Can NRIs Hold Multiple Directorships in India?

As India continues to attract global investors, technology founders, and startups, the involvement of NRIs and foreign nationals has become increasingly common. Considering this, NRIs participating in the corporate ecosystem of India is no longer limited to an investment. With the rise of cross-border entrepreneurship and globalization, many NRIs are now also serving as directors in several Indian companies.

Now, here the question is, can NRIs hold multiple directorships in India like residents? The answer is yes, NRIs can hold multiple directorships in India. However, for this, they need to follow a defined legal and regulatory framework stated in the Companies Act 2013.

Want to know what it is and what the compliance responsibilities are associated with NRIs holding multiple directorships in India? Read the blog and get your answers.

Section 165: Number of Directorships of a Director

Section 165 of the Companies Act, 2013, limits the number of directorships an individual (resident, NRI, or foreign national) can hold. According to the Companies Act 2013 directorship limit an individual can hold directorships in 20 companies. Here, the number of 20 companies involves the office of alternate directorship.

Considering this, at a given time, a person in more than 20 companies cannot be a director. However, the maximum number of public companies for which an individual can be a director is 10. Further, as per this, at a given time, an individual cannot hold multiple directorships in more than 10 public companies.

The purpose behind limiting the number of directorships of a director is so that he/she can give sufficient and proper time to a company. Apart from this, it prohibits an individual from holding multiple directorships in more than 20 companies to ensure his/her functioning as a director in an appropriate manner.

Additionally, as stated above, Section 165 also applies to NRIs holding multiple directorships in India. This limit collectively applies across all companies. However, the directorship in a dormant company is not counted in calculating the limit of multiple directorships. Apart from this, exceeding the prescribed limit can lead to mandatory resignation from excess companies and penalties.

So, this was all about section 165. Moving ahead, let's know about the key requirements for NRIs to become directors in Indian companies.

Key Requirements for NRIs to Become Directors in Indian Companies

Key requirements for NRIs to become directors in Indian companies include:

• Obtaining a Director Identification Number (DIN). It is stated under section 152 (3) in the Companies Act, 2013.
• To appoint an NRI as a company director, the company needs to pass a resolution in a duly convened meeting.
• An NRI director is required to attend at least one Board meeting of each company. Further, they can attend the meeting either in person or via video conference.
• Additionally, an NRI director should complete their DIN. Also, under section 164, declare that they are not disqualified from becoming a director in an Indian company.
• The total number of directors in one company should not be more than 15.
• All supporting documents submitted by an NRI director, including his/her photograph, should be certified by the Indian consulate or a notary in their resident country.
• Also, investments made by an NRI director should comply with the Foreign Exchange Management Act (FEMA) regulations.

These are the key director eligibility for NRIs that they need to fulfill to become directors in Indian companies. Generally, these regulations remain the same for both private and public Indian companies. Moving further, now let's know the compliance requirements for NRIs holding multiple directorships in India.

Compliance Responsibilities of NRIs Holding Multiple Directorships

For an individual, managing multiple directorships significantly increases compliance obligations. This also applies to NRIs holding multiple directorships. It is because each company works independently. Considering this, an individual should follow the statutory requirements of each of them. Further, the core compliance areas on which NRIs can provide their attention include:

• Disclosure of Interest: NRIs should disclose the mentioned things. It helps in preventing conflicts of interest and ensuring transparency.
  • The names of the companies in which they hold the position of a director.
  • Shareholding or financial interest.
• Annual Filings: Each company should file its annual returns and financial statements. It is because non-compliance in one company can create problems for the director.
• Participation in Board Meeting: Directors are expected to either virtually or physically attend at least one board meeting of the company. Additionally, should also take part in strategic decisions. Virtual participation in the meeting is helpful for NRI directors with a time zone difference.
• KYC Compliance: Annual DIR-3 KYC filing is mandatory for directors, including NRIs. Failure in this can lead to DIN deactivation. Apart from this, it can also impact the ability to continue multiple directorships.

This was all about the compliance responsibilities that NRIs need to follow when holding multiple directorships in India. Moving forward, let's know about the penalty for non-compliance with Section 165(1) of the Companies Act, 2013.

Penalty for Non-Compliance with Section 165

Section 165(6) of the Companies Act 2013 states the penalty for an individual who holds a position of director in contravention of this Act. Considering this, if an individual, whether a resident or an NRI, is appointed as a director in more than 20 companies, he/she is liable to pay a penalty of INR 2000. It applies to each day during which the violation continues and is subject to a maximum of INR 2,00,000.

Further, this penalty provision was included in the Companies Act, 2013, from December 21, 2020, to prevent holding multiple directorships in more than 20 companies.

So, it was all about the penalty for non-compliance with section 165. Moving ahead, let's know the risks and disqualifications for NRIs holding multiple directorships.

Risks and Disqualification for NRIs

Multiple directorships also carry significant risks and potential for disqualification for individuals. It is specifically under a strict corporate governance structure like the Companies Act, 2013. Further, let's know about them.

• Key Risk Associated with Multiple Directorships
  • Serving too many boards may reduce the monitoring ability and time of a director. It leads to negative company performance and poor oversight.
  • Under section 164(2), if one company fails to file financial statements or annual returns for 3 consecutive years, the director from all companies are disqualified for 5 years.
  • Directors may face issue to fulfill their responsibilities towards multiple, potentially competing companies. It results in breaches of confidentiality, fiduciary duty, or diversion of business opportunities.
  • Disqualification is public information. It damages the professional standing of the director. Additionally, it also affects their future career prospects.
• Disqualification Criteria and Circumstances
  • Failure to pay interest, declare dividends, or repay deposits for over one year or more leads to a five-year disqualification for all directors.
  • Being declared an insolvent, unsound mind, or convicted of an offense including moral turpitude with imprisonment of six or more months.

These are the risks and disqualifications NRIs may face when holding multiple directorships. Moving further, let's know the best practices for NRIs managing multiple directorships.

Best Practices for NRIs Managing Multiple Directorships

To successfully manage multiple directorships, it is advisable for NRIs to adopt a disciplined and structured approach. The best practices for them to consider are as follows:

• To maintain governance quality, avoid over commitment.
• Ensure taking part in all board meetings and protests against wrong decisions.
• Regularly check that all companies where you are a director are up to date with financial statements and annual filings.
• To manage potential conflicts of interest, disclose all directorships to the board.
• Periodically audit the financial and compliance status of all companies.
• Rather than quantity, focus on the quality of involvement.
• Long-term governance contribution.
• For better management, consider taking the help of company secretaries and chartered accountants.

The above-mentioned tips ensure NRIs hold multiple directorships without any legal or operational strain.

Final Thoughts

Lastly, under the Companies Act 2013, NRIs can hold multiple directorships in Indian companies. It provides them with significant opportunities to take part in the growing corporate landscape of the country. However, the flexibility of multiple directorship comes with defined limits, as stated under section 165. For NRI directors, the goal should not be to hold a director position in multiple companies but to contribute meaningfully. Additionally, a well-structured, disciplined approach by the director certifies long-term legal safety, credibility, and strategic growth of the company.

Further, at Savetaxs, we help NRIs in managing multiple directorships in Indian companies. The experts in our team navigate you through the complex regulatory framework, ensuring legal compliance, handling documents, and more. So connect with us today and fulfill your duties without any hassle.