Summary: Non-regularization of an Additional Director at the Annual General Meeting (AGM) has significant consequences. According to Section 161 of the Companies Act, 2013, an Additional Director appointed by the board holds office only until the next AGM or the last date for the AGM. If not regularized, their term ends, leading to the director’s cessation and a potential board vacancy. This could disrupt the board’s functioning and affect business operations, while non-compliance with legal requirements may arise. Shareholder confidence might also decline. An Additional Director can be regularized at an Extraordinary General Meeting (EGM) as an alternative to the AGM, involving notice, resolution, and filing with the Registrar of Companies. Timely regularization is crucial to maintain compliance and board stability.
In this editorial, the author shall discuss a very important point in relation to the Additional Director, i.e., what will be the impact of the non-regularization of the Additional Director in the AGM? What is the deadline for regularizing an additional director? Is an additional director liable to retire by rotation? etc.
- Applicable Section(s)
Section 161 of companies Act, 2013 i.e. Appointment of Additional Director.
- Applicable Rule(s)
Rule 8 of Companies (Appointment and qualification of Directors) Rules, 2014 i.e. consent to act as director.
- Applicable Form
Form DIR 12: Particular of regularization of Additional Director to Director.
- Clause in Article clause 66:
66. (i) Subject to the provisions of section 149, the Board shall have power at any time, and from time to time, to appoint a person as an additional director, provided the number of the Directors and additional Directors together shall not at any time exceed the maximum strength fixed for the Board by the articles.
Tenure of Additional Director?
According to Section 161(1) of the Companies Act, 2013 ,The articles of a company may confer on its Board of Directors the power to appoint any person, other than a person who fails to get appointed as a director in a general meeting, as an Additional Director at any time who shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier.
Cessation on non-regularization
The director who is not regularized in AGM shall vacant the post of the director on the next General Meeting or the last date on which Annual General Meeting should have been held i.e. 30 September, the Additional Director will no longer be holding their position as long as up to 30 September.
1. Cessation of Directorship: The Additional Director’s term will expire, and they will cease to be directors.
2. Vacancy on the Board: The position held by the Additional Director will become vacant, potentially disrupting the board’s composition and decision-making process.
3. Non-Compliance with Regulatory Requirements: Failure to regularize the Additional Director may lead to non-compliance with company law and regulatory requirements.
4. Impact on Business Operations: The vacancy on the board may impact business operations, particularly if the Additional Director holds a critical role or responsibility.
5. Shareholder Disapproval: Shareholders may disapprove of the company’s failure to regularize the Additional Director, potentially leading to a loss of confidence in the management.
Can Additional Directors be regularized in an EGM?
Yes, an Additional Director can be regularized in an Extraordinary General Meeting (EGM) instead of an Annual General Meeting (AGM).
In fact, if the company wants to regularize the Additional Director before the upcoming AGM, they can convene an EGM for this purpose. The procedure for regularizing an Additional Director in an EGM is like that in an AGM.
Here are the general steps:
1. Notice of EGM: Issue a notice to all shareholders, directors, and other relevant parties, stating the purpose of the EGM.
2. Resolution: Pass a ordinary resolution in the EGM to regularize the appointment of the Additional Director.
3. Filing with ROC: File the resolution and other relevant documents with the Registrar of Companies (ROC) in form DIR 12 within 30 days of EGM for change in designation.
4. Update records: Update the company’s records, including the register of directors and the articles of association.
CONCLUSION:
Therefore, if the company wants to continue, it is extremely important to regularize the Additional Director at the AGM. If, by mistake, the company
with immediate effect and will not be in a position to sign any documents or papers. It may reduce the number of minimum directors in the company from statutory limits.
Further related questions, Can Additional Director be regularized in EGM? Regularization What will be impact of non-regularization of additional director in AGM. What happens if an additional director is not regularized in AGM? What is the regularization of appointment of additional director? Can an additional director be removed? Can an additional director be a whole-time director? Which resolution is required for the appointment of an additional director? Can an additional director be appointed in an AGM?
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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).
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