Under Section 149(3) of the Companies Act 2013, it is a requirement that every company be placed on the board by at least one director so that he has been resident in India for any total period of at least 182 days within the last calendar year. This provision is intended to make sure that the companies do not absent themselves from India and fail to have an effective de facto system of governance, thus defaulting Indian laws and regulations. This provision becomes a need for all Indian businesses not to be penalized but to work fluently. There is further elaboration in this article about Section 149(3), which details the description thereof in informing how it will apply and, therefore, what strategies should be implemented in fulfilling it.

Key Aspects of Section 149(3) of the Companies Act 2013

Section 149(3) of the Companies Act, 2013, underscores the necessity for companies to maintain a directorial presence in India, thereby promoting effective corporate governance and adherence to local regulations.

Residency Requirement: 

There should be at least one director of a company who has been residing in India for a period of not less than 182 days in the immediately preceding calendar year. This is the same requirement uniform to all companies, whether public, private, or even One Person Companies.

Calculating residency period: 

This is a 182-day residency period computed based on the director's physical availability in India during the preceding calendar year, January 1 to December 31. This ensures that the director shall be substantially available to administer the company and its regulatory requirements.

Applicability to Newly Incorporated Companies: 

As regards the companies incorporated between April 1, 2014, and September 30, 2014, MCA made it clear that such companies shall, at either date of incorporation or within six months after incorporation, have a resident director. In the case of companies incorporated on or after September 30, 2014, such companies are compulsorily required to have a resident director from the date of incorporation itself. .

Exemptions and Clarifications:

MCA issued General Circular No. 25/2014 dated June 26, 2014, providing clarifications regarding the applicability of the requirement for resident directors. It provided that the period of three years under Section 149 of the Companies Act shall be worked out from the date of commencement of Section 149, which is April 1, 2014. Hence, for calendar year 2014, the period to be considered was from April 1 to December 31, 2014, and the number of days for compliance was proportionately reduced to 136 days.

Penalties upon non-compliance: 

A consequence of the failure to comply with the third provision of Section 149 is that a penalty could be imposed not only on the company but also on officers of the company. Now, fines can be imposed on the company, but officers in default could be liable to inflict fines and/or imprisonment, thus a strong emphasis on following this statutory provision.

Effects on Business Enterprises

• Foreign Company Operating in India: An overseas company operating directly or indirectly, through a subsidiary, in India must have its board of at least one director who qualifies under the residency test. This may be by nominating a local director or by ensuring a director who already sits on the board spends adequate time in the country.

• Corporate Governance: A resident director will further enhance corporate governance through a better ability to respond promptly and be compliant with local laws to attend board meetings and respond to regulatory matters.

• Strategic Planning: Companies should plan appointments of directors and travel schedules to meet residency requirements while avoiding legal and financial costs.

Illustration on Section 149(3) of the Companies Act, 2013

Suppose that GlobalTech Innovations, being a private company incorporated in India, has an appointed board of directors consisting of officers from various countries. According to the provisions of Section 149(3) of the Companies Act, 2013, a private company would be required to give an assurance that one of the directors has been residing in India for at least 182 days of the preceding calendar year.

None of the directors in place for fiscal 2023 meets this residency requirement. To meet the law and avoid penalties, GlobalTech Innovations added Ms. Asha Patel, a professional from Mumbai, as a director. Statutory residency by Ms. Patel meets Section 149(3).

This strategic appointment meets the legal requirement but further strengthens governance within the firm with a director who is accessible to oversee management and interaction with the regulatory bodies of India.

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In Summary,

Section 149(3) of the Companies Act, 2013, states that every company shall have at least one director who has, at any time during the preceding calendar year, been a resident in India for a period of not less than one hundred and eighty-two days. The minimum residence requirement ensures that companies have a resident directorship from the state. It is effective governance and necessary to comply with India's laws. Non-compliance leads to levied penalties, thus the need for businesses to have directors not in contravention of this provision. Non-compliance with this should be seen as a requirement for smooth operation and compliance with a regulatory provision in the Indian corporate world.

Also, Check out the Statutory, Fiduciary, Particular Powers of Directors

FAQs on Section 149(3) of the Companies Act, 2013

Q1. What does Section 149(3) of the Companies Act, 2013 demand?

The section mandates every company be formed with at least one director who has been present in India for at least 182 days of the previous calendar year

Q2. Why do companies require a director domicile?

It guarantees the presence of directorship in India for the companies, which helps them to govern and promote those laws in that locality effectively.

Q3. How is the 182-day residence period calculated?

This is calculated by actual days of residence within India by a director in the preceding calendar year from January 1st to December 31st.

Q4. Is there an exception to this provision under Section 149(3)?

No, but the same applies to all, whether it is a private, public, or One Person Company, as declared in the Companies Act, 2013.

Q5. What is the punishment if Section 149(3) is violated?

The trouble is that this non-compliance may invite quite severe penalties for the company as well as its officers and hence strengthens the case for abiding by this statutory provision.