Section 165 of Companies Act 2013: Why the Law Puts a Cap on Directorships

Corporate governance in India is not just about compliance checklists or board meetings that look good on paper. It is about accountability. About focus. About whether a director actually has time to understand what is happening inside a company.

This is exactly where Section 165 of the Companies Act, 2013 comes in.

At its core, this section limits how many companies one person can act as a director for at the same time. The idea is simple. If someone sits on too many boards, decision-making suffers. Oversight weakens. And eventually, shareholders pay the price.

So the law steps in and draws a line.

Under Section 165, no individual can hold directorship in more than 20 companies at once, and out of these, not more than 10 can be public companies. Dormant companies are ignored while counting this number, which gives some practical flexibility.

It may sound restrictive at first, but in reality, it protects everyone involved.

Why Section 165 Was Needed in the First Place

Before this provision existed, it was common to see the same names appearing across dozens of company boards. On paper, it looked impressive. In practice, it created serious problems.

Directors are expected to:

• Review financial statements

• Question management decisions

• Ensure legal and regulatory compliance

• Act in the interest of shareholders

Now imagine doing this for 30 or 40 companies. It simply doesn’t work.

Section 165 was introduced to make sure directors are not overbooked and distracted. The law assumes something very practical — focus improves governance.

And honestly, it does.

How Section 165 Applies to Public and Private Companies

The section technically applies to all companies registered under the Companies Act, 2013, but its real impact is felt most in public companies.

Public companies have large shareholder bases, stricter disclosure norms, and higher regulatory scrutiny. Directors here play a much more sensitive role. That’s why the law specifically caps public company directorships at ten.

Private companies are included in the overall count of twenty. Even though private companies may be smaller, poor governance there can still lead to compliance failures, disputes, and penalties.

So the message is clear. Size doesn’t matter. Responsibility does.

What Directors Actually Need to Do to Stay Compliant

In theory, compliance sounds simple. In practice, people miss things.

A director should always:

• Check how many companies they are already associated with

• Confirm whether those companies are public or private

• Count existing directorships before accepting a new appointment

• Keep written records of all board positions

Companies also have a responsibility here. They must verify incoming directors, not just rely on verbal declarations. A basic due diligence check can prevent future trouble.

Many violations happen not because of bad intent, but because no one bothered to cross-check.

Penalties Under Section 165 – Not Just a Paper Risk

Non-compliance with Section 165 is not taken lightly.

If a director exceeds the prescribed limit:

• Monetary penalties can be imposed

• The director may be forced to resign from excess companies

• Disqualification risk increases

• Reputation damage is almost guaranteed

Regulatory authorities, especially the Ministry of Corporate Affairs (MCA), actively monitor these limits. Once flagged, explanations don’t always help.

Prevention is far cheaper than cure here.

Real Situations Where Section 165 Became a Problem

There have been cases where directors unknowingly crossed the limit, especially after mergers or new appointments.

In one instance, a director continued holding positions in more than ten public companies. The regulator intervened and demanded immediate resignation from excess boards. Penalties followed.

In another case, a company failed to verify the director’s existing appointments. Shareholders raised objections, and the matter escalated legally. The company had to face unnecessary scrutiny simply due to poor internal checks.

These are avoidable issues.

What Boards and Companies Should Be Doing Differently

Boards need systems, not assumptions.

Some practical steps that actually help:

• Maintaining an internal directorship register

• Annual confirmation from directors about existing roles

• Verifying MCA records before appointments

• Giving basic compliance orientation to directors

This is not over-compliance. This is basic governance hygiene.

How Section 165 Strengthens Corporate Governance

Section 165 quietly improves governance without creating noise.

Directors with fewer commitments:

• Ask better questions

• Attend meetings more seriously

• Understand risks deeply

• Act independently

For investors, this translates into confidence. For companies, it improves credibility. And for directors, it reduces burnout and legal exposure.

Good governance is rarely flashy. It is consistent.

Common Challenges Directors Face (And How to Handle Them)

Tracking multiple directorships can get messy, especially for professionals active across industries.

Problems usually arise when:

• Records are not updated

• Dormant companies are wrongly counted

• Time commitments are underestimated

Using compliance software, calendar reviews, and periodic self-assessment helps. But above all, directors must be honest with themselves about how much responsibility they can realistically handle.

FAQs on Section 165 of Companies Act 2013

Does Section 165 include dormant companies?
No. Dormant companies are excluded from the calculation.

Can someone hold 20 public company directorships?
No. Public company directorships are capped at ten.

What happens if the limit is exceeded accidentally?
The excess positions must be vacated immediately, and penalties may still apply.

Final Thoughts

Section 165 of the Companies Act, 2013 is not about restricting ambition. It is about ensuring responsibility.

By limiting directorships, the law ensures directors stay focused, companies remain well-governed, and shareholder interests are protected. Compliance is not difficult, but it does require attention, planning, and regular review.

If you need professional support for director compliance, board structuring, or MCA-related governance matters, Callmyca.com can help you stay compliant without unnecessary stress.