Who is a Director, and the Director Identification Number
Chapter Fifty-Six
Syllabus topic 3.1, "Directors DIN, Types of Directors"
Pages 379 to 385 of 830
In one line
A director must be a natural person, every company must have a Board of a minimum size, and nobody can be appointed a director without first obtaining a unique number from the Central Government.
In exam wording: section 2(34) defines a director as a director appointed to the Board of a company; section 149(1) requires every company to have a Board of Directors consisting of individuals, with a minimum of three, two or one and a maximum of fifteen; and section 152(3) forbids the appointment of any person as a director unless he has been allotted a Director Identification Number under section 154.
Why the law has this at all
A company acts through its Board, so the law has to answer two questions before anything else: who may sit on it, and how many.
Who is answered by the single word individuals in section 149(1). A company cannot be a director of another company. If it could, a chain of companies could be run with no human being answerable anywhere in it, and every duty in section 166 would be owed by an artificial person to another artificial person.
How many is answered by minimums and a maximum. A minimum, because a Board of one can be a company run by one man with no check. A maximum of fifteen, because a Board large enough to be a public meeting decides nothing, and because a very large Board is a way of diluting responsibility.
And the Director Identification Number answers a question nobody had asked until it became a problem. The same man could be a director of forty companies under forty spellings of his name, and no register could connect them. The DIN gives each individual one number for life, which is why section 155 forbids a second one and why section 158 requires the number to appear on every filing that mentions a director.
Some words this chapter uses
The Board is the body of directors. An individual is a natural person. A nominee director is one appointed by an institution or under an agreement. Rotation means retiring and standing again by turns. To intimate is to inform formally. An officer in default is defined in section 2(60).
The definition, and what it leaves out
Section 2(34): "director" means a director appointed to the Board of a company.
That is circular on its face, and deliberately so. The Act does not define a director by what he does, because directors do very different things: some run the company daily, some attend four meetings a year. It defines him by office.
But the Act does reach people who are not appointed. Section 2(60) makes an officer in default include a person in accordance with whose advice, directions or instructions the Board is accustomed to act, and section 2(69) uses the same idea for a promoter. So a person who directs the Board from outside carries a director's liabilities without holding a director's office.
Who is a Director, and the Director Identification Number
The Board: section 149(1)
Every company shall have a Board of Directors consisting of individuals as directors and shall have:
- (a) a minimum number of three directors in the case of a public company, two directors in the case of a private company, and one director in the case of a One Person Company; and
- (b) a maximum of fifteen directors.
The first proviso: a company may appoint more than fifteen directors after passing a special resolution. So fifteen is not an absolute ceiling; it is the number above which the members must be asked.
The second proviso: such class or classes of companies as may be prescribed shall have at least one woman director.
Learn the three minimums as a set: three, two, one, and note that they match the three minimum membership figures in section 3(1). A public company needs seven members and three directors; a private company two and two; a One Person Company one and one.
Section 149(2) gave existing companies one year from the commencement of the Act to comply.
The resident director: section 149(3)
Every company shall have at least one director who stays in India for a total period of not less than one hundred and eighty-two days during the financial year.
The proviso: for a newly incorporated company the requirement applies proportionately at the end of the financial year in which it is incorporated.
One hundred and eighty-two days is the number to remember. The purpose is practical: there must always be somebody in the country who can be served, questioned and, if necessary, prosecuted.
Independent directors, in outline
Section 149(4) requires every listed public company to have at least one-third of the total number of directors as independent directors, and lets the Central Government prescribe a minimum for other classes of public companies. The Explanation provides that any fraction in that one-third shall be rounded off as one.
Section 149(6) defines an independent director, and sections 149(7) to (13) deal with his declaration, the code in Schedule IV, his remuneration, his term and the exclusion of rotation. All of that belongs to [Board Composition and Independent Directors], because MU puts board composition in topic 3.2.
No appointment without a number: section 152(3), (4) and (5)
Section 152(3). No person shall be appointed as a director unless he has been allotted the Director Identification Number under section 154, or any other number as may be prescribed under section 153.
Who is a Director, and the Director Identification Number
Section 152(4). Every person proposed to be appointed as a director, in general meeting or otherwise, shall furnish:
- his Director Identification Number, or such other prescribed number; and
- a declaration that he is not disqualified to become a director under this Act.
Note "or otherwise". The declaration is required whether the appointment is by the members, by the Board filling a casual vacancy, or in any other way.
Section 152(5). 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 the prescribed manner.
So three separate things are needed before a man may act: a DIN, a declaration that he is not disqualified, and a consent filed within thirty days.
The proviso adds a requirement for an independent director appointed in general meeting: the explanatory statement annexed to the notice shall include a statement that in the Board's opinion he fulfils the conditions specified in this Act for such an appointment.
The Director Identification Number: sections 153 to 159
Section 153: applying for it
Every individual intending to be appointed as a director shall make an application for allotment of a Director Identification Number to the Central Government, in the prescribed form and manner and with the prescribed fees.
The proviso lets the Central Government prescribe any identification number which shall be treated as a Director Identification Number, and where an individual holds or acquires such a number, the section does not apply, or applies as prescribed.
Section 154: allotting it
The Central Government shall, within one month from the receipt of the application under section 153, allot a Director Identification Number to the applicant in the prescribed manner.
Section 155: one number only
No individual who has already been allotted a Director Identification Number under section 154 shall apply for, obtain or possess another Director Identification Number.
Short, absolute, and the whole point of the scheme. Two numbers would let one man appear as two people across two sets of companies, which is exactly what the DIN exists to prevent.
Section 156: the director tells the company
Every existing director shall, within one month of the receipt of the Director Identification Number from the Central Government, intimate his Director Identification Number to the company or all companies wherein he is a director.
Note "all companies". A man who sits on nine boards must tell all nine.
Section 157: the company tells the Registrar
Section 157(1). Every company shall, within fifteen days of the receipt of intimation under section 156, furnish the Director Identification Number of all its directors to the Registrar, or any other officer or authority specified by the Central Government, with the prescribed fees or additional fees, in the prescribed form and manner.
Who is a Director, and the Director Identification Number
Section 157(2): the penalty. On failure:
- the company is liable to a penalty of twenty-five thousand rupees, and in case of continuing failure a further one hundred rupees for each day after the first, subject to a maximum of one lakh rupees; and
- every officer in default is liable to a penalty of not less than twenty-five thousand rupees, and a further one hundred rupees for each day, subject to a maximum of one lakh rupees.
Section 158: quote it everywhere
Every person or company, while furnishing any return, information or particulars required under this Act, shall mention the Director Identification Number in that return, information or particulars, where it relates to a director or contains any reference to any director.
This is the section that makes the whole scheme work. Because the number appears on every filing, the Registrar's records can be searched by number rather than by name, and one man's forty directorships become visible as one man's.
Section 159: the punishment
If any individual or director contravenes section 152, 155 or 156, that individual or director shall be liable to a penalty which may extend to fifty thousand rupees, and where the default is a continuing one, with a further penalty which may extend to five hundred rupees for each day after the first during which the default continues.
A worked example
Mr Kulkarni is asked to join the Board of Sangli Foods Limited, a public company, in April 2028. He has never been a director before.
First, the number. He must apply to the Central Government under section 153 for a Director Identification Number, which the Government shall allot within one month of receiving the application: section 154. Until it is allotted, section 152(3) forbids his appointment.
At the meeting. He furnishes his DIN and a declaration that he is not disqualified under the Act: section 152(4). He is appointed.
Before he acts. He must give his consent to hold office, and the company must file that consent with the Registrar within thirty days of his appointment. Until then, he may not act as a director: section 152(5).
Telling everyone. Within one month of receiving his DIN he must intimate it to every company in which he is a director: section 156. Each of those companies must then, within fifteen days of that intimation, furnish it to the Registrar: section 157(1). If Sangli Foods does not, it pays twenty-five thousand rupees plus one hundred rupees a day, capped at one lakh, and so does every officer in default.
Who is a Director, and the Director Identification Number
A second number. Two years later a consultant offers to obtain him a fresh DIN so that an old disqualification does not follow him. Section 155 forbids it absolutely, and by section 159 he would be liable to a penalty of up to fifty thousand rupees and a further five hundred rupees for each day of continuing default.
Board size. Sangli Foods, being a public company, must have at least three directors and not more than fifteen; it may exceed fifteen only by special resolution. Had it been a private company the minimum would be two, and a One Person Company one.
Residence. At least one of its directors must stay in India for not less than one hundred and eighty-two days in the financial year: section 149(3). Two of its directors live abroad, so the company must ensure a third qualifies.
A woman director. If Sangli Foods falls within the prescribed class, the second proviso to section 149(1) requires at least one woman director.
An independent director. Were the company listed, at least one-third of the total number of directors would have to be independent, any fraction being rounded off as one: section 149(4). So a Board of eight would need three.
Change one fact. Suppose the company appointed a private limited company as a director. It cannot. Section 149(1) requires the Board to consist of individuals.
Distinctions that carry marks
| Company | Minimum directors | Minimum members |
|---|---|---|
| Public | Three, section 149(1)(a) | Seven, section 3(1)(a) |
| Private | Two | Two |
| One Person Company | One | One |
| Maximum, all | Fifteen, more only by special resolution | Two hundred for a private company |
| DIN step | Section | Period |
|---|---|---|
| Individual applies to the Central Government | 153 | Before appointment |
| Government allots | 154 | One month from the application |
| Only one number ever | 155 | Absolute |
| Director intimates it to all his companies | 156 | One month from receipt |
| Company furnishes it to the Registrar | 157(1) | Fifteen days from the intimation |
| Quoted in every return and particular | 158 | Always |
| Penalty for breach of 152, 155 or 156 | 159 | Up to fifty thousand rupees, plus five hundred a day |
| Director, section 2(34) | Officer in default, section 2(60) | |
|---|---|---|
| How he gets there | Appointed to the Board | By office, or by the Board being accustomed to act on his advice, directions or instructions |
| Must have a DIN | Yes, section 152(3) | Not necessarily |
| Liability | As a director | As if an officer |
What this does NOT mean
It does not mean a company can be a director. Section 149(1) requires the Board to consist of individuals.
Who is a Director, and the Director Identification Number
It does not mean fifteen is an absolute maximum. A company may appoint more after passing a special resolution.
It does not mean a DIN holder may act at once. He must also give consent, which must be filed with the Registrar within thirty days, and must declare that he is not disqualified.
It does not mean the resident director must be Indian. Section 149(3) is about staying in India for one hundred and eighty-two days, not about nationality.
Quick revision
- 2(34): a director is a director appointed to the Board. 2(60) reaches a person on whose advice, directions or instructions the Board is accustomed to act.
- 149(1): Board of individuals; minimum three public, two private, one OPC; maximum fifteen, exceeded only by special resolution; prescribed classes need at least one woman director.
- 149(3): at least one director staying in India not less than one hundred and eighty-two days in the financial year, applied proportionately in the year of incorporation.
- 149(4): a listed public company, at least one-third independent, fractions rounded off as one.
- 152(3), (4), (5): no appointment without a DIN; furnish the DIN and a declaration of non-disqualification; consent filed with the Registrar within thirty days before he may act; an independent director's explanatory statement must say the Board thinks he qualifies.
- 153 and 154: apply to the Central Government, allotted within one month.
- 155: never a second DIN.
- 156: intimate within one month to all companies where he is a director.
- 157: company furnishes to the Registrar within fifteen days; penalty twenty-five thousand plus one hundred a day, max one lakh, on the company and on every officer in default.
- 158: quote the DIN in every return, information or particulars referring to a director.
- 159: breach of 152, 155 or 156, penalty up to fifty thousand rupees and five hundred rupees a day continuing.
Test yourself
1. Who may be a director, and how many must a company have? Only individuals: section 149(1). A public company must have at least three, a private company two and a One Person Company one, and no company more than fifteen unless it passes a special resolution.
2. What is the resident director requirement? Every company shall have at least one director who stays in India for a total period of not less than one hundred and eighty-two days during the financial year, applied proportionately in the year of incorporation for a newly incorporated company: section 149(3).
Who is a Director, and the Director Identification Number
3. What three things must be in place before a person acts as a director? He must have been allotted a Director Identification Number (section 152(3)); he must have furnished his DIN and a declaration that he is not disqualified (section 152(4)); and he must have given his consent to hold office, which must be filed with the Registrar within thirty days of his appointment (section 152(5)).
4. Trace the DIN through its sections. Applied for from the Central Government under section 153; allotted within one month under section 154; only one may ever be held, under section 155; intimated by the director to all his companies within one month under section 156; furnished by each company to the Registrar within fifteen days under section 157; and quoted in every return referring to a director under section 158.
5. What is the penalty on a company that fails to furnish its directors' DINs? Twenty-five thousand rupees, and for a continuing failure a further one hundred rupees for each day after the first, subject to a maximum of one lakh rupees, on the company and, in the same amounts, on every officer in default: section 157(2).
6. How many independent directors must a listed public company have? At least one-third of the total number of directors, any fraction in that one-third being rounded off as one: section 149(4) and its Explanation.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.