WHETHER FIRST DIRECTOR – REGULARIZATION MANDATORY

WHETHER FIRST DIRECTOR – REGULARIZATION MANDATORY

BACKGROUND:
Many professionals have been raising question on interpretation/ provisions relating to Regularization of First Director:-

Situation:
As per Act, Company can appoint first director by mention the name of directors in the Article of Association or in case of article don’t give any name in that case subscriber of the MOA who are individual shall be deemed to be first Director.

v  Whether first director appointed as per section 152(1) (by name in AOA or as subscriber of MOA) mandatory to regularize or not?

Let’s first discuss the questions:
Various professional have the view that in position of appointment of First Director either through AOA or through subscriber sheet their term will be upto the date, they resign from the post or retirement by rotation. Other professional have the observation that tenure of first directors will be upto the First AGM of the Company, in first AGM Company have to regularize them with the consent of the shareholders. If they don’t get regularized in the AGM then their tenure will be considered as finish at the end of the AGM.

Statutory Provisions Contained Under the Act:
Provisions of the Companies Act, 2013 to the extent relevant for our discussion, are stated as under (with necessary comments and modifications, wherever felt necessary).
As stated in Section 152(1) where no provision is made in the articles of a company for the appointment of the first director, the subscribers to the memorandum who are individuals shall be deemed to be the first directors of the company until the directors are duly appointed.

As stated in Section 152(2) Save as otherwise expressly provided in this Act, every director shall be appointed by the company in general meeting.

Interpretation Note:
Therefore, as per the language of section 152 First Director can be appoint by AOA or by subscriber sheet. But as per Section 152(2) every director shall be appointed by the Company in General Meeting. First director are not appointed in General Meeting.
If we look at the language of Section 152(1) there are one sentence “deemed to be first directors of the company until the directors are duly appointed” and 152(2) apparent that director can be appoint barely by shareholders in general meeting. As a result, first director may hold office till directors are elected, in accordance with the provisions of section 152(2) at the first general meeting held after the incorporation but prior to the holding of the first annual general meeting

CONCLUSION:

Hence, taking into consideration the provisions of Section 152(1) & (2) one can opine that First director of the Company contain their tenure upto the date of first general meeting held by the Company subsequent to incorporation.

Thus, here one can opine that First Directors of the company are required to regularized in the first General meeting of the Company.  
Any other opinion is also welcome for further clarity of the provision of the Companies Act.


Comments

  1. In my opinion Section 152 (6) (c) only talks about those directors who actually assumed the charge by virtue of holding the position being the subscribers to the memorandum.

    Thus, First Directors of the company are required to regularized in the first General meeting of the Company only in case subscribers to the memorandum are assumed as First Directors of the Company.

    ReplyDelete
  2. Sec 152(1) clearly states that subscribers who are deemed to be the first directors and shall be regularized in first GM. However, it is only for such cases where no provision is made in the articles of a company for the appointment of the first director, thereby meaning that if first directors are duly mentioned in AOA, then the same may fall outside the purview of regularization. The said stance is further confirmed by the Non-obstante clause provided in Sec 152(2) which starts with "Save as otherwise expressly provided in this Act", meaning that if a director is duly appointed under some other provisions of this act, then their regularization is not required. Ofcourse it does point out to nominee directors but wont it be covering such first directors' appointment whose name is specifically mentioned to be the First directors under AOA?

    ReplyDelete

Post a Comment

Popular posts from this blog

Declaration of Commencement of Business - Series 487

Vacancy Updates (Through Google Form) | Dated: 20-August-2020

Process of Conversion of Loan into Equity