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Directors – Methods of Appointment

Methods of Appointment of Directors OR Types of Directors

1) First Directors [Section 152]

The First Directors are the persons who assume the office of Director from the date of Incorporation itself.

a) First directors are generally named in AOA.

b) However, at the time of Incorporation INC-7 makes it mandatory to file DIR-12 regarding First Directors

c) Tenure – Till First AGM

2) Subsequent Directors or Appointment by members in General Meeting [Section 152]

a) Save as otherwise expressly provided in this Act, every director shall be appointed by the company in general meeting

b) No person shall be appointed as a Director without a DIN u/s 154 or any other numbers as may be prescribed u/s 153.

c) Every person proposed to be appointed as a director by the company in general meeting or otherwise, shall furnish his DIN or any other numbers as may be prescribed u/s 153 (As per Companies Amendment Act, 2017) & declaration that he is not disqualified to become director

d) Consent to hold office as a Director to be obtained from the Director appointed. Such consent letter to be in writing in Form DIR-2 within 30 days of his appointment. [60 days in case of IFCS Public company] (Rule 8)

e) The company shall file the consent letter with ROC in Form DIR-12 (Rule 8)

Section 152(5): Form DIR-2 - Consent to act as a director is not required to be filed in case of Section 8 Companies and Government Companies, where Central Government or State Government makes appointment of director

f) Independent Director Appointment- Explanatory statement shall include that he fulfills the criteria of independence

g) One of the ordinary businesses at an AGM is appointment of directors.

h) Rotational Directors/ Retiring directors [Section 152(6)]:

(i) Directors who are liable to retire by rotation at AGM are called rotational Directors or directors liable to retire by rotation (DRR). Company in general meeting appoints them.

(ii) The articles may provide for retirement of all directors at every AGM.

(iii) If AOA is silent, then not less than 2/3rd of the “total number of directors” of a public company are liable to determination by retirement of directors by rotation and be appointed by shareholders in General Meeting. These directors are known as directors liable to retire by rotation. (DRR).

(iv) Not less than 2/3rd would imply that, in computing the number of directors liable to retire by rotation any fraction shall be rounded off to next number.

(v) The remaining Directors are called Permanent Directors/Promoters Quota who are also to be appointed in general meeting subject to any regulations in the company’s AOA

(vi) Out of DRR, 1/3rd shall retire every year from office in every AGM or due date of AGM if AGM not held.

(vii) In case of 1/3rd retiring at AGM, it shall be the number nearest to 1/3rd.

(viii) “Total Number of Directors”: The following Directors shall be excluded from the “Total Number of Directors” for the purpose of calculating 2/3rd for Rotational Directors:

(a) Independent Directors, whether appointed under Companies Act, 2013 or any other current law,

(b) Additional Directors

(c) Directors Appointed by NCLT u/s 242

(d) Small Shareholders Directors (SSD)

(e) Nominee Director of the Institution established under separate Act or Parliament and having overriding Clause.

(ix) Those longest in the office shall retire and if appointed on same day, then by mutual consent or by lots

(x) AOA can also provide that all the directors shall be directors liable to retire by rotation.

(xi) AOA can also provide that all directors shall retire at every AGM.

(xii) In case of private companies, it shall be as per AOA and therefore, private companies need not follow Section 152(6). Swapan Das Gupta v/s Narin Chand Suchanti [1988] 3 CLJ 76 (Cal) It shall not apply to Government Company not listed and Subsidiary Company of Government company

(xiii) The company can fill up the vacancy of directors liable to retire by rotation by appointing the retiring director or some other person.

Deemed reappointment of director [Section 152(7)]

1. If the retiring directors place is not filled up and the AGM is silent on this matter then, the meeting shall stand adjourned to next week same day, place and time (if it is a national holiday then, next succeeding working day)

2. Retiring director means a director retiring by rotation [as per explanation to section 152]

3. At the adjourned meeting the retiring director is deemed to have been reappointed if his place is not filled by AGM.

4. Such deemed reappointment is not applicable under the following circumstances:

(a) If the resolution proposing reappointment has been put to vote and lost.

(b) Retiring director has expressed his unwillingness to be reappointed.

(c) He is disqualified from reappointment.

(d) Where a resolution by shareholders is required for his reappointment

(e) If the meeting has specifically resolved not to fill the vacancy.

(f) Where Section 162 is applicable to the case, i.e., appointment of directors to be voted individually.

Note: Section 152(6) & 152(7) shall not be applicable to-

(a) A Government Company in which the entire paid up share capital is held by the Central Government or by any State Government or Governments or by the Central Government and one or more State Governments;

(b) A subsidiary of a Government Company, referred to in (a) above, in which entire paid up share capital is held by the Government Company.

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