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The institution of `alternate directors' seems to be unique to India, and judged by present day criteria, can be considered anachronistic. It can be asserted without any fear of contradiction (save from the Government) that the relevant provision in the Companies Act (the Act), can be deleted (the sooner the better), without in any way impairing the efficacy of or causing any inconvenience to those corporate bodies that still flaunt on their boards, one or more alternate directors, or one person acting as alternate to more than one director.

The Act empowers the board of a company, if so authorised by its articles or by a resolution passed by the company in general meeting, to appoint an alternate director to act for the original director during the latter's absence for a period of not less than three months from the State in which meetings of the board are ordinarily held.

In another provision, the Act defines an alternate director as one who is only qualified to act as such "during the absence or incapacity of some other director". It is interesting to note that one provision talks only of the absence of the original director; the second one extends it to incapacity also.

Board's prerogative

It is significant that the power to appoint alternate directors is exclusively vested in the board. The original director in whose shoes the alternate steps in does not have any voice in the matter. Likewise, the shareholders have no say either in their appointment or in their possible removal. Then whose interests are such alternate directors expected to protect or whose views are they supposed to project?

It is said that every law has a loophole, either deliberately inbuilt or as a result of careless drafting. One cannot have a more glaring example of this than in a special privilege bestowed on alternate directors as it were and interestingly not available to regular directors.

When the Act was revamped for the first time after Independence in 1956, a new provision was included, in sync with the then altered social and political compulsions, to restrict to twenty the number of directorships a person could hold at any time (the December 2000 Amendment to the Act reduced this number to fifteen). But, strangely, the Act is generous to alternate directors in that alternate directorships will not be reckoned for arriving at the figure of twenty (or fifteen).

Committees' views

There is no bar in appointing the same person as alternate to more than one director. The Irani Committee has, however, wisely recommended that an individual should not be appointed as an alternate director for more than one director. In such cases, if the articles or an enabling resolution authorises, he can have one vote for each director he represents at board meetings. But he will not be entitled to sitting fees for more than one director. An alternate director is in the same position as any regular director as regards his rights, duties and liabilities as a director vis-à-vis the Act. His office as director will, ipso facto, cease with the cessation from any cause whatsoever of the director whom he substitutes.

Historical necessity

It is true that there was a historical necessity for inclusion of the provision relating to alternate directors in the Act. Ramaiya, in his Guide to Companies Act, aptly writes — "alternate directors are most commonly appointed for foreign directors in enterprises run with foreign collaboration or otherwise carried on or managed wholly or partly by foreigners or with foreign capital in the country." However, the scenario is completely different now, what with globalisation, growing integration of our economy with economies of other nations, both developed and non-developed, fast means of communication and transport and India endeavouring strongly to attract sizable foreign investments, the concept of alternate directors has lost much of its relevance. India Inc. has also successfully traversed the rigours of FERA and is now enjoying the benign provisions of its successor FEMA.

Further, the procedural aspects at the time of appointment of an alternate director, even if it be for a single day, and his cessation as such, leads to colossal and avoidable waste of time of the board, company secretary, RoC and stock exchanges.

An alternate director is, therefore, in the same position as any other director as regards his duties, rights and liabilities. Then why have alternate directors at all. The Government has promised a new and completely revised Companies Bill in the second half of the Budget session of Parliament, and one hopes that the provisions relating to alternate directors are deleted therefrom.

(The author is a Chennai-based company secretary.)

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