FAQs

FAQs on sec 167 (1) (b) of Companies

Act, 2013
Vinod Kothari
vinod@vinodkothari.com

Nivedita Shankar
Corporate Law Division
nivedita@vinodkothari.com
May 12, 2015
Updated on June 6, 2015

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Disclaimer:
This write up is intended to initiate academic debate on a pertinent question. It is not intended to be a
professional advice and should not be relied upon for real life facts.
 FAQs on sec 167 (1) (b) of Companies Act, 2013

1. How does the provision compare with the provisions of the Companies Act, 1956
(‘Act, 1956’)?

The provisions of section 167(1)(b) of Companies Act, 2013 (‘Act, 2013’)

correspond to section 283(1)(g) of the Act, 1956. Under section 283(1)(g) a
director was taken to have vacated his office if he absented himself from three
consecutive board meetings or from all meetings of the Board held for a
continuous period of three months, whichever is longer, without obtaining leave
of absence from the Board. Over time, directors sought leave of absence from
attending board meetings as a mere perfunctory exercise with the sole intention
of mitigating the provisions of section 283(1)(g) of Act, 1956. In many cases, leave
was not sought – it was just granted. The Act, 2013 has down away with such a
practice. In keeping with the suggestions in para 20 of the JJ Irani Committee
Report, Act, 2013 prescribes for vacation of office of director, irrespective of
whether leave of absence has been sought or not, in case he has not attended
board meetings held during a period of 12 months. Hence, seeking leave of
absence will not be adequate to mitigate the provisions of section 167(1)(b).

2. What is the meaning of “period of 12 months”? Does it mean a period of 365

days?

The General Clauses Act, 1897 defines ‘month’ to mean the following:

"Month" shall mean a month reckoned according to the British calendar.

Section 167(1)(b) uses the phrase ’12 months’. Needless to say, 12 months will not
necessarily mean 365 days. Hence for the purpose of section 167(1)(b), one has to
consider a period of 12 months. The period of 12 months is not the same as
“financial year” or “calendar year” – 12 months may be counted as any
consecutive 12 months.
For counting a “month”, the right methodology is to take the day of the start
month, and the corresponding day of the next month – that completes one
month. For example, 5th Feb 2015 to 5th March 2015 is not 30 days, but it is still
one month. Accordingly, 5th Feb 2015 to 5th Feb 2016 will be 12 months.

3. How do we count the period of 12 months for the purpose of section 167(1)(b)?

Section 167(1)(b) is a special provision to cause automatic vacation of office for

the directors who exhibit high degree of callousness towards their office as a
director. There are two requisites for the section – board meetings called or held
over a period of 12 months, and continued failure of the director in attending
board meetings. Both requisites are required to be fulfilled.
 FAQs on sec 167 (1) (b) of Companies Act, 2013

The right way to compute the length of period for the purpose of the section is to
count the first of the board meetings in a series of meetings that the director fails
to attend (First Meeting), and the last of the meetings in the series (Last Meeting),
and see whether the gap between First Meeting and the Last Meeting is 12
months or more. If yes, the director vacates his office. The vacation happens at
the Last Meeting.

To cite examples:
 The director attended the last meeting on 8 th Feb 2015. Thereafter,
meetings were called on 9th April 2015, 14th August 2015, 10 October
2015, and 13th February 2016. In the meeting on 13th Feb 2016, can we
say the director has absented himself from board meetings over a period
of 12 months, counting the period from 9th Feb 2015?
o Answer is clearly NO. There is no question of counting the period
from 9th Feb 2015 as there was no meeting on that date. The
period has to start from the board meeting that the director fails
to attend – hence, the month count will start from 9th April 2015.
 Board meetings are held on 9th April 2014, 14th August 2014, 10 October
2014, 13th February 2015. The director does not attend any of these. He
attends the meeting called on 10th April 2015. Does he vacate his office?
o No. The First Meeting in the series is 9th April, and the Last Meeting
is 13th February. The gap between the two is not 12 months. Hence,
the director’s office survives.
 In the example above, if he does not attend the meeting on 10 th April
2015, then what is the scenario?
o Now, the First Board meeting is 9th April 2014 and the Last Meeting
is 10th April 2015. The gap is decisively 12 months or more. Hence
the office of the director falls vacant.
 Amended example, suppose the Last Meeting is 8th April 2015. Does the
office fall vacant?
o No. The principle of counting 12 months is the same day of April
2015, as the day of 2014.

4. Can the period of 12 months be partly before the date of enforcement of the
section, that is, 1st April 2014?

Since section 167(1)(b) was enforced with effect from April 1, 2014, the period of
12 months cannot be enforced partly before the enactment of the section. Hence,
for the purpose of determining vacation of office as per section 167(1)(b), absence
of a director from board meetings convened after April 1, 2014 will have to be
considered.

5. Can a director who vacates his office u/s 167 (1) (b) be reappointed?
 FAQs on sec 167 (1) (b) of Companies Act, 2013

There is no restriction in Act, 2013 on re-appointment of a director who has

vacated his office pursuant to section 167(1)(b). The director does not get
disqualified from being re-appointed as a director in the same company or in any
other company. A company can choose to re-appoint the same director in terms
of section 161(1) or 161(4) of Act, 2013.

6. If the original director had an alternate director appointed in his place, who
attends board meetings, does the original director still attract the vacating
condition?

Although, an alternate director is appointed as an ‘alternate’ to the original

director, he is nonetheless subjected to the provisions of Act, 2013 in his individual
capacity and will not be held responsible for the acts done by the original director.
The original director will continue to be subjected to the vacating condition after
his return. The interim period during which he did not attend board meetings will
not be considered for calculation of 12 months as in section 167(1)(b) of Act, 2013

7. Can a director escape the section by seeking leave of absence?

Section 167(1)(b) is clear: the provisions contained therein will be applicable even
if a director seeks leave of absence. Where a director seeks leave of absence from
attending every board meeting convened during a period of 12 months, his office
will be taken to be vacated.

8. If there are situations that cause the continued absence of the director, say
medical conditions, is there any option for him, other than vacating his office?

As discussed in response to query 5, there is nothing wrong in reappointing a

director whose office falls vacant. Considering the exonerating circumstances, the
Board may choose to reappoint him as a director in terms of sec 161 (1) or 161 (4).

9. Does the vacation take place automatically or is there any action required for the
same?

The opening line of section 167(1) reads as “the office of a director shall become
vacant in case – “. Where a director’s office has attracted the provisions of section
167(1)(b), the vacation is automatic and immediate. Such a director is immediately
restricted from pursuing his office as a director. In case such a director anyway
continues to function as one, then he will be subjected to the penal provisions of
section 167(2) of Act, 2013. The Board on its part can take note of such a
disqualification and authorise the company secretary or any other person to do
the necessary eform filing in this regard.
 FAQs on sec 167 (1) (b) of Companies Act, 2013

10. Does the vacation take place at the time last of the board meetings held over a
period of 12 months, or does it take place on the expiry of the 12 months’ period?

As is clear from the illustrations provided in reply to query 3, the vacation takes
place at the time the last board meeting is held over a period of 12 months.
Ending of the tenure of 12 months without actually convening meetings spread
across 12 months will not lead to vacation of office of director.

11. If the director is reappointed, and remains an absentee still, does he vacate his
office again?

If a director vacating his office u/s 167 (1) (b) gets reappointed, he gets a new
office on the date of his reappointment. Therefore, the period of 12 months will
start running from the date of his reappointment. If the director again absents
himself from the board meetings held during a tenure of 12 months, then his
office will again be subjected to vacation.

12. If a director’s office falls vacant, is there any compliance required on the part of
the company?

The Act, 2013 does not expressly cast any duty on the company in case of vacation
in terms of section 167(1)(b). However, it is advisable that the Board of the
company should take note of such a vacation. Further, the onus of filing eform
DIR-12 is also on the company.

13. If a director’s office falls vacant, and then, the board reappoints him, is there any
compliance required on the part of the company?

In such a case, the company has to file DIR-12 twice – once to intimate regarding
his cessation and the second time to intimate his re-appointment.

14. If a director is appointed after having retired by rotation, will the same be taken to
be fresh appointment leading to calculation of period of 12 months afresh for the
purpose of section 167(1)(b)?

The provision of section 152(6) is meant to give shareholders a right to consider

the continuation of a director. The provision is also aimed at ensuring that a
director of a public company does not take his place in the company for granted.
Since the shareholders are anyway approving the appointment of director who is
retiring by rotation, it is re-appointment of the director to his original office. By
doing so, the shareholders are also agreeing to washout his past tenure in the
company. Further, referring to our reply to Q No. 5 above, if a director who has
 FAQs on sec 167 (1) (b) of Companies Act, 2013

vacated his office pursuant to section 167(1)(b) can be re-appointed, then the
intent is to washout his past deed of not attending board meetings for a continued
period of 12 months. Similarly, for the purpose of s. 167, any such appointment
due to rotation will be taken to be a fresh appointment. Consequently, the term of
12 months will be counted afresh.

Read articles on:

1. Secretarial Standard – 1 on Meeting of Directors at : http://www.india-

financing.com/images/Secretarial_Standard_1_on_Meeting_of_Directors.p
df
2. Whether a nominee director is accustomed to act as per instructions
coming from his nominator- a perplexity! at : http://www.india-
financing.com/images/Articles/Whether_a_nominee_director_is_accustom
ed_to_act_as_per_instructions_coming_from_his_nominator_a_perplexity
.pdf
3. Read other articles on Companies Act, 2013 at: http://www.india-
financing.com/component/content/article/281.html