Foreign Nationals Director in Indian Company

Overview : Similar to the Indian Directors, Foreign Directors play a vital role in the operations as well as overall governance of the companies in India. With their diverse experience, they can add significant value to the board. One of the key benefits of appointing a director from foreign nation to a company in India is that he/she can help Indian businesses expand beyond the boundaries of India to other nations. However, the appointment of these directors require to follow more stringent guidelines and regulations to stay compliant with the concerned authorities and appointing a director hassle-free. The blog sheds light on the key essentials of the appointment of a foreign director in a company in India.

Foreign directors have a significant role in the operations and management of Indian companies as they add diverse perspectives and expertise to the boardroom. Understanding the legal provisions, eligibility requirements, and appointment process of foreign directors in companies in India is essential for the foreign individuals looking to become directors, as well as companies looking to go global.

The foreign nationals' appointment as directors involves navigating various legal and tax implications, including specific tax obligations under the Income Tax Act and compliance with Companies Act and FEMA. This blog gives you detailed and in-depth information on foreign director appointment criteria and stepwise process.

Foreign directorship in Indian companies is governed by Companies Act, 2013 which outlines the legal provisions, requirements and procedures for appointment and functioning of directors. It prescribes certain eligibility requirements which must be met before the appointment becomes effective. These include ensuring a certain stay period in India and getting essential things like DIN and compliance with FEMA while remitting money back to the home country. These provisions aim to facilitate cross-border collaboration and promote global diversity in corporate governance structure.

Who is a Foreign Director?

As per the Indian Companies Act, a foreign director means an individual who is a director in an Indian company but not a citizen of India. The Companies Act does not define the term "foreign director" but acknowledges the eligibility of foreign individuals to be directors in the Indian companies under certain conditions. A foreign Director in an Indian Company may be appointed to represent a foreign promoter or to bring in diverse perspectives during the crucial decision-making process. A board cannot have only directors from foreign nations and must have at least one Indian citizen as a director.

There are two types of foreign directors: foreign national directors and foreign resident directors. As per a recent amendment to the Companies Act, a foreign resident director is an individual who has stayed for 120 days or less, cumulatively in India, during the previous financial year.

Legal Framework for Foreign Director in Company in India

The directors of foreign nations in Indian companies bring the diversity and global expertise to the boardrooms, enriching the decision-making process. Foreign Residents planning to become managing or whole-time directors in a company in India must fulfill the prescribed requirements and criteria such as residency status, age limits, etc. However, navigating the legal framework for foreign directorship requires a thorough understanding of the Companies Act 2013 and related regulations.

Requirement of Director Identification Number (Section 153)

According to Section 153 of the Companies Act, foreign directors' appointment in Indian Companies primarily requires obtaining a Director Identification Number (DIN) from the Central Government. This process mainly includes providing details of a valid passport and submitting a copy along with the DIN Application (Form DIR-3). Also, the copy of Resolution approving his appointment shall also be attached. Address proof of his Indian residence will also be required.

These documents need to be authenticated by the Indian Embassy or a notary in the foreign national's country of origin or certain designated authorities in India. These include the Managing Director/CEO/Company Secretary of an Indian company where the foreigner intends to serve as a director.

Eligibility Criteria For Foreign Directorship (Section 149)

Section 149 of Companies Act delineates the eligibility criteria for foreign directors in Indian Company. The Eligibility Criteria under Section 149 includes attributes like competency, integrity and professional experience. The Indian Company Law defines an Independent director as someone who is not affiliated with the promoters of the company and doesn't have any financial interest in it, which ensures unbiased governance.

Foreign nationals can be independent directors if they have relevant skills and experience in various fields related to the company's business. There is no explicit citizenship or residency requirement, foreign nationals can be directors in Indian companies if they meet the specified qualifications. While the Act does not specify minimum or maximum age limit for directors, it requires that directors must have attained the age of majority which is typically 18 years old.

Disqualifications for Directors (Section 164)

Section 164 of Companies Act specifies various disqualifications that may apply to foreign directors in Indian Company, including being declared insolvent, being convicted of certain offenses or being disqualified by an order of a court or regulatory authority. Foreign nationals must comply with this provision to be eligible for directorship in Indian companies. Also, the director will have to submit a declaration regarding his non-disqualification for the position to the ROC.

Security Clearance for Directors from Bordering Nations

In addition to the standard procedures mentioned in the Companies Act, Indian companies may also require security clearance for directors from bordering nations. These countries include China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan. This additional step is necessary to ensure national security interests and safeguard sensitive information, particularly in sectors deemed strategic or sensitive.

The clearance process mainly involves meticulous checking of background, scrutiny of affiliations and also assessment of potential risks posed by the director's nationality. This requirement provides an extra layer of diligence and also highlights the government's commitment for protecting critical assets and maintaining security protocols in this era of globalisation.

Compliance with FEMA

While not a provision under the Companies Act, compliance with the FEMA is essential for foreign directors in Indian companies. Under the FEMA and Companies Act, foreign nationals appointed as directors can receive various forms of remuneration, including sitting fees. FEMA regulates foreign investments, remittances, and other foreign exchange transactions, impacting aspects such as repatriation of profits and transactions in foreign currency. Directors from other nations must comply with FEMA regulations to avoid legal consequences and maintain regulatory compliance.

Other Regulatory Requirements

Depending upon the nature of business and industry, other regulatory requirements may apply to foreign directors in Indian companies, such as sector specific regulations, tax laws and corporate governance guidelines issued by regulatory authorities like SEBI or RBI. They should be aware of such regulations and proactive compliance so that they can operate within the legal framework and uphold corporate governance in the Companies in India.

Procedure for Appointment of Foreign Director in Indian Company

The appointment of foreign directors in the Indian Companies is crucial for corporate governance and strategic decision-making. The foreign director appointment process is regulated by the Companies Act 2013 to maintain transparency and ensure compliance. Better know-how of the intricacies of the appointment of foreign directors is important for companies looking to strengthen their leadership and individuals willing to join the board. Here, we outline the step-by-step process of appointment of directors in companies based out in India, highlighting key legal provisions and procedural requirements to ensure good governance.

• Director Identification Number (DIN): Every individual proposed to be appointed as a director must obtain a Director Identification Number (DIN) as per Section 154 of the Companies Act. For foreign nationals, obtaining a DIN involves furnishing the DIN application along with a legalised copy of the Passport, proof of Indian residence and a DIN application. Authentication of documents can be done by the Indian Embassy, a notary in the foreign national's home country or specific authorities in India to ensure the genuineness of the identification process.
  
  If the foreign national is from a country which shares a border with India, prior security clearance will be required from the Government in India. The security clearance letter so obtained will have to be attached with the DIN application as well. Once the DIN is obtained, the director shall inform the company of the same within 30 days. Thereafter, the company shall intimate the ROC of the same within 15 days.

• Eligibility Declaration: Before appointment, the proposed director has to furnish his DIN and a declaration as to his eligibility to act as director in the general meeting of the company. This declaration generally confirms that the individual is not disqualified to act as director under section 164 and meets the eligibility terms under Section 149.
• Intimation of Consent: The proposed director has to furnish his consent to act as director (DIR-2) indicating his willingness to take up the duties and responsibilities of the office. This consent has to be filed with the ROC within 30 days of the appointment so that the appointment process is documented and recorded.
• Appointment at the General Meeting: Directors are appointed in the general meeting of the company's shareholders as per Section 149(2) of the Companies Act. Shareholders generally approve the appointment by passing a resolution to that effect so that the process is transparent and with the consent of the company's members. The documents to be placed in this meeting are DIN of the director, eligibility declaration and consent.
• Receipt of Appointment Letter: After the appointment is approved in the general meeting, the individual is issued an appointment letter by the company. This letter formally informs the director of his appointment, the roles and responsibilities and the terms and conditions of the directorship. The appointment letter is the formal intimation to the director of his appointment and commences the period of his duties as per the terms agreed upon. The appointment letter may also contain the details of remuneration, tenure and other matters related to the directorship.

Application and Allotment of DIN

A Director Identification Number (DIN) is a unique identification number assigned to an individual who intends to become a director of an Indian company. The application and allotment of DIN are governed by the Companies Act of 2013. To apply for DIN, a foreign national has to:

• File Form DIR-3 : The foreign national has to file Form DIR-3 with the India Government. This is the application form for DIN.
• Attach Required Documents : The application has to be attached with valid passport, proof of identity and proof of address. These documents have to be authenticated by the Indian Embassy, a notary in the foreign national's home country or specific authorities in India.
• Get Digital Signature Certificate (DSC) : A digital signature certificate (DSC) from a certified authority is required for e-filing of DIN application. This ensures the authenticity and security of the application process.
• E-File through MCA Portal : The application along with the required documents has to be e-filed through MCA portal. This is a centralized platform to file applications and ensure compliance.

By sticking to these steps, foreign nationals can easily obtain their DIN to get themselves appointed as directors in the companies in India. Get your DIN quickly with expert assistance from Setindiabiz.

Board Meeting and DIR 12 Filing

After the appointment of a director from any foreign country, the company has to follow certain steps to formalize the appointment. Those steps to authenticate and formalize the appointment of foreign nationals in a company in India are as below:

• Hold a Board Meeting: The company has to convene a board meeting to approve the appointment of a foreign director. This meeting is to formally record the appointment.
• File DIR 12: Within 30 days of appointment, the company has to file DIR 12 with ROC. This form has to be filed with the following information:-
• Name and address of foreign director
• Date of appointment
• Designation of foreign director
• A declaration from the director of foreign that he is not disqualified to be appointed as director under Companies Act, 2013

FEMA Compliances

Foreign Exchange Management Act, 1999, governs foreign exchange transactions in India. A foreign national appointed as a director of an Indian company has to comply with FEMA, 1999. The FEMA compliances are:

• Valid Employment Visa: The foreign national has to have a valid employment visa to work in India. This visa is required for legal employment and immigration compliance.
• Foreign Currency Account: The foreign national may have to open a foreign currency account with a bank outside India. This account is for the management of foreign exchange transactions and remittances.
• FEMA Regulations: The foreign national has to comply with all the rules and regulations of FEMA, 1999. This includes understanding the legal framework of foreign exchange transactions and all activities have to be within the regulatory framework. By following these compliances, foreign nationals can ensure their directorship in Indian companies is legal and FEMA-compliant.

Role of Foreign Director in Indian Company

Foreign directors in Indian Companies play a key role in the governance and decision-making processes. These directors have to comply with the provisions of Companies Act, 2013. Here's a breakdown of the responsibilities and duties of directors from any other country than India. By sincerely fulfilling their responsibilities and duties, these directors can actively contribute to the corporate integrity, transparency, accountability in Indian companies, trust among stakeholders, and sustainable business practices.

• Company Articles: According to the Companies Act, a director has to act as per the company articles, in line with the governing rules and regulations.
• Fiduciary Duties: They have to act in good faith, promote the objectives of the company for the benefit of its members as a whole and in the best interest of the company, its employees, shareholders, community and environment.
• Due Care and Diligence: Directors have to exercise their duties with due and reasonable care, skill and diligence, exercise independent judgment in decision making to protect the interests of the company.
• Avoidance of Conflict of Interest: Directors must not be in situations where their interest may conflict with the company, whether directly or indirectly. Such conflict has to be disclosed and managed to avoid any harm to the company.
• Prohibition of Undue Gain: Directors are prohibited from seeking undue gain or advantage for themselves, their relatives, partners or associates at the cost of the company. Any undue gain received by a director has to be repaid to the company.
• Non-assignability of Office: Directors cannot assign their office, and any such attempt shall be void under the law.
• Consequences of Contravention: Directors who contravene the provisions of this section shall be liable to a penalty which may extend to one to five lakh rupees.

CONCLUSION

Foreign directors have a significant role in the management of a company in India as they bring global perspectives, cross-cultural collaboration and strategic decision-making. Complying with the laws, regulations, and corporate governance's best practices, directors from foreign nations can make an impactful contribution to the growth and success of the companies in India. Despite the complexities and considerations involved, exploring the Indian corporate governance landscape offers opportunities for foreign directors to make valuable contributions and shape the future of the business in the Indian market.

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Editorial Team | in

Setindiabiz Editorial Team is a multidisciplinary collective of Chartered Accountants, Company Secretaries, and Advocates offering authoritative insights on India’s regulatory and business landscape. With decades of experience in compliance, taxation, and advisory, they empower entrepreneurs and enterprises to make informed decisions.

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