The conundrum of Section 156 of The Companies Act, 2013

 

Filing application for DIN allottment has become an enormously straightforward and uncomplicated proces today. All that is required is to fil the requisite details of the Directors along with mandatory documents and VOILA! your directors DIN allotment is under process and pending for approval. This hassle-free filing of a simple form has become so bewitching that I bet you have overlooked the immersive and substantiate contents of the Approval order for allotment of DIN.

As a Company Secretary management trainee, I recently filed my first Form DIR-3 and was enthralled when I received the DIN approval letter. I mean what today has become a seemingly plain task for me got my guts going when I undertook this hefty task for the first time.  I read the contents of the allotment letter one by one and there it was, one section of companies act 2013 quoted valiantly that appalled me for it seemed to be out of its position.

The closing para of the DIN approval order read –

“You may also note that as per Section 156 of the Companies Act, 2013; every existing director shall, within one month of the receipt of Director Identification Number, intimate his Director Identification Number to the company or all companies wherein he is a director.”

Section 152 (3) of the companies act 2013 reads –

No person shall be appointed as a director of a company unless he has been allotted the Director Identification Number under section 154 or any other number as may be prescribed under section 153.

Implication: With the advent of the companies act 2013, having DIN is a pre- requisite to be appointed as the director of the company. The simple understanding being that an individual who has not been allotted DIN under sec 153 and 154 can not be appointed as the director of the company. Acting as a director is the last thing that he could do.

In a nutshell, No DIN means No Directorship.

 THE ENIGMA OF SEC 156

 The entire problem of section 156 lies in merely few words. The literal interpretation of these words makes section 156 nonsensical. It states that an existing director shall intimate about DIN allotment to the company(ies) wherein he is a director. The position of Directorship cannot exist unless and until individual has been allotted DIN. The existence of Directorship shall come into being only AFTER allotment of DIN, atleast in the era of the companies act 2013. If an individual is to already be a director in company(ies), it does not make sense to apply for DIN. Reversely said, without holding DIN, he couldn’t have become director in these existing companies and thus making section 156 a legal quandary.

 THE TIMES OF THE COMPANIES ACT 1956

 

The concept of a Director Identification Number (DIN) was introduced for the first time with the insertion of Sections 266A to 266G of Companies (Amendment) Act, 2006. As such, all the existing and intending Directors have to obtain DIN within the prescribed timeframe as was notified. Under the act of 1956, an individual could be appointed as director of the company without obtaining DIN. It was only after the insertion of the above said sections that DIN Allotment became a pre – requisite.

 IN A NUTSHELL

 When the Companies act 2013 grandfathered the provisions of the companies act 1956, provisions were retained under the new act that were effective in the era of the 1956 act. Section 156 of the companies act 2013 is one such example. The crux of the situation today stands that without possessing a valid DIN director cannot be appointed, whereas the situation was the opposite in the erstwhile companies act.

 

 

-          Authored by

 

Muskan Aggarwal

(CS Professional Finalist & CS apprentice trainee)