Page 288 - DMGT407Corporate and Business Laws

Unit 12: Management of Companies

12.1.1 Legal Provisions as Regards Directors Notes

Some of the important legal provisions as regards directors are summarised as follows:
1. Number of Directors. Every public company must have at least three directors. Every
private company must have at least two directors (s.252). However, a public company
having: (a) a paid-up capital of ` 5 crore or more; (b) 1000 or more small shareholders may
have a director elected by such small shareholders in the manner as may be prescribed.
The phrase ‘small shareholders’ means a shareholder holding shares of nominal value of
` 20,000 or less in a public company to which this section applies. This is the minimum
legal requirement of the number of directors. The Articles of a company may and usually
do, fix the minimum and maximum number of directors of its Board. For instance, the
articles may fix 5 as the minimum and 9 as the maximum number of directors of the Board.
Also, the articles may fix, within these limits, the number which will constitute the Board
for the time being. For instance, in the above example, the number of directors constituting
a Board may be fixed at 7.
2. Increase in Number of Directors. A company in general meetings may, by ordinary
resolution, increase or reduce the number of its directors within the limits fixed in that
behalf by its articles (s.258).
In certain cases, the increase in number of directors also requires the approval of the
Central Government. Section 259 provides that if a public company, or a private company
which is subsidiary a public company wishes to increase the number of its directors
beyond the maximum fixed by its articles, the increase even though decided upon by
resolution of the company in general meeting will not have any effect unless approved by
the Central Government and shall become void if and in so far as it is disapproved by the
Central Government. But if the increase in the number will not make the total number of
directors more than twelve, no approval of the Central Government is necessary. However,
independent private companies and Government companies are exempted from the
provisions of s.259.

3. Individuals to be directors. No body corporate, association or firm shall be appointed
director of any company. Only an individual can be a director (s.253).
Director Identification Number etc.

The Companies (Amendment) Act, 2006 has amended s.253, and inserted new sections
266A, 266B, 266C, 266D, 266E, 266F and 266G. These are summarised below:
(a) Amendment of s.253. A proviso to s.253 now provides that no company shall appoint
or reappoint any individual as director of the company unless he has been allotted
a Director Identification Number (DIN) under s. 266B.
(b) Application for allotment of DIN (s.266A). An application for allotment of DIN has to be
made to the Central Government for allotment of DIN by the following:

(i) an individual, intending to be appointed as director of a company; or
(ii) the director of a company appointed before the commencement of the
Companies (Amendment) Act, 2006.

In (ii) case, the application to the Central Government for the allotment of DIN has
to be made within 60 days of the commencement of the Act.
Further every applicant, who has made an application under this section for allotment
of DIN may be appointed as a director in a company or, hold office as director in a
company till such time such applicant has been allotted DIN.

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