Appointment, Qualification, Disqualification, Remuneration and Removal of Directors

152. Appointment of directors —

(1) Where no provision is made in the articles of a company for the appointment of the first
director, the subscribers to the memorandum who are individuals shall be deemed to be the
first directors of the company until the directors are duly appointed and in case of a One
Person Company an individual being member shall be deemed to be its first director until the
director or directors are duly appointed by the member in accordance with the provisions of
this section.

(2) Save as otherwise expressly provided in this Act, every director shall be appointed by the
company in general meeting.

(3) No person shall be appointed as a director of a company unless he has been allotted the
Director Identification Number under section 154 or any other number as may be prescribed
under section 153.

(4) Every person proposed to be appointed as a director by the company in general meeting or
otherwise, shall furnish his Director Identification Number and a declaration that he is not
disqualified to become a director under this Act.

(5) A person appointed as a director shall not act as a director unless he gives his consent to
hold the office as director and such consent has been filed with the Registrar within thirty
days of his appointment in such manner as may be prescribed:

Provided that in the case of appointment of an independent director in the general meeting, an
explanatory statement for such appointment, annexed to the notice for the general meeting,
shall include a statement that in the opinion of the Board, he fulfils the conditions specified in
this Act for such an appointment.

(6) (a) Unless the articles provide for the retirement of all directors at every annual general
meeting, not less than two-thirds of the total number of directors of a public company shall—

(i) be persons whose period of office is liable to determination by retirement of directors by

rotation; and
(ii) save as otherwise expressly provided in this Act, be appointed by the company in general
meeting.

(b) The remaining directors in the case of any such company shall, in default of, and subject
to any regulations in the articles of the company, also be appointed by the company in general
meeting.

(c) At the first annual general meeting of a public company held next after the date of the
general meeting at which the first directors are appointed in accordance with clauses (a) and
(b) and at every subsequent annual general meeting, one-third of such of the directors for the
time being as are liable to retire by rotation, or if their number is neither three nor a multiple
of three, then, the number nearest to one-third, shall retire from office.

(d) The directors to retire by rotation at every annual general meeting shall be those who have
been longest in office since their last appointment, but as between persons who became
directors on the same day, those who are to retire shall, in default of and subject to any
agreement among themselves, be determined by lot.

(e) At the annual general meeting at which a director retires as aforesaid, the company may
fill up the vacancy by appointing the retiring director or some other person thereto.

Explanation—For the purposes of this sub-section, “total number of directors” shall not
include independent directors, whether appointed under this Act or any other law for the time
being in force, on the Board of a company.

(7) (a) If the vacancy of the retiring director is not so filled-up and the meeting has not
expressly resolved not to fill the vacancy, the meeting shall stand adjourned till the same day
in the next week, at the same time and place, or if that day is a national holiday, till the next
succeeding day which is not a holiday, at the same time and place.

(b) If at the adjourned meeting also, the vacancy of the retiring director is not filled up and
that meeting also has not expressly resolved not to fill the vacancy, the retiring director shall
be deemed to have been re-appointed at the adjourned meeting, unless—

(i) at that meeting or at the previous meeting a resolution for the re-appointment of such
director has been put to the meeting and lost;
(ii) the retiring director has, by a notice in writing addressed to the company or its Board of
directors, expressed his unwillingness to be so re-appointed;

(iii) he is not qualified or is disqualified for appointment;

(iv) a resolution, whether special or ordinary, is required for his appointment or re-
appointment by virtue of any provisions of this Act; or

(v) section 162 is applicable to the case.

Explanation—For the purposes of this section and section 160, the expression “retiring
director” means a director retiring by rotation.

159. Penalty for default of certain provisions —

If any individual or director of a company makes any default in complying with any of the
provisions of section 152, section 155 and section 156, such individual or director of the
company shall be liable to a penalty which may extend to fifty thousand rupees and where the
default is a continuing one, with a further penalty which may extend to five hundred rupees
for each day after the first during which such default continues.

161. Appointment of additional director, alternate director and nominee director —

(1) 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.

(2) The Board of Directors of a company may, if so authorised by its articles or by a

resolution passed by the company in general meeting, appoint a person, not being a person
holding any alternate directorship for any other director in the company 3[or holding
directorship in the same company, to act as an alternate director for a director during his
absence for a period of not less than three months from India:

Provided that no person shall be appointed as an alternate director for an independent director
unless he is qualified to be appointed as an independent director under the provisions of this
Act:
Provided further that an alternate director shall not hold office for a period longer than that
permissible to the director in whose place he has been appointed and shall vacate the office if
and when the director in whose place he has been appointed returns to India:

Provided also that if the term of office of the original director is determined before he so
returns to India, any provision for the automatic re-appointment of retiring directors in default
of another appointment shall apply to the original, and not to the alternate director.

(3) Subject to the articles of a company, the Board may appoint any person as a director
nominated by any institution in pursuance of the provisions of any law for the time being in
force or of any agreement or by the Central Government or the State Government by virtue of
its shareholding in a Government company.

(4) If the office of any director appointed by the company in general meeting is vacated
before his term of office expires in the normal course, the resulting casual vacancy may, in
default of and subject to any regulations in the articles of the company, be filled by the Board
of Directors at a meeting of the Board which shall be subsequently approved by members in
the immediate next general meeting

Provided that any person so appointed shall hold office only up to the date up to which the
director in whose place he is appointed would have held office if it had not been vacated.

162. Appointment of directors to be voted individually —

(1) At a general meeting of a company, a motion for the appointment of two or more persons
as directors of the company by a single resolution shall not be moved unless a proposal to
move such a motion has first been agreed to at the meeting without any vote being cast
against it.

(2) A resolution moved in contravention of sub-section (1) shall be void, whether or not any
objection was taken when it was moved.

(3) A motion for approving a person for appointment, or for nominating a person for
appointment as a director, shall be treated as a motion for his appointment.

196. Appointment of managing director, whole-time director or manager — (1) No

company shall appoint or employ at the same time a managing director and a manager.
(2) No company shall appoint or re-appoint any person as its managing director, whole-time
director or manager for a term exceeding five years at a time:

Provided that no re-appointment shall be made earlier than one year before the expiry of his
term.

(3) No company shall appoint or continue the employment of any person as managing
director, whole-time director or manager who —

(a) is below the age of twenty-one years or has attained the age of seventy years:

Provided that appointment of a person who has attained the age of seventy years may be
made by passing a special resolution in which case the explanatory statement annexed to the
notice for such motion shall indicate the justification for appointing such person;

Provided further that where no such special resolution is passed but votes cast in favour of the
motion exceed the votes, if any, cast against the motion and the Central Government is
satisfied, on an application made by the Board, that such appointment is most beneficial to
the company, the appointment of the person who has attained the age of seventy years may be
made;

(b) is an undischarged insolvent or has at any time been adjudged as an insolvent;

(c) has at any time suspended payment to his creditors or makes, or has at any time made, a
composition with them; or

(d) has at any time been convicted by a court of an offence and sentenced for a period of
more than six months.

(4) Subject to the provisions of section 197 and Schedule V, a managing director, whole-time
director or manager shall be appointed and the terms and conditions of such appointment and
remuneration payable be approved by the Board of Directors at a meeting which shall be
subject to approval by a resolution at the next general meeting of the company and by the
Central Government in case such appointment is at variance to the conditions specified in
Part I of that Schedule:
Provided that a notice convening Board or general meeting for considering such appointment
shall include the terms and conditions of such appointment, remuneration payable and such
other matters including interest, of a director or directors in such appointments, if any:

Provided further that a return in the prescribed form shall be filed within sixty days of such
appointment with the Registrar.

(5) Subject to the provisions of this Act, where an appointment of a managing director,
whole-time director or manager is not approved by the company at a general meeting, any act
done by him before such approval shall not be deemed to be invalid.
164. Disqualifications for appointment of director —

(1) A person shall not be eligible for appointment as a director of a company, if —

(a) he is of unsound mind and stands so declared by a competent court;

(b) he is an undischarged insolvent;

(c) he has applied to be adjudicated as an insolvent and his application is pending;

(d) he has been convicted by a court of any offence, whether involving moral turpitude or
otherwise, and sentenced in respect thereof to imprisonment for not less than six months and
a period of five years has not elapsed from the date of expiry of the sentence:

Provided that if a person has been convicted of any offence and sentenced in respect thereof
to imprisonment for a period of seven years or more, he shall not be eligible to be appointed
as a director in any company;

(e) an order disqualifying him for appointment as a director has been passed by a court or
Tribunal and the order is in force;

(f) he has not paid any calls in respect of any shares of the company held by him, whether
alone or jointly with others, and six months have elapsed from the last day fixed for the
payment of the call;

(g) he has been convicted of the offence dealing with related party transactions under section
188 at any time during the last preceding five years; or

(h) he has not complied with sub-section (3) of section 152.

(i) he has not complied with the provisions of sub-section (1) of section 165.

(2) No person who is or has been a director of a company which—

(a) has not filed financial statements or annual returns for any continuous period of three
financial years; or
(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any
debentures on the due date or pay interest due thereon or pay any dividend declared and such
failure to pay or redeem continues for one year or more,

shall be eligible to be re-appointed as a director of that company or appointed in other

company for a period of five years from the date on which the said company fails to do so:

Provided that where a person is appointed as a director of a company which is in default of

clause (a) or clause (b), he shall not incur the disqualification for a period of six months from
the date of his appointment.

(3) A private company may by its articles provide for any disqualifications for appointment as
a director in addition to those specified in sub-sections (1) and (2).

Provided that the disqualifications referred to in clauses (d), (e) and (g) of sub-section (1)
shall continue to apply even if the appeal or petition has been filed against the order of
conviction or disqualification.

167. Vacation of office of director — (1) The office of a director shall become vacant in
case—

(a) he incurs any of the disqualifications specified in section 164:

Provided that where he incurs disqualification under sub-section (2) of section 164, the office
of the director shall become vacant in all the companies, other than the company which is in
default under that sub-section;

(b) he absents himself from all the meetings of the Board of Directors held during a period of
twelve months with or without seeking leave of absence of the Board;

(c) he acts in contravention of the provisions of section 184 relating to entering into contracts
or arrangements in which he is directly or indirectly interested;

(d) he fails to disclose his interest in any contract or arrangement in which he is directly or
indirectly interested, in contravention of the provisions of section 184;

(e) he becomes disqualified by an order of a court or the Tribunal;

(f) he is convicted by a court of any offence, whether involving moral turpitude or otherwise
and sentenced in respect thereof to imprisonment for not less than six months:

Provided that the office shall not be vacated by the director in case of orders referred to in
clauses (e) and (f)—

(i) for thirty days from the date of conviction or order of disqualification;

(ii) where an appeal or petition is preferred within thirty days as aforesaid against the
conviction resulting in sentence or order, until expiry of seven days from the date on which
such appeal or petition is disposed of; or

(iii) where any further appeal or petition is preferred against order or sentence within seven
days, until such further appeal or petition is disposed of.

(g) he is removed in pursuance of the provisions of this Act;

(h) he, having been appointed a director by virtue of his holding any office or other
employment in the holding, subsidiary or associate company, ceases to hold such office or
other employment in that company.

(2) If a person, functions as a director even when he knows that the office of director held by
him has become vacant on account of any of the disqualifications specified in sub-section (1),
he shall be punishable with fine which shall not be less than one lakh rupees but which may
extend to five lakh rupees.

(3) Where all the directors of a company vacate their offices under any of the
disqualifications specified in sub-section (1), the promoter or, in his absence, the Central
Government shall appoint the required number of directors who shall hold office till the
directors are appointed by the company in the general meeting.

(4) A private company may, by its articles, provide any other ground for the vacation of the
office of a director in addition to those specified in sub-section (1).

168. Resignation of director —

(1) A director may resign from his office by giving a notice in writing to the company and the
Board shall on receipt of such notice take note of the same and the company shall intimate
the Registrar in such manner, within such time and in such form as may be prescribed and
shall also place the fact of such resignation in the report of directors laid in the immediately
following general meeting by the company:

Provided that a director may also forward a copy of his resignation along with detailed
reasons for the resignation to the Registrar within thirty days of resignation in such manner as
may be prescribed.

(2) The resignation of a director shall take effect from the date on which the notice is received
by the company or the date, if any, specified by the director in the notice, whichever is later:

Provided that the director who has resigned shall be liable even after his resignation for the
offences which occurred during his tenure.

(3) Where all the directors of a company resign from their offices, or vacate their offices
under section 167, the promoter or, in his absence, the Central Government shall appoint the
required number of directors who shall hold office till the directors are appointed by the
company in general meeting.

169. Removal of directors — (1) A company may, by ordinary resolution, remove a director,
not being a director appointed by the Tribunal under section 242, before the expiry of the
period of his office after giving him a reasonable opportunity of being heard:

Provided that an independent director re-appointed for second term under sub-section (10) of
section 149 shall be removed by the company only by passing a special resolution and after
giving him a reasonable opportunity of being heard:

Provided further that nothing contained in this sub-section shall apply where the company has
availed itself of the option given to it under section 163 to appoint not less than two-thirds of
the total number of directors according to the principle of proportional representation.

(2) A special notice shall be required of any resolution, to remove a director under this
section, or to appoint somebody in place of a director so removed, at the meeting at which he
is removed.
(3) On receipt of notice of a resolution to remove a director under this section, the company
shall forthwith send a copy thereof to the director concerned, and the director, whether or not
he is a member of the company, shall be entitled to be heard on the resolution at the meeting.

(4) Where notice has been given of a resolution to remove a director under this section and
the director concerned makes with respect thereto representation in writing to the company
and requests its notification to members of the company, the company shall, if the time
permits it to do so, —

(a) in any notice of the resolution given to members of the company, state the fact of the
representation having been made; and

(b) send a copy of the representation to every member of the company to whom notice of the
meeting is sent (whether before or after receipt of the representation by the company), and if
a copy of the representation is not sent as aforesaid due to insufficient time or for the
company’s default, the director may without prejudice to his right to be heard orally require
that the representation shall be read out at the meeting:

Provided that copy of the representation need not be sent out and the representation need not
be read out at the meeting if, on the application either of the company or of any other person
who claims to be aggrieved, the Tribunal is satisfied that the rights conferred by this sub-
section are being abused to secure needless publicity for defamatory matter; and the Tribunal
may order the company’s costs on the application to be paid in whole or in part by the
director notwithstanding that he is not a party to it.

(5) A vacancy created by the removal of a director under this section may, if he had been
appointed by the company in general meeting or by the Board, be filled by the appointment
of another director in his place at the meeting at which he is removed, provided special notice
of the intended appointment has been given under sub-section (2).

(6) A director so appointed shall hold office till the date up to which his predecessor would
have held office if he had not been removed.

(7) If the vacancy is not filled under sub-section (5), it may be filled as a casual vacancy in
accordance with the provisions of this Act:
Provided that the director who was removed from office shall not be re-appointed as a
director by the Board of Directors.

(8) Nothing in this section shall be taken—

(a) as depriving a person removed under this section of any compensation or damages
payable to him in respect of the termination of his appointment as director as per the terms of
contract or terms of his appointment as director, or of any other appointment terminating with
that as director; or

(b) as derogating from any power to remove a director under other provisions of this Act.

176. Defects in appointment of directors not to invalidate actions taken — No act done
by a person as a director shall be deemed to be invalid, notwithstanding that it was
subsequently noticed that his appointment was invalid by reason of any defect or
disqualification or had terminated by virtue of any provision contained in this Act or in the
articles of the company:

Provided that nothing in this section shall be deemed to give validity to any act done by the
director after his appointment has been noticed by the company to be invalid or to have
terminated.

197. Overall maximum managerial remuneration and managerial remuneration in case

of absence or inadequacy of profits — (1) The total managerial remuneration payable by a
public company, to its directors, including managing director and whole-time director, and its
manager in respect of any financial year shall not exceed eleven per cent. of the net profits of
that company for that financial year computed in the manner laid down in section 198 except
that the remuneration of the directors shall not be deducted from the gross profits:

Provided that the company in general meeting may, authorise the payment of remuneration
exceeding eleven per cent. of the net profits of the company, subject to the provisions of
Schedule V:

Provided further that, except with the approval of the company in general meeting, by a
special resolution, —
(i) the remuneration payable to any one managing director; or whole-time director or
manager shall not exceed five per cent. of the net profits of the company and if there is more
than one such director remuneration shall not exceed ten per cent. of the net profits to all such
directors and manager taken together;

(ii) the remuneration payable to directors who are neither managing directors nor whole-time
directors shall not exceed, —

(A) one per cent. of the net profits of the company, if there is a managing or whole-time
director or manager;

(B) three per cent. of the net profits in any other case.

Provided also that, where the company has defaulted in payment of dues to any bank or
public financial institution or non-convertible debenture holders or any other secured creditor,
the prior approval of the bank or public financial institution concerned or the non-convertible
debenture holders or other secured creditor, as the case may be, shall be obtained by the
company before obtaining the approval in the general meeting.

(2) The percentages aforesaid shall be exclusive of any fees payable to directors under sub-
section (5).

(3) Notwithstanding anything contained in sub-sections (1) and (2), but subject to the
provisions of Schedule V, if, in any financial year, a company has no profits or its profits are
inadequate, the company shall not pay to its directors, including any managing or whole-time
director or manager, or any other non-executive director, including an independent director
by way of remuneration any sum exclusive of any fees payable to directors under sub-section
(5) hereunder except in accordance with the provisions of Schedule V.

(4) The remuneration payable to the directors of a company, including any managing or
whole-time director or manager, shall be determined, in accordance with and subject to the
provisions of this section, either by the articles of the company, or by a resolution or, if the
articles so require, by a special resolution, passed by the company in general meeting and the
remuneration payable to a director determined aforesaid shall be inclusive of the
remuneration payable to him for the services rendered by him in any other capacity:
Provided that any remuneration for services rendered by any such director in other capacity
shall not be so included if—

(a) the services rendered are of a professional nature; and

(b) in the opinion of the Nomination and Remuneration Committee, if the company is
covered under sub-section (1) of section 178, or the Board of Directors in other cases, the
director possesses the requisite qualification for the practice of the profession.

(5) A director may receive remuneration by way of fee for attending meetings of the Board or
Committee thereof or for any other purpose whatsoever as may be decided by the Board:

Provided that the amount of such fees shall not exceed the amount as may be prescribed:

Provided further that different fees for different classes of companies and fees in respect of
independent director may be such as may be prescribed.

(6) A director or manager may be paid remuneration either by way of a monthly payment or
at a specified percentage of the net profits of the company or partly by one way and partly by
the other.

(8) The net profits for the purposes of this section shall be computed in the manner referred to
in section 198.

(9) If any director draws or receives, directly or indirectly, by way of remuneration any such
sums in excess of the limit prescribed by this section or without approval required under this
section, he shall refund such sums to the company, within two years or such lesser period as
may be allowed by the company, and until such sum is refunded, hold it in trust for the
company.

(10) The company shall not waive the recovery of any sum refundable to it under sub-section
(9) unless approved by the company by special resolution within two years from the date the
sum becomes refundable.

Provided that where the company has defaulted in payment of dues to any bank or public
financial institution or non-convertible debenture holders or any other secured creditor, the
prior approval of the bank or public financial institution concerned or the non-convertible
debenture holders or other secured creditor, as the case may be, shall be obtained by the
company before obtaining approval of such waiver.

(11) In cases where Schedule V is applicable on grounds of no profits or inadequate profits,

any provision relating to the remuneration of any director which purports to increase or has
the effect of increasing the amount thereof, whether the provision be contained in the
company’s memorandum or articles, or in an agreement entered into by it, or in any
resolution passed by the company in general meeting or its Board, shall not have any effect
unless such increase is in accordance with the conditions specified in that Schedule.

(12) Every listed company shall disclose in the Board’s report, the ratio of the remuneration
of each director to the median employee’s remuneration and such other details as may be
prescribed.

(13) Where any insurance is taken by a company on behalf of its managing director, whole-
time director, manager, Chief Executive Officer, Chief Financial Officer or Company
Secretary for indemnifying any of them against any liability in respect of any negligence,
default, misfeasance, breach of duty or breach of trust for which they may be guilty in
relation to the company, the premium paid on such insurance shall not be treated as part of
the remuneration payable to any such personnel:

Provided that if such person is proved to be guilty, the premium paid on such insurance shall
be treated as part of the remuneration.

(14) Subject to the provisions of this section, any director who is in receipt of any
commission from the company and who is a managing or whole-time director of the company
shall not be disqualified from receiving any remuneration or commission from any holding
company or subsidiary company of such company subject to its disclosure by the company in
the Board’s report.

(15) If any person makes any default in complying with the provisions of this section, he
shall be liable to a penalty of one lakh rupees and where any default has been made by a
company, the company shall be liable to a penalty of five lakh rupees.

(16) The auditor of the company shall, in his report under section 143, make a statement as to
whether the remuneration paid by the company to its directors is in accordance with the
provisions of this section, whether remuneration paid to any director is in excess of the limit
laid down under this section and give such other details as may be prescribed.

(17) On and from the commencement of the Companies (Amendment) Act, 2017, any
application made to the Central Government under the provisions of this section as it stood
before such commencement, which is pending with that Government shall abate, and the
company shall, within one year of such commencement, obtain the approval in accordance
with the provisions of this section, as so amended.