The Companies Act, 2013 is the backbone of corporate law in India. It governs how companies are formed, managed, and regulated. Among its many important provisions, Chapter XI focuses on the Appointment and Qualifications of Directors the individuals who are primarily responsible for steering the company’s operations and ensuring compliance with legal, ethical, and financial norms.
This chapter defines the composition of the Board of Directors, the manner of their appointment, the duties and responsibilities they hold, as well as the rules for their disqualification, resignation, and removal. It aims to ensure that companies are run by qualified, responsible, and accountable individuals who uphold good corporate governance practices.
In this blog, we have provided comprehensive notes on each section from Section 149 to Section 172, along with a PDF download link for the Companies Act, 2013.
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Topics Covered Under Companies Act 2013 Chapter 11
The topics that are covered under Chapter 11 of the Companies Act, 2013 are as follows:
- Section 149 – Company to have Board of Directors
- Section 150 – Manner of selection of independent directors and maintenance of data bank of independent directors
- Section 151 – Appointment of director elected by small shareholders
- Section 152 – Appointment of directors
- Section 153 – Application for allotment of Director Identification Number
- Section 154 – Allotment of Director Identification Number
- Section 155 – Prohibition to obtain more than one Director Identification Number
- Section 156 – Director to intimate Director Identification Number
- Section 157 – Company to inform Director Identification Number to Registrar
- Section 158 – Obligation to indicate Director Identification Number
- Section 159 – Penalty for default of certain provisions
- Section 160 – Right of persons other than retiring directors to stand for directorship
- Section 161 – Appointment of additional director, alternate director and nominee director
- Section 162 – Appointment of directors to be voted individually
- Section 163 – Option to adopt principle of proportional representation for appointment of directors
- Section 164 – Disqualifications for appointment of director
- Section 165 – Number of directorships
- Section 166 – Duties of directors
- Section 167 – Vacation of office of director
- Section 168 – Resignation of director
- Section 169 – Removal of directors
- Section 170 – Register of directors and key managerial personnel and their shareholding
- Section 171 – Members’ right to inspect
- Section 172 – Penalty
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Section Wise Detailed Notes on Companies Act, 2013 Chapter 11
The section-wise detailed notes on Chapter 11 of the Companies Act, 2013 are as follows:
Section 149 Company to Have Board of Directors
Every company must have a Board of Directors responsible for managing and controlling its affairs.
- A public company must have a minimum of three directors.
- A private company must have at least two directors.
- A One Person Company (OPC) must have one director.
- The maximum number of directors a company can have is fifteen, but this limit can be increased through a special resolution.
This section also introduces the concept of Independent Directors, who are non-executive directors not involved in the day-to-day management, ensuring fairness and objectivity in decision-making. Additionally, certain classes of companies are required to appoint at least one woman director, promoting gender diversity on corporate boards.
Section 150 Manner of Selection of Independent Directors and Maintenance of Data Bank
The selection process for independent directors must be transparent and objective.
- Independent directors are chosen from a data bank maintained by a notified body (like the Indian Institute of Corporate Affairs).
- The data bank contains names, qualifications, and experience details of eligible individuals.
- The company must verify the independence and integrity of such directors before appointment.
This ensures that companies appoint directors with the necessary professional qualifications and ethical standards.
Section 151 Appointment of Director Elected by Small Shareholders
This provision allows small shareholders to have a representative voice in the management of a listed company.
- A listed company may appoint one director elected by small shareholders.
- “Small shareholders” are those holding shares of nominal value up to ₹20,000 or as prescribed.
The procedure and conditions for such an appointment are determined by rules framed under this section.
Section 152 Appointment of Directors
Directors are appointed by the members in a general meeting.
- Each director must have a valid Director Identification Number (DIN).
- A written consent to act as director must be filed with the Registrar within 30 days.
- The first directors of a company are usually named in the articles of association.
This section forms the legal basis for how directors officially become part of the company’s board.
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Section 153 Application for Allotment of Director Identification Number (DIN)
Every person who wishes to be appointed as a director must apply to the Central Government for a Director Identification Number (DIN). The DIN serves as a unique identity for each director throughout their career in corporate governance, allowing regulatory authorities to track their involvement in companies.
Section 154 Allotment of Director Identification Number
After the application is made, the Central Government must allot a DIN within one month.
This ensures timely and efficient processing so that individuals can assume directorships without unnecessary delays.
Section 155 Prohibition to Obtain More Than One DIN
A person cannot possess more than one Director Identification Number. If found holding multiple DINs, action will be taken to cancel the duplicates, and the person may face penalties.
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Section 156 Director to Intimate DIN
Every person who has been allotted a DIN must intimate the number to all companies in which they are directors within one month from the date of receipt.
Section 157 Company to Inform DIN to Registrar
Every company must inform the Registrar of Companies (ROC) about the DINs of all its directors within 15 days of receiving the intimation. Failure to comply can lead to financial penalties.
Section 158 Obligation to Indicate DIN
All directors must mention their DIN in all returns, forms, or any other official documents submitted under the Act. This helps maintain transparency and proper identification in corporate records.
Section 159 Penalty for Default of Certain Provisions
If any individual or company defaults in complying with Sections 152 to 158, they are liable to pay prescribed penalties. This ensures adherence to procedural and statutory requirements regarding director identification and appointment.
Section 160 Right of Persons Other Than Retiring Directors to Stand for Directorship
Any person who is not a retiring director can stand for election as a director in a general meeting.
- The person must give a written notice of candidature to the company along with a deposit amount of ₹1,00,000 or as prescribed.
- The deposit is refunded if the candidate gets elected or secures a prescribed percentage of votes.
This promotes democratic participation in board appointments.
Section 161 Appointment of Additional, Alternate, and Nominee Directors
The Board of Directors has the power to appoint:
- Additional Directors – to fill vacancies or expand the board.
- Alternate Directors – to act in place of another director during their absence.
- Nominee Directors – appointed by financial institutions, government, or shareholders with special rights.
Their appointment and tenure are governed by the company’s articles and board resolutions.
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Section 162 Appointment of Directors to Be Voted Individually
Every director must be appointed individually in a general meeting. A single resolution for the appointment of multiple directors is not valid unless the meeting unanimously agrees to it.
Section 163 Option to Adopt Proportional Representation
Companies may, through their articles of association, adopt the principle of proportional representation for appointing directors. This allows shareholders holding minority interests to have fair representation on the Board.
Section 164 Disqualifications for Appointment of Director
A person is disqualified from becoming a director if they:
- Are of unsound mind,
- Are undischarged insolvent,
- Have been convicted of an offence involving moral turpitude,
- Have failed to pay calls on shares held,
- Have been a director of a company that defaulted in filing financial statements or repaying deposits for a prescribed period.
These disqualifications promote ethical leadership and financial accountability.
Section 165 Number of Directorships
An individual can hold directorship in not more than 20 companies, out of which a maximum of 10 can be public companies. This provision ensures that directors devote sufficient time and attention to their responsibilities.
Section 166 Duties of Directors
Directors must:
- Act in accordance with the company’s articles,
- Act in good faith to promote the company’s success,
- Exercise due care, skill, and diligence,
- Avoid conflicts of interest,
- Not make undue gains or personal profit.
Violation of these duties may lead to penalties or disqualification.
Section 167 Vacation of Office of Director
A director’s office becomes vacant if they:
- Incur any disqualification under Section 164,
- Are absent from all board meetings for 12 months,
- Fail to disclose interests in contracts,
- Are convicted and sentenced to imprisonment beyond the prescribed period,
- Resign from office.
This ensures that inactive or disqualified directors do not continue holding positions of responsibility.
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Section 168 Resignation of Director
A director may resign by giving a written notice to the company. The resignation becomes effective from the date mentioned in the notice or when received by the company. The company must file the notice with the Registrar within 30 days. The resigning director must also forward a copy of the resignation to the ROC.
Section 169 Removal of Directors
A company can remove a director before their term ends by passing an ordinary resolution in a general meeting. The director must be given a reasonable opportunity to be heard before removal. This provision ensures fairness and due process.
Section 170 Register of Directors and Key Managerial Personnel
Every company must maintain a register containing:
- Names, addresses, and details of directors and key managerial personnel (KMP),
- Their shareholding in the company or its subsidiaries.
This register must be kept at the registered office and updated regularly.
Section 171 – Members’ Right to Inspect
Members of the company have the right to inspect the register maintained under Section 170. They can also obtain copies of the entries by paying a small fee. This promotes transparency and shareholder awareness.
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Section 172 Penalty
Any company or officer who fails to comply with the provisions of this chapter will be liable to penalties as prescribed by the Act. This acts as a deterrent and ensures strict adherence to governance norms.
Download Companies Act 2013 Chapter 11 Free PDF
Aspirants preparing for the UGC NET Commerce paper, SEBI Grade A exam, and various other government exams can download the complete details of the Companies Act, 2013 through the direct link provided below. Specifically, to check Chapter 11 of the Companies Act, 2013, refer to pages 106 to 116 of the PDF.
Questions Based on Companies Act 2013 Chapter 11
Q1. What is the minimum number of directors required in a public company under Section 149 of the Companies Act, 2013?
A. One
B. Two
C. Three
D. Four
E. Five
Answer: C. Three
Explanation: Section 149(1) states that every public company must have at least three directors.
- Private company – minimum two directors
- One Person Company – minimum one director
Q2. What is the maximum number of directors a company can have without passing a special resolution?
A. 10
B. 12
C. 15
D. 20
E. Unlimited
Answer: C. 15
Explanation: Under Section 149(1)(b), a company can have up to fifteen directors. However, the number can be increased beyond 15 through a special resolution passed by shareholders.
Q3. Which of the following statements regarding independent directors is TRUE?
A. They must be executive directors.
B. They are involved in day-to-day operations.
C. They must be selected from a data bank.
D. They are appointed by the Central Government.
E. They hold shares compulsorily in the company.
Answer: C. They must be selected from a data bank.
Explanation: Section 150 provides that independent directors must be chosen from a data bank maintained by a notified body like the Indian Institute of Corporate Affairs (IICA).
Q4. Who can elect a director under Section 151 of the Companies Act, 2013?
A. Creditors
B. Employees
C. Small Shareholders
D. Government Nominee
E. Auditors
Answer: C. Small Shareholders
Explanation: Section 151 gives small shareholders (holding shares of nominal value up to ₹20,000) the right to elect one director in a listed company, ensuring their representation on the board.
Q5. What is mandatory for every director before being appointed in a company?
A. PAN Number
B. Digital Signature
C. Director Identification Number (DIN)
D. Aadhar Card
E. Board Approval
Answer: C. Director Identification Number (DIN)
Explanation: According to Section 152 and Section 153, a person must have a DIN before being appointed as a director. The DIN acts as a unique identity for directors.
Q6. Within how many days should the Central Government allot a Director Identification Number (DIN) after receiving the application?
A. 7 days
B. 15 days
C. 30 days
D. 45 days
E. 60 days
Answer: C. 30 days
Explanation: Section 154 mandates that the Central Government shall allot the DIN within one month (30 days) from the date of receipt of the application.
Q7. A person can hold how many Director Identification Numbers (DINs)?
A. Only one
B. Two
C. Three
D. As many as the number of companies
E. Depends on company type
Answer: A. Only one
Explanation: As per Section 155, no person shall obtain more than one DIN. If multiple DINs are found, duplicates are cancelled, and penalties may apply.
Q8. Within how many days must a director intimate their DIN to the company after allotment?
A. 7 days
B. 15 days
C. 30 days
D. 45 days
E. No time limit
Answer: C. 30 days
Explanation: Section 156 requires every director to intimate their DIN to all companies in which they hold directorship within one month from the date of receipt.
Q9. Within how many days must a company inform the Registrar about the DINs of its directors?
A. 7 days
B. 15 days
C. 30 days
D. 60 days
E. No time limit
Answer: B. 15 days
Explanation: Under Section 157, a company must inform the Registrar of Companies (ROC) about the DINs of its directors within 15 days of receiving the intimation.
Q10. What is the penalty for non-compliance with Sections 152 to 158 regarding DIN and director appointments?
A. ₹10,000 only
B. ₹50,000 only
C. Penalty as prescribed under Section 159
D. Jail term only
E. Warning from ROC
Answer: C. Penalty as prescribed under Section 159
Explanation: Section 159 prescribes that any contravention of Sections 152–158 attracts penalties for both the company and the defaulting officer as may be prescribed by law.
Q11. Who can stand for election as a director under Section 160?
A. Only retiring directors
B. Only promoters
C. Any individual (not a retiring director)
D. Only employees
E. Government officials
Answer: C. Any individual (not a retiring director)
Explanation: Section 160 allows any person other than a retiring director to stand for directorship if they submit a notice of candidature along with a deposit of ₹1,00,000 (refundable under certain conditions).
Q12. Who among the following may be appointed under Section 161 as a nominee director?
A. Any shareholder
B. Registrar of Companies
C. Financial institution or Government
D. Company Secretary
E. Statutory Auditor
Answer: C. Financial institution or Government
Explanation: Section 161 permits the appointment of a nominee director by financial institutions, the government, or other entities having special rights or agreements with the company.
Q13. According to Section 162, how must directors be appointed in a general meeting?
A. All together in a single resolution
B. By secret ballot
C. By voting on each appointment individually
D. By board decision only
E. By postal ballot
Answer: C. By voting on each appointment individually
Explanation: Section 162 mandates that each director must be appointed individually unless the meeting unanimously agrees to a single resolution for multiple appointments.
Q14. Section 163 allows companies to adopt which principle for director appointments?
A. Seniority principle
B. Rotation principle
C. Proportional representation
D. Random selection
E. Shareholding limit principle
Answer: C. Proportional representation
Explanation: Companies may adopt the principle of proportional representation (like cumulative voting) in their Articles of Association to ensure minority shareholder representation.
Q15. Under Section 164, a person is disqualified from being a director if they—
A. Are below 25 years
B. Are of unsound mind
C. Have never filed income tax returns
D. Have served less than 1 year in any company
E. Are a foreign national
Answer: B. Are of unsound mind
Explanation: Section 164(1)(a) clearly states that a person who is of unsound mind and declared so by a competent court is disqualified from being appointed as a director.
Q16. What is the maximum number of companies in which a person can hold directorships at one time?
A. 10
B. 15
C. 20
D. 25
E. Unlimited
Answer: C. 20
Explanation: Section 165 provides that a person can hold directorship in up to 20 companies, out of which not more than 10 can be public companies.
Q17. Under Section 166, which of the following is NOT a duty of a director?
A. Act in good faith
B. Exercise due care and diligence
C. Avoid conflict of interest
D. Seek personal gain from company assets
E. Act according to the company’s articles
Answer: D. Seek personal gain from company assets
Explanation: Section 166 outlines the duties of directors, emphasizing good faith, diligence, and avoidance of conflicts of interest. Personal gain from company assets is strictly prohibited.
Q18. A director’s office becomes vacant if they fail to attend all Board meetings for a continuous period of—
A. 3 months
B. 6 months
C. 9 months
D. 12 months
E. 24 months
Answer: D. 12 months
Explanation: As per Section 167, if a director fails to attend all Board meetings for 12 consecutive months, their office is deemed vacant.
Q19. Under Section 168, when does the resignation of a director take effect?
A. On the date mentioned in the notice or the date of receipt, whichever is later
B. Immediately on submission
C. After 7 days
D. Only after Board approval
E. After ROC confirmation
Answer: A. On the date mentioned in the notice or the date of receipt, whichever is later
Explanation: Section 168(2) provides that resignation becomes effective on the later of the two dates the date stated in the notice or the date the company receives the notice.
Q20. Under Section 170, what must the company maintain regarding directors and key managerial personnel (KMP)?
A. Minutes of their meetings
B. Register of directors and KMP along with shareholding details
C. Attendance register only
D. Confidential file
E. Statement of profit sharing
Answer: B. Register of directors and KMP along with shareholding details
Explanation: Section 170 requires every company to maintain a register containing the names, addresses, DINs, and shareholding details of directors and key managerial personnel at its registered office.
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