Types of Directors under Companies Act 2013
Types of Directors under Companies Act, 2013
The Companies Act, 2013 governs the appointment, duties, and types of directors in Indian companies. Directors play a crucial role in company management and are classified into various types based on their functions, appointment, and qualifications.
1. Executive Director
Definition: A director who is also employed by the company in a managerial capacity and is involved in daily operations.
Characteristics:
Draws salary from the company.
Full-time involvement in company management.
Has powers delegated by the Board for running day-to-day affairs.
Legal Provisions: Can be appointed as a Managing Director or Whole-time Director under Sections 2(54), 196, and 197 of the Companies Act, 2013.
2. Non-Executive Director
Definition: A director not involved in daily management but responsible for policymaking and supervision.
Characteristics:
Usually not employed by the company.
Independent oversight function.
Can be appointed to provide strategic guidance.
Legal Provisions: Governed under general provisions relating to directors.
3. Independent Director
Definition: A non-executive director who does not have any material or pecuniary relationship with the company or related persons, ensuring unbiased oversight.
Legal Provisions: Defined under Section 149(6) of the Companies Act, 2013.
Criteria (Section 149(6)):
No pecuniary relationship with company in last 2 years.
Not a relative of company officers.
Not a promoter or employee.
Role:
Safeguard interests of minority shareholders.
Ensure corporate governance.
Case Law:
K.S. Venkatesan v. M/s. Shanmugha Vadivu Educational and Charitable Trust, AIR 2005 Mad 253.
The Court emphasized the importance of independence and objectivity in the role of independent directors.
4. Nominee Director
Definition: A director appointed by a particular shareholder, financial institution, or creditor to represent their interests on the board.
Legal Basis: Not explicitly defined in the Act but recognized by judicial decisions and company practice.
Characteristics:
Represents the interests of appointing entity.
May be appointed by banks, financial institutions, or shareholders.
Case Law:
Kisanlal Jhamandas v. CIT, AIR 1964 SC 1116.
The Court acknowledged the role of nominee directors as representatives of financial institutions.
5. Additional Director
Definition: A director appointed by the Board between two Annual General Meetings (AGMs) to fill casual vacancies or expand the Board.
Legal Provisions: Section 161(1) of the Companies Act, 2013.
Term: Holds office up to the date of the next AGM.
Role: Temporary appointment to ensure Board functionality.
6. Alternate Director
Definition: A director appointed to act in place of a director who is temporarily absent from India for a period of not less than 3 months.
Legal Provisions: Section 161(2).
Key Point: Only one alternate director can be appointed per absent director.
Case Law:
CIT v. Jayantilal Shivlal Chokshi, AIR 1970 SC 758.
Clarified the scope and powers of alternate directors.
7. Shadow Director
Definition: A person who is not officially appointed as a director but whose directions or instructions are followed by the directors.
Legal Provisions: Section 2(69) of Companies Act, 2013 defines “director” to include shadow directors.
Implication: Such persons can be held liable as directors.
Case Law:
Tata Consultancy Services Ltd. v. Cyrus Investments Pvt. Ltd., (2004) 1 Comp LJ 14 Del.
The Court held that a person who controls the board's decisions is liable as a shadow director.
8. De Facto Director
Definition: A person who acts as a director but has not been formally appointed.
Legal Principle: Such a person is liable as a director because of his conduct.
Case Law:
Re Hydrodan (Corby) Ltd. (1994) BCC 161 CA (English Case adopted in India).
The Court held that one who assumes director's functions may be treated as de facto director.
9. Resident Director
Definition: A director who has stayed in India for a total period of not less than 182 days in the previous calendar year.
Legal Requirement: Section 149(3) requires every company to have at least one resident director.
Summary Table of Types of Directors
| Type | Appointment Basis | Role/Characteristics | Relevant Section / Case Law |
|---|---|---|---|
| Executive Director | Employed by company | Daily management | Sections 2(54), 196, 197 |
| Non-Executive Director | Elected by shareholders | Policy oversight, non-executive | General director provisions |
| Independent Director | Independent, no pecuniary relation | Corporate governance, minority protection | Section 149(6), K.S. Venkatesan |
| Nominee Director | Appointed by financial institutions | Represents financier's interest | Kisanlal Jhamandas v. CIT |
| Additional Director | Board appointment between AGMs | Temporary director | Section 161(1) |
| Alternate Director | Appointed during director’s absence | Acts during director’s absence | Section 161(2), CIT v. Jayantilal |
| Shadow Director | Person directing board informally | Liable as director | Section 2(69), TCS v. Cyrus Investments |
| De Facto Director | Acts as director without appointment | Liable as director | Re Hydrodan (Corby) Ltd. |
| Resident Director | Resides in India ≥ 182 days | Mandatory for Indian companies | Section 149(3) |
Conclusion
The Companies Act, 2013 recognizes various types of directors to ensure efficient governance, accountability, and compliance. The distinctions between executive, non-executive, independent, nominee, and other directors help balance management control and shareholder interests. Case laws reinforce their respective roles and liabilities.
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