According to the Companies Act, 2013, an alternate director is a person who is appointed by the Board of Directors, as a substitute from the director that is absent from India for a period, not less than 3 months.
What is an alternate director?
An alternate director can be appointed as a director on the occasions when a director of the company is away from India for more than three months. If a company’s director is not able to exercise his/her duties for a particular period of time, they can appoint someone to act on their behalf. An Alternate Director is simply a substitute or alternative for the principal director. The alternate director can be appointed in a set period of time or indefinitely until the principle director returns back to the duties. This permits the directors to make arrangements if they plan to be absent from board meetings or other activities where they would like their powers in action.
How to appoint an Alternate Director?
There is no other reason that would qualify for the appointment of alternate director. An alternate director can be appointed at the mere possibility of the absence of the original director. It is not necessary for the board of directors to wait for the actual absence of the original director to appoint the alternate director.
The alternate director can be appointed by the board of directors, through authorization by way of a clause in Articles of Association or simply passing a resolution in the general meeting.
· The Alternate Director has to vacate the office when the principle Director returns back or when the duration of the principle Director expires.
· The person nominated to be Alternate Director for an independent director position should be qualified or eligible to be appointed as an Independent Director.
· The person nominated to be the Alternate Director should not come under any of the disqualifications mentioned under Section 164 and 165 of the Companies Act, 2013.
- The person nominated should not hold any other office as Alternate Director of any other principle director in the same Company.
- The person should also have a Directors Identification Number (DIN) and Digital Signature Certificate (DSC).
The director has the authority or power to limit or expand their powers and responsibilities as this all depends on the terms of their appointment.
Procedure for the appointment of an alternate director
The conditions and steps for the appointment of an alternate director are:
· The articles of association and the members of the company by passing a special resolution in general meeting authorize the board of directors to appoint an alternate director, if not authorized by the Article of association then it needs to be changed for the appointment of the Alternate Director.
· DIN and Digital Signature are important, if the person does not have Digital Signature, he/she shall obtain Digital Signature from Certifying Authority in India.
· The Application for DIN is required to be countersigned by a Director of the Company and a copy of the resolution approving the proposal of appointment of the alternate director is also to be submitted by the person.
· Documents needed are as follows:
- Board Resolution passed in the general meeting proposing his/her appointment as director in an existing company
- Specimen signature duly verified
- Other Mandatory Attachments like Income Tax PAN Card and Aadhar card.
- The Resolution circulated shall explain all details of the proposal, the material facts which explain the meaning, scope and implications of the proposal made and its nature.
- The Directors shall have to respond in seven days from the date of circulation.
. The Resolution is deemed to be passed when the majority of the Directors entitled to vote approves for the Resolution.
. Consent and Declaration from the Proposed Director are to be taken and then the director has to submit Form DIR-2 (Consent to act as a Director) to the Company either before the Board Meeting or during the Board Meeting.
· Filing of Return of Appointment of Director with the Registrar Of Company after the Board meeting, a Return of Appointment of Director is required to be filed with Registrar in 30 days of appointment with a copy of Resolution passed along with Consent and Declaration of the director.
Roles and Responsibilities of an Alternate Director
The Companies Act includes an alternate director in its definition of a ‘director’. Thus, an alternate director is elected in the same manner as an original director and when stepping in for the director, the alternate director has the powers of a director. The role and powers are:
· He/she can participate in the voting process as a director in meetings and when resolutions are passed.
· The alternate director also has to act in the best interests of the company with due care and skills, and not have any conflicts of interest.
· The liabilities experienced by original directors fully apply to alternate directors and as the alternate plays a more limited role than a director, there is a strong case to be made for alternate directors being indemnified by the insurance cover.
· The alternate director should also motivate the company to pay any legal costs experienced as a result of being sued.
· When the director for whom the alternate director stands in for resigns, dies, is removed from office or in any uncertain event, the alternate director tenure ceases.
Thus, an alternate director needs to be fully up to date in the affairs of the company and to step in whenever the director is absent.
Can an Alternative Director act on Behalf of Multiple Directors?
A person appointed as an alternate director to one of the directors cannot extend his role by acting as an alternate director to another. Moreover, the alternate director proposed to be appointed should not be a part of the company’s current Board members.
For the businesses with the only one director, it is important that the alternate director is to be considered who can stand in the director’s place. This is because if an uncertain event occurs such as physical incapacity, mental illness, or death of a director. Appointing an alternate director means that the delay can be avoided and the day to day operations of the company can continue.