The directors of any company are found to be very much operational and a useful tool for growth, governance, and sustainability in the company. So, the nomination of directors to the board becomes an integral part of every organisation’s structure because they form the key to managing the company’s operations, making major decisions, and overseeing compliance with legal and ethical standards. Under the Companies Act of 2013, every company would have to appoint its number of directors according to its entered class: two directors for private companies, three for public companies, and one for a One Person Company (OPC).
The directors are taken as a corporate embodiment of the company’s will and objectives, which they act for and on behalf of shareholders in safeguarding their interests. To comply with the directorial appointments process requires the company’s Articles of Association (AoA), particularly for approval from the shareholders if public companies are concerned. The Companies Act 2013 specifies the qualifications, disqualifications, and appointment procedures, such as obtaining a Director Identification Number (DIN) and giving consent for the service as a director.
Directors can be broadly divided into five categories: executive directors, non-executive directors, independent directors, nominated directors, and additional or alternate directors. Each type would have different kinds of goal specific activities in fulfilling the corporate strategic, operational, and governance objectives.
Directors carry an importance beyond expression in society. They have the thrust of policy and practice within the operating company, monitor its performance, ensure and enforce adherence to legal standards, and publicly represent the organization when it comes to external matters. The better the composition of boards, the better the decisions they make, which in turn increases confidence among investors and enhances the corporate image. Therefore, it is important to acquire highly skilled and competent directors for the profit and integrity of any organisation.
Who is a Foreign Director?
A foreign director quite literally means a person who is not an Indian citizen but has been appointed to the Board of some Indian company. The appointment of foreign directors in Indian companies is permissible under the Companies Act, 2013, provided they possess the necessary qualifications and comply with legal requisites for directors under Indian law.
For nomination, an individual must possess a Director Identification Number (DIN) under the Ministry of Corporate Affairs (MCA) and must submit proper, valid identification along with proof of residence, duly attested as per relevant international standards. Further, he/she also has to consent to being appointed a director by using forms meant for such purposes.
Foreign directors may either be resident or non-resident in India. Any company, according to Section 149(3) of the Companies Act, has to maintain at least one director who is resident in India for at least 182 days every financial year, even if the board comprises foreign members.
Foreign directors are often made to appear for their international perspectives, diverse viewpoints, and generally international business networks. Their involvement could augment the governance and reputation of the company, especially in the case of those doing some kind of foreign investment or international trade business. However, according to Indian corporate law, they have to act at par with domestic directors concerning everything on the board, enjoying neither the privileges nor the other responsibilities of domestic directors.
Criteria or Pre-Requisites or Conditions for a Foreign National to be Eligible for Appointment as a Director in Indian Companies
In the context of the Companies Act of 2013, a foreign director means a non-Indian appointed to the Board of Directors of an Indian company. The provision is to attract global investment, promote better governance, and stimulate international cooperation. However, there are certain restrictions and eligibility criteria to be fulfilled in order for Indian corporate and regulatory standards to be maintained. A foreign national may be appointed as a director in an Indian company wherever the law, procedure, and documentation requirements are satisfied. These conditions enhance transparency, accountability, and regulatory oversight, and foreign directors effectively integrated can provide strategic insights and international experience to Indian businesses.
1. Must be an individual – Only natural persons may act as directors. Corporations, businesses, or organisations may not act as directors.
2. Legally competent to enter into a contract – The individual must be legally competent to contract under Indian law and the laws of the country from which the individual originates. Such individuals must not be mentally incapable, insolvent, or have any other legal disqualifications that would preclude them from being appointed a director.
3. No disqualification under Section 164 of the Companies Act, 2013 – Foreign nationals under Section 164 must not be disqualified, including by reason of their insolvency, conviction of a criminal offence with a punishment in excess of six months, disqualification by a court or tribunal, or default in filing of financial statements or annual returns for three consecutive years (in case of former directorship).
4. Necessity for Director Identification Number (DIN) – It is mandatory for every person who seeks to be a director in India to have a DIN. From the other countries, one has to apply for a DIN through Form DIR-3. The following documents are required:
- An apostille or notarized copy of the passport
- Proof of address of residence
- A photograph to be submitted
- Verification through Form DIR-4
5. Getting the Digital Signature Certificate (DSC) – A foreign director needs to acquire a digital signature certificate(DSC) from an authorized Indian certifying authority. Its importance is evident in that forms signed electronically submitted to the Ministry of Corporate Affairs (MCA) need it.
6. Written consent to be a director – Crucially, it must give a foreign individual whose name has been already named as being appointed the written consent to serve in that capacity by filling Form DIR-2, which must, therefore, be attached to the appointment documents.
7. Compliance with resident requirements, if applicable – According to Section 149(3) Companies Act, every company must have at least one resident director. For the purpose of this section, a resident director means an individual who has stayed in India for 182 days or more during the financial year. A foreign national may act as a resident director if he fulfills the above condition of residence.
8. Types of Directorship – Foreign nationals may be appointed as:
- Executive Director (with responsibility for day-to-day management).
- Non-Executive Director.
- Independent Director (for publicly listed companies following independence requirements).
- Nominee Director (to safeguard the interests of foreign investors or institutions).
9. Compliance with Foreign Exchange Management Act (FEMA) – When the foreign director acts as an investor or is a representative of a foreign corporate entity, his appointment must conform to FEMA regulations as well as the RBI Guidelines, particularly in sectors with FDI restrictions.
10. Visa Requirements for Foreign Directors – The foreign directors operating from India are required to hold a valid business visa or an equivalent visa where his participation at the board level is concerned. A tourist visa is not appropriate for these roles.
11. Conflicts of Interest – Foreign directors are obliged to inform the company of any direct interest held in their name or any corporate interest by any of their subsidiaries in Form MBP-1 in such a way that the company’s interests are protected.
Procedure for Appointment of a Foreign Director
Under the Companies Act of 2013, a foreign individual may be appointed as a director of an Indian company only when certain legal conditions are fulfilled. The process ensures that the individual is adequately qualified, recognized, and accountable under the Indian legal system. The appointment of a foreign director includes multiple legal, procedural, and compliance obligations. Documentation, deadlines, and regulatory compliance have to be strictly adhered to by companies. A properly appointed foreign director will add value to the governance of a company, global perspective, and instill confidence in investors. Earning a bad reputation and possible legal consequences for non-compliance could result if these criteria are not met, which is itself a strong argument in favor of an entity hiring professionals to facilitate the particular appointment.
1. Obtaining the Digital Signature Certificate (DSC)
A Digital Signature Certificate (DSC) is necessary for electronically filing any documents with the Ministry of Corporate Affairs (MCA). Foreign nationals must now obtain a Class 3 DSC from an Indian Certifying Authority. The following documents are required:
– Notarized and apostilled passport
– Recent-colored passport photograph
– Proof of address (such as a utility bill or bank statement)
– PAN card (optional for foreign nationals)
2. Obtaining a Director Identification Number (DIN)
Start by obtaining a Director Identification Number (DIN). Foreigners are required to apply for a Director Identification Number (DIN) by completing Form DIR-3 and submitting it to the Ministry of Corporate Affairs (MCA). The completed form should be submitted electronically with a Digital Signature Certificate (DSC). The following documents are required for submission:
- A notarised passport, proof of address
- A recent photograph, and
- A corporate board resolution (if applicable).
3. Providing Consent to Serving as Director
Use Form DIR-2 for giving written consent. The company should retain this form and file it with the Registrar of Companies (ROC) as necessary. Conduct a Board Meeting.
4. Hold a Board Meeting
The appointment of a foreign national as a director will also require the holding of a Board Meeting to approve and authorise an individual for the submission of the application to the ROC. If the Articles of Association (AOA) require shareholder approval for this appointment, a General Meeting needs to be called for the passing of either an Ordinary Resolution or a Special Resolution.
5. File Form DIR-12 with the ROC
After obtaining board approval, the company needs to file Form DIR-12 with the Registrar of Companies (RIC) within 30 days of the appointment. Attachments required include: Consent in Form DIR-2 Board or shareholder resolution Appointment letter (if applicable).
6. Verification of Residency Documents under Section 149(3)
Confirmation to Section 149(3) that describes the qualification of having at least one appointed resident director, which means an individual who has resided in India for at least 182 days during a financial year. If such a condition is fulfilled, a foreign person might qualify to act as a resident director.
7. Renewal of the Statutory Registers
Immediately following his appointment, the Register of Directors and Key Managerial Personnel (KMP) should be updated under the provision of Section 170 of the Companies Act. Renew all other internal documents, minutes books, master data of the firm, and ownership registers in the case of shareholding of director.
8. Disclosures of Interests (Form MBP-1)
These shall include the placing of the details of interests with other companies or contracts through Form MBP-1 at the first Board Meeting subsequently for Foreign Directors.
9. Adhere to the Provisions of FEMA and RBI Regulations, if applicable
Ensure compliance with FEMA and RBI guidelines in cases where the director represents foreign entities or investors and in cases where they are also a part of capital contributions. FDI regulations of India may impose restrictions on the appointment of in certain sectors.
10. Tax and Regulatory Responsibilities
It’s all about taxation on foreign directors with regard to remuneration, sitting fees, or commissions under the Income Tax Act of 1961. The companies are mandated to withhold and report TDS to the tax authorities. DTAA regulations may apply depending on the country of residence of the director.
Conclusion
Foreign directors bring needed global perspectives, strategic guidance, and integrity to Indian firms. Although their selection is legal, it requires observance of very strict regulatory rules. By exercising maximum focus on due diligence and adherence to the Companies Act of 2013, foreign directors can be substantial contributors to accomplishing the attempts made towards growth and overseas business development of Indian businesses.
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