Under
Section 149(1), the law
requires:
- a
private company to have at
least two directors,
- a
public company to have at
least three directors, and
- an
one person company (OPC) to
have one director.
This
is not a one-time condition. It must be followed at all times during the life of the company.
How Does the Board Fall Below the Minimum?
In
real life, directors do not stay forever. A director may resign, pass away,
become disqualified, or vacate office under law. Sometimes members remove a
director. When such an event happens and the number of directors goes below the
minimum required under Section 149, the company immediately enters a sensitive
legal situation.
At
this stage, the company is not “illegal”, but it cannot operate normally until the Board is corrected.
What Does the Law Do in This Situation?
This
is where Section 174 becomes
important.
Section
174 mainly talks about quorum for Board meetings. But Section 174(2) deals directly with the situation where the number
of directors becomes too low.
The
idea of the law here is very simple:
If
the Board is incomplete, it should not run the company.
So,
the law cuts down the powers of
the remaining director or directors.
Restricted Powers of Remaining Directors – Section 174(2)
When
the number of directors falls below the minimum, the remaining director(s) can
do only two things:
- Appoint a director to restore the minimum
strength,
or
- Call a general meeting
so that members can appoint directors.
They
cannot sign contracts, approve
loans, take business decisions, or run day-to-day affairs. The law
intentionally freezes everything else. The message is clear: first fix the Board, then do business.
How Can a New Director Be Appointed?
Once
the company decides to restore the Board, Section 161 provides the method.
If
the Articles of Association allow it, the remaining director(s) can appoint an Additional Director under Section 161(1).
This is usually the fastest way. The additional director holds office till the
next AGM.
If
the Articles do not permit this, or if the company prefers a permanent
appointment, the remaining director(s) can call an extraordinary general meeting (EGM). In that meeting, the members appoint the director by
passing a resolution.
Both
routes are legally valid.
Is There Any Time Limit to Do This?
There is NO time limit mentioned anywhere in the Companies
Act, 2013
for appointing a director when the Board strength falls below the minimum. Not
in section 149,174,161. The Act does not
say 30 days, 60 days, or 6 months.
Then How Does the Law Ensure Compliance?
Instead
of giving a deadline, the law uses a smarter method. It takes away power. When the Board is incomplete; Business stops, Decisions
stop, and Operations slow down
The
company can only move forward by fixing the Board. This creates natural
pressure to act immediately,
even without a written time limit.
What If Only One Director Is Left?
If
only one director remains, that director is not all-powerful. He can only
appoint another director or call a general meeting; He cannot run the company
alone
Special Case: One Person Company (OPC)
In
an OPC, one director is enough. But if that sole director vacates office, the
company becomes practically stuck. There is no formal time limit here either,
but in reality, the company cannot
function even for a day without appointing another director.
So,
in OPCs, appointment must happen immediately.
What Should Companies Do in Practice?
Smart
companies do not wait for trouble. They Keep at least one extra director, act
immediately when a resignation happens, Fix the Board before doing anything
else. This avoids legal risk and operational problems.
The
law does not rush companies with deadlines. Instead, it quietly shuts the door
until the Board is properly formed again. When the number of directors falls
below the minimum, the company is not punished-it is paused. Once the Board is restored, everything starts moving
again.
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