Why Minimum and Maximum Number of Directors ?

SECTION 149(1) OF COMPANIES ACT, 2013

(1) Every company shall have a Board of Directors consisting of INDIVIDUALS as directors and shall have—

(a) a minimum number of three directors in the case of a public company, two directors in the case of a private company, and one director in the case of a One Person Company; and

(b) a maximum of fifteen directors:

Provided that a company may appoint more than fifteen directors after passing a special resolution

Section 149(1)(b) and first proviso to section 149(1) does not apply to Government Company and section 149(1) and first proviso does not apply to Section 8 Companies (see notification 463E and 466E respectively).

Provided further that such class or classes of companies as may be prescribed, shall have at least one woman director.

COMMENT : Section 149(1) of Companies Act, 2013 has created responsibility on every company to have minimum number of directors if we see Companies Act, 1956 there was section 252 which used to create responsibilities on companies to have minimum number of directors and only natural person can be appointed as a director (this requirement was also there in erstwhile Companies Act 1956).

Object (Logic) to prescribe minimum number of directors is to maintain dual/multiple (Minimum 2 directors in case of private company and minimum 3 directors in case of public company) control in the management of the affairs of the company and to prevent fraudulent machinations by one man management. However special carve-out has been made for One Person Company (OPC) where minimum number of director is only one.

If we go back to more than 100 years back to Indian Companies Act, 1913 in that Act private companies were exempted from minimum directorship requirement i.e no requirement to have any director (refer section 83A(1) and 83A(2) of Indian Companies Act, 1913). But in Companies Act, 1956 this exemption was removed and section 252 created responsibility on private companies to have minimum 2 directors (on the recommendation of Bhabha Committee).

Let’s see the provisions for minimum number of directors internationally:

• United Kingdom- Under English Company law, section 154 of Companies Act, 2006 (i.e English Companies Act) casts responsibility on companies to have minimum number of directors i.e one director for private company and two directors for public company though Indian Companies Act, 2013 says for 2 directors and 3 directors respectively.
• Australia – Section 201A of Corporation Act, 2001 casts responsibility on proprietary company (Some how combination of one person company and private company in Indian context) and public company to have minimum one director and three directors respectively.
• Singapore – Section 145 of Singapore Companies Act, 2006 casts responsibility on every company to have minimum one director whether private company or public company.
• New Zealand- In New Zealand (New Zealand Companies Act, 1993) there is minimum one director requirement for a company.

In India also there is only one director requirement for OPC and more than one director is required in private company and public company. OPC is possible only after introduction of Companies Act, 2013 which has enabled even a single person to go for company and OPC is mainly preferred by small and new entrepreneurs. In OPC only one member is required that is why it is called as One Person Company (OPC).

COMMENT: Section 149(1)(b) of the Companies Act, 2013 says that you can have maximum 15 directors, However first proviso provides that director may exceed 15 but only by passing special resolution. Earlier in Companies Act, 1956 corresponding section was 259 but there is positive departure from earlier provision for increasing directors that beyond 15 you do not require any approval from Central Government though earlier you had to go for approval from Central Government whenever number of director used to go beyond 12. Special resolution is mandatory so that there will be check for un-necessary loading of directors.

COMMENT: Second proviso to section 149(1) mandates prescribed class or classes of company to have at one woman director. There are reports that company having woman director(s) were earning higher profit in comparison to companies having no woman director. As we all know that women are experts in bargaining and negotiation and even from day to day household expenses they save required amount as saving after satisfying almost everyone’s financial needs.

Interestingly concept of having woman directors is not new for the world and Norway has highest representation of woman directors i.e. almost of 40% of board size and on the similar lines India also introduced to have at least one woman director (though even today there are many companies which have women director(s) on voluntary basis and in past also there were companies which had women director(s)) to maintain gender diversity somehow Government intends to boost woman empowerment.

According Rule 3 of Companies (Appointment and Qualifications of Directors) Rules 2014 casts responsibility on following companies to have at least one woman director.

(i) every listed company;

(ii) every other public company having –

(a) paid–up share capital of one hundred crore rupees or more; or

(b) turnover of three hundred crore rupees or more:

Provided that a company, which has been incorporated under the Act and is covered under provisions of second proviso to sub-section (1) of section 149 shall comply with such provisions within a period of six months from the date of its incorporation:

Provided further that any intermittent vacancy of a woman director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy whichever is later.

Explanation.– For the purposes of this rule, it is hereby clarified that the paid up share capital or turnover, as the case may be, as on the last date of latest audited financial statements shall be taken into account.