Appointment of a director in case the number of directors fall below statutory limit

Appointment of a director in case the number of directors fall below the statutory limit

As per Section 149(1): Every company shall have a Board of Directors consisting of individuals as directors and shall have a minimum number of:

1. three directors in the case of a public company, two directors in the case of a private company, and

2. one director in the case of a One Person Company.

3. This is the statutory limit as per law.

However, there may be instances where the company during the course of business fails to meet the statutory limit as stated above. This shall amount to casual vacancy in the office of director.

Casual Vacancy in the office of a director means that the office of the director appointed by the company in general meeting is vacated before his term of office expires in the normal course. It may be due to:

1. Death of director

2. Resignation of director

3. Disqualification of the director as per section 164 of the act.

In this case, the company whether public or private shall take steps to fill such casual 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, 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 (Annual General Meeting or Extra-Ordinary General Meeting).

From above, it is hereby concluded that the provisions of the articles shall prevail over Section 161(4). It implies that:

1. if there are any provisions in the articles then they shall be followed in regard to appointment of directors in case of casual vacancy.

2. Section 161(4) shall only be followed when there are no provisions in the articles in regard to appointment of directors in case of casual vacancy.

An important question arises here is that how would company comply with conditions of quorum in the board meeting to appoint a director in casual vacancy as the number of directors is below the statutory limit. Relevant provision here is Section 174 of the act.

As per Section 174(1):  The quorum for a meeting of the Board of Directors of a company shall be: one third of its total strength or two directors, whichever is higher, and the participation of the directors by video conferencing or by other audio-visual means shall also be counted for the purposes of quorum under this sub-section.

However, in case of a private company with two directors where the office of one of the director is vacated due to casual vacancy, quorum is not present. In this case we will refer the provisions of Section 174(2).

As per Section 174(2): The continuing directors may act notwithstanding any vacancy in the Board; but, if and so long as their number is reduced below the quorum fixed by the Act for a meeting of the Board, the continuing directors or director may act for the purpose of increasing the number of directors to that fixed for the quorum, or of summoning a general meeting of the company and for no other purpose.

Company has two options:

1. Option 1: Single director may act for the purpose of increasing the number of directors to that fixed for the quorum i.e., appoint a director as per section 161(4).

2. Option 2: Single director may call a general meeting where shareholders may appoint a director by passing o an ordinary resolution. The agenda for such meeting shall contain only one matter i.e., appointment of a director to meet the statutory limit.

Forms to be filed in case of appointment of director incase of casual vacancy:

1. Form DIR-12: In respect of director whose office is vacated within 30 days of such vacation.

2. Form DIR-12: In respect of director who has been appointed in the office of vacating director within 30 days of such appointment.

Note: Company may file a single form for both if the appointment and cessation is done within same 30 days.

Tenure of Person appointed in Casual Vacancy:

Such director shall hold office upto the expiry of tenure of the director in place he is appointed.