Does Indian Law Recognize "Pseudo Director" Roles? Seeking Guidance for Urgent Decision

Respected Seniors,

Please help me to resolve the puzzle whether our Indian Act protects the concept of "Pseudo Director".

If yes, then in what fashion? If not, then why? Please help me. :? :? :?

I am working in a Software development UK-based company where the staff strength is 20. There are only three people in the India management team: two Project Managers and myself.

Very recently, my MD visited India and asked for my views on the concept of "PSEUDO DIRECTOR," which he wants to offer to these two project managers who have been handling the India operations very honestly for the last six years.

Please, please let me know and explain in brief about this. If Indian laws do not protect this concept, is there any other designation that can give them proxy authority?

Your help in this regard is highly appreciated.

Thanks & Regards,
Mona

Dear Mona,

If you are talking about the concept of legality, please refer to the Companies Act, 1956. It is under the Companies Act that the types of Directors a Company can have, which will be recognized by the Law, are described.

As far as I know, the concept of Pseudo Directors is not present here. From what I understand, the designations given to pseudo directors are - President, Executive President, Vice President, Executive Director, etc.

Please revert with details for further help.

Regards,
SC

Dear Mona,

The term Director is only defined in the Companies Act; no other legislation provides a definition. Whenever this term is used, it is invariably referred back to the Companies Act, 1956. The designation and responsibilities of a Director can be determined by the Company, but any such decisions must comply with the provisions of the Companies Act.

You can view the Companies Act online by clicking on the following link: http://www.vakilno1.com/.

While a Company can designate someone as a Director without issue, it's important to note that the individual will not possess any statutory status unless they meet the qualifications outlined in the Act.

Regards,
SC

Hi Mona,

The Companies Act recognizes only a Director, not a pseudo-Director. If your Indian operations are registered as a company under the Companies Act, only then can you appoint Directors for the Indian entity. Otherwise, as per the law, a pseudo-Director or proxy-Director does not have any legal position.

Generally speaking, a person becomes a Director if:
- he is a signatory to the Memorandum & Articles of Association (required for company registration)
- he has a substantial stake in the company (more than 20%)
- he is nominated to the Board of Directors by a major shareholder

Since none of these criteria apply, these two people cannot be designated as Directors. I assume from the text of your query that your Indian operations are not registered in India as an Indian company.

You could frame any other designation for these two people, like Project Director or something, but this would be relevant only internally, not statutorily.

Warm regards,
Devjit

Dear Swastic,

Please do not feel offended. I am thankful to you for your speedy help :) but wondering why other seniors are not posting their views against the query asked.

Hope you will understand me :cry:

Best Regards,
Mona

Dear Mona,

You don't have to try dubious designations as 'pseudo-director' and find ways of circumventing the law of the land. Under any law, pseudo is pseudo. If the organization is trying to create a functional role for delegation of powers, they could think of having positions such as 'Additional Director'. Alternatively, they can also delegate executive powers to someone by designating the person as 'Director-in-charge'. The above positions are pseudo in nature but carry executive authority.

Regards,
Rajeev.V

Dear Mona,

The concept of a Pseudo Director is non-existent in India. The Board of Directors and the Memorandum & Article of Association govern the Directors in any Company under the Companies Act, 1956, in India. Director-by-Proxy is applicable, but in certain cases only.

Your expat Directors may not be conceptually or legally clear about the status in India. Normally, for Directorship with foreign origin, the better routes are being a 100% subsidiary of the parent Company abroad or Joint Ventures. Under RBI guidelines and the above-referred Act, there are restrictions on the Directorship of Expats.

You would be well served and will get a quick answer in case you contact your Finance/Secretarial Department or your Company's Chartered Accountant Firm who will be able to guide you exactly on the latest status on Directorship of Companies/Firms.

While I can provide you with lengthy details on the Directorship status (better served face-to-face), do keep your cool and contact either of the above to get an urgent and correct reply.

For more help, do revert without hesitation.

Chow!

Rahul Kumar