According to Section 161(2) of the Companies Act, 2013, the concept of an Alternate Director plays a crucial role in ensuring the seamless functioning of a company’s board in the absence of a director. This provision allows the Board of Directors to appoint an alternate director when a regular director is out of India for at least three months. The appointment of an alternate director is subject to certain conditions and procedures, which are designed to uphold the integrity and continuity of the board’s operations.
When to appoint an Alternate Director
If and only if a director is away from India for minimum 3 months, Board of Director may appoint an alternate director in his place.
Conditions and Procedures for Appointing an Alternate Director
1. Alternate Director can appointed only if Articles of Association prescribed it.
2. If articles do not approve approve such appointment, there are two option:
a. Alteration in Articles of Association, or
b. Taking direct permission from the members of the Company
3. Every person proposed to be appointed as director declare his DIN and declaration for Non- Disqualification & also have to give his consent to become alternate director.
4. Company will also submit the consent filed by the director and his appointment in the company as an Alternate Director in Form DIR-12.
5. Appointment of Alternate director can be done by Board of Directors collectively and not by the person who is going outside India.
Appointment criteria for Alternate Director
1. Person becoming alternate director should not be an existing director in the same Company.
2. One person can become alternate director for only one director in one Company at one time.
3. Alternate Director for Independent Director should also qualifying to become an Independent Director.
Office of Alternate Director
1. Alternate Director will leave office upon the arrival of original director back to India.
2. If the original director retires or otherwise leaves office without coming back to India, alternate director will loose office.
3. If the original director is re-appointed automatically, this automatic re-appointment will not apply on alternate director.
4. Powers, duties and liabilities of alternate director will be same as any other director.
Counted under Section 165
When we count number of directorship of an Individual under section 165, alternate directorship will also be counted.
Listed Entities
With effect from October 1, 2018, listed entities will not appoint alternate director for their Independent Directors.
In conclusion, the concept of an Alternate Director under Section 161(2) of the Companies Act, 2013, ensures that a company’s board remains functional even when a director is absent from India for an extended period. By adhering to the specified conditions and procedures, companies can maintain effective governance and decision-making processes. Understanding these provisions helps in navigating the complexities of corporate management, ensuring compliance, and facilitating smooth board operations.
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