Ministry of Corporate Affairs issued an advertisement (a Public Notice) in newspapers asking all directors to bring down number of their directorship to the permissible limit as prescribed under Section 165 of the Companies Act, 2013.
“All such individual who are holding directorship in more than, the limit of number of companies prescribed per the aforesaid mentioned provisions of the Act, are hereby notified to bring down the number of their directorship to / below the permissible limits as also prefer compounding application before the competent authority in terms of Section 621A of the Companies Act, 1956 within 30 days hereof and get the offence compounded. In case of non – compliance with the above directions, the jurisdictional ROC will initiate prosecution without further individual notices to them.”
In this blog post, we will discuss this Public Notice and applicable provisions.
Present Public notice has two important points:
- All individuals should bring down number of their directorship to or below the permissible limits as per Section 165 of the Companies Act, 2013.
- All individual who had or have number of their directorship above the permissible limits, after reducing their directorship to the limit, should prefer compounding application before competent authority as per Section 621A of the Companies Act, 1956.
Number of Directorship
According to Section 165 of the Companies Act, 2013 as discussed earlier is given here again:
- A person shall not hold office as director in more than twenty companies at the same time. [Section 165(1)]
- Position as Alternate Director shall be counted in these twenty companies. [Section 165(1)]
- Limit of twenty companies includes all companies including Private Companies. [Section 165(1)]
- Limit of twenty companies shall not include Not for Profit Companies due to exemption notification dated 5th June 2015 discussed earlier here.
- A person shall not hold office as director in more than ten public companies at the same time. [Proviso to Section 165(1)]
- For this purpose holding or subsidiary company of a public company shall be counted as public company. [Explanation to Proviso to Section 165(1)]
- In public companies less than or equal to ten. In all companies less than or equal to twenty. [Section 165(1)]
- Members of a company (public/ private) may further reduce such limit of 10 or 20 as it want by passing a special resolution. [Section 165(2)]
- If a person is director of a company, where such special resolution was ever passed (after commencement of this Act) and not negated, shall not be a director in companies more than specified in that special resolution. [Section 165(2)]
- Director has (now had) time period of one year from commencement of this Section to bring down his number of directorship to limits specified in Sub – Section (1) of Section 165. [Section 165(3)]
- This time period of one year have already ended on 31st March 2015.
- Director should have selected desired ten (public) or twenty (total) companies and resigned remaining companies. [Section 165(3)]
- After this exercise, such director should have informed all companies about the decision and informed to jurisdictional Registrar of Companies in relation to all companies. [Section 165(3)]
- Any resignation under Section 165 (3) shall (have been) effective immediate on dispatch and no acceptance by company concern shall be required. [Section 165(4)]
- Acceptance of an appointment as a director in contravention of sub – section (1) shall be punishable with fine not less than five thousand rupees (which may extend to twenty-five thousand rupees) for every day to which contravention continue. [Section 165(6)]
- It may be argued that fine under Section 165(6) may be applicable for acceptance of new positions as director not otherwise. This argument does not in conformity with views of MCA expressed under the Advertisement.
- In that case, provision of Section 450 shall applicable and contravention shall be punishable with fine which may extend to ten thousand rupees and with a further fine up to one thousand rupees for every day after the first during which the contravention continues.
Compounding
Why violation of Section 165 of the Companies Act, 2013 require compounding under Section 621A of the Companies Act, 1956? Presently Section 441 of the Companies Act, 2013 is not in force and therefore corresponding Section 621A of the companies Act, 1956 is applicable. Application under Section 621A for compounding shall be made to Registrar.
Please note: This blog invite readers to share their comments, suggestions, hardship, queries and everything in comment section. This blog post is not a professional advice but just a knowledge sharing initiative for mutual discussion.
AishMGhrana 
Dear Sir
I want to know that if we bring down the directorship of certain director which is currently more than 20 companies then we need to go for compounding or only bring down the directorship on immediately basis within 30 days ????
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Both.
Bring down Directorship is correction of Wrong (offence).
After this Correction, go for compounding (of offence).
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It is not clear for Public Notice by M.C.A.
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Dear sir please check the line written herein above reads as : A person shall hold office as director in more than twenties companies at the same time. [Section 165(1)]
As per my view there should be a person shall not hold office as director in more than twenty companies at the same time. [Section 165(1)] and instead of twenties it should be twenty. Please correct if i am wrong.otherwise please correct the article as it misleading at first reading.
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Thank You for reading carefully.
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Since penalty is with regard to contravention of sec 165(1), no penalty in case of contravention of sec 165(2)
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Section 165(2) does not put any restriction on number of directorships but it is enabling provision for a company to cut down limits on directorships in other companies under a contract.
Any violation under section 165(2) is contractual in nature.
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Section 165
If Director holds directorship in 10 public and 10 private companies, And one private company converted into public company.
Than penalty under section 165 applicable on him?
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His directorship in public companies will increase to 11. Law will apply accordingly.
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Dear Sir, As per Sec 165(2), if shareholders of Y Ltd have passed special resolution that a Director Mr.X will not hold office in Total 4 companies INCLUDING Y Ltd. And if the director holds office in 5 companies , then whether he will be disqualified from Y Ltd and will continue to hold office in other company??
In other words, for contravention of Sec 165(2), the director will be disqualified in the said company in which SR is passed or only penalty will be levied?? Pls clarify…. Thanks
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At present there is no judicial pronouncement on this.
To my understanding any violation of Section 165(2) in addition to disqulification to the commpany proposing such limit, will attract penalty under residual provisions.
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