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Additional director

22 May 2013

Please give me a answer regarding additional director,

1. Whether additional director is count in limit of sec 255 ,i.e 2/3 of total no. of director.

2. In my co. there is 7 director out of which 1 is MD & 2 additional director. so how many director be count in 2/3 limit.

3. how many in 1/3 limit also , and also give me a proof with your answer

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13 Replies

Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 22 May 2013

Additional Directors are not rotational directors. they hold office only upto the next AGM and first are required to be appointed as a Regular Director by complying with the provisions of section 257 of the Co's ACt. After that thye will become regular directors and shall be then termed as rotational directors.

As per your Point1 only 5 directors will be considered as rotational directors. Out of these 5, 2/3rd i.e. 4 directors shall be rotational directors as per section 255.

Out of these 4 directors one director will retire at the AGM & shall be eligible for reappointment as per section 256. Hence MD need not retire.

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Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 22 May 2013

Hi,

Please find below the reply.

In your case the total strength of the board is 7 which includes 1 non rotational director i.e. your MD and 2 additional directors.

For the purpose of section-255 total strength of the board would be 7.

Determination of rotational directors u/s 255

Rotational directors in your case would be 2/3 of 7 i.e. 4.67 directors. Here as per section 255 rotational directors would be 5. Remaining 2 will be considered as non- rotational directors and includes your MD.

4.67 will be converted into 5 because of phrase “not less than 2/3” used in section 255.

Determination of Directors liable to retire u/s 256

As per section 256 ---1/3 of rotational directors shall retire at each AGM. Hence 1/3 of 5 would be 1.67.

As per the language of 256 “nearest to 1/3” we can rounded off 1.67 as 2. (As nearest to 1.67 will be 2).

Now in your AGM you have to retire only 2 directors as rotational director. These 2 directors should not include additional director. In other words additional director would be considered in total strength but shall not retire because they are latest/new in office compare to others.

I hope the calculation method is clear.

Regards

Ankur Garg

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Nitin kumar kaushik (acs) (44 Points)
Replied 22 May 2013

thanks to all ,

i am agree with boths view and my view same as Mr. shridhar

but i want to ask one think to Mr. ankur, Tell me one thing only, how you are saying like that the additional director will be count in 2/3 limit but not count in 1/3 limit.

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 22 May 2013

Originally posted by : Nitin kumar kaushik
	thanks to all , i am agree with boths view and my view same as Mr. shridhar but i want to ask one think to Mr. ankur, Tell me one thing only, how you are saying like that the additional director will be count in 2/3 limit but not count in 1/3 limit.

It is quite simple Mr. Kaushik.

As per section 256(2), the directors to retire by rotation at every AGM shall be those who have been longest in office since their last appointment.

Designation of your 2 directors which is additional director is enough to show that they are comparatively new directors as compare to others. So keeping in view the words “longest in office” other 2 old directors should retire for upcoming AGM.

Further Additional Director are considered as equal to other directors as far as power, duties and liabilities are concerned. So they will always be considered as part of total strength of board for all purposes.

Thanks

Vidisha Gupta (Company Secretary) (91 Points)
Replied 22 May 2013

Ankur sir,

I really admire your answer, the way explain thank you for clarifying it

vidisha

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CS Vijay Daxini (At Practice) (732 Points)
Replied 23 May 2013

Very nice explanation Ankur Sir.

Nitin kumar kaushik (acs) (44 Points)
Replied 23 May 2013

Mr. Ankur,

sec 260 says that Nothing in section 255, 258 or 259 shall affect any power conferred on the Board of directors by the articles to appoint additional directors: I think it means that additional director should nt be count in sec 255.

Please resolve this query

Vidisha Gupta (Company Secretary) (91 Points)
Replied 23 May 2013

hi,

I think , this is with regard to power of board for reappoinment of additional director as regular director which is subject to retire in next AGM.

Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 24 May 2013

Mr Ankur, as per my understanding additional directors are not regular directors. Moreover the provisions of section 255 & 256 are applicable only to regular directors who retire by rotation. Addl Dir's hold off only upto the AGM and to become regular director they are required to comply with the provisions of section 257.

So I want to ask do teh additional dir's sho hold off only upto the next AGM can be again re-appointed as aditional directors or they are compulsory required to comply with the provisions of section 257 to be come regular directors and then they will ahve to comply with the provisinos of sections 255 & 256. Do they remain additional directors by getting re-appointed at every AGM.

Please clarify on this.

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 24 May 2013

Originally posted by : Nitin kumar kaushik
	Mr. Ankur, sec 260 says that Nothing in section 255, 258 or 259 shall affect any power conferred on the Board of directors by the articles to appoint additional directors: I think it means that additional director should nt be count in sec 255. Please resolve this query

Dear Mr. Kaushik

Let me try one last time to make you understand the right interpretation and connectivity between section 255 and 260. Please find below my point wise reply based on my personal understanding:

As explained earlier Additional Directors are considered as equal to other directors as far as their power, duties and liabilities are concerned. So they will always be considered as part of total strength of board for all purposes.

Please go through the language of section 255 which is about 2/3 of “total number of directors”. Here Section 255 does not differentiate between normal director or additional director or nominee director. So all will be counted for total strength under section 255. Here we are simply counting them in calculating total strength and not going to retire them u/s 256. You will understand Section 256 has inbuilt mechanism (Longest in office funda) to protect the retirement of additional director.

Provision of section 260 i.e. additional director hold office only upto the AGM and need to be regularized under section 257, does not make any difference as far as counting of additional director in total strength is concerned under section 255 because they are considered as equal to other directors for all purposes of companies act.

Exception of section 255 created by Section 260: Now let me explain first line of Section 260 which says nothing in section 255, 258 and 259. Real purpose of putting section 255 in section 260 is to tackle section 255 (2). Usually as per section 255(2) articles of a purely private company regulate the appointment of directors. But first line of section 260 provides an opportunity to purely private company to appoint director through the route of additional director appointment. In other words if the Articles of a private company so authorise, additional directors can be appointed in a private company.

Here I am not going to discuss Exception of section 258 and 259 created by Section 260 as the same is out of context and involve very deep interpretation of law which requires considerable amount of time.

My professional advice: Purely private companies should continue to appoint their directors as per provisions of section 255(2) i.e. as per provisions of their articles. A purely private company should not appoint director through the route of additional director appointment u/s 260 as purpose of section 260 is to appoint additional director in public companies. Further if a purely private company appoint additional director then it would be difficult for them to regularizes such additional director as section 257 is not applicable to a private company.

A purely private company appointing additional director is an example of lack of understanding of legal provisions and considered as stupid corporate practices by companies following good corporate governance norms.

I hope this reply will help you to understand the provisions in a better way.

Thanks

Ankur Garg

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Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 24 May 2013

Originally posted by : Giridhar S Karandikar
	Mr Ankur, as per my understanding additional directors are not regular directors. Moreover the provisions of section 255 & 256 are applicable only to regular directors who retire by rotation. Addl Dir's hold off only upto the AGM and to become regular director they are required to comply with the provisions of section 257. So I want to ask do teh additional dir's sho hold off only upto the next AGM can be again re-appointed as aditional directors or they are compulsory required to comply with the provisions of section 257 to be come regular directors and then they will ahve to comply with the provisinos of sections 255 & 256. Do they remain additional directors by getting re-appointed at every AGM. Please clarify on this.

Mr. Giridhar,

Kindly appreciate in this thread nobody is saying that additional director are regular director and actually they are not regular director. But w.r.t. their role, responsibilities duties and powers they are considered as equal to other directors. For example additional directors are:

Counted in quorum
Inducted as member of board committees
Authorised to sign documents on behalf of the company
Participate in board meetings and vote.
Considered responsible for their acts; etc

An additional director can be regularized in the next general meeting/Annual general meeting by following the provisions of section 257. Their regularization is dependent on the wish of management/promoters. If promoters want to continue them as additional director they can be re-appointed as additional directors through a validly hold board meeting by passing a BR u/s 260.

In other words on the date of fixing next GM/AGM date there are following options available with the promoters:

Regularise Additional directors in the ensuing GM/AGM and file form-32 for regularisation.
Let him automatically vacate his office by not proposing to re-appoint him as regular directors and file form 32 for vacation of office.
Let him automatically vacate his office by not proposing to re-appoint him as regular directors and hold another board meeting for his fresh appointment as additional director and file new form 32 for appointment of additional director to communicate his new date of appointment to ROC.

My professional advice: I would suggest you to start appointing directors through general meeting directly and file single form-32. By that way you won’t require to regularize him. I used to follow the same method and avoid appointing a new person as additional director fir administrative convenience.

One more thing there is no need to wait till AGM to regularize an additional director. Section 260 defines maximum tenure of an additional director and does not stop you to regularize him in a general meeting held before AGM. Further section 257 is all about general meeting so you can always regularize an additional director in a general meeting held before AGM.

I hope the above reply would help you to understand the provisions in a bit better way.

Thanks

Ankur Garg

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Sneha (Company Secretary) (1594 Points)
Replied 24 May 2013

Sir, your interpretation and explanation is superb. I always look up to your interpretations for better understanding of provisions. Thank you so much.