Director in Casual vacancy

If the office of any any director who was appointed at a General Meeting is vacated before his tenure, such vacancy can be filled in by the Board of Directors, if the Articles of Association hasn't provided otherwise. Such a Director  so appointed shall hold  office till the term of his predecessor

Corresponding Provisions in the new Companies Bill passed by Lok sabha. Ø  Corresponding Clause to Section 262 of the Companies Act, 1956 is Clause 161. There are no changes regarding the provisions of casual vacancy. Ø  Corresponding Clause to Section 255 of the Companies Act, 1956 is Clause 152. By this clause the following requirements are made compulsory. o   New Director to be appointed should furnish a declaration that he is not disqualified for being appointed o   Should have a valid DIN o   Every Director in Private Company also has to submit his consent and that should be filed with Registrar of Companies.

Section 262 of the Companies Act, 1956 empowers the Board of Directors to appoint some person to the Board if any casual vacancy arises in a Meeting. Casual vacancy may arise due to various reasons such as- 1.   Resignation by the Director; 2.   Disqualification of the Director; 3.   Death of the Director; 4.   Insolvency of the Director

I.        Filing of return is necessary for appointment of casual vacancy. Since casual Director is not a Director by rotation, while appointing him as regular Director in AGM, a 14 days’ notice of appointment has to be received from a member under section 257 of the Companies Act, 1956. After his regularization as a Director, fresh return has To be filed with the Registrar of Companies.

II.        Section 262 is not applicable to a private Company.           A private Company need not comply with the provisions of Section 262. Such a Company can fill         casual vacancies, if provided in the Articles of Association or it can follow the procedure under         Section 255(2). That is, if there is no provision in Articles of Association, casual vacancy can be           filed in a General Meeting.

III.        Casual vacancy can be filled only of the Director who was appointed in General Meeting. Mr. A who is appointed as Director in AGM resigns and Mr. B is appointed in the casual vacancy. If Mr. B resigns before his term, that casual vacancy cannot be filled as casual vacancy because Mr. B was not appointed in a General Meeting. (It is seen that for the smooth functioning of the Company, MCA will have no objection to Board of Directors filling that casual vacancy as many times as may be necessary.

IV.        Power to fill casual vacancies is exercisable by the Board even the membership of the Board fallen below the statutory minimum. The holding of General Meeting to appoint Directors will not extinguish the director’s power to fill casual vacancies. This power, like all other powers of Directors, should be exercised in good faith and in the interest of the Company as a whole. Ananthalakshmi Ammal v. Indian Trades & Investments Limited (1952)

V.        Sample Board Resolution for filling Casual vacancy of a Director. “RESOLVED that pursuant to the provisions of Section 262 of the Companies Act 1956 and Article <  > of the Articles of Association of the Company, Mr. <  >, be and is hereby appointed as Director, to fill the casual vacancy caused by the death of Mr. <  >, whose office shall be liable to vacation/termination on the date up to which Mr. < > would have hold office if his office of directorship had not been vacated due to his sad demise."           “RESOLVED FURTHER THAT the Board places on record the valuable services rendered by       Mr. <  > during his tenure as Director of the Company and expresses its deep sense of appreciation          and gratitude for the same”.         “RESOLVED FURTHER THAT Mr < >, Director be and is hereby authorised to file the necessary return with the Registrar of Companies."