Foreigner as Director in Indian Company and his appointment as director

The foreign nationals or foreign citizen or Non-Resident Indians residing abroad can be appointed as a Director on the Board of Indian companies whether public listed or unlisted or private. A foreign body corporate having 100% subsidiary company in India may nominate all its Directors of the subsidiary Indian company who may be foreign nationals. A foreign director may be appointed as whole time director (executive director) or non whole time director (non – executive director). Procedures relating to appointment of foreign directors under Companies Act are given below.

Under Section 2(13) of the Companies Act, 1956, Director includes any person occupying the position of Director be whatever name called.  In view of this, a foreign national can be appointed as Director in the companies registered in India as per Companies Act 1956.

1. To become a Foreign Director he is required to obtain Director Identification Number (DIN) . For applying DIN,   Permanent Account Number (PAN) from the Indian Income Tax department is compulsory. Before appointment of director, the Director has to apply for DIN.

2. In the case of foreign nationals, the recent color photograph of the director, Pass-port and proof of residence and the affidavit ( format of affidavit is available in MCA web site under DIN 1 )  have to be notarized from the respective country and by applying in Form DIN 1, the Director Identification Number can be obtained on-line. In case of

Foreign Director, the supporting documents can also be attested by Company secretary in full time employment / CEO / Managing director of the Indian company in which he / she proposed to be a director.

3. Affidavit by the applicant to be executed on non judicial stamp paper and duly notarised. It is a mandatory attachment.

4.  In case of foreign applicant, address proof should not be older than 1 year from the date of filing of the E form.

5. Passport number is mandatory for foreign nationals. Foreign nationals shall select the nationality as declared in the passport.

6. Father’s name proof is not required in the case of foreign nationals / NRIs.

7. In case of proofs which are in languages other than Hindi / English, the proofs should be translated in Hindi / English from professional translator carrying his details (name, signature, address) and seal. In the case of foreign nationals, translation done by the notary of home country is also acceptable.

All the forms required to be filed under the Companies Act are filed through MCA website through the digital signature. In view of this the Foreign director is required to have one digital signature with his PAN number encrypted so as to enable him to file the returns with Income tax authorities on behalf of the company.

The Private Limited Companies are required to have a minimum of 2 Directors and Public Limited Companies are required to have a minimum of 3 Directors under the Companies Act.  It is quite possible that all the Directors of the company may be foreign nationals and they run the business through the persons of Indian nationals appointed by them in India.  The Companies Act does not prohibit holding Board meetings abroad. Similarly, it is also having the provision for conducting Board meetings through video –conference subject to adherence to the circulars issued by the Ministry of Corporate Affairs in this regard from time to time. In view of this, it is obvious that a company can have all the Directors consisting of foreign nationals or foreign citizens and there is no prohibition that only Indian Directors should be on the Board of Indian companies.

In the case of companies incorporated in Singapore, at least one Director should the resident of Singapore.  But, no such nationality restriction is applicable for the companies incorporated in India.

Further, a Director belonging to China or Thaiwan who may not be expert in English and hence a person may also become the Director of Indian company without knowing any Indian languages.  What is required is business acumen and also help from others to understand business language in India.

The person proposed to be entered into as Director shall give his consent to act as a Director of the Indian company in writing. This is mandatory in case of a public limited company but now-a-days as a good corporate governance practice, the consent of the proposed appointee director is obtained for private limited companies also. As a measure of caution, this consent may also be notarized in the respective country along with the other documents for obtaining Director Identification Number. This becomes absolutely necessary especially when the Form 32 is required to be certified by a professional and he may have a level of comfort if notarized documents are attached to vouch for the documents belonging to the appointee as he may not be knowing the foreign national personally.

Appointment of Directors is a power which is exercised by the members but once DIN has been obtained the board of directors can pass a resolution for appointing the foreign director by way of an additional director to meet urgent business needs. In addition Form 32 has to be filed with Registrar of Companies with in 30 days for the appointment of director. . And once Form 32 is approved the director’s name will appear in the ‘view signatory details’ in MCA website. At the next Annual general meeting however, the person appointed as Additional director by the Board has to be re-appointed as a Director by the members.

Foreign directors can be paid sitting fees for attending the board meetings even if they are attending the meetings by video conference. In addition to this directors in public limited companies may be also paid commission permitted under sec 309 of the Companies Act. If they are not in the  whole time employment of the company they may be paid commission 1 % of the net profits of the company if the company has a managing director or a whole time director or a manager; 3 % of the net profits of the company in any other case. Sec 309 is not applicable to private limited companies and directors of the private limited companies may be paid commission on the net profits of the company without any restriction.

Under the Foreign Exchange Management Act, 1999, appointment of a foreign national as a director on  the board of directors of an Indian company does not require the approval of Reserve Bank of India [RBI]

Reserve Bank has also granted general powers to an Indian company to make payment in rupees towards sitting fees or commission or remuneration and travel expenses to and from and within India to its non-whole time director who is resident outside India and is on a visit to India for the company’s work.