Updated: May 19
Section 24 of the Companies Act, 2013, plays a vital role in governing the appointment of directors in Indian companies. Comprehending this section is essential for entrepreneurs, shareholders, and professionals involved in corporate governance. In this article, we will delve into the intricacies of Section 24 and shed light on its significance and implications.
Section 24 of the Companies Act, 2013: Explained
Section 24 of the Companies Act, 2013, deals with the appointment of directors in Indian companies. It outlines the qualifications, disqualifications, and procedures for the appointment of directors, ensuring transparency, accountability, and good corporate governance practices.
Under this section, any individual aspiring to become a director must possess the requisite qualifications specified by the Act. These qualifications include sound mind, legal age (above 18 years), and not being disqualified under the provisions of Section 164 of the Act. Furthermore, directors are also required to obtain a Director Identification Number (DIN) and comply with other regulatory requirements.
The disqualifications mentioned in Section 164 primarily focus on matters related to bankruptcy, non-compliance with financial statements, fraud, or conviction of an offense involving moral turpitude. If a person falls under any of these disqualifications, they are barred from being appointed or reappointed as a director in any company for a specific period.
Importance and Implications of Section 24
Section 24 is crucial for ensuring the credibility and integrity of corporate leadership. By stipulating the qualifications and disqualifications, this section sets a benchmark for individuals seeking directorial positions. This helps in maintaining a pool of competent professionals who are entrusted with the responsibility of managing the affairs of a company.
Moreover, Section 24 safeguards the interests of shareholders, creditors, and other stakeholders by preventing individuals with questionable backgrounds from assuming directorship roles. It fosters corporate transparency, accountability, and ethical conduct.
The strict enforcement of Section 24 has had far-reaching implications. It has contributed to the development of a corporate ecosystem that values professionalism, promotes good governance, and attracts investments. Potential investors find comfort in knowing that companies adhere to well-defined standards for director appointments, ensuring a higher degree of business sustainability and risk mitigation.
Section 24 of the Companies Act, 2013, serves as a cornerstone of corporate governance in India. By defining the qualifications and disqualifications for directors, it upholds the principles of transparency, accountability, and professionalism. Adhering to the provisions of Section 24 not only ensures the appointment of competent individuals but also inspires confidence among stakeholders and investors.
Entrepreneurs and professionals involved in corporate governance should familiarize themselves with the provisions of Section 24 to ensure compliance and avoid any legal complications. By upholding the spirit of this section, companies can create an environment that fosters growth, sustainability, and ethical conduct, ultimately contributing to the overall development of the Indian corporate landscape. By
Siddharth Dalmia & Upasana Mishra
The StartUp Sherpa