Tuesday, March 2, 2010

Alternate Director and Form No. 32

'A' Company Ltd. has its Registered Office in Hyderabad. 12 board meetings of the Company are held in a year. Out of the total meetings held, 4 are held at Hyderabad, 4 are held at Delhi, and 4 are held at Pune. One of the directors of 'A' Company Ltd. has been abroad. The board of directors of 'A' Co. Ltd. appointed Mr. 'X' as alternate director in his place whereupon, Form No. 32 was filed. Now, the original director is back to India and is to attend a week-long business conference at Hyderabad. Meanwhile, a board meeting is scheduled to be held at Delhi. In such backdrop, 'A' Company Ltd. seeks legal view on the following Queries:

(1) Since the original director is back to Hyderabad, can Mr. 'X' participate in the board meeting of 'A' Company Ltd.?

(2) Should Form No. 32 be filed for cessation of office of the Alternate Director?

Section 313 of the Companies Act, 1956 provides for the appointment and term of office of alternate directors. The Section reads as follows:

"(1) The Board of directors of a company may, if so authorised by its articles or by a resolution passed by the company in general meeting, appoint an alternate director to act for a director (hereinafter in this section called "the original director") during his absence for a period of not less than three months from the State in which meetings of the Board are ordinarily held.

(2) An alternate director appointed under sub-section (1) shall not hold office as such for a period longer than that permissible to the original director in whose place he has been appointed and shall vacate office if and when the original director returns to the State in which meetings of the Board are ordinarily held.

(3) If the term of office of the original director is determined before he so returns to the State aforesaid, any provision for the automatic re-appointment of retiring directors in default of another appointment shall apply to the original, and not to the alternate director."

Alternate director is a person who can act temporarily to fill the position, carry out the duties, etc., of a regular or original director of a company in his absence for more than 3 months from the State where the Board Meetings are ordinarily held.  It is important to note that the power to appoint an alternate director lies exclusively with the board and that neither the original director nor the shareholders have any say in his appointment.  An alternate director vacates his office if and when the original director returns to the State in which the Board meetings are ordinarily held irrespective of the fact whether the original director attends a Board meeting or not. [Circular No. 6/16(313) /63-PR dated 5.2.1963]. The expression "State in which meetings of the Board are ordinarily held" does not necessarily mean the State in which the registered office of the company is situated.  However, such a State must be one in which the meetings of the Board are ordinarily held. A query was made to the department, wherein 12 meetings of the board of a company are held in a year… 4 each in 3 different states.  In such a case where, according to the department, the board meetings of the company can be said to be ordinarily held?  In such a case the State in which the registered office is situated would have to be taken as the State in which meetings of the company can be said to be ordinarily held. [Minutes of meeting of Company Law Sub-Committee of BCCI with Secretary DCA held on 20-06-1972.]

In view of the above, since equal numbers of meetings were held at 3 different states, Hyderabad, where the registered office is situated has to be taken as the state where meetings are ordinarily held. As the original director has returned to Hyderabad, albeit the meeting is scheduled in pune, the office of Mr. X, the alternate director is vacated. Therefore, he could not attend the board meeting in scheduled in Pune.

Accordingly, Query No. 1 is answered.

Sub-section (13) of Section 2 of the Companies Act, 1956 defines a “director” as ‘director includes any person occupying the position of director, by whatever name called’.  Since an alternate director occupies the position of director and performs same duties and is subject to same liabilities as of any director, he shall be treated for all intents and purposes of the Companies Act, 1956 and articles of the company, as a 'director' of the company like any other director.  The provisions of Sections 264, 271 and 303 of the Companies Act, 1956 are to be complied with by, and in respect of, an alternate director. [Circular No. 8/9 (313)/61 – PR, dated 07-08-1961.]  DCA has expressed a view that appointment of an employee as an alternate director will be governed by the provisions of sections 314, 269, 198 and 309 of the Companies Act. [Department of Company Affairs' Circular No. 219/63-PR dated 29 June 1964].

In view of the above, the Registrar of Companies should be notified of the appointment or cessation, as the case may be, vide Form No. 32 along with the requisite filing fees, giving particulars about the cessation from the directorship (including alternate) of the company on the return of the original director, within 30 days of the such cessation. Where an individual’s Form No. 32 for cessation is not filed, and the same individual is subsequently (some months or years later) re-appointed as a director or as an alternate, the electronic system will not permit the filing of the said Form for the fresh appointment, which, in turn, will be construed as a statutory violation.
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