Directors in the company may be appointed in the following ways: 1. By Signatures to the Memorandum 2. By Company in the General Meeting 3. By Board of Directors 4. By Third Parties 5. By Proportional Representation 6. By the Central Government.
Way # 1. Appointment of Directors by Signatures to the Memorandum:
(Sec. 254 and Clause 64 of Table A):
(i) The Articles of a company usually name the first directors by their respective name or prescribe the method of appointing them.
(ii) If the directors are not named in the Articles of the Company, the number of directors and the name of the directors shall be determined in writing by the subscribers of the Memorandum or a majority of them. (Clause 64 of Table A)
(iii) If the first directors are not appointed in the above manner, the subscribers of the Memorandum who are individuals shall be deemed to be the directors of the company. They shall hold office until directors are duly appointed in the first annual general meeting. [Sec. 254]
Subsequent directors shall be appointed according to the provisions of Sec. 255 of the Act.
Way # 2. Appointment of Directors by Company in the General Meeting:
(Secs. 255 to 257, 263 and 264):
Section 255 provides that subsequent directors shall be appointed by the company in general meeting. In the case of a public company or a private company which is a subsidiary of a public company, unless the Articles provide for the retirement of all directors at an annual general meeting, at last two-thirds of the total number of directors shall be liable to retire by rotation and shall be appointed by the company in general meeting.
This means one-third of the total number of directors can be permanent directors. The remaining directors in the case of any such company and all the directors in the case of private company not being a subsidiary of the public company may be appointed as provided in the Articles. In the absence of any regulation in the Articles of the company, these directors shall be appointed by the company in general meeting.
The appointment or reappointment of directors by a company in the general meeting is governed by the following provisions:
(a) At the first annual general meeting of a public company or a private company which is subsidiary of public company, held after the general meeting at which the first directors are appointed and at every subsequent annual general meeting, one-third (or the number nearest to one-third) of such of the directors for the time being as are liable to retire by rotation shall retire from office. [Sec. 256(1)]
The provisions are aimed at eradicating the mischief caused by self- perpetuating management. [Oriental Metal Pressing Works (Pvt) Ltd., vs. B.K. Thakoor (1961) 31 Comp. 143 (S.C.).
(b) The directors to retire by rotation at every annual general meeting of the company shall be those who have been longest in the office since their last appointment. But as between persons who became directors on the same day, those who are to retire shall be determined by mutual agreement or, in default, by lot. [Sec. 256 (2)]
In B.R. Kundra vs. Motion Pictures Assn. (1976) 46 Comp. Cas, 339 (Det.), it was held that the directors cannot prolong their tenure by not holding the annual general meeting in time. They would automatically retire on the expiry of the maximum permissible period within which a meeting ought to have been held.
At the annual general meeting at which a director retires by rotation the company may fill up the vacancy by appointing the retiring director or some other person thereto. [Sec. 256 (3)]
If the place of the retiring director is not 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.
If at the adjourned meeting also, the place of retiring director is not filled up, nor expressly resolved not to fill the vacancy, the retiring director shall be deemed to have been reappointed at the adjourned meeting except in the following cases:
(i) When at any previous meeting, a resolution for his reappointment was put before the meeting, but was lost; or
(ii) When the retiring director has declined reappointment in writing;
(iii) When he has been disqualified; or
(iv) When the reappointment will not be valid unless it is made by passing a resolution, whether special or ordinary; or
(v) When the meeting has expressly resolved not to fill up the vacancy. [Sec. 256(4)]
Appointment of a new director:
If a new director is to be appointed, a notice in writing shall be given to the company at least 14 days before the meeting. The notice shall be given by the person seeking appointment as director or by some member intending to propose him as director along with a deposit of Rs. 500. The deposit shall be refunded to the depositor if such person succeeds in getting elected as a director. [Sec. 257(1)]
The Companies (Amendment) Act, 1988 seeks to discourage frivolous notice to contest for election as director of a company by requiring a member desirous of sending a notice to the company under Sec. 257 to deposit a sum of Rs. 500.
The company shall inform the members at least seven days before the meeting about the candidature. It is not necessary for the company to serve individual notices upon the members if the company advertises such candidature not less than seven days before the meeting, in at least two newspapers. One of the newspapers must be in English language and the other in the regional language of the place where the registered office of the company is located.
This provision shall not apply to a private company unless it is a subsidiary of a public company. [Sec. 257 (2)]
As per Sec. 64 of the Act, person who is being proposed as a candidate for the office of a director Just sign and file with the company his consent in writing to act as a director, if appointed. This requirement does not apply to a director retiring by rotation.
Notice to the Registrar:
The director must file his written consent to act as a director with the Registrar within 30 days of his appointment.
One resolution for two or more directors:
Appointment of directors of a public company must be voted individually by separate ordinary resolution, unless the company has in general meeting unanimously so resolved. In other words, each director shall be appointed by a separate resolution unless it is unanimously decided at the general meeting that more than one director may be appointed by a single resolution.
Any resolution moved in contravention of this provision shall be void even if no objection was raised at the time of its being so moved. [Sec. 263]
Way # 3. Appointment of Directors by Board of Directors (Secs. 260, 262 and 313):
In the following cases, the Board of Directors may appoint the directors:
(i) Additional Directors:
Section 260 of the Companies Act empowers the Board to appoint additional directors and Articles of every company also confer this power to the Board. But the additional director shall hold his office upto the next annual general meeting. The number of directors including the additional director should in no case exceed the maximum number of directors as determined by the articles of the company.
(ii) Casual Director:
The Companies Act empowers the Board to appoint the casual director subject to any regulation in the Articles. The casual vacancy in the office of the director may exist due to retirement, resignation, insolvency or any other reason. The casual director may hold his office only upto the period to which the original director would have his office if he had not vacated. [Sec. 262]
(iii) Alternate Director:
This Board may appoint the alternate director if the article authorises. The Board is empowered to appoint the alternate director if the original director remains absent for more than three months from the date on which the meeting is ordinarily held. Such alternate director shall hold office only for the period till the original director returns. [Sec. 313]
Way # 4. Appointment of Directors by Third Parties (Sec. 255):
The articles may permit the third parties for the appointment of director as their nominee, but the number of directors so appointed should not exceed one- third of the total number of directors and they are not liable to retire by rotation. The third party means the Vendor, Banking Company, Finance Corporation and Debenture holders.
The idea behind the appointment is that they may have the watch that money advanced to the company has been utilised for same purpose for which it was lent.
Way # 5. Appointment of Directors by Proportional Representation (Sec. 265):
Directors are appointed individually either by show of hands or by ballot unless the Articles otherwise provide. If the Articles permit, a system of proportional representation may be adopted for the appointment of directors.
The appointment may be made by the single transferable vote or by a system of cumulative voting. In this system, the minority shareholders may become in a position to have their representation in the Board of Directors. Such appointment is made once in three years and the usual vacancies are filled up according to the provisions of Sees. 262 and 265.
Way # 6. Appointment of Directors by the Central Government (Sec. 408):
According to Sec. 408, the Central Government may appoint the directors but not more than two in number and for the period not exceeding 3 years.
The appointment of directors is made to prevent the affairs of the company which are oppressive to any member or which are prejudicial to the public or company’s interest.
The Central Government may appoint the director on the application of not less than 100 members of the company or the members holding not less than 1/10th of the total voting rights. Such directors need not to retire annually and are also not required to have the qualification shares.
The Companies (Amendment) Act, 1974, empowers the Central Government to issue necessary directions to companies where an appointment of directors is so made. [Sec. 408 (6)]
Further, the directors so appointed are required to keep the Central Government informed of the affairs of the company to enable it to take such timely action as may be required by exigencies of the circumstances. [Sec. 408 (7)]