Sweat equity shares: issuing shares for know-how instead of cash (s.54)
• Moving Shares Between Founders? Transfer Deeds, Certificates and Timelines Under Sections 46 and 56
• Director Duties and Automatic Vacation of Office: Sections 166 and 167