Section 161(2) of the Act empowers the Board if so authorized by its articles or by a resolution passed by the company in general meeting, to appoint a director termed as ‘alternate director’ to act in the absence of an original director during his absence for not less than 3 months from India.
The provisions applicable to an alternate director are as follows.
Section 161(2) of the Act applies to all companies, whether public or private.
Conditions for appointment of an alternate director
- The Board of Directors of a company must be authorized by its articles or by a resolution passed by the company in a general meeting for the appointment of the alternate director.
- The person in whose place the Alternate Director is being appointed should be absent for a period of not less than 3 months from India.
- The person to be appointed as the Alternate Director shall be the person other than the person holding any alternate directorship for any other Director in the company or holding directorship in the same company.
- If it is proposed to appoint an Alternate Director to an Independent Director, it must be ensured that the proposed appointee also satisfies the criteria of Independence as per section 149(6) of the Act.
Power to appoint
The Board may appoint an alternate director only if it is authorized by the articles or by an ordinary resolution passed at a general meeting. The right to appoint an alternate director vest in the Board.
The original director has no right to appoint an alternate director. The members have no right to appoint an alternate director, the members can only empower to appoint alternate directors as and when the board thinks fit.
Method of appointment
There is no condition that an alternate director shall be appointed only by passing a resolution at a Board meeting. Therefore, an alternate director can be appointed by passing a resolution by circulation.
Terms of office of an alternate director
- An alternate director shall not hold office for a period longer than that permissible to the director in whose place he has been appointed. If the original director ceases to be a director because of death or vacation of office under section 167, the alternate director shall immediately cease to hold his office.
- The alternate director shall vacate his office when the original director in whose place he has been appointed returns to India.
Automatic reappointment applies to the original director
If the term of office of an original director expires before he returns back to India, the provision for automatic reappointment of a director shall be applicable to the original director, and not to the alternate director.
Additionally, for listed entities, SEBI vides recent notification provides that no person shall be appointed or continue as an alternate director for an independent director of a listed entity with effect from October 1, 2018.