In my journey as a Company Secretary student, I came across a subtle yet significant compliance concern that may go unnoticed in practice — the reappointment of Additional Directors without regularization by shareholders, which may appear to be compliant but actually defeats the spirit of the law.
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Legal Provision at a Glance
Under Section 161(1) of the Companies Act, 2013, the Board of Directors may appoint an Additional Director, but such a director shall hold office only up to the date of the next Annual General Meeting (AGM) or the last date on which the AGM should have been held, whichever is earlier.
To continue beyond that period, the individual must be regularized through shareholder approval in a general meeting.
The Apparent Compliance Loophole
In practice, some companies, instead of placing the regularization proposal before shareholders, simply re-appoint the same person again as an Additional Director right after the AGM. While they pass a fresh board resolution and file DIR-12, this cycle creates a superficial layer of compliance — forms are filed, but shareholder approval is consistently bypassed.
This is a textbook example of what governance professionals call “apparent compliance” — where the form of the law is followed, but the substance is ignored.
Substance Over Form: The Real Standard
The principle of substance over form — recognized in several judicial decisions and commentaries like Ramaiya’s Guide to the Companies Act — demands that compliance must not only meet procedural requirements but also uphold the intent of the law.
By repeatedly avoiding shareholder regularization, companies undermine the role of members in corporate governance and open the door to regulatory scrutiny or stakeholder distrust.
The Right Course of Action
To ensure adequate compliance, companies should:
- Place the regularization of an Additional Director on the AGM agenda.
- Disclose all relevant details in the explanatory statement under Section 102.
- Maintain a clear governance trail in Board and General Meeting minutes.
Conclusion
This issue taught me a key lesson: compliance is not just about ticking boxes. As future Company Secretaries, we are not mere form-filers — we are guardians of corporate governance. Identifying and questioning such patterns of “apparent compliance” is essential to ensuring that companies uphold both the letter and the spirit of the Companies Act, 2013.
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