Appointment of director in case of casual vacancy
According to Section 149(1), every company must have a Board of Directors made up of persons who serve as directors, with a minimum of:
- three directors in the event of a public company;
- two directors in the case of a private company; and
- one director in the case of a one-person company.
According to the law, this is the statutory limit. However, there may be times when the company fails to fulfil the statutory limit as mentioned above in the course of business. This will result in a temporary vacancy in the position of director.
The term “casual vacancy in the office of a director” refers to a director’s office being vacated before his term of office expires in the usual course of business. It might be as a result of:
- Director’s death
- Director’s resignation
- Director’s disqualification under section 164 of the act.
In this situation, the company, whether public or private, is responsible for filling the vacancy.
As per Section 161(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 be filled by the Board of Directors at a meeting of the Board, which shall be approved by members in the next general meeting, in default of and subject to any regulations in the company’s articles (Annual General Meeting or Extra-Ordinary General Meeting).
If the AoA contains any provisions for the nomination of directors in the event of a casual vacancy, they must be followed.
When the articles contain no provisions for the nomination of directors in the event of a casual vacancy, section 161(4) must be applied.
Key Considerations for Appointment of Director In Case of Casual Vacancy
The provisions of this section do not apply to private companies.
- Only directors nominated in a general meeting can replace a casual vacancy if the office of such director is vacated before the end of his term as director in the usual course of business.
- A director’s term cannot be considered as a casual vacancy if it expires due to retirement through rotation or otherwise.
- In the absence of and pursuant to the requirements of the articles of incorporation, the Board of Directors has the authority to nominate a Director to fill a casual vacancy.
- The Board of Directors can only appoint a Director in a casual vacancy by approving a resolution at a Board Meeting, not via circulation.
- A person appointed to fill a casual vacancy as a Director shall serve only until the date on which the director in whose place he is appointed would have served if the position had not been vacated.
Procedure for appointment of director in casual vacancy
- Ensure that the person being considered for a directorship to fill a casual vacancy does not have any of the disqualifications listed in Sections 164 and 165 of the Act.
- If the casual vacancy is for an independent director, make sure the individual nominated to fill the vacancy also meets the requirements set out in section 149(6) and Rule 5 of the Companies (Appointment & Qualification of Directors) Rules, 2014, for independent directors.
- Before being appointed as a director in a casual vacancy, ensure that the individual being appointed has a Director Identification Number (DIN). [Section 152 (3)] If he doesn’t have a DIN, follow the instructions for obtaining one.
- Ascertain that the individual nominated for appointment as a director has provided the Company with his DIN as well as a declaration in Form DIR.8 declaring that he is not disqualified to serve as a director under the Companies Act, 2013. [Section 152(4) and Rule14(1) of Companies (Appointment & Qualification of Directors) Rules, 2014.
- Obtain his signed approval to function as Director in Form No. DIR-2, along with the accompanying documents, before appointing a person as Director:
- Valid ID Proof
- Valid Address Proof
- (Section 152(5) and Rule 8 of Companies (Appointment and Qualification of Directors) Rules, 2014)
- Give at least seven days’ notice and the agenda of a Board meeting, or a shorter notice if there is an urgent matter, in writing to each director of the firm at his registered address (Section 173) (3).
- Hold a meeting of Board of Directors to pass the following resolutions:
- Pass the appropriate Board Resolution for the appointment of a Director to serve until the date on which the director in whose place he is appointed would have served if the position had not been vacated. [Section 161(4) proviso] The Board of Directors cannot appoint a Director in a casual vacancy by passing a resolution by circulation.
- To authorise the Company Secretary or any Director to sign and submit the required document with the Registrar of Companies, as well as to perform any other actions, deeds, or things necessary to carry out the Board’s resolution.
- Within 30 days of appointment or at the first Board Meeting at which he participates as a Director, get the appointed Director’s declaration in Form MBP.1 on his stake in other companies (Section 184(1) read with Section 189(2) of Companies Act, 2013 and Rule 9(1) of Companies (Meetings of Board and its Powers) Rules, 2014.
- Within 30 days of the appointment, file an E-Form No. DIR-12 with the Registrar, together with the fee specified in the Companies (Registration Offices and Fees) Rules, 2014. [Section 170(2) and Rule 18 of Companies (Appointment and Qualification of Directors) Rules, 2014]
- Make the required entries in the Register of Directors and Key Management Personnel, as well as their stock holdings.[Section 170(1) and Rule 17 of Companies (Appointment and Qualification of Directors) Rules, 2014 ]
- Obtain the director’s declaration of independence if he or she is an independent director. (Section 149(7))
- Following his appointment, the appointed director must notify other companies in which he is a director, using Form MBP-1.(Section 184(1) of Companies Act, 2013)
- Prepare and distribute draft minutes of the meeting to all Directors for comment within 15 days after the completion of the board meeting, via hand/speed post/registered post/courier/e-mail. Follow the instructions for drafting, distributing, signing, and compiling Board Minutes.
- Notify all involved persons/government agencies, such as the Central Excise Authorities, Customs Authorities, Sales Tax Authorities, Service Tax Department, Chief Inspector of Factories, and Regional Provident Fund Commissioner, of the appointment of the Director.
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