Procedure for Appointment of Foreign National as a Director in Indian Company

Khushboo Sharma

Khushboo Sharma

Published on: Jun 30, 2023

Aakanksha Singhal

Updated on: Jun 30, 2023

★★★★★(7 Rating)

5291

INTRODUCTION

Section 2(34) of the Companies Act 2013, explains the terminology Director as a director appointed to the Board of a company. The provisions of the Companies Act, 2013 read with Companies (Appointment and Qualification of Directors) Rules, 2014 and Foreign Exchange Management Act, 1999 does not bar a foreign national from being appointed in Indian Companies subject to the adherence of the relevant provisions of the aforesaid Acts and rules. A foreign national can be appointed to the positions of Women Director, Independent Director, Small Shareholders Director, Additional Director, Alternative and Nominee Director, Whole Time Director or Managing Director in Indian Companies. Moreover, just like any other director, a foreign national who is appointed as a director in an Indian company will be entitled for the same compensation, sitting fees, travel expenses and commission.

RELEVANT SECTIONS AND RULES:

1. Section 152, 153, 164, 173 of Companies Act, 2013
2. Rule 14 of Companies (Appointment and Qualification of Directors) Rules, 2014

MANDATORY REQUIREMENTS

1. Every individual (including Foreign National) who will be appointed as a director in an Indian company shall hold or obtain a Director’s Identification Number (DIN).
2. Company shall pass a resolution in a duly convened meeting to appoint a foreign national as a director.
3. He/she shall be required to attend at least one Board meeting, either in person or via video conference.
4. He/she shall furnish their DIN and declare that they are not disqualified from becoming a director under Section 164.
5. Total number of Directors in the Company shall not exceed the limit of maximum 15 directors after such appointment.
6. All supporting documents of foreign national including photograph shall be certified by the Indian Embassy or a notary in the home country of the applicant.

Note: If a foreign director has a valid multiple-entry Indian visa or Person of Indian Origin card or Overseas Citizen of India card, then the attestation could also be done by Public Notary / Gazette Officer in India.

FOLLOWING PROCEDURE IS TO BE FOLLOWED

1. Check the Articles of Association of the Company:
   Refer the Articles of Association (AOA), if the Board of Directors are authorized to appoint foreign national in the company. In case not, then requisite process for alteration of Articles of Association (AOA) is to be followed.
   Refer Procedure for Alteration of Articles for detailed procedure.
2. Obtain Written Consent, Declaration and Form MBP-1 from the Proposed Director:
   The company shall obtain the following from the foreign national who is proposed to be appointed as a director:
   • Form DIR-8 (Intimation by Director about his disqualification)
   • Declaration to the effect that the conditions specified in the relevant provisions of the Act, for appointment as a director is duly fulfilled by him/ her
   • Disclosure of interest in Form MBP-1.
3. Obtaining DIN and Digital Signature Certificate [Section 153]:
   
   • If the person does not have Digital Signature, he shall obtain Digital Signature from Certifying Authority in India.
   • Next step is to obtain Director’s Identification Number (DIN).
     Refer Procedure for Obtaining DIN by Foreign National for a detailed procedure.
4. Meeting of Nomination and Remuneration Committee:
   Where a Company is required to constitute a Nomination and Remuneration Committee under section 178, then it shall receive a recommendation from the committee for the appointment of such foreign national as a Director by the Board of Directors of the Company.
   Refer the Procedure for Conducting Nomination and Remuneration Committee Meeting for detailed procedure.
5. Obtain Security Clearance from Ministry of Home Affairs:
   
   • The person who is intended to be appointed as a director in a Company, in case is a national of a country which shares land border with India, then an application is to be made to the Ministry of Home Affairs, Government of India seeking security clearance.
   • Such security clearance shall be appended to the DIN application made by person for the purposes of his/her appointment as a director in the company. (Ref: Companies (Appointment and Qualification of Directors) Amendment Rules, 2022, dated: 1st June, 2022)
6. Convene a Meeting of Board of Directors [As per section 173 & Secretarial Standard-1 (SS-1)]:
   A Board resolution shall be passed in a duly convened board meeting approving the appointment of such foreign national as a director in the company.
   Please refer to the Procedure for Conducting Board Meeting of the Directors for further details.
7. Filing of Return of Appointment of Director with the ROC:
   After the Board meeting, a Return of Appointment of such Directorship in Form DIR-12 is required to be filed with the Registrar within 30 days of such appointment together with the copy of Board Resolution and the consent and declaration furnished by such foreign national to act in such capacity. In case of Companies other than OPC and Small Company, the return is also to be certified by a Company Secretary/Chartered Accountant/Cost Accountant. Following documents shall be appended with Form DIR-12:
   • Certified True Copy of the Board Resolution passed
   • DIR-8 Declaration by Director
   • Letter of Appointment.
   Note:
   1. The Ministry of Corporate Affairs had notified Companies (Appointment and Qualification of Directors) Amendment Rules, 2023 (dated: 20th January, 2023) by which in Form DIR-12:
      • Form DIR-2 which appended as an attachment is not required to be separately attached to the said form, instead Form DIR-12 is to be certified by the director himself/ herself.
      • The director is now required to inform about the disqualifications as specified under sub-section (1) and (2) of Section 164 of the Act in Form DIR-8 as under:
        • Section 164(1): A person shall not be eligible for appointment as a director of a company, if
          • he is of unsound mind and stands so declared by a competent court
          • he is an undischarged insolvent
          • he has applied to be adjudicated as an insolvent and his application is pending
          • he has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence.
        • Section 164(2): No person who is or has been a director of a company which
          • has not filed financial statements or annual returns for any continuous period of three financial years
          • has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more.
   2. Upon receipt of Form DIR-8, in respect any disqualifications pursuant to Section 164 from the director proposed to be appointed, the company shall file Form DIR-9 with the Registrar within thirty days of such receipts. Whenever a company fails to file the financial statements or annual returns, or fails to repay any deposit, interest, dividend, or fails to redeem its debentures, as specified in sub-section (2) of section 164, Form DIR-9 is to be filed with the Registrar specifying therein the names and addresses of all the directors of the company during such relevant financial years.
8. Making Necessary entries in Register of Directors:
   The company shall make necessary entries in the Register of Director and Key Managerial Personals and registers of contract and arrangements in which Directors are interested in Form MBP-4.
9. File Necessary Amendment Application under following Acts:
   • Goods and Services Act
   • Shops & Establishment Act
   • Factories Act
   • Foreign Exchange Management Act
   • Inter-State Migrant Workmen Act
   • Private Security Agency Act
   • EPF
   • ESI
   • Other Labor Laws
   • Industry Specific Laws.