Limit on Number of Directorships: Section 165

The limit on number of directorships a person may hold in India is two numbers, not one. Section 165 of the Companies Act, 2013 caps the total at twenty companies at a time, and caps the public companies inside that total at ten. Two Explanations then change what gets counted in each, and they are written to different limits, so the count is not the same on both sides.

What is the limit on the number of directorships?

Section 165(1) provides that no person shall hold office as a director, including any alternate directorship, in more than twenty companies at the same time. The proviso adds that the maximum number of public companies in which a person can be appointed as a director shall not exceed ten.

Read the two together and the structure is a cap inside a cap:

Note that the twenty limit expressly sweeps in an alternate directorship. A person sitting as an alternate for someone else is holding office as a director for the purposes of the count, which is why alternate appointments have to be tracked against the same ceiling as substantive ones. Additional, alternate and nominee directors, section 161 covers how those appointments are made.

The two limits are also worded differently, and the difference is on the face of the section. The twenty limit is on holding office as a director. The ten limit is on the number of public companies in which a person can be appointed as a director.

How the two Explanations change the count

This is where most miscounts happen, because each Explanation is written to one limit and not to the other.

Explanation I, which applies to the ten public company limit. For reckoning the limit of public companies in which a person can be appointed as director, directorship in private companies that are either a holding or a subsidiary company of a public company shall be included. So a private company is not automatically outside the public-company count. A private company that is the holding company of a public company, or a subsidiary of one, is counted on the public side.

Explanation II, which applies to the twenty company limit. For reckoning the limit of directorships of twenty companies, the directorship in a dormant company shall not be included.

Both Explanations were made by the same amending Act. The original Explanation was renumbered as Explanation I by the Companies (Amendment) Act, 2017 (Act 1 of 2018), section 53, with effect from 9 February 2018, and Explanation II was inserted by the same Act and section, with effect from the same date.

Keep each Explanation at the scope of its own words. Explanation II says "for reckoning the limit of directorships of twenty companies", so the dormant-company exclusion is written to the twenty limit. Explanation I says "for reckoning the limit of public companies", so the holding and subsidiary inclusion is written to the ten limit. Neither Explanation is drafted as a general rule about what a directorship is.

Can the limit be tightened?

Section 165(2) provides that subject to the provisions of sub-section (1), the members of a company may, by special resolution, specify any lesser number of companies in which a director of the company may act as directors.

Two things follow from the wording. The power runs one way: it is a power to specify a lesser number, so it can tighten the statutory ceiling for that company's directors and cannot loosen it. And it belongs to the members by special resolution, not to the Board. Ordinary resolution vs special resolution covers the majority that requires.

The transitional provisions, and why they are spent

Sections 165(3) to 165(5) deal with a person who was already over the limit immediately before the commencement of this Act. Within one year of commencement he had to choose not more than the specified limit of companies in which to continue, resign from the rest, and intimate the choice to each company he was a director of and to the Registrar having jurisdiction for each. Section 165(4) makes such a resignation effective immediately on despatch to the company, which is a departure from the ordinary rule in section 168(2). Section 165(5) barred him from acting as director in more than the specified number after despatching the resignation or after the expiry of one year from commencement, whichever was earlier.

Those sub-sections are keyed to the commencement of the Act, so they governed a one-time transition rather than the position of anyone appointed since. Section 165(4)'s despatch rule is the part still worth knowing, because it is the one place in the Act where a director's resignation is effective on despatch rather than on receipt.

What a breach costs

Section 165(6), substituted by the Companies (Amendment) Act, 2020 (Act 29 of 2020), section 33, with effect from 21 December 2020, provides that if a person accepts an appointment as a director in violation of this section, he shall be liable to a penalty of two thousand rupees for each day after the first during which such violation continues, subject to a maximum of two lakh rupees.

Run the two figures against each other and the cap binds sooner than it looks. At two thousand rupees for each day after the first, the two lakh rupee maximum is reached on the hundredth chargeable day, so a violation running a little over three months has already hit the ceiling and does not grow after that.

Note also what triggers the penalty. It attaches to accepting an appointment in violation of the section, so the liability the sub-section creates falls on the individual, not on the company that appointed him.

Why an investor reads section 165

There is a second consequence of the section that sits outside it. Section 164(1)(i) makes non-compliance with section 165(1) a ground of disqualification from appointment as a director. That clause was inserted by the Companies (Amendment) Act, 2019 (Act 22 of 2019), section 26, with effect from 2 November 2018. So an over-limit directorship is not only a penalty exposure for the individual, it is a route to disqualification. What is director disqualification under section 164 covers that clause.

For anyone reading a board, section 165 is also the outer boundary on how thinly a director's attention can be spread across companies under the Act, and the register of directors is where the count can be assembled.

Where this sits in the disclosure picture

• What is director disqualification under section 164 covers the clause that turns a section 165(1) breach into a disqualification.
• Additional, alternate and nominee directors, section 161 covers the alternate directorships section 165(1) counts.
• Duties of a director, section 166 covers the obligations owed at each of those companies.
• Resignation of a director, section 168 covers the ordinary effective-date rule that section 165(4) departs from.
• Retirement of directors by rotation covers how those board seats come up for renewal.
• The Director Identification Number covers the single identifier that makes a person's directorships countable across companies.
• What is a corporate governance report is the quarterly listed-company disclosure of directorships held elsewhere.

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.