Section 165 of Companies Act 2013 – Limit on Number of Directorships

Section 165 of Companies Act 2013 – Limit on Number of Directorships. In any company, directors are responsible for steering the management in the right direction. They act as the decision-makers and help ensure smooth governance and compliance. The Companies Act, 2013 defines and regulates the appointment, roles, and limitations of directors. Among the many provisions under this law, Section 165 of Companies Act 2013 plays an important role in restricting the number of companies a person can be a director in. This provision ensures that directors of a company are not overburdened and can dedicate appropriate time to manage their responsibilities.
Directors of a Company
A director of a company is an individual appointed to the Board of Directors. The Board is the main body responsible for decision-making and overall management. According to the Companies Act, 2013, every company must have a minimum number of directors. A One Person Company (OPC) must have at least one director. A Private Limited Company should have a minimum of two directors, and a Public Limited Company must have at least three directors.
Although the minimum number of directors varies, the Act places a maximum limit of 15 directors in a company. However, if the company wants to appoint more than 15 directors, it can do so by passing a special resolution in a general meeting. This structure ensures a balance between authority and accountability in company governance.
What is Section 165 of Companies Act 2013?
Section 165 of Companies Act 2013 outlines the limit on the number of companies in which an individual can hold the position of a director. This restriction helps maintain governance quality by ensuring directors do not take on more responsibilities than they can handle. The law acknowledges that while a person may be highly competent and qualified, spreading their time and attention too thinly across too many companies may lead to ineffective leadership. Hence, Section 165 ensures that directors of a company dedicate sufficient time to their duties and act in the best interests of every company they serve.
Number of Directorships a Person Can Hold
As per Section 165(1) of the Companies Act 2013, a person can hold directorship in a maximum of 20 companies at a time. This includes any directorship held as an alternate director. However, within these 20 companies, a person cannot be a director in more than 10 public companies simultaneously.
While calculating the number of public companies, directorships in private companies that are either holding or subsidiary companies of a public company are also considered public companies for the purpose of this section. Therefore, even if a company is registered as a private limited company, it will be counted towards the limit of 10 public companies if it is linked to a public company in a holding-subsidiary relationship.
On the other hand, directorships in dormant companies are not counted while calculating the 20-company limit. Dormant companies are inactive or have no significant accounting transactions and are treated differently under the Act. This restriction promotes better governance by ensuring directors of a company are not overcommitted and can give proper attention to each company they serve.
Objective Behind Restricting the Number of Directorships
The purpose of Section 165 of Companies Act 2013 is to prevent directors from being involved in more companies than they can reasonably manage. Managing even one company demands considerable time, planning, and attention. When an individual holds too many directorships, their effectiveness as a director could be compromised.
By restricting the number of companies to 20, and limiting public companies to 10, the law ensures that directors of a company can focus on their duties and responsibilities properly. It also enhances corporate governance by reducing the chances of negligence or poor decision-making due to divided attention.
Provision for Reduction in Number of Directorships
Section 165(2) of the Companies Act 2013 empowers companies to reduce the number of outside directorships allowed for their own directors. A company may decide that its directors should not be overextended and can fix a lower limit by passing a special resolution in a general meeting.
For example, if a company passes a resolution stating that its directors cannot hold directorship in more than 10 companies, then that condition will apply even though the general limit under the Act is 20. This means that a person serving as a director in such a company must restrict their directorships in other companies accordingly. This provision gives companies flexibility to strengthen governance norms based on their own needs and ensure that the directors of a company are fully committed to their roles.
Transitional Provision for Pre-existing Directorships
Section 165(3) and 165(4) deal with directors who were already holding more than 20 directorships before the Companies Act, 2013 came into effect. Under the earlier Companies Act, 1956, private companies and unlimited companies were not counted when calculating the number of directorships. However, the 2013 Act changed that and included them under the cap.
Directors holding more than 20 positions at the time of commencement of the Act were given a one-year period to comply. During this transition, such directors were required to select 20 companies in which they wished to continue as directors and resign from the others. These resignations were effective immediately upon dispatch to the respective companies. Further, the director had to inform the Registrar of Companies (ROC) and all the companies concerned about their decision. This process helped bring all directorships under the purview of the new legal framework and avoided any confusion.
Prohibition Beyond the Time Limit
Section 165(5) of the Companies Act, 2013 strictly prohibits any person from continuing to act as a director in more than 20 companies after the one-year compliance period or after dispatching resignation letters, whichever is earlier. This provision ensures that no one can misuse the grace period and continue holding excessive directorships beyond the permitted time. If a person fails to resign and continues to act as a director in more than 20 companies, they are in direct violation of the Act and may face penalties.
Penalty for Contravention of Section 165
To ensure strict compliance, Section 165(6) provides for penalties. If a person accepts or holds a directorship in more than the permitted number of companies, they are liable to pay a penalty of Rs. 2,000 per day for each day the violation continues. However, the total penalty is subject to a maximum limit of Rs. 2,00,000. This provision was introduced as part of the Companies (Amendment) Act, 2020, effective from December 21, 2020, and is designed to discourage individuals from violating directorship limits.
The penalty aims to maintain seriousness among directors of a company, ensuring that compliance with governance standards is treated with importance.
Applicability to Section 8 Companies
One of the most common queries related to Section 165 of Companies Act 2013 is whether it applies to Section 8 Companies. These are non-profit entities formed for charitable or social objectives.
The answer is no. The section does not apply to Section 8 companies. A person who has already reached the maximum directorship limit can still be appointed as a director in a Section 8 company. Similarly, directorships in dormant companies are also excluded from this limit.
This exemption is provided considering the non-commercial nature of Section 8 companies and the need to promote social development through experienced leadership.
Applicability to Foreign Subsidiaries and Companies
Section 165 of Companies Act 2013 is applicable to all companies registered in India under the Companies Act, whether they are domestic or foreign subsidiaries. This includes companies with Indian directors and offices in India, even if they are a subsidiary of a foreign company. However, this section does not apply to directorships held in companies incorporated outside India unless those companies are registered under Indian law. Thus, a person may serve as a director in any number of foreign companies unless they are registered under the Indian Companies Act.
For example, if a person is a director in 20 Indian companies and is offered a directorship in a foreign company that is not registered in India, accepting that role will not violate Section 165.
Maximum Limit of Directors in a Company
While Section 165 limits the number of directorships a person can hold, there is a separate provision in the Act that governs how many directors of a company can be appointed in a single company. Under the Companies Act, a company can have a maximum of 15 directors. However, if a company wants to appoint more than 15 directors, it can do so by passing a special resolution in a general meeting. This ensures that the company’s decision-making body remains manageable, while still allowing flexibility if required. This limit ensures that the Board does not become overcrowded, and decisions are made efficiently.
Conclusion
Section 165 of Companies Act 2013 serves as an important provision to ensure the effective functioning of directors of a company. By restricting the number of companies a person can serve as a director in, the law promotes better governance, accountability, and decision-making. The section is flexible enough to allow companies to reduce the limit further through special resolutions. At the same time, it provides exemptions for Section 8 companies and dormant entities. Directors must be mindful of these provisions and maintain transparency with the Registrar of Companies to avoid penalties.
Good governance begins with responsible leadership, and Section 165 ensures that leaders are not spread too thin across the corporate sector. Every director must ensure they are well within the prescribed limits and capable of discharging their duties efficiently and ethically.
If you have any queries or need any assistance in Company Registration and Compliances, then you can connect with Compliance Calendar experts through mail at info@ccoffice.in or Call/Whatsapp at +91 9988424211.
FAQs
Q1. What is the maximum number of directorships a person can hold under Section 165 of Companies Act 2013?
Ans. As per Section 165(1), a person can hold directorship in up to 20 companies at the same time. However, within these 20 companies, the person cannot be a director in more than 10 public companies. This includes any role as an alternate director. The purpose of this limit is to ensure directors can dedicate sufficient time and attention to each company they serve.
Q2. Are private companies counted in the limit of 20 companies?
Ans. Yes, private companies are counted within the limit of 20 directorships. However, for the limit of 10 public companies, certain private companies are also treated as public — specifically, private companies that are subsidiaries or holding companies of public companies. Dormant companies are excluded from the count.
Q3. Can a company restrict its directors to hold fewer directorships than the statutory limit?
Ans. Yes, under Section 165(2), a company may restrict its directors from holding directorships in more than a specified number of companies by passing a special resolution. For example, a company may limit its directors to holding directorship in only 10 companies. If such a resolution is passed, the directors must comply with the internal restriction even though the general law allows 20.
Q4. Does Section 165 of Companies Act 2013 apply to Section 8 companies and dormant companies?
Ans. No, Section 165 does not apply to Section 8 companies and dormant companies. A person who has already reached the 20-company directorship limit can still be appointed as a director in Section 8 or dormant companies. These categories are exempt to promote social, charitable, or inactive business objectives.
Q5. What is the penalty for holding more than the permitted number of directorships?
Ans. If a person violates Section 165 by accepting or continuing to hold directorships in more than the permitted number of companies, they are liable to a penalty of ?2,000 per day for the period of the violation. However, the maximum penalty that can be imposed is ?2,00,000. This provision was added to ensure strict compliance with corporate governance standards.
Q6. Does Section 165 apply to foreign companies where the director is an Indian citizen?
Ans. Section 165 applies only to companies that are registered under the Companies Act, 2013 or the Companies Act, 1956. Directorships in foreign companies that are not registered in India are not counted towards the 20-company limit. However, if a foreign company has a registered office in India and is incorporated under Indian law, it will be considered under the purview of Section 165.
Q7. How does Section 165 affect directors appointed before the commencement of the Companies Act, 2013?
Ans. Directors who were holding office in more than 20 companies before the Act came into force were given a transition period of one year to comply. Within that year, they were required to resign from excess companies and select only 20 companies in which they intended to continue. They also had to inform the Registrar of Companies and the respective companies of their decision.
Q8. Can a person be a director in more than 15 companies?
Ans. Yes, a person can be a director in more than 15 companies if the total number does not exceed 20, and the number of public companies does not exceed 10. The limit of 15 directors mentioned in the Act refers to the maximum number of directors a single company can appoint, not the number of directorships a person can hold. A company can appoint more than 15 directors by passing a special resolution.
Q9. Is alternate directorship also counted in the directorship limit under Section 165?
Ans. Yes, directorship held as an alternate director is included in the calculation of the total number of 20 companies. Even if a person is appointed as an alternate director on a temporary basis, it still counts toward their total directorship limit under Section 165.

In any company, directors are responsible for steering the management in the right direction. They act as the decision-makers and help ensure smooth governance and compliance. The Companies Act, 2013 defines and regulates the appointment, roles, and limitations of directors. Among the many provisions under this law, Section 165 of Companies Act 2013 plays an important role in restricting the number of companies a person can be a director in. This provision ensures that directors of a company are not overburdened and can dedicate appropriate time to manage their responsibilities.

Directors of a Company

A director of a company is an individual appointed to the Board of Directors. The Board is the main body responsible for decision-making and overall management. According to the Companies Act, 2013, every company must have a minimum number of directors. A One Person Company (OPC) must have at least one director. A Private Limited Company should have a minimum of two directors, and a Public Limited Company must have at least three directors.

Although the minimum number of directors varies, the Act places a maximum limit of 15 directors in a company. However, if the company wants to appoint more than 15 directors, it can do so by passing a special resolution in a general meeting. This structure ensures a balance between authority and accountability in company governance.

What is Section 165 of Companies Act 2013?

Section 165 of Companies Act 2013 outlines the limit on the number of companies in which an individual can hold the position of a director. This restriction helps maintain governance quality by ensuring directors do not take on more responsibilities than they can handle. The law acknowledges that while a person may be highly competent and qualified, spreading their time and attention too thinly across too many companies may lead to ineffective leadership. Hence, Section 165 ensures that directors of a company dedicate sufficient time to their duties and act in the best interests of every company they serve.

Number of Directorships a Person Can Hold

As per Section 165(1) of the Companies Act 2013, a person can hold directorship in a maximum of 20 companies at a time. This includes any directorship held as an alternate director. However, within these 20 companies, a person cannot be a director in more than 10 public companies simultaneously.

While calculating the number of public companies, directorships in private companies that are either holding or subsidiary companies of a public company are also considered public companies for the purpose of this section. Therefore, even if a company is registered as a private limited company, it will be counted towards the limit of 10 public companies if it is linked to a public company in a holding-subsidiary relationship.

On the other hand, directorships in dormant companies are not counted while calculating the 20-company limit. Dormant companies are inactive or have no significant accounting transactions and are treated differently under the Act. This restriction promotes better governance by ensuring directors of a company are not overcommitted and can give proper attention to each company they serve.

Objective Behind Restricting the Number of Directorships

The purpose of Section 165 of Companies Act 2013 is to prevent directors from being involved in more companies than they can reasonably manage. Managing even one company demands considerable time, planning, and attention. When an individual holds too many directorships, their effectiveness as a director could be compromised.

By restricting the number of companies to 20, and limiting public companies to 10, the law ensures that directors of a company can focus on their duties and responsibilities properly. It also enhances corporate governance by reducing the chances of negligence or poor decision-making due to divided attention.

Provision for Reduction in Number of Directorships

Section 165(2) of the Companies Act 2013 empowers companies to reduce the number of outside directorships allowed for their own directors. A company may decide that its directors should not be overextended and can fix a lower limit by passing a special resolution in a general meeting.

For example, if a company passes a resolution stating that its directors cannot hold directorship in more than 10 companies, then that condition will apply even though the general limit under the Act is 20. This means that a person serving as a director in such a company must restrict their directorships in other companies accordingly. This provision gives companies flexibility to strengthen governance norms based on their own needs and ensure that the directors of a company are fully committed to their roles.

Transitional Provision for Pre-existing Directorships

Section 165(3) and 165(4) deal with directors who were already holding more than 20 directorships before the Companies Act, 2013 came into effect. Under the earlier Companies Act, 1956, private companies and unlimited companies were not counted when calculating the number of directorships. However, the 2013 Act changed that and included them under the cap.

Directors holding more than 20 positions at the time of commencement of the Act were given a one-year period to comply. During this transition, such directors were required to select 20 companies in which they wished to continue as directors and resign from the others. These resignations were effective immediately upon dispatch to the respective companies. Further, the director had to inform the Registrar of Companies (ROC) and all the companies concerned about their decision. This process helped bring all directorships under the purview of the new legal framework and avoided any confusion.

Prohibition Beyond the Time Limit

Section 165(5) of the Companies Act, 2013 strictly prohibits any person from continuing to act as a director in more than 20 companies after the one-year compliance period or after dispatching resignation letters, whichever is earlier. This provision ensures that no one can misuse the grace period and continue holding excessive directorships beyond the permitted time. If a person fails to resign and continues to act as a director in more than 20 companies, they are in direct violation of the Act and may face penalties.

Penalty for Contravention of Section 165

To ensure strict compliance, Section 165(6) provides for penalties. If a person accepts or holds a directorship in more than the permitted number of companies, they are liable to pay a penalty of Rs. 2,000 per day for each day the violation continues. However, the total penalty is subject to a maximum limit of Rs. 2,00,000. This provision was introduced as part of the Companies (Amendment) Act, 2020, effective from December 21, 2020, and is designed to discourage individuals from violating directorship limits.

The penalty aims to maintain seriousness among directors of a company, ensuring that compliance with governance standards is treated with importance.

Applicability to Section 8 Companies

One of the most common queries related to Section 165 of Companies Act 2013 is whether it applies to Section 8 Companies. These are non-profit entities formed for charitable or social objectives.

The answer is no. The section does not apply to Section 8 companies. A person who has already reached the maximum directorship limit can still be appointed as a director in a Section 8 company. Similarly, directorships in dormant companies are also excluded from this limit.

This exemption is provided considering the non-commercial nature of Section 8 companies and the need to promote social development through experienced leadership.

Applicability to Foreign Subsidiaries and Companies

Section 165 of Companies Act 2013 is applicable to all companies registered in India under the Companies Act, whether they are domestic or foreign subsidiaries. This includes companies with Indian directors and offices in India, even if they are a subsidiary of a foreign company. However, this section does not apply to directorships held in companies incorporated outside India unless those companies are registered under Indian law. Thus, a person may serve as a director in any number of foreign companies unless they are registered under the Indian Companies Act.

For example, if a person is a director in 20 Indian companies and is offered a directorship in a foreign company that is not registered in India, accepting that role will not violate Section 165.

Maximum Limit of Directors in a Company

While Section 165 limits the number of directorships a person can hold, there is a separate provision in the Act that governs how many directors of a company can be appointed in a single company. Under the Companies Act, a company can have a maximum of 15 directors. However, if a company wants to appoint more than 15 directors, it can do so by passing a special resolution in a general meeting. This ensures that the company’s decision-making body remains manageable, while still allowing flexibility if required. This limit ensures that the Board does not become overcrowded, and decisions are made efficiently.

Conclusion

Section 165 of Companies Act 2013 serves as an important provision to ensure the effective functioning of directors of a company. By restricting the number of companies a person can serve as a director in, the law promotes better governance, accountability, and decision-making. The section is flexible enough to allow companies to reduce the limit further through special resolutions. At the same time, it provides exemptions for Section 8 companies and dormant entities. Directors must be mindful of these provisions and maintain transparency with the Registrar of Companies to avoid penalties.

Good governance begins with responsible leadership, and Section 165 ensures that leaders are not spread too thin across the corporate sector. Every director must ensure they are well within the prescribed limits and capable of discharging their duties efficiently and ethically.

If you have any queries or need any assistance in Company Registration and Compliances, then you can connect with Compliance Calendar experts through mail at info@ccoffice.in or Call/Whatsapp at +91 9988424211.

FAQs

Q1. What is the maximum number of directorships a person can hold under Section 165 of Companies Act 2013?

Ans. As per Section 165(1), a person can hold directorship in up to 20 companies at the same time. However, within these 20 companies, the person cannot be a director in more than 10 public companies. This includes any role as an alternate director. The purpose of this limit is to ensure directors can dedicate sufficient time and attention to each company they serve.

Q2. Are private companies counted in the limit of 20 companies?

Ans. Yes, private companies are counted within the limit of 20 directorships. However, for the limit of 10 public companies, certain private companies are also treated as public — specifically, private companies that are subsidiaries or holding companies of public companies. Dormant companies are excluded from the count.

Q3. Can a company restrict its directors to hold fewer directorships than the statutory limit?

Ans. Yes, under Section 165(2), a company may restrict its directors from holding directorships in more than a specified number of companies by passing a special resolution. For example, a company may limit its directors to holding directorship in only 10 companies. If such a resolution is passed, the directors must comply with the internal restriction even though the general law allows 20.

Q4. Does Section 165 of Companies Act 2013 apply to Section 8 companies and dormant companies?

Ans. No, Section 165 does not apply to Section 8 companies and dormant companies. A person who has already reached the 20-company directorship limit can still be appointed as a director in Section 8 or dormant companies. These categories are exempt to promote social, charitable, or inactive business objectives.

Q5. What is the penalty for holding more than the permitted number of directorships?

Ans. If a person violates Section 165 by accepting or continuing to hold directorships in more than the permitted number of companies, they are liable to a penalty of ?2,000 per day for the period of the violation. However, the maximum penalty that can be imposed is ?2,00,000. This provision was added to ensure strict compliance with corporate governance standards.

Q6. Does Section 165 apply to foreign companies where the director is an Indian citizen?

Ans. Section 165 applies only to companies that are registered under the Companies Act, 2013 or the Companies Act, 1956. Directorships in foreign companies that are not registered in India are not counted towards the 20-company limit. However, if a foreign company has a registered office in India and is incorporated under Indian law, it will be considered under the purview of Section 165.

Q7. How does Section 165 affect directors appointed before the commencement of the Companies Act, 2013?

Ans. Directors who were holding office in more than 20 companies before the Act came into force were given a transition period of one year to comply. Within that year, they were required to resign from excess companies and select only 20 companies in which they intended to continue. They also had to inform the Registrar of Companies and the respective companies of their decision.

Q8. Can a person be a director in more than 15 companies?

Ans. Yes, a person can be a director in more than 15 companies if the total number does not exceed 20, and the number of public companies does not exceed 10. The limit of 15 directors mentioned in the Act refers to the maximum number of directors a single company can appoint, not the number of directorships a person can hold. A company can appoint more than 15 directors by passing a special resolution.

Q9. Is alternate directorship also counted in the directorship limit under Section 165?

Ans. Yes, directorship held as an alternate director is included in the calculation of the total number of 20 companies. Even if a person is appointed as an alternate director on a temporary basis, it still counts toward their total directorship limit under Section 165.