Amended and updated notes on section 161 of Companies Act 2013. Detail discussion on provisions and rules related to appointment of additional director, alternate director and nominee director.
Chapter XI (Sections 149–172) of the Companies Act, 2013 (CA 2013) deals with the provisions related to appointment and qualifications of directors. Section 161 of CA 2013 provides for appointment of additional director, alternate director and nominee director.
Recently, we have discussed in detail section 160 (Right of persons other than retiring directors to stand for directorship) of CA 2013. Today, we learn the provisions of section 161 of Companies Act 2013.
The provisions of section 161 are effective from 12-Sept-2013. You may refer Notification No. S.O. 2754(E) issued dated 12.09.2013. In this article, you will learn detail of the provisions of section 161 of the Companies Act 2013.
| Name of Act | The Companies Act 2013 |
|---|---|
| Enacted by | Parliament of India |
| Administered by | Ministry of Corporate Affairs (MCA) |
| Number of Chapters | 29 |
| Number of Sections | 484 (470-43+57) |
| Number of Schedules | 7 |
| You are reading: | |
| Chapter No. | XI |
| Chapter Name | Appointment and Qualifications of Directors |
| Section No. | 161 |
| Section Name | Appointment of additional director, alternate director and nominee director |
| Monthly Updated Edition | Company Law PDF |
Appointment of Additional Director in a Company
Section 161(1) of the Companies Act, 2013 (CA 2013) provides for the appointment of additional director in a company. This section came into force with effect from 12th September, 2013 vide Notification No. S.O. 2754(E) dated 12-09-2013. Section 161(1) of the CA 2013 corresponds to section 260 of the Companies Act, 1956 i.e. Additional Director.
Power to Appoint Additional Director:
The power to appoint additional director may be conferred to the Board of Director (BOD) by the articles of the company. That means BOD may appoint any person as an additional director of the company.
Eligible person for Additional Director:
The BOD may appoint any person as an additional director of the company. However, if any person fails to get appointed as a director in a general meeting shall also not be eligible for appointment as an additional directors of a company. Note that this eligibility criterion was not there in the provisions of the Companies Act, 1956.
Term of Office of Additional Director:
The appointed additional director shall hold office up to the date of the next Annual General Meeting (AGM) or the last date on which the annual general meeting should have been held, whichever is earlier. Under the companies Act, 1956 the additional directors shall hold office only up to the date of the next AGM of the Company.
Appointment of Alternate Director in a Company
The appointment of alternate directors of company shall be made as per section 161(2) of the Companies Act, 2013. This section came into force on 1st April, 2014 vide Notification No. S.O. 902(E) issued dated 27-03-2014. Section 161(2) of the CA 2013 corresponds to the section 313 of the Companies Act, 1956 i.e. appointment and term of office of alternate directors.
Power to appoint Alternate Director:
For the appointment of an alternate director, the Board of Directors (BOD) may be authorised by:
- Articles of the Company; or
- A resolutions passed in the General Meetings of the company.
Therefore, the BOD may appoint any person to act as an alternate director if so authorised by its articles or by a resolution passed by the company in general meeting.
When to Appoint Alternate Director:
Whenever, a director of the company is absence for a period of at least 3 months from India, an alternate director may be appointed in his place by the BOD of the company.
Did you know? Under the Companies Act, 1956, it was provided that Alternate director can be appointed in place of director who is absent from the State in which meetings of the Board are ordinarily held. Whereas, the provisions of new CA 2013 provide that an Alternate Director can only be appointed in case a director leaves India for not less than three months.
Eligible person for Alternate Director:
The BOD may appoint a person to act as alternate director for a director during his/her absence from India. However, if a person already holding any alternate directorship for any other director in the company then, he shall not be eligible for appointment as an alternate director of any other director of the same company.
Hence, it is quite clear that a person shall not be appointed as an alternate director for two or more directors in the same company.
Further, if a person is qualified to be appointed as an independent director then only he shall be eligible for appointment as an alternate director for an independent director of a company.
That means 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 the CA 2013.
Term of Office of Alternate Director:
The appointed alternate director shall not hold office for a period longer than that permissible to the director in whose place he has been appointed. Further, the alternate director shall vacate the office if and when the original director returns to India.
Note 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.
Appointment of Nominee Director in a Company
The provisions of section 161(3) of the Companies Act, 2013 deals with the provisions related to the appointment of nominee director of a company. Sub-section (3) of Section 161 of the CA 2013 came into force on 12th September, 2013 vide Notification No. S.O. 2754(E) dated 12-09-2013.
Note that there was no provision for the appointment of nominee director in the Companies Act, 1956. That means this is a new section inserted in the CA 2013 for the appointment of Nominee directors.
Who shall appoint Nominee Director:
Subject to the articles of a company, the Board of Directors (BOD) 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
- The Central Government (CG) or the State Government (SG) by virtue of its shareholding in a Government company.
Casual Vacancy of Director in a Public Company
Section 161(4) of the Companies Act, 2013 deals with the provisions related to the casual vacancy of directors in a public company. This section came into force on 12th September, 2013 vide Notification No. S.O. 2754(E) dated 12-09-2013. Section 161(4) of CA 2013 corresponds to the section 262 of the Companies Act, 1956 i.e. Filling of casual vacancies among directors.
In compliance with the provisions of section 161(4) of the CA 2013, if the office of a public company director appointed in GM is vacated before his term of office expires in the normal course, then such casual vacancy shall be filled by the BOD in BM of the company.
However, such casual vacancy of director shall be filled in default of and subject to any regulations in the articles of the company. Note that such appointed person 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.
Under the old Companies Act, 1956, the provisions for such Casual Vacancy was applicable to Public company or a Private company which is a subsidiary of a public company. However, under the new Companies Act, 2013, it has been provided that the provision related to the Casual Vacancy is applicable to only public company.
But you should note that as per the proviso of section 2(71) of the Companies Act, 2013, a subsidiary of a public company shall be deemed to be a public company even if such subsidiary continues to be a private company in its articles. Therefore, the provisions of section 161(4) of the CA 2013 shall also be applicable to deemed public company i.e. a company which is a subsidiary of a public company.
Section 161 of Companies Act 2013: Appointment of additional director, alternate director and nominee director
Section 161 shall come into force on 12th September, 2013 vide Notification No. S.O. 2754(E) dated 12.09.2013 except sub-section (2) which shall come into force on 1st April, 2014 vide Notification No. S.O. 902(E) issued dated 27.03.2014.
(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) 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.
Exception/ Modification/ Adaptation:
1) In sub-section (3) of section 161, the following proviso shall be inserted, namely: –
“Provided that in case of a Specified IFSC public company, the Board may appoint, any person nominated by any institution or company or body corporate as a director 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.”. –Notification No. G.S.R. 08(E) dated 4th January, 2017.
2) In sub-section (3) of section 161, the following proviso shall be inserted, namely: –
“Provided that in case of a Specified IFSC private company, the Board may appoint, any person nominated by any institution or company or body corporate as a director 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.”. –Notification No. G.S.R. 09(E) dated 4th January, 2017.