Appointment of Directors: Section 152 Explained

The appointment of directors is governed by section 152 of the Companies Act, 2013, and the section does two separate jobs. Sub-sections (1) to (5) set the gate every appointment has to pass: who the first directors are, that appointment is by the company in general meeting, that a Director Identification Number must already exist, that a declaration of no disqualification must be furnished, and that consent has to be filed before the person may act. Sub-sections (6) and (7) then run the rotation machinery, which retirement of directors by rotation covers in full.

What does section 152 require for the appointment of directors?

The default route is the general meeting. Section 152(2) says that save as otherwise expressly provided in the Act, every director shall be appointed by the company in general meeting. The exceptions are the ones the Act writes elsewhere, chiefly the Board appointments in section 161 that additional, alternate and nominee directors covers, and they are exceptions rather than a parallel route.

Before that, section 152(1) covers the company that has no board yet. Where no provision is made in the articles for the appointment of the first director, the subscribers to the memorandum who are individuals are deemed to be the first directors until directors are duly appointed. A One Person Company gets its own limb: an individual being the member is deemed to be its first director until the director or directors are appointed by the member under the section.

What must a proposed director produce, and when?

Two documents and one number. The number has to exist before the appointment, the declaration is furnished for it, and the consent is filed after it.

1. A Director Identification Number. Section 152(3) bars appointment unless the person has been allotted a DIN under section 154 or any other number as may be prescribed under section 153. The alternative-number words were inserted by Act 1 of 2018, section 47, with effect from 9 February 2018. The Director Identification Number chain covers how that number is applied for, allotted and reported.
2. A declaration of no disqualification. Section 152(4) requires every person proposed to be appointed as a director, by the company in general meeting or otherwise, to furnish his DIN, "or such other number as may be prescribed under section 153", and a declaration that he is not disqualified to become a director under the Act. That alternative-number limb was inserted into sub-sections (3) and (4) together, by the same 2018 amendment and under the same footnote marker. The grounds are in section 164, which director disqualification under section 164 covers. Note the words "or otherwise": the declaration follows the person, not the route.
3. A consent to hold office. Section 152(5) says a person appointed shall not act as a director unless he gives his consent to hold the office and that consent has been filed with the Registrar within thirty days of his appointment, in such manner as may be prescribed.

The gap between appointment and the filed consent is the part readers most often miss. The appointment can be validly made at the meeting and the person still cannot act until the consent is on file. The proviso to sub-section (5) adds a disclosure step where the appointee is an independent director: the explanatory statement annexed to the notice for that general meeting must include a statement that in the Board's opinion he fulfils the conditions the Act specifies.

What section 152 does not decide

Two things sit outside sub-sections (1) to (5) and are worth separating.

The rotation rules are in sub-sections (6) and (7): the two-thirds proportion of a public company's board that is liable to retire by rotation, the one-third that actually retires at each annual general meeting, the longest-in-office ordering with a lot to break ties, the exclusion of independent directors from the count, and the deemed reappointment that follows an unfilled vacancy at an adjourned meeting. Those are covered in full at retirement of directors by rotation.

The candidature of an outsider is in section 160, not here. The Explanation at the end of sub-section (7) is what links the two: for the purposes of section 152 and section 160, a "retiring director" means a director retiring by rotation. Anyone who is not one of those has to come through the notice-and-deposit route in section 160.

What is the penalty for a default under section 152?

Section 159, as substituted by Act 22 of 2019, section 25, with effect from 2 November 2018, is the penalty section for this part of Chapter XI. If any individual or director makes "any default in complying with any of the provisions of section 152, section 155 and section 156", as the Act words the list, that individual or director is liable to a penalty which may extend to fifty thousand rupees, and where the default continues, to a further penalty which may extend to five hundred rupees for each day after the first during which it continues.

Where the appointment of directors shows up in a filing

Three traces. The consent filed with the Registrar under section 152(5) puts a dated record of the appointment on the company's file. The return under section 170(2) follows within thirty days of the appointment, which the register of directors and KMP covers. And the notice of the general meeting itself carries the resolution, plus the Board's opinion on independence where the appointee is an independent director, which is the one place a shareholder sees the company's stated reason before voting.

Where this sits in the disclosure picture

• Retirement of directors by rotation covers sub-sections (6) and (7) of the same section.
• The Director Identification Number covers the number section 152(3) makes a precondition.
• Director disqualification under section 164 covers what the section 152(4) declaration is a declaration about.
• Additional, alternate and nominee directors covers the Board-appointment exceptions to the general-meeting rule.
• Right to stand for directorship under section 160 covers how a person who is not a retiring director gets onto the ballot.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.