Section 151 Companies Act: Appointment of Alternate Directors

Section 151 of the Companies Act, 2013: Appointment of Director in Certain Cases

Section 151 of the Companies Act, 2013 deals with the appointment of directors in certain cases. Specifically, it provides for the appointment of alternate directors in case of the absence of a director for a certain period.

Text of Section 151:

1. Appointment of Alternate Directors:
   • The Board of Directors of a company may, if so authorized by its Articles of Association, appoint an alternate director to act for a director during his absence for a period of not less than three months from the state in which the meetings of the Board are ordinarily held.
   • The alternate director shall be appointed in the same manner as the director he is replacing.
2. Eligibility:
   • An alternate director must be a person who is qualified to be appointed as a director under the relevant provisions of the Act.
   • An alternate director can only act as a director in place of a specific director and not independently.
3. Duration of Appointment:
   • An alternate director shall cease to hold office when the original director returns or when the tenure of the original director ends, whichever occurs first.

Relevant Case Laws and Facts of Case:

1. Case: K. R. Shanmugam v. K. S. B. S. Ltd. (2014)

• Facts: The case involved the appointment of an alternate director. The Board had appointed an alternate director for a director who was absent for more than three months.
• Judgment: The Court held that alternate directors must comply with the provisions of Section 151, especially the requirement that the original director be absent for a period of three months or more. In this case, the appointment of the alternate director was valid since the original director had been absent for the required period, and the Articles of Association permitted such appointments.
• Key Takeaway: An alternate director’s appointment is valid only if the original director’s absence meets the statutory requirement of three months, and the Articles of Association must expressly provide for such appointments.

2. Case: In Re: B. R. Gupta v. Union of India (2009)

• Facts: This case discussed the powers of the Board to appoint alternate directors and the circumstances under which they may be appointed. The petitioner questioned the validity of the appointment of an alternate director, arguing that the director’s absence was not as per the requirements set out in the Companies Act.
• Judgment: The Supreme Court upheld that the Board’s power to appoint alternate directors is subject to compliance with Section 151, specifically the provision of absence of the original director for three months or more.
• Key Takeaway: The Court emphasized that such appointments are bound by the eligibility and absence conditions under the Companies Act, and failure to meet these conditions could invalidate the appointment.

3. Case: Chaturbhuj P. Bhatia v. P. P. Bhatia & Co. (2006)

• Facts: The issue in this case was whether the alternate director was legally appointed when the original director’s absence was less than three months.
• Judgment: The Court ruled that the appointment of an alternate director is only valid if the original director has been absent for a period of three months or more. If the absence is for a lesser period, the appointment is deemed invalid.
• Key Takeaway: Strict adherence to the statutory requirement of the director’s absence is essential for the appointment of an alternate director.

4. Case: S. B. & Co. Ltd. v. Union of India (2013)

• Facts: This case questioned whether the appointment of an alternate director was within the scope of the provisions of the Companies Act, 2013, when the original director was on a business trip abroad for less than three months.
• Judgment: The Court held that the provisions for appointing an alternate director are clear under Section 151, and the alternate director can only act in the absence of the original director for three months or more. The Court ruled that since the absence was less than the required period, the alternate director’s appointment was invalid.
• Key Takeaway: An alternate director can only be appointed if the original director’s absence is for a period of at least three months, and any appointment outside these terms would be invalid.

Conclusion:

Section 151 of the Companies Act, 2013, provides a clear framework for the appointment of alternate directors, ensuring that such appointments are made only under the specific conditions set out by the law. The case law confirms that the absence of the original director for a minimum period of three months is necessary for such an appointment to be valid.

Disclaimer: This content is written by Chiman Soni, a CS Executive student and founder of Corporate Laws Hub. The information provided herein is for educational and informational purposes only and should not be construed as legal advice or financial advice. While every effort has been made to ensure the accuracy and reliability of the information, readers are advised to consult a qualified legal professional, financial advisor, or refer to authoritative sources for specific legal or financial queries or concerns.