Indian Resident Director
Posted: Jun 28, 2020
Indian Resident Director
According to the Indian law, a company is viewed as an artificial person, it has no physical existence that is it has no soul or body of its own. It cannot act in its own person, it needs a human agency, i.e. directors.
The directors are a body of to whom is delegated the duty of managing the general affairs of the company. A corporate body can only act by the agents and it is of course the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting.
The person who are in charge of the management of the affairs of a company are termed as Directors. They are collectively called as the Board of Directors or the Board. The Section 149 (1) mandates a company to a have a board of directors, and its clauses mention the essential amount of directors for different types of companies. Whereas the sub-section (3) talks about the compulsory requirement of at least one director to stay in the country for at least 182 days (6 months) during the financial year. Such a director, who is mandated to stay in the country for a minimum of 182 days is called the resident director.
Resident Director: Section 149 (3) of the Companies Act, 2013 has provided for residence of a director in India as a compulsory i.e. every company shall have at least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year.
So if an incorporation of a new company takes place that has the entire Director who are not Indian Resident then the company need to mandatorily hire one Indian Resident Director.
Duties and Responsibilities of Resident Director:
- Resident Director will be fully responsible as Normal Director of the Company,
- Resident Director will not be involved in operational control of the company.
- Resident Director will be appointment to fulfill the statutory requirements.
- Directorship will be covered under the officers and liability insurance.
- Resident Director will participate Board Meetings of the Company, wherever required
- Circular or other Resolutions will be approved or disapproved as par Individual Understanding.
- The duties and responsibilities of a resident Director are same as that of the Normal Director, but can be different according the specific company’s Board.
- Subject to the provisions of the Act, a director of a company shall act in accordance with the articles of a company.
- A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment.
- A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
- A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
- A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain of the company.
- A director of a company shall not assign his office and any assignment so made shall be void.
If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than Rs. 1,00,000 but which may extend to Rs. 5,00,000.
Explanation under section 149(7) provides the definition to the above term. It refers to a person who is nominated as a Director by any financial Institution pursuant to the provisions of any law for the time being in force or of any agreement, or appointed by any Govt. or any other person to represent his interest.
Although it is the prerogative of an Institution to nominate on the Board of a company, a Director, his appointment can be only at the altar of the Board pursuant to the provisions of section 161 in the Act.
Further the Nominee Director will hold office at the will and pleasure of the Institution whose interests he represents. Hence he shall not be liable to retire by rotation. He will also not be considered as an Independent Director.
It is pertinent to note that under the provisions of Clause 49 of the Listing Agreement relating to corporate Governance which provisions have been substituted with effect from 1 December 2015 by the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, a Nominee Director was considered as an Independent Director.
Adherence by Company and Independent directors to provisions of Schedule IV of Companies Act, 2013. Section 149(8) makes it obligatory for the company and the Independent Directors to abide by the provisions of Schedule IV of the Act.
They can be also be appointed by certain shareholders, third parties through contracts, lending public financial institutions or banks, or by the Central Government in case of oppression or mismanagement. Nominee directors were an investor’s preferred method of participating in the governance of investee companies. They were also often empowered to exercise certain veto rights whereby investee companies could not undertake certain critical actions without their consent. Investment agreements and articles of association relating to many investments made before the enactment of the Companies Act, 2013, contain such provisions with continuing effect.
Nominee Director shall have all the power and duties which are define for other Director of the Company but subject to the approval of Board. He shall abide by all the provision for Directors defines under the Companies Act, 2013.
Difference b/w Residential and Nominee Directors
1. Can act as an Independent Directors
1. Can’t act as an independent director.
2. Acts as a normal director of a company.
2. Acts in order to ensure the majority appointed Directors will not hamper the interest of the Company and in particular the interest of the Nominator.
3. Appointed under Section 149(3) of the Companies Act, 2013.
3. Appointed under Section 161(3) of the Companies Act, 2013.
4. Need to be necessarily from India.
4. Not necessarily be Indian.
5. No compulsion to be present at every meeting.
5. Need to be present in every meeting, as they lead the interest of the investors.