Foreign Directors on Indian Company Boards: Appointment, Compliance and Common Pitfalls

Foreign parent companies almost always want their own people on the board of the Indian subsidiary. The Companies Act, 2013 allows this, but appointing a non-resident director involves a set of formalities that are easy to underestimate, from obtaining a Director Identification Number to meeting the resident director requirement. This article sets out the practical steps and the issues that most often cause delays.

1. Can a foreign national be a director of an Indian company?

Yes. There is no nationality restriction on directors of a private or public company. A foreign national, whether resident in India or abroad, can be appointed as a director, managing director or whole-time director, subject to the Companies Act and, for managerial roles, the conditions in Schedule V.

The one structural requirement is in section 149(3): every company must have at least one director who has stayed in India for a total period of not less than 182 days during the financial year. For a newly incorporated company, the requirement is applied proportionately to the period of the financial year after incorporation. A board made up entirely of overseas executives does not satisfy this condition.

2. Getting a Director Identification Number (DIN)

Every director must hold a DIN.

• For the first directors of a new company, the DIN is allotted through the incorporation form (SPICe+).
• For a director appointed later, the DIN is applied for in Form DIR-3.

For a foreign national, the usual identity and address documents are the passport (mandatory) and a recent proof of address such as a bank statement, utility bill or residence card. Documents executed or issued outside India must be notarised and apostilled (for Hague Convention countries) or consularised by the Indian embassy (for other countries). Delays in apostille are the single most common reason why foreign director appointments slip.

A Digital Signature Certificate (DSC) is also needed so that the director can sign e-forms. Foreign nationals can obtain a DSC from Indian certifying authorities on the basis of passport-based verification, usually with a video verification step.

3. Appointment process

1. Consent: the director gives consent in Form DIR-2 and a declaration that he or she is not disqualified under section 164.
2. Board or shareholder resolution: an additional director is appointed by the board (if the articles permit) and regularised at the next general meeting, or the appointment is made directly by the shareholders.
3. Filing with the Registrar: the company files Form DIR-12 within 30 days of the appointment.
4. Disclosure of interest: the director discloses interests in other entities in Form MBP-1 at the first board meeting and every year thereafter.

4. Ongoing obligations of a foreign director

• Director KYC: every DIN holder must complete the periodic DIR-3 KYC as currently prescribed by the Ministry of Corporate Affairs. If KYC is missed, the DIN is deactivated, and the director cannot sign filings until it is restored with a fee.
• Board meeting attendance: directors may attend through video conferencing, subject to the rules. A director who does not attend any board meeting for twelve months, with or without leave, vacates office under section 167.
• Limits on directorships: a person can hold directorships in not more than 20 companies, of which not more than 10 can be public companies.
• Disqualification risk: if any company in which the person is a director fails to file financial statements or annual returns for three consecutive financial years, the director can be disqualified from being reappointed in that company or appointed in any other company for five years. Foreign directors are often unaware of this until their DIN is flagged.

5. Remuneration and tax

Sitting fees or remuneration paid to a non-resident director by an Indian company are generally taxable in India, since directors' fees are typically taxable in the country where the company is resident under most tax treaties. The company must deduct tax at source at the applicable rate (or the treaty rate, where the director provides a tax residency certificate and other required documents) and complete the related foreign remittance formalities.

If the foreign director is an employee of the parent and does not receive any payment from the Indian company, there is no Indian payroll obligation for the directorship as such. However, if the person spends substantial time in India, residence status, permanent establishment and visa issues need separate attention.

6. Visa and immigration

A foreign director who travels to India only to attend board meetings can generally do so on a business visa. A foreign national who takes up an executive role in India, such as managing director or whole-time director working from India, generally needs an employment visa and must register with the Foreigners Regional Registration Office where required.

7. Practical checklist

Conclusion

Foreign directors bring the parent's oversight into the Indian subsidiary, but each appointment carries Indian compliance obligations that stay with the individual. Planning the document legalisation early, keeping one resident director in place, and tracking KYC and filing deadlines will avoid most of the problems that subsidiaries face with overseas board members.

Author: N. Sudheer, M.Com., FCS, LL.B., Partner, A2 Consultants, Hyderabad. The views are personal and for general information only, and do not constitute legal advice.