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CHAPTER XI
APPOINTMENT AND QUALIFICATIONS OF DIRECTORS

Company to have Board of Directors

Notified Date of Section: 01/04/2014

149. 1[(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
3&10[[(b) a maximum of fifteen directors:

10[Provided that a company may appoint more than fifteen directors after passing a special resolution:]]]

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

(2) Every company existing on or before the date of commencement of this Act shall within one year from such commencement comply with the requirements of the provisions of sub-section (1).

11[(3)Every company shall have at least one director who stays in India for a total period of not less than one hundred and eighty-two days during the financial year:

Provided that in case of a newly incorporated company the requirement under this sub-section shall apply proportionately at the end of the financial year in which it is incorporated.]

2&6[(4) Every listed public company shall have at least one-third of the total number of directors as independent directors and the Central Government may prescribethe minimum number of independent directors in case of any class or classes of public companies.

Explanation.—For the purposes of this sub-section, any fraction contained in such one-third number shall be rounded off as one.

(5) Every company existing on or before the date of commencement of this Act shall, within one year from such commencement or from the date of notification of the rules in this regard as may be applicable, comply with the requirements of the provisions of sub-section (4).

(6) An independent director in relation to a company, means a director other than a managing director or a whole-time director or a nominee director,—
4[(a) who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience;]

(b) (i) who is or was not a promoter of the company or its holding, subsidiary or associate company;

(ii) who is not related to promoters or directors in the company, its holding, subsidiary or associate company;
5[(c) who has or had no 12[pecuniary relationship, other than remuneration as such director or having transaction not exceeding ten per cent. of his total income or such amount as may be prescribed,] with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year;]

13[(d)none of whose relatives—

(i) is holding any security of or interest in the company, its holding, subsidiary or associate company during the two immediately preceding financial years or during the current financial year:

Provided that the relative may hold security or interest in the company of face value not exceeding fifty lakh rupees or two per cent. of the paid-up capital of the company, its holding, subsidiary or associate company or such higher sum as may be prescribed;

(ii) is indebted to the company, its holding, subsidiary or associate company or their promoters, or directors, in excess of such amount as may be prescribed during the two immediately preceding financial years or during the current financial year;

(iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, its holding, subsidiary or associate company or their promoters, or directors of such holding company, for such amount as may be prescribed during the two immediately preceding financial years or during the current financial year; or

(iv) has any other pecuniary transaction or relationship with the company, or its subsidiary, or its holding or associate company amounting to two per cent. or more of its gross turnover or total income singly or in combination with the transactions referred to in sub-clause (i), (ii) or (iii);]

(e) who, neither himself nor any of his relatives—
(i) holds or has held the position of a key managerial personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed;

14[Provided that in case of a relative who is an employee, the restriction under this clause shall not apply for his employment during preceding three financial years.]

(ii) is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of—
(A) a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or
(B) any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent. or more of the gross turnover of such firm;

(iii) holds together with his relatives two per cent. or more of the total voting power of the company; or

(iv) is a Chief Executive or director, by whatever name called, of any nonprofit organisation that receives twenty-five per cent. or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds two per cent. or more of the total voting power of the company; or
(f) who possesses such other qualifications as may be prescribed.

(7) Every independent director shall at the first meeting of the Board in which he participates as a director and thereafter at the first meeting of the Board in every financial year or whenever there is any change in the circumstances which may affect his status as an independent director, give a declaration that he meets the criteria of independence as provided in sub-section (6).
Explanation.—For the purposes of this section, “nominee director” means a director nominated by any financial institution in pursuance of the provisions of any law for the time being in force, or of any agreement, or appointed by any Government, or any other person to represent its interests.

(8) The company and independent directors shall abide by the provisions specified in Schedule IV.

(9) Notwithstanding anything contained in any other provision of this Act, but subject to the provisions of sections 197 and 198, an independent director shall not be entitled to any stock option and may receive remuneration by way of fee provided under sub-section (5) of section 197, reimbursement of expenses for participation in the Board and other meetings and profit related commission as may be approved by the members.

(10) Subject to the provisions of section 152, an independent director shall hold office for a term up to five consecutive years on the Board of a company, but shall be eligible for reappointment on passing of a special resolution by the company and disclosure of such appointment in the Board's report.

(11) Notwithstanding anything contained in sub-section (10), no independent director shall hold office for more than two consecutive terms, but such independent director shall be
eligible for appointment after the expiration of three years of ceasing to become an independent director:

Provided that an independent director shall not, during the said period of three years, be appointed in or be associated with the company in any other capacity, either directly or indirectly.
Explanation.—For the purposes of sub-sections (10) and (11), any tenure of an independent director on the date of commencement of this Act shall not be counted as a term under those sub-sections.]

11(12) Notwithstanding anything contained in this Act,—
2&6[(i) an independent director;]&

(ii) a non-executive director not being promoter or key managerial personnel, shall be held liable, only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently.

2&6[(13) The provisions of sub-sections (6) and (7) of section 152 in respect of retirement of directors by rotation shall not be applicable to appointment of independent directors.]

 

Exceptions/ Modifications/ Adaptations

1. In case of Section 8 company  - Section 149 (1) and the first Proviso to Sub-section (1) shall not apply  - Notification dated 5th june, 2015.

2. In case of Section 8 company - Sub-sections (4), (5),(6), (7), (8), (9), (10) , (11), Clause (i) of sub-section (12) and Sub-section (13) of Section 149  shall not apply. - Notification dated 5th june, 2015.

3. In case of Government company - Section 149(1)(b) and the first Proviso to Sub-section (1) shall not apply . - Notification dated 5th june, 2015.

4. In case of Government company, in clause (a) of sub-section (6) of Section 149, for the word "Board", the words "Ministry or Department of the Central Government which is administratively in charge of the company, or, as the case may be, the State Government" shall be substituted. - Notification dated 5th june, 2015.

5. In case of Government company -  clause (c) of Sub-section (6)  shall not apply. - Notification dated 5th june, 2015. 

6. In case of Specified IFSC Public Company - Sub- sections (4) to (11), clause (i) of subsection (12) and sub-section (13) of section 149 shall not apply. - Notification Dated 4th January 2017

7. In case of Specified IFSC Public Company - Sub- section (3) of section 149, the following proviso shall be inserted, namely:-

“Provided that this sub-section shall apply to a Specified IFSC public company in respect of financial years other than the first financial year from the date of its incorporation.”. - Notification Dated 4th January 2017

8. In case of Specified IFSC Public Company - Second proviso to Sub-section (1) of section 149 shall not apply .- Notification Dated 4th January 2017

9. In case of Specified IFSC Private Company - Sub- section (3) of section 149, the following proviso shall be inserted, namely:-

“Provided that this sub-section shall apply to a  Specified IFSC private company in respect of financial years other than the first financial year from the date of its incorporation.”. - Notification Dated 4th January 2017

10. In case of Section 8 Company- Clause (b) and First proviso to sub-section (1) of Section 149 shall not apply - Notification Dated 13th June, 2017.

For Entry no. 8 iExceptions/ Modifications/ Adaptations Dated 5th June, 2015  (Section 149 (1) and the first Proviso to Sub-section (1) shall not apply" ) the following entry shall be substituted -" Clause (b) and first proviso to sub-section (1) of Section 149  shall not apply" - Notification Dated 13th June, 2017 

11. Notification

 Note :

1. Clarification on prosecutions filed or internal adjudication proceedings initiated Independent Directors,non-promoters and non-KMP non-executive directors.

2. Special Measures under Companies Act, 2013 (CA-2013) and Limited Liability Partnership Act, 2008 in view of COVID-19 outbreak.

 

Amendments:

11.Substituted by the Companies (Amendment) Act, 2017 Amendment Effective from 7th May 2018

In section 149, for sub-section (3) for the words:-

Every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days in the previous calendar year

the following clause shall be substituted, namely :-

"Every company shall have at least one director who stays in India for a total period of not less than one hundred and eighty-two days during the financial year:

Provided that in case of a newly incorporated company the requirement under this sub-section shall apply proportionately at the end of the financial year in which it is incorporated.";


12.
Substituted by the Companies (Amendment) Act, 2017 Amendment Effective from 7th May 2018

 in sub-section (6), clause (c),for the words:-

"pecuniary relationship"

the following Clause shall be substituted, namely :-

"pecuniary relationship, other than remuneration as such director or having transaction not exceeding ten per cent. of his total income or such amount as may be prescribed," 


13.Substituted by the Companies (Amendment) Act, 2017 Amendment Effective from 7th May 2018

in sub-section (6), clause (d),for the words:-

none of whose relatives has or had pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors, amounting to two per cent. or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year;

the following Clause shall be substituted, namely :-

 [none of whose relatives—

(i) is holding any security of or interest in the company, its holding, subsidiary or associate company during the two immediately preceding financial years or during the current financial year:

Provided that the relative may hold security or interest in the company of face value not exceeding fifty lakh rupees or two per cent. of the paid-up capital of the company, its holding, subsidiary or associate company or such higher sum as may be prescribed;

(ii) is indebted to the company, its holding, subsidiary or associate company or their promoters, or directors, in excess of such amount as may be prescribed during the two immediately preceding financial years or during the current financial year;

(iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, its holding, subsidiary or associate company or their promoters, or directors of such holding company, for such amount as may be prescribed during the two immediately preceding financial years or during the current financial year; or

(iv) has any other pecuniary transaction or relationship with the company, or its subsidiary, or its holding or associate company amounting to two per cent. or more of its gross turnover or total income singly or in combination with the transactions referred to in sub-clause (i), (ii) or (iii);]

 
14.Inserted by The Companies (Amendment)Act,2017 Amendment Effective from 7th May 2018