[Opinion] Consequences of Holding Directorships in Excess of the Prescribed Limit as Per the Provisions of the Companies Act 2013 – A Case Study

Prof R Balakrishnan – [2024] 161 taxmann.com 140 (Article)

Background of the case

The Ministry of Corporate Affairs nowadays, is more concerned about compliance with the corporate governance norms and the required compliances that are to be complied by the companies. As we are all aware the Ministry of Corporate Affairs, in its efforts to uphold the integrity of corporate entities is entrusted with overseeing corporate governance and ensuring statutory compliance. In this connection, very recently, the Registrar of Companies, Chennai of Tamil Nadu passed an order levying penalties against a director who was found in violation of section 165 of the Companies Act 2013 which pertains to limiting the number of directorships an individual could hold concurrently. The provisions relating to limiting the number of directorships had been brought by the regulators in order to prevent overextension of directors’ responsibilities and safeguard against potential conflicts of interest. This is an interesting case law where the consequences of non-compliance in corporate governance were discussed.

Framework of the Companies Act on this subject

The provisions of section 165 of the Companies Act 2013, state the permissible number of directorships an individual could hold concurrently. The relevant section restricts the number of directorships to twenty companies in all, with a further limitation on the number of directorships in public companies. The legal framework also provides penal provisions for the violation of this section under its sub-section 6 of section 165 of the Act and as provided in this section the penalty would occur on each day of non-compliance continues.

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