Chapter XI of Companies Act – Appointment and Qualification of Directors

Section 149

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 Important Information

We shall not be discussing 100% Sections and Sub-sections

The unimportant ones we shall be leaving and when we say unimportant ones, they shall be around 5-10% of the overall act

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 Some Terms for Understanding of future sections

Term Explainer

Section 8 Company: It means company registered under section 8 of companies Act. Any company which wants to register
itself as a charitable company or want to promote commerce, art, science, sports, education, research, social welfare,
religion, environment can register itself under section 8 of companies act. These companies
I. Shall apply their profits to further promote their objective i.e. they cannot use profits for themselves
II. Shall not distribute any dividend

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 Some Terms for Understanding of future sections

Non-Executive Directors Executive Directors

Independent Director

Term Explainer

Executive Directors : These are the ones which are part of day to day working of the organization

Non-Executive Director: Non-executive director is a member of a company's board of directors who is not part of
the executive team. A non-executive director typically does not engage in the day-to-day management of the organization
but is involved in policymaking and planning exercises. Non-executive directors may have financial relationship with the
company such as he might have any stock options or performs any business transaction with the company

Independent Directors: Independent Director is non-executive director and does not have financial relationship with the
company such as he does not have any stock options or performs any business transaction with the company
 Companies Act 2013 -> Section 149 (1) – Company to have board of directors
The Companies (Appointment and Qualification of Directors) Rules, 2014 – Rule 3 – Woman Director on Board

Company to have board of directors

Every Company

Shall have board of directors

Minimum Directors Except in case of

Public Company – 3 Maximum Directors
15 for all type of companies government
Private Company – 2 Companies and
One Person Company -1 section 8 company

Directors can be increased beyond 15 by passing a special

resolution

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 Companies Act 2013 -> Section 149 (1) – Company to have board of directors
The Companies (Appointment and Qualification of Directors) Rules, 2014 – Rule 3 – Woman Director on Board

Company to have board of directors – Women Directors

Below Company except IFSC Public Companies

Any intermittent vacancy of

Listed Companies
a woman director shall be
At least one women filled-up by the Board at the
Directors earliest but not later than
immediate next Board
This women director is meeting or three months
Unlisted Public companies included in limit of overall from the date of such
Paid up Share Capital >= 100 Crore number of directors vacancy whichever is later.
Or
Turnover >= 300 Crore

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 Concept Check

A public listed company has 3 directors , if 2 are male directors then the 3rd one can be

1. Male or Female depending on the paid-up share capital of the company

2. Would definitely be Female
3. Would Definitely be Male
4. Male or Female depending up on the turnover of the company

Ans: Option 2
 Companies Act 2013 -> Section 149 (2) – Company to have board of directors

Company to have board of directors – Enforcement Time

Every company existing on or before the date of commencement of this Act shall comply with the requirements
of subsection(1) within one year from such commencement of this Act

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 Companies Act 2013 -> Section 149 (3) – Company to have board of directors

Company to have board of directors – Stay In India

At least one director should stay in India for a total period of >= than 182 days during the financial year

If company is incorporated in mid of financial year, then the above requirement shall apply in proportion

For example: If company was incorporated on 1st October then company is active for 6 months during financial
year. Hence the requirement to stay in India for 182 days shall also be halved to 91 days

Exception: For IFSC Public company and IFSC Private Company, this requirement shall not be valid in financial
year of its incorporation but only from the next financial year

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 Information

Though section 149 is about Company to have board of directors but from subsection 4 to subsection 13 we shall
discuss about the Appointment and Qualification of Independent Directors
 Companies Act 2013 -> Section 149 (4) – Company to have board of directors
The Companies (Appointment and Qualification of Directors) Rules, 2014 – Rule 4 – No. of Independent Directors

Does not apply to section 8 Company

Company to have board of directors – Number of Independent Directors and IFSC Public Company
Each company shall have at least 1/3rd of its directors as independent directors
Note: Any fraction resulting from 1/3rd shall be rounded of to next number (3.4 shall be rounded of to 4)

AND

Public companies as per last date of latest audited

financial statements Shall have at least 2 independent directors

1. Paid up share capital >= 10 crores or

2. Turnover >= 100 Crore or
3. outstanding loans, debentures and deposits >= 50
crore In case this gets violated due to intermittent
vacancy of an independent director then
Except following Public Companies same shall be filled-up by the Board with in 3
1. Unlisted Joint Venture Companies months or by the immediate next Board
2. Unlisted wholly owned subsidiary; meeting whichever is later:
3. Unlisted Dormant company
 Companies Act 2013 -> Section 149 (5) – Company to have board of directors

Company to have board of directors – Independent Directors Enforcement Time Does not apply to section 8
Company and IFSC Public
Company

Every company existing on or before the date

of commencement of this Act shall comply
with the requirements of subsection(4) within
one year from such commencement of this
Act
 Concept Check

A company has 2 directors and company is public company with turnover of 150 crores. What shall be the number
of independent directors in company?

1. 1
2. 2
3. 3
4. 4

Ans: The question is wrong. The minimum number of directors in public company are 3

A company has 3 directors and company is public company with turnover of 150 crores. What shall be the number
of independent directors in company?

1. 1
2. 2
3. 3
4. 4

Ans: Option 2
 Term Explainer for Future Sections

Term Explainer:

Nominee Director: A nominee director is a director appointed to the board of a company to represent the interests of his
appointor on that board. He may be appointed by a shareholder, a creditor or another stakeholder. For example, a bank is
holding large number of shares of Infosys then bank can appoint a nominee director on the board of Infosys and that
nominee director shall represent the bank there

Whole-Time Director: A director who devotes his whole time to the affairs of a company is called a whole-time
director of the company.
 Companies Act 2013 -> Section 149 (6) – Company to have board of directors

Does not apply to section 8

Company to have board of directors – Qualification of Independent Directors Company and IFSC Public
Company

1. Independent directors is the one who must be different from managing director or a whole-time director or a
nominee director

2. Must posses Integrity and relevant experience and expertise

3. He must not be now or in past promoter of the company or its holding, subsidiary or associate company
4. He must not be related to promoters or directors in the company, its holding, subsidiary or associate company;

5. Except Government Companies: He must not be involved in any financial relationship except remuneration during
the two immediately preceding financial years or during the current financial year with the
I. Company or its holding, subsidiary or associate companies
II. Promoters and Directors of Company or its holding, subsidiary or associate companies

Even if he is having any financial relation with the above-mentioned entities then it shall not be more than 10% of
his income during the two immediately preceding financial years or during the current financial year
 Companies Act 2013 -> Section 149 (6) – Company to have board of directors
The Companies (Appointment and Qualification of Directors) Rules, 2014 – Rule 5 – Qualification of independent Directors

Does not apply to section 8 Company

Company to have board of directors – Qualification of Independent Directors and IFSC Public Company

None of his relatives shall be

Doing any transaction

holding any security Giving guarantee to any including holding of
(more than 50 lakh or 2% indebted (more than 50 third person who is security, loans and
0f paid up capital which lakh) indebted (more than 50 guarantee which is 2% or
ever is higher) lakh) more of its income or
gross turnover

to the company, its to the company, its

in the company or its holding, subsidiary or with the company or its
holding, subsidiary or holding, subsidiary or
associate company or the associate company or the subsidiary, or its holding
associate company promoters and directors or associate company
promoters and directors
of these companies of these companies
during the two immediately during the two immediately during the two immediately
during the two immediately
preceding financial years or preceding financial years or preceding financial years or
preceding financial years or
during the current financial year during the current financial year during the current financial year
during the current financial year
 Companies Act 2013 -> Section 149 (6) – Company to have board of directors

Does not apply to section 8 Company

Company to have board of directors – Qualification of Independent Directos and IFSC Public Company

Independent directors or his relatives

Should not have been Should not hold 2% or Shall not be CEO or
Should not have held any employee or partner or more voting power either director of any Non-Profit
key position or should not owner of/in any auditing independently or Organization which
have been employee firm or legal consulting together with his relative receives 25% or more of
firm dealing its receipts

from the company, any of its

promoters, directors or its
Of company or its with company or its holding, subsidiary or associate
holding, subsidiary or holding, subsidiary or In company company or anyone who holds
associate company associate company two per cent or more of the total
voting power of the company;

in any of the three financial years in any of the three financial years
immediately preceding the immediately preceding the
financial year in which he is financial year in which he is
proposed to be appointed proposed to be appointed
 Companies Act 2013 -> Section 149 (6) – Company to have board of directors
The Companies (Appointment and Qualification of Directors) Rules, 2014 – Rule 5 – Qualification of independent Directors

Does not apply to section 8

Company to have board of directors – Qualification of Independent Directos Company and IFSC Public
Company

An independent director shall possess appropriate skills, experience and knowledge in one or more fields of finance,
law, management, sales, marketing, administration, research, corporate governance, technical operations or other
disciplines related to the company’s business.
 Companies Act 2013 -> Section 149 (7) – Company to have board of directors

Does not apply to section 8

Company to have board of directors – Declaration of Meeting the Criteria Company and IFSC Public
Company

Every independent director shall at the first meeting of the Board in which he participates as a director and thereafter
at the first meeting of the Board in every financial year shall give a declaration that he meets the criteria of
independence discussed under Qualifications of Independent Director in subsection (6)
 Concept Check

Ram is an independent director in public company and his total income is 50 lakh. He wants to have some business
transaction with the company. Taking into account the regulations related to independenc of independent director
how much is max value of all the transactions he can do?
1. 2 lakh
2. 3 Lakh
3. 4 lakh
4. 5 Lakh

Ans: Option 4
 Companies Act 2013 -> Section 149 (8) – Company to have board of directors

Does not apply to section 8

Code for Independent Directors
Company and IFSC Public
Company

An independent director shall follow these guidelines for Professional Conduct

(1) work with integrity and probity;

(2) act objectively and constructively while exercising his duties;
(3) exercise his responsibilities in the interest of the company;
(4 Make informed and balanced decision making;
(5) not abuse his position to the detriment of the company or its shareholders or for the purpose of gaining direct or
indirect personal advantage
(6) refrain from any action that would lead to loss of his independence;
(7) where circumstances arise which make an independent director lose his independence, the independent director
must immediately inform the Board accordingly;
(8) assist the company in implementing the best corporate governance practices.
 Companies Act 2013 -> Section 149 (8) – Company to have board of directors

Does not apply to section 8

Code for Independent Directors
Company and IFSC Public
Company

An independent director shall perform following Roles and Functions

(1) help in bringing an independent judgment to bear on the Board’s deliberations especially on issues of strategy,
performance, risk management, resources, key appointments and standards of conduct;
(2) scrutinize the performance of management in meeting agreed goals and objectives and monitor the reporting of
performance;
(3) satisfy themselves on the integrity of financial information and that financial controls and the systems of risk
management are robust and defensible;
(4) safeguard the interests of all stakeholders, particularly the minority shareholders;
(5) determine appropriate levels of remuneration of executive directors, key managerial personnel and senior
management and have a prime role in appointing and where necessary recommend removal of executive directors, key
managerial personnel and senior management;
 Companies Act 2013 -> Section 149 (8) – Company to have board of directors

Does not apply to section 8

Code for Independent Directors
Company and IFSC Public
Company

Separate Meetings by Independent Directors

1. The independent directors of the company shall hold at least one meeting in a financial year without the
attendance of non-independent directors and members of management

2. All the independent directors of the company shall strive to be present at such meeting;

3. The meeting shall:

(a) review the performance of non-independent directors and the Board as a whole;
(b) review the performance of the Chairperson of the company, taking into account the views of executive directors
and non-executive directors;
(c) assess the quality, quantity and timeliness of flow of information between the company management and the
Board that is necessary for the Board to effectively and reasonably perform their duties.
 Companies Act 2013 -> Section 149 (9) – Company to have board of directors

Does not apply to section 8

Company to have board of directors – Independent Directors Remuneration
Company and IFSC Public
Company

Independent Director shall not receive any stock options from the company

Independent directors may receive remuneration as sum of following components

1. Fee
2. Reimbursement of expenses for participation in Board Meetings
3. Profit Related Commission as approved by the board
 Companies Act 2013 -> Section 149 (10 and 11) – Company to have board of directors

Does not apply to section 8

Company to have board of directors – Independent Directors Term Company and IFSC Public
Company
Independent director shall be eligible for
An independent director shall hold office for a reappointment after first term on passing of a
term up to five consecutive years on the Board of special resolution by the company and disclosure
a company of such appointment in the Board's report

After two consecutive terms he will again become

An Independent directors shall hold office for a
eligible for appointment after a cooling of period
maximum of two consecutive terms
of 3 years after his term ends provided that he is
not associated with the company in any capacity
during these 3 years

Note: 5 years is maximum duration of one term, but the term can be lesser than this also. We shall study some
conditions with respect to term of directors in section 152 and no condition in that section shall be violated by
Independent directors also
 Companies Act 2013 -> Section 149 (12) – Company to have board of directors

Does not apply to section 8

Company to have board of directors – Liability of Independent Directors
Company and IFSC Public
Company

Any independent director shall be liable for any fraud or wrongdoing only if such an act had occurred with his
knowledge, consent or connivance
 Concept Check

Which of the following component shall not be part of Independent director’s remuneration
1. Fee
2. Commission based in profits
3. Stock Option
4. Reimbursements for attending meetings

Ans: Option 3

The independent directors of the company shall hold at least ___ meeting(s) in a financial year without the
attendance of non-independent directors and members of management

1. 1
2. 2
3. 3
4. 4

Ans: Option 1
 Concept Check

An Independent directors can hold office for a maximum of ___ consecutive terms and post the completion of
these maximum number of consecutive terms, the independent director needs to serve a cooling of period of ____
years before he again become eligible for the post

1. 2,2
2. 2,3
3. 3,2
4. 3,5
Ans: Option 2
Thanks