Power of the Board of Directors
Companies Act, 2013 provides that all the power which a company is authorized to exercise can be exercised by the Board of Directors, except those which are specifically reserved to be exercised in the general meeting. This provision underscores the importance of the role of Board of directors in a Company.
Inherent Power to Appoint a Director
Section 152 provides that every director shall be appointed by the company in the general meeting, except as otherwise provided in the Act. So inherent power to appoint a director is vested in shareholders.
Additional Director- Section 161
Section 161(1) provides that 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.
Above provision confers power to appoint additional directors on the board of director if they are authorized by the articles. Prima-facie it seems that it is the power of the Board, but it is not so.
Section 10(1) of the Companies Act, 2013 provides that Subject to the provisions of this Act, the memorandum and articles shall, when registered, bind the Company and the members thereof to the same extent as if they respectively had been signed by the company and by each member, and contained covenants on its and his part to observe all the provisions of the memorandum and of the articles.
Articles are approved and signed by the shareholders. Any amendment therein required prior consent of the shareholders. Hence, it can be said that though power to appoint a director is an inherent power of shareholders. However, conducting meeting of shareholders is a cumbersome process which involves substantial amount of time and resources, and commercial wisdom also suggests that holding meeting of shareholders frequently is not practical business practice. Therefore, such power can be reserved for the board by the shareholders by specifying in the article that the board may appoint Additional director.
Moreover, additional directors are on equal footing, in terms of, of power, rights, duties, and responsibilities, as other directors are. Yet, tenure of additional director is up to the date of forthcoming AGM unlike directors which are duly appointed by shareholders in the general meeting. If the company wishes to continue with an additional director beyond the AGM, then it will have to go for his/her regularization.
Does a Company need to wait until AGM to regularize a director OR can he/she be regularized at an EGM????…….
This is a hot question these days, and motivation behind writing few words on this topic.
Well, section 161(1) provides only the maximum period up to which an additional director can hold this office, which is up to the date of AGM. Yet, his/her tenure can be of any period, falling before the date of AGM, as mentioned in the appointment letter.
Therefore, during his tenure he can be regularized as a director in the Company, even at an EGM.
Compliances under Companies Act, 2013
For Appointment of Additional Director
File Form DIR-12 along with necessary attachments like DIR-2, MBP-1, and DIR-8.
For Regularization of Additional Director
Many people claim that the ROC knows about this director, as the company had already filed DIR-12 at the time of his appointment as additional director. So, following regularization DIR-12 is not required to be filed, which is absolutely a wrong understanding. Since he is now a director, and not an additional director. Therefore, ROC must be informed by filing a new DIR-12 that the additional director has been regularized as a director in the Company.