In the world of business, a company takes on a unique persona, just like a living being. This entity is guided and overseen by individuals known as its directors. The Companies Act of 2013 defines a director as a person appointed to a company’s board. Also, the BOD holds the responsibility for managing the company’s activities and safeguarding the long-term interests of its shareholders. In this blog, we shall see the role of foreign director in Indian company.
Foreign Nationals as Directors under the Companies Act, 2013
Under the Companies Act, 2013 in India, individuals, including foreign nationals, can be appointed as directors in various capacities for company registration.
Types of Directors
The Companies Act, 2013 allows for the appointment of six types of directors in Indian companies, which include:
1. Women Director
2. Independent Director
3. Small Shareholders Director
4. Additional Director
5. Alternative Director
6. Nominee Director
So, there is no restriction barring foreign director in Indian company under the Companies Act, 2013.
Director Eligibility Criteria
To become a director of a company, whether Indian or foreign, certain criteria must be met. These criteria include:
1. Director Identification Number: Every person, including foreign nationals, must obtain a Director Identification Number before being appointed as a director.
2. Disqualification Declaration: Individuals appointed as directors, including foreign nationals, are required
Director Identification Number Application Process
Under the Companies Act, 2013, individuals, including foreign nationals, aspiring to become directors in an Indian company must obtain a Director Identification Number. The DIN allotment process involves the following steps:
1. Application for DIN Allotment
- Every prospective director must apply to the central government for DIN allotment, as per Section 153 of the Act.
- The application for DIN allotment should be made electronically using Form DIR-3 and submitted through the MCA portal on their website.
- An application fee of Rs. 500, as stipulated in the Rules, must be paid during the application process.
2. DIN Allotment Timeline
- DIN is typically allotted within one month from the date of application submission.
3. Application Submission
- Form DIR-3, available for download on the MCA portal, should be completed and electronically submitted.
- The applicant is required to sign the form using their Digital Signature Certificate.
Documents Required for Foreign Director in Indian Company
Foreign director in Indian company must provide certain documents along with their DIN application:
1. Photograph:
A recent passport-size photograph of the applicant.
2. Id. Proof:
Valid proof of identity, like a passport, should be submitted.
3. Residence Proof:
Documentary evidence of the applicant’s residence, often in the form of a utility bill or other valid documents, is required.
4. Verification (Form DIR-4):
The applicant must submit a verification document (Form DIR-4) along with the DIN application.
5. Specimen Signature:
The applicant’s specimen signature, duly verified, should be included in the application.
Additional Requirements for Foreign Director in Indian company:
For foreign director in Indian company who are applying for DIN to become directors, the following conditions apply:
- The details of a valid passport should be provided in Form DIR-3, and a certified copy of the passport must be attached with the DIN application.
- All supporting documents, including photographs, should be certified by either the Indian Embassy or a notary in the applicant’s home country, or by the Managing Director/CEO/Company Secretary of the Indian company in which the applicant intends to be a director.
- If the foreign director possesses a valid multiple-entry Indian visa or holds a Person of Indian Origin card or an Overseas Citizen of India card, the attestation of documents can also be done by a Public Notary/Gazetted Officer in India or by a practicing chartered accountant, company secretary, or cost accountant.
Digital Verification of DIR-3 Form
The DIR-3 Form, submitted for Director Identification Number allotment, must undergo digital verification by the following authorities:
- A chartered accountant in practice
- A company secretary in practice
- A cost accountant in practice
- A company secretary in full-time employment of the company
- The managing director or director of the company in which the applicant intends to be appointed as a director.
Provisional DIN and Approval Process
Upon submission of the DIN application online, a provisional DIN is automatically generated. However, this provisional DIN is not operational until it receives approval and confirmation from the central government. The approval process involves the following steps:
- The central government reviews the application and decides whether to accept or reject the DIN request.
- The central government communicates its decision to the applicant within one month from the date of application submission.
Application Rejection and Consequences
If the errors are only partially corrected or if the rectified information remains defective, the central government rejects the application. In such cases, the applicant is directed to submit a fresh application for DIN.
Failure to rectify the information within the stipulated time results in the application being deemed invalid by the central government. Upon application rejection, the provisional DIN automatically lapses, and the fees paid for the application are neither refunded nor adjusted for any other application.
It’s important to note that the DIN obtained by the applicant remains valid for the entire lifetime of the applicant once it is approved and confirmed by the central government.
Independent Director in a Company
An independent director, within the context of a company, is a director who holds a distinct role:
- They are not associated with the company’s promoter.
- They do not have any pecuniary relationship with the company, its holding, subsidiary, or associate companies.
- They or their relatives do not serve as key managerial personnel or employees in the company.
Compliances Under FEMA for Foreign Director in Indian Company
Foreign director in Indian company is subject to specific compliances under the Foreign Exchange Management Act. Mentioned below are the key compliance requirements:
1. Eligibility for Directorship:
Under the Companies Act and FEMA, there are no restrictions for foreign nationals to become directors in Indian companies. They enjoy the same privileges and responsibilities as any other director.
2. Compensation and Remuneration:
Foreign director in Indian company are entitled to receive sitting fees, remuneration, commission, and reimbursement of travel expenses, just like their Indian counterparts.
3. Property Ownership Restrictions:
However, according to FEMA, foreign nationals serving as directors cannot acquire property located in India.
4. Foreign Currency Accounts:
Foreign directors are permitted to hold and maintain foreign currency accounts with banks outside India.
They can receive or remit their entire salary, which is payable for their services, through these foreign currency accounts.
5. Remittance of Remuneration:
When Indian companies employ foreign director in Indian company, they are required to make an application for the remittance of the director’s remuneration to authorised dealers.
This application should be accompanied by a statement and an undertaking certificate confirming the payment of Income Tax.
6. Visa Requirement:
To serve as a foreign director in an Indian company, a foreign national must hold a valid employment visa.
It’s essential for foreign directors and the Indian companies they serve to comply with these FEMA regulations to ensure smooth financial transactions and adherence to the legal framework governing foreign investments and directorships in India.
Final Thoughts
A foreign director in Indian company holds a significant position in the country’s business sector. They are bound by the same set of rules and tax guidelines as Indian directors, without any special privileges based on their nationality. While foreign nationals can hold foreign currency accounts, property acquisition in India is restricted. Compliance with Indian laws, including the Companies Act, FEMA 1999, and the Income Tax Act, is vital for foreign directors to ensure smooth operations and legal compliance in their roles within Indian companies.
