The Companies Act, 2013, recognises that a director of a company may, on occasion, be unable to attend Board Meetings for an extended period due to absence from India. To ensure continuity in governance and uninterrupted Board functioning, the law permits the appointment of an Alternate Director to act on behalf of the original director during such absence.
For listed entities, in addition to the provisions of the Companies Act, 2013, compliance with the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI LODR Regulations”) is also required.
Who is an Alternate Director?
An Alternate Director is a person appointed by the Board to act in the place of an original director during the period of his/her absence from India for not less than three months.
An Alternate Director, while holding office, has the same rights, duties, and liabilities as the original director and is required to act in good faith in the best interests of the company in accordance with Section 166 of the Companies Act, 2013.
Eligibility for Appointment of an Alternate Director
Under Section 161(2) of the Companies Act, 2013, the Board of Directors may appoint a person as an Alternate Director for a director who is absent from India for a period of not less than three months, provided such appointment is authorised by the Articles of Association or by a resolution passed by the company in a general meeting.
Further, a person can be appointed as an Alternate Director for an Independent Director only if he/she is qualified to be appointed as an Independent Director under the Companies Act, 2013.
What are the Essential Requirements for Appointment of an Alternate Director?
- The appointment of an Alternate Director can be made only if the Articles of Association authorise such appointment, or the company has passed a resolution in its general meeting authorising the Board to make such an appointment. Where neither exists, the Articles must first be amended, or a resolution must be passed in the general meeting.
- A person cannot be appointed as an Alternate Director if he/she is already serving as a director of the company or is acting as an Alternate Director for another director in the same company. Additionally, where an Alternate Director is appointed in place of an Independent Director, the proposed appointee must meet the independence criteria prescribed under Section 149(6) of the Companies Act,2013.
- The proposed Alternate Director must not be disqualified under Section 164 of the Companies Act, 2013. This section specifies the circumstances in which a person becomes ineligible to be appointed or continue as a director, including certain instances relating to insolvency, criminal convictions, orders of a court or tribunal, and non-compliance by companies in which the person serves as a director.
- A person being considered for appointment as an Alternate Director is required to disclose his/her interests and directorships in accordance with the applicable provisions of the Companies Act, 2013.
- An Alternate Director shall not hold office for a period longer than that permissible to the director in whose place he/she has been appointed and shall vacate office if and when the director in whose place he/she has been appointed returns to India.
- If the term of the original director comes to an end before he/she returns to India, any provision relating to the automatic re-appointment of retiring directors will apply to the original director and not to the Alternate Director.
Procedure for Appointment of Alternate Director
Step 1: Review Articles of Association
The appointment of an Alternate Director can be made only if the Articles of Association authorise such appointment or the company has passed a resolution in a general meeting authorising the Board to make the appointment. If neither is in place, the Articles must be altered, or the necessary shareholders' approval must be obtained.
Step 2: Confirm Absence of Original Director
The original director should be absent from India, or expected to remain absent, for a period of not less than three months.
Step 3: Obtain Necessary Documents
The following documents should be obtained from the individual proposed to be appointed as an Alternate Director before the Board Meeting:
- Consent to act as Director in Form DIR-2;
- Disclosure of Interest in Form MBP-1;
- Declaration of Non-Disqualification in Form DIR-8;
- DIN particulars; and
- Other declarations required under applicable laws, including the prescribed declaration relating to Fit and Proper Criteria in the case of insurance companies.
Step 4: Recommendation of Nomination and Remuneration Committee
Where applicable, the recommendation of the Nomination and Remuneration Committee should be obtained in accordance with Section 178 of the Companies Act, 2013 and Regulation 19 of the SEBI LODR Regulations.
Step 5: Convene Board Meeting
A notice of the Board Meeting should be issued, and the proposal for appointment of the Alternate Director should be placed before the Board for its consideration.
Step 6: Approval by the Board
The appointment of the Alternate Director should be considered and approved by the Board through the requisite Board Resolution.
Step 7: Issue Letter of Appointment
A formal Letter of Appointment setting out the terms and conditions of appointment should be issued to the Alternate Director.
Step 8: Update Statutory Registers
The necessary entries should be made in the Register of Directors and Key Managerial Personnel, the Register of Contracts and Arrangements in which Directors are interested, and other statutory records maintained by the company.
Step 9: Update Minutes
The appointment should be recorded in the Minutes of the Board Meeting.
Step 10: Filing of Form DIR-12
The appointment should be reported to the Registrar of Companies through e-Form DIR-12 within 30 days, along with the prescribed fees and supporting documents.
Additional Compliances in case of a Listed Company
Firstly, the listed entity shall disclose the appointment to the Stock Exchanges as soon as reasonably possible and within 30 minutes/3 hours (as may be applicable) from the conclusion of the Board Meeting. Such disclosure shall be made in accordance with Regulation 30 and Schedule III of the SEBI (LODR) Regulations, 2015, and the applicable SEBI Circulars and Industry Standards. The disclosure should include the reason for the change, the date of appointment, a brief profile of the appointee, details of the appointee's relationship with directors, and such other information as may be prescribed by SEBI.
Secondly, the same disclosure also needs to be submitted in XBRL mode, in line with the stock exchanges’ requirements.
Thirdly, the disclosure has to be uploaded on the company's website within two working days of the change, as required under Regulation 46(3)(b) of the SEBI LODR Regulations, and kept there for at least five years, longer if the company's own archival policy calls for it, in line with Regulation 30(8) of the SEBI LODR Regulations.
Lastly, the newly appointed Alternate Director has to disclose their securities holdings in the company within seven days of the appointment, as required under the SEBI (Prohibition of Insider Trading) Regulations, 2015.