[Opinion] Understanding Alternate Directors | Significance, Role, and Grey Areas

Anoop Deshpande & Miloni Mau – [2023] 152 taxmann.com 601 (Article)

Background

The concept of Alternate Director (“AD”) continues to be recognized under Companies Act, 2013 (“CA 2013”). Section 161 of CA 2013, inter-alia, provides that the Board, subject to authorisation under Articles of Association or by shareholders, can appoint AD for a director (“Main Director”) during his absence for a period of not less than three months from India.

The permissibility of appointment of AD tries to provide flexibility and continuity for board processes when the director is away and is unable to attend the board meetings. While the concept of AD continues to be recognised under CA 2013, we have thought it imperative to refer to the provisions of Companies Act, 1956 (“CA 1956”) to put things into a better perspective.

Relevance and Ambiguities

From a director’s perspective, business continuity is largely attributable to participation in board processes i.e. board meetings. As such, it can be said that the concept of AD has significantly lost its relevance after CA 2013 coming into effect because holding of Board Meetings through audio-visual means (“Electronic Meetings”) is recognised under CA 2013. Interestingly, recognition of electronic meetings under CA 2013 had no significant impact on the provision governing appointment of AD as there is only a small change in criteria which is changed from ‘absence from state’ to ‘absence from India’.

Even when Companies Act, 1956 (“CA 1956”) did not recognise Electronic Meetings, holding board meetings anywhere in the world was still permissible. Interestingly, CA 1956 while talking about ‘away from state’, provided that ‘away from the state in which meetings of the board are ordinarily held. As meetings held anywhere in the world were permissible, and in case the meetings are ordinarily held outside India, considering a situation that all or majority of the directors are operating from a place outside India, what would be ‘state’ of absence for a person to be able to appoint an AD? If we say that the state means the state outside India, then the change in CA 2013 appears to be regressive as it assumes that the meetings are ordinarily held in India even when the Electronic Meetings are now permitted.

Click Here To Read The Full Article