Procedure for Re-Appointment of Directors Retiring by Rotation

The Board of Directors plays an important role in every company by providing strategic direction, ensuring corporate governance and maintaining regulatory compliance. To balance the continuity with accountability, the Companies Act, 2013 introduces the mechanism of retirement of directors by rotation, which allows shareholders to periodically review the performance of directors and either re-appoint or replace them.

This blog explains the concept, statutory framework and the step-by-step procedure for the re-appointment of directors retiring by rotation, strictly aligned with the Companies Act, 2013, the Companies (Management and Administration) Rules, Secretarial Standard-1 (SS-1) and Secretarial Standard-2 (SS-2).

Understanding Directors Retiring by Rotation

In a public company or a private company that is a subsidiary of a public company, at least two-thirds of the total number of directors must be directors liable to retire by rotation.

At every AGM, one-third of these rotational directors retire, giving shareholders the ability to evaluate their performance.

Important points:

• The mechanism promotes transparency and good governance.
• A retiring director is eligible for re-appointment.
• If shareholders do not act, the Act provides for a system of deemed re-appointment (explained later).

Legal Framework under the Companies Act, 2013

The following provisions regulate the retirement and re-appointment of directors:

1. Section 152(6)

• Defines which directors are liable to retire by rotation.
• One-third of rotational directors retire every AGM.
• Retirement is based on seniority (longest in office retire first).

2. Section 152(7)

• Provides rules for re-appointment, adjourned AGM and deemed re-appointment.
• Specifies exceptions were deemed re-appointment is not permitted.

3. Section 164

• Lists disqualifications for appointment or re-appointment.

4. Section 170

• Requires updating of statutory registers after reappointment.

5. SS-1 & SS-2

• Govern Board Meeting and AGM procedures, notices, timelines and disclosures.

Who is Liable to Retire by Rotation?

The following directors are NOT counted for rotational retirement:

• Independent Directors
• Nominee Directors
• Additional Directors
• Alternate Directors

Therefore, the directors normally liable to retire include:

• Executive Directors
• Non-executive Directors
• Whole-Time Directors

unless they are expressly exempted through the Articles of Association (AOA).

When Does the Director Retire?

During every AGM:

• One-third of the rotational directors retire.
• If the number is not a multiple of three, the nearest number to one-third is taken.
• Retirement is based on seniority, i.e., longest in office since last appointment.

Step-by-Step Procedure for Re-Appointment of Directors Retiring by Rotation

Below is the legally aligned and MCA-compliant procedure:

Step 1: Determine Directors Liable to Retire at the AGM

The company secretary must:

• Review the Register of Directors and KMP (Section 170).
• Examine DIR-12 filings, past AGM minutes and AOA provisions.
• Identify directors who fall in the rotational category.
• Calculate one-third of these directors.
• Identify the director(s) longest in office who must retire.

This exercise must be completed before finalizing the AGM notice.

Step 2: Obtain Consent and Eligibility Confirmation

The director must confirm:

• Willingness to be re-appointed.
• That he/she is not disqualified under Section 164.
• Continued compliance with AOA requirements.

DIR-8 declaration (disqualification declaration) must be obtained, as per law.

DIR-2 is optional for re-appointment but may be taken as good practice.

Step 3: Hold the Board Meeting

The Board must consider and recommend the re-appointment.

a. Issue Board Meeting Notice

• Send notice at least 7 clear days in advance as per Section 173(3) and SS-1.
• Include agenda, notes and draft resolutions.

b. Convene the Board Meeting

The Board must:

• Take note of rotational retirement.
• Approve the proposal for re-appointment.
• Approve inclusion of the resolution in the AGM notice.
• Authorize issuance of the AGM notice.

Sample Board Resolution:

“Resolved that pursuant to Section 152 of the Companies Act, 2013, the Board recommends the re-appointment of Mr. __________ (DIN: ________) as a director retiring by rotation for approval of the shareholders at the ensuing AGM.”

c. Prepare and Circulate Minutes

Minutes must be prepared and circulated within the timelines of SS-1.

Step 4: Include the Re-Appointment Proposal in the AGM Notice

As per SS-2, the notice must:

1. Be issued 21 clear days before AGM.
2. Include:
• Name, DIN, qualifications, experience of the retiring director
• Disclosure of shareholding
• Committee positions
• Statement that the director retires by rotation and seeks re-appointment

Explanatory Statement is NOT required, as this is ordinary business.

If multiple directors are being re-appointed, each must have a separate ordinary resolution.

Step 5: Conduct the Annual General Meeting

a. Present the Ordinary Resolution

The Chairperson places the re-appointment resolution before shareholders.

b. Voting

Voting may be through:

• Show of hands
• Poll
• E-voting
• Hybrid modes (as applicable)

The resolution passes by simple majority.

c. Deemed Re-Appointment

Under Section 152(7), if:

• The resolution is not passed,
• No replacement is appointed,
• And the meeting is adjourned and still no appointment is made

the director is deemed re-appointed unless:

• A resolution for reappointment was rejected
• He has expressed unwillingness
• He is disqualified
• AOA prohibits such re-appointment

Minutes must be prepared as per SS-2.

Step 6: Filing with ROC (DIR-12) — Only if Required

Re-appointment of a director retiring by rotation does NOT require DIR-12, because there is no change in designation.

DIR-12 is required only when:

• There is a change in designation (e.g., Director to WTD)
• The director was earlier an Additional Director
• The position otherwise constitutes a “change in office”

Step 7: Update Statutory Registers

After reappointment, update:

• Register of Directors & KMP (Section 170)
• Register of Director Shareholding (MBP-4)
• Minutes of the AGM

These are mandatory for ongoing compliance.

What Happens if the Retiring Director Is Not Re-Appointed?

If the shareholders do not:

• Re-appoint the director, AND
• Do not appoint a replacement

then:

1. The AGM is automatically adjourned by one week.
2. At the adjourned AGM, if still no action is taken, the director is deemed to be reappointed unless:
• He is disqualified
• A resolution for reappointment was rejected
• He has expressed unwillingness
• AOA restricts such reappointment

This provision prevents a sudden vacancy in the Board.

Practical Compliance Tips

• Maintain a rotation chart to avoid calculation errors.
• Review AOA before determining retirement rules.
• Obtain DIR-8 from all directors annually.
• Ensure AGM and Board Meeting notice comply with SS-1 and SS-2.
• Provide director profiles in the AGM notice for shareholder transparency.
• Maintain proper records and update registers immediately.

Conclusion

Re-appointment of directors retiring by rotation is a central annual compliance requirement for companies governed by Section 152 of the Companies Act, 2013. By following this structured process, identifying rotational directors, securing their consent, convening the Board Meeting, issuing an SS-2-compliant AGM notice, conducting the AGM and updating statutory records, companies can ensure transparency, effective governance and full legal compliance.

This mechanism ensures continuity in Board functioning while allowing shareholders the authority to evaluate leadership every year. If you are looking for professional help in re-appointment of directors then do contact to Remind Legal, our experts will help you in the legal and complex process and make it smooth for you.