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CHAPTER XI
APPOINTMENT AND QUALIFICATION OF
DIRECTORS
Includes relevant rules of Appointment and
Qualification of Directors Rule 2014
Prepared and presented By:
Dipendra Prasad Poudel
Article Trainee (Internal Audit)
N.Kochhar & co.
mailfordipendra@gmail.com
for the month of May
To have a bird
eye view on
provision
regarding
directors
To sum up
act and
rules as far
as possible
To simplify
the
provision in
such a way
that even a
layman can
understand
Presentation Objective
SECTION 149: COMPANY TO HAVE BOARD
OF DIRECTORS
 (1)(a) minimum number of directors
Public : Minimum three directors
Private: Two directors
OPC : one director
(b) maximum of fifteen directors
 company can appoint more than 15 directors after
passing special resolution.
 Such class or classes of companies as may be prescribed,
shall have one women director
Company to appoint at least one female
director Rule 3
1) Every public listed company, OR
2) Every other public company having
a) Paid up share capital of 100 crore or more ; or
b) Turnover of 300 crore or more
Explanation : For the purpose of this section it is hereby clarified that
the paid up share capital and turnover are as per last date of latest
audited financial statement.
Section 149 (3 )
Every company shall have at least one director who has stayed in
India for a total period of not less than one hundred and eighty two
days in the previous calendar year.
Section 149 (4) Independent Director
I) Listed public company : At least one- third number of directors
as independent director.
II) And the a Central Government may prescribe the minimum
number of independent directors in case of any class or classes of
public companies.
Explanation: For the purpose of this sub- section, any fraction
contained in such one-third number shall be rounded off as one.
Rule 4
Number of Independent Directors
At least two independent directors if
any one of below conditions are
satisfied
Public companies
Share capital : 10
crore or more
Public companies
Turnover: 100 crore
or more
Public companies
Aggregate loans,
outstanding loans,
debenture and deposits
exceeding 50 crore
rupee
If higher number of independent directors due to composition of its audit
committee company shall appoint.
Intermittent vacancy: shall be filled by the board at the earliest but not
less than immediate board meeting or three months whichever is earlier
149(6) WHO CAN BE INDEPENDENT
DIRECTORS
 Director other than a managing director or a whole-time director
or a nominee director.
a) Person of integrity and possesses relevant expertise and
experience;
b) (i) who is or was not promoter of the company or its holding,
subsidiary or associate company;
(ii) who is not related to its promoter or director in the
company, its holding, subsidiary or associate company;
c) No pecuniary relationship with the company, its holding,
subsidiary or associate company, or to their promoters, or directors,
during the two immediately financial years or during the
current financial year.
(d) None of whose relatives has or had pecuniary relationship or transaction
with the company, its holding, subsidiary or associate company, or their
promoters, or directors amounting to-
(i) 2 % or more of its gross turnover or total income
(ii) fifty lakhs rupees or such higher amount as may be prescribed
Whichever is lower of (i) or (ii), during the two immediately preceding
financial years or during the current financial year.
(e) who, neither himself nor any of his relatives
(i) Holds or has held the position of key managerial person (KMP) or is or has
been employee of the company or its holding, associate or subsidiary (
(ii) Is or has been employee or a proprietor or a partner, in any three
financial years immediately preceding the financial year in which he is
proposed to be appointed of-
(A) a firm of auditors or company secretaries in practice or cost
auditors of the company or its HAS company; or
(B) any legal or consulting firm that has or had any transaction with the
company, its HAS company amounting to ten percent or more of the gross
turnover of such firm.
(iii) Holds together with its relatives two percent or more of the total voting
power of the company; or
(iv) Is a chief executive or director, by whatever name called, of any non- profit
organization that receives
(a) 25% or more of its receipt from the company, any of its promoters,
directors or of its HAS company or
(b) that holds two percent or more voting power of the company ; or
(v) who posses such other qualification as may be prescribed.
(7) Independent directors participation in meeting.
(a) First board meeting in which he participate as the director and thereafter
(b)at the first meeting of the board in every financial year or
(c) Whenever there is any change in the circumstances which may affect
his status as an independent director
(10) Independent director shall hold office up to 5 consecutive years on the
board of the company, BUT
shall be eligible for re-appointment on passing of a special resolution by the
company and disclosure of such re-appointment in the boards report .
(11) No independent director shall be eligible to hold the office more than
two consecutive years
BUT
Shall be eligible for appointment after the expiration of three years of
ceasing to become an Independent director.
Provided that, during the three years, he shall not be appointed or associated
with the company in any other way either directly or indirectly.
(13) Provisions regarding retirement of directors by rotation shall not be
applicable to appointment of independent directors.
150. MANNER OF SELECTION OF INDEPENDENT
DIRECTORS AND MAINTENANCE OF DATABANK OF
INDEPENDENT DIRECTORS.
(1) Independent director may be selected from a data bank containing names,
addresses and qualification of persons who are willing to act as an
independent director.
Data Bank can be maintained by any body, institute or association, as may
be notified by central government.
The responsibility of exercising due diligence before selecting a person
from the data bank shall lie with the company making such appointment.
(2) Independent director shall be appointed by the company in a general
meeting and shall indicate the justification for choosing the appointee for
appointment as independent director.
(3) The databank shall be maintained in such a rules as prescribed.
(4) CG may prescribe the manner and procedure for selection of independent
directors
RULE 5 : QUALIFICATION OF INDEPENDENT DIRECTORS
(APPOINTMENT AND QUALIFICATION OF DIRECTOR
RULE)
An Independent director shall possess appropriate skills, expertise
and knowledge in one or more fields of :-
Finance
Law
Management
Sales
Marketing
Administration
Research
Corporate governance
Technical operations
Or other disciplines related to company business.
RULE 6: CREATION AND MAINTENANCE OF
DATABANK OF PERSON OFFERING TO BECOME
INDEPENDENT DIRECTOR
(1) Any institute or association which has been authorised by central
government shall create and maintain a databank of person willing and
eligible to be appointed as independent director
AND
Such databank shall be published in MCA website or any other websites
notified by CG
(2) The databank shall include the following information to be eligible and willing
to be appointed as independent director.
a) DIN
b) Personal details, parents name and spouse name (if married)
c) Contact details
d) Qualification details
e) Any legal proceeding initiated or pending against such person
f) The list of LLP or Companies where he held/holds the position before along
with titles etc.
(3) A disclaimer shall be conspicuously displayed on the website hosting
databank that a company shall carry own due diligence before appointment of
any person as a Independent director.
(4) Any person willing to be Independent director shall submit form DIR 1 to
agency (institute or body who is managing databank)
(5) The agency may charge the reasonable fee from the applicant
(6) Any person whose name is hosted in databank, shall intimate to the agency
about any changes in his particulars within 15 days.
(7) The databank posted in online shall be :-
(a) accessible
(b) substantially identical with the physical version
(c) be searchable in various parameters
(d) printed in formats convenient for printing and viewing online
(e) contain a link to obtain the software required to view or print the particulars
free of charge.
151. APPOINTMENT OF DIRECTOR ELECTED
BY SMALL SHARE HOLDER
A listed company may have one director elected by such small shareholders
in such manner and with such terms and conditions as may be prescribed.
Explanation: For the purpose of this section “ small shareholders” means a
shareholder holding shares of nominal value of not more than twenty
thousand rupees or such other sum of money as may be prescribed.
RULE 7 : SMALL SHAREHOLDERS DIRECTOR
APPOINTMENT AND QUALIFICATION OF DIRECTOR RULES
Sub rule 1- Listed company
upon notice Of
Not less than one
thousands share
holders
One-tenth of total
number of such
shareholder
Whichever is lower have a small
shareholders director elected by
small shareholder.
Nothing contained in this sub-rule 1 shall prevent a listed company to opt to
have a director representing small shareholders on its own will. None of the
procedure laid down in sub-rule 2 shall be followed if the company appoints
on its own will
Sub-rule 2:
Procedures to
be complied by
small share
holders who are
willing to appoint
small share
holders director.
1) Shall leave a notice of their intention with the company at
least fourteen days before the meeting.
2) They should specify the name, address, shares hold, folio
number of the person who is being proposed as director and also
of the small shareholders who are proposing.
3) If the proposed person doesn’t hold share in the company,
the details of share held and folio number needn’t be specified
Sub rule 3 rule
7: Documents to
be submitted for
the post of small
shareholders
director
a) His director identification number
b) Stating that he is not disqualified to become
director under this act
c) His consent to act as a director of the
company
Sub rule 4 rule 7:
considering small
share holders
director as an
independent
director
Small share holders director shall be considered
as independent director subject to :
a) He is eligible under section 149 (6) i.e. various points like
integrity, not related to company in any way etc ( we have already
discussed it in previous slides)
b) He has given his declaration of independence as per
subsection 7 of section 149.
VARIOUS POINTS ABOUT SMALL
SHAREHOLDERS DIRECTOR
a)Such directors are not liable to retire by rotation
b)The tenure of such director can’t exceed three years
c)On the expiry of tenure they are not eligible for re-appointment.
d)A person is not allowed to be appointed as small shareholders director if he is disqualified as
mentioned in section 164. ( Disqualification of Director)
e)The small shareholders director shall immediately vacate the office if he attracts any
disqualification ( section 164 and section 167)
f)No person shall hold the position of small shareholders director in two companies at the same
time provided the second company in which he has been appointed relates to same business
g)Small shareholder director shall not, for the period of three years from which he ceases to be
director can’t relate to company either directly or indirectly.
152. APPOINTMENT OF DIRECTORS
(1) Where no provision is made in the article then subscribers of the memorandum
shall be deemed to be the first directors of the company.
(2)Otherwise every director shall be appointed by the company in general meeting.
(3)No person shall be appointed as director unless he has been allotted DIN
(4) Every person proposed to be appointed shall furnish DIN and a statement
mentioning that he is not disqualified.
(5) Appointed director shall not act as director unless he gives his consent to hold office
(6) Unless the articles provide for retirement of all directors at every annual general meeting, not less than
2/3 of the total number of directors of public company shall
• i) Whose period of office is liable to determination by retirement of directors by
rotation; and
• ii) Save as otherwise provided in this act, be appointed by company in general
meeting.
(d)The directors to retire by rotation at every general meeting shall be those who have been longest in
office since their last appointment, but as between those persons who became directors on the same day,
those who are to retire shall, in default subject to any agreement between themselves, be determined by
lot.
(e) At the annual general meeting at which a director retires as aforesaid, the company may fill up the
vacancy by appointing retiring director or some other person thereto
If vacancy
of retiring
director is
not so
filled up in
the
meeting
The meeting
shall stand
adjourned till the
same day in the
next week at the
same time and
place
If that they is a
national holiday, till
the next
succeeding day
which is not a
holiday at the same
time and place
Section 7(a) Vacancy of retiring director and
filling up
Retiring director shall be deemed to be re-
appointed at adjourned meeting unless
i) At that meeting or previous meeting a resolution
for re-appointment of such director has been put
to the meeting and lost;
ii) Retiring director by notice in writing addressed to the
company or its board of directors, expressed his
unwillingness to be so re-appointed;
iii) He is not qualified or disqualified for
appointment;
iv) Resolution is required to be passed by
virtue of any provisions of this act
Section 7(b) : In case adjourned meeting can’t appoint the Director
153. APPLICATION FOR ALLOTMENT OF DIN
Every Individual intending to be appointed as director of the company shall make
an application for allotment of DIN in such form and manner along with such fees
as may be prescribed.
Rule 9 :
Application
for
allotment
of DIN.
Every person shall make application electrically in FORM DIR 3
The applicant shall download the form from the website and fill the form and sign
the form after attaching the required documents and scan and file entire document
electrically
Documents include photograph, proof of identity, proof of residence,
verification in DIR 4
This should be signed with digital signature and shall be verified by CA, CS
or CWA in practice , company secretary full time in employment, managing
director or director in which he is to be director
154. ALLOTMENT OF DIN
The central government shall, within one month from the application
under section 153, allot a DIN to an applicant in such a way as may be
prescribed.
Section 155 : Prohibition to obtain more than one
DINNo individual, who has already been allotted DIN under section 154,
shall apply for, obtain or possess another DIN.
Section 156 : Director to Intimate DIN
Every existing Director shall, within one month of the receipt of DIN from
the Central Government, intimate his Director Identification Number to
the company or all companies wherein he is a director.
(1) What
should
company do?
Within fifteen days of
the receipt of
intimation under
section 156, furnish
the DIN
To the concerned
department along with
prescribed fees or with
additional fees
(2) What if
company fails
to submit?
If the company fails to
submit the DIN within
time specified or
within additional time
(403)
The company as well
as officer in default
shall be fined not
less than 25000 up
to 1 Lakhs
Every person or company, while furnishing any return, information or the
particulars as are required to be furnished under this Act, shall mention the
Director Identification Number in such return, information or particulars in case
such return, information or particulars relate to director or contain any reference
of director.
Contravention of section 152 and section 156
Imprisonment up to 6 months or with fine which may extend up to
50000
If the contravention is continuing one, with a further fine which may
extend up to 500 per everyday after the first during which
contravention continues
Person should
not be retiring
director under
section 152
Eligible to be
appointed to the
office of director
If he or
someone
proposes him
as a director not
less than 14
days before
meeting
Notice should
be left at
registered office
Deposit of one
lakh or higher
amount as may
be prescribed
Shall be
refunded to the
person , it the
person gets
elected.
Shall be
refunded if he
gets more than
25% of total
valid votes
IF not it shall be
forfeited by the
company
(1) Who can
be additional
director
If articles of a
company have
conferred BOD the
power to appoint
Any person at any time who
shall hold office up to next
AGM or last date in
which AGM should
have been held
whichever is earlier
(1) Who can’t
be additional
director
Person who has
failed to be
appointed as an
director in AGM
(2) Who
can be
alternate
directors
If authorized by the articles or by resolution passed by
company in General meeting
Appoint a person, not being person holding any alternate
directorship for any other director in the company
To act as an alternate director during his absence for a
period of not less than 3 months from India
Some
conditions
for
alternate
directors
No person shall be appointed as alternate director for Independent
director unless he is qualified to be appointed as independent
director.
Alternate director shall not hold office for a period longer than
permissible to director
If the term of office of the original director is determined so before so
he returns to India, any provision for the automatic re-appointment
shall apply to original not to the alternate director.
Can company
appoint director
nominated by
any other
institution or
authority ?
Yes, subject to the articles of the company board may
appoint any person as a director
Nominated by any institution in pursuance of the
provision of any law or time being in force or by
Any agreement or by central government or the state
government by virtue of its shareholding in a
government company
In case of public
company
Director appointed in GM
Vacates his office before his
terms expires
THEN,
The resulting casual vacancy
may, in default of and subject
To any regulations in the articles
of the company, may filled by
BOD at a meeting of board
The person so appointed shall hold office only up to the date up to which
director in whose place he is appointed would have held office if it had not
been vacated
(1)At a general meeting of the company, a motion or more persons as
directors of the company by a single resolution
• Shall not be moved, unless a proposal to move such a motion has first been agreed
to at the meeting without any vote against it
(2) A resolution moved in contravention of sub-section (1) shall be void,
whether or not any objection was taken when it was moved.
(3) A motion for approving a person for appointment, or for nominating
a person for appointment as a director, shall be treated as a motion for
his appointment.
Not withstanding anything mentioned in this act , the articles of the
company
May provide for the appointment of not less than two thirds of the
directors of the total number of directors of the company in accordance
with the principle of proportional representation
Whether by the single transferable vote or by a system of cumulative
voting or otherwise and such appointments may be made once in every
three years and casual vacancy shall be filled with the provisions laid
down in sub-section 4 of section 161
(1) Shall not be eligible for appointment
Unsound mind, undischarged insolvent, has not paid any calls in
respect of any shares held by him
Order disqualifying him for appointment has been passed by court or tribunal, he has
been convicted of the offence dealing with related party transaction at any time
during preceding five years
Convicted to court for any moral offence and sentenced thereof
for not less than six months and five years has not been
elapsed since then from the date of expiry of sentence
(a) Has not filed financial statements or annual returns for any continuous
period of three financial years
(b) Has failed to repay the deposits accepted by it or pay interest thereon or
to redeem any debentures on the due date thereon or pay any dividend
declared and such failure to pay or redeem continues for one or more year
Those director in default are not eligible for re-appointed or appointed in
other company for a period of five years from the date on which the said
company fails to do so.
Section
(165)
Number of
directorship
No person after commencement of this act, shall hold office as a director,
or any alternate director
For more than 20 c0mpany at a same time, also provided the maximum
number of public companies shall not exceed ten.
For reckoning the limit of public companies in which a person can be
appointed as a director, directorship in private companies that are holding of
subsidiary or public company is also included as public company.
166.
Duties of
Directors
i) Should act in accordance with articles of the company
Act in good faith in order to promote the objects of the company.
Shall exercise his duties with due and reasonable care, skill and diligence
Shall not involve in a situation in which he may have a direct or indirect
interest that conflicts ,or possibly may conflict with the interest of the
company
Shall not achieve or attempt to achieve any undue advantage
Director shall not assign his office or assignments so made shall be void.
Directors contravention shall be punishable with fine which shall not be
less than one lakh rupees but which may extend up to 5 lakhs rupees
167(1). Vacation
of Office of
Director
• He is disqualified
• Absents himself from all the meetings during a year with or
without seeking leave of absence of board
• Contravention of section 184 ( Disclosure of interest of director)
• Disqualified by order of tribunal
• Convicted by court for any offence
• Removed in pursuance of the provision of this act
• Appointed as employee in the holding subsidiary or any
associate company.
167(2)
• Fuctions as a director even when he knows he has become disqualified
• Punishable with the imprisonment for a term which may extend to one year or with a fine which shall not be less
than five lakhs rupees or with both
16(3)
• Where all the directors vacate their offices under any of the disqualification
• The promoter or in his absence CG shall appoint the directors
167(4)
• A private company may by its article, provide any other ground for vacation of office of the
director
• In addition to any specified in sub- section
168. Resignation of Directors
Notice in writing to the company
Board shall on receipt of such notice of the same and
intimate the registrar
In such a manner, within such time and in such forms as
may be prescribed and shall also place the fact of such
resignation
Provided that director shall also forward a copy of his
resignation within thirty days of resignation in such a
manner as may be prescribed.
The resignation of the director shall take effect from the
date on which notice is received by the company or the
date, if any, specified by the director whichever is later.
Directors shall be liable even after his resignation for the offences which incurred
during his tenure. Every director resigned then promoter or in his absence CG
shall appoint
169.Removal of Directors
(1) By
ordinary
resolution
Can’t remove
director
appointed by
tribunal
Nothing contained in this sub-
section shall apply if company
has availed itself to the
principle of proportional
representation
Special notice is required of any resolution, to appoint any director under this
section, or to appoint somebody in place of a director so removed
Send a notice of a resolution, to remove any director to the concerned director
Director can make representation in writing and request its notification to
members of the company, the company, if the time permits to do so
• State the fact that representation has been made
• Send the copy of the resolution to every member of the company to whom notice of the meeting is
sent.
• If the notice is not send due to insufficient time or for the company’s default director without any
prejudice of being heard orally require that the representation shall be read out at the meeting
Representation need not be sent out and the representation need not be read out at the meeting either
of the company or of any other aggrieved, the tribunal is satisfied that the rights conferred by this
section are being abused to secure needless publicity for defamatory matter.
170. Register of directors and key managerial
personnel and their shareholding
• (1) Books at the registered office and it shall contain the details
• (2) A return containing such particulars and documents as may
be prescribed shall be filed with the registrar within thirty days
from the appointment
• Any changes shall also be filed within thirty days of change.
171. Members right to inspect
Shall be open for inspection during business hours and it shall be free of cost
Members shall have right to take extracts therefrom and copies thereof, on request of
members, be provided free of cost within thirty days
Shall also be kept open for inspection at every annual general meeting of the company
and shall be accessible to any person attending the meeting
if inspection is refused, or any copy required is not sent within thirty days from the date of receipt of
such request, the registrar shall on an application made to him order immediate inspection and supply
of copies required thereof
172. Punishment
• If a company contravenes any of the provisions of this
chapter and for which no specific punishment is
provided therein
• The company and every officer in default shall be
punishable with fine which shall not be less than fifty
thousands rupees but which may extend up to five lakh
rupees
Special Thanks To:
CA Himanshu Rawat
This mightn’t have been possible
without his guidance and support.

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Appointment and Qualification of directors along with relevant rules.

  • 1. CHAPTER XI APPOINTMENT AND QUALIFICATION OF DIRECTORS Includes relevant rules of Appointment and Qualification of Directors Rule 2014 Prepared and presented By: Dipendra Prasad Poudel Article Trainee (Internal Audit) N.Kochhar & co. mailfordipendra@gmail.com for the month of May
  • 2. To have a bird eye view on provision regarding directors To sum up act and rules as far as possible To simplify the provision in such a way that even a layman can understand Presentation Objective
  • 3. SECTION 149: COMPANY TO HAVE BOARD OF DIRECTORS  (1)(a) minimum number of directors Public : Minimum three directors Private: Two directors OPC : one director (b) maximum of fifteen directors  company can appoint more than 15 directors after passing special resolution.  Such class or classes of companies as may be prescribed, shall have one women director
  • 4. Company to appoint at least one female director Rule 3 1) Every public listed company, OR 2) Every other public company having a) Paid up share capital of 100 crore or more ; or b) Turnover of 300 crore or more Explanation : For the purpose of this section it is hereby clarified that the paid up share capital and turnover are as per last date of latest audited financial statement.
  • 5. Section 149 (3 ) Every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty two days in the previous calendar year. Section 149 (4) Independent Director I) Listed public company : At least one- third number of directors as independent director. II) And the a Central Government may prescribe the minimum number of independent directors in case of any class or classes of public companies. Explanation: For the purpose of this sub- section, any fraction contained in such one-third number shall be rounded off as one.
  • 6. Rule 4 Number of Independent Directors At least two independent directors if any one of below conditions are satisfied Public companies Share capital : 10 crore or more Public companies Turnover: 100 crore or more Public companies Aggregate loans, outstanding loans, debenture and deposits exceeding 50 crore rupee If higher number of independent directors due to composition of its audit committee company shall appoint. Intermittent vacancy: shall be filled by the board at the earliest but not less than immediate board meeting or three months whichever is earlier
  • 7. 149(6) WHO CAN BE INDEPENDENT DIRECTORS  Director other than a managing director or a whole-time director or a nominee director. a) Person of integrity and possesses relevant expertise and experience; b) (i) who is or was not promoter of the company or its holding, subsidiary or associate company; (ii) who is not related to its promoter or director in the company, its holding, subsidiary or associate company; c) No pecuniary relationship with the company, its holding, subsidiary or associate company, or to their promoters, or directors, during the two immediately financial years or during the current financial year.
  • 8. (d) None of whose relatives has or had pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors amounting to- (i) 2 % or more of its gross turnover or total income (ii) fifty lakhs rupees or such higher amount as may be prescribed Whichever is lower of (i) or (ii), during the two immediately preceding financial years or during the current financial year. (e) who, neither himself nor any of his relatives (i) Holds or has held the position of key managerial person (KMP) or is or has been employee of the company or its holding, associate or subsidiary ( (ii) Is or has been employee or a proprietor or a partner, in any three financial years immediately preceding the financial year in which he is proposed to be appointed of- (A) a firm of auditors or company secretaries in practice or cost auditors of the company or its HAS company; or (B) any legal or consulting firm that has or had any transaction with the company, its HAS company amounting to ten percent or more of the gross turnover of such firm.
  • 9. (iii) Holds together with its relatives two percent or more of the total voting power of the company; or (iv) Is a chief executive or director, by whatever name called, of any non- profit organization that receives (a) 25% or more of its receipt from the company, any of its promoters, directors or of its HAS company or (b) that holds two percent or more voting power of the company ; or (v) who posses such other qualification as may be prescribed. (7) Independent directors participation in meeting. (a) First board meeting in which he participate as the director and thereafter (b)at the first meeting of the board in every financial year or (c) Whenever there is any change in the circumstances which may affect his status as an independent director
  • 10. (10) Independent director shall hold office up to 5 consecutive years on the board of the company, BUT shall be eligible for re-appointment on passing of a special resolution by the company and disclosure of such re-appointment in the boards report . (11) No independent director shall be eligible to hold the office more than two consecutive years BUT Shall be eligible for appointment after the expiration of three years of ceasing to become an Independent director. Provided that, during the three years, he shall not be appointed or associated with the company in any other way either directly or indirectly. (13) Provisions regarding retirement of directors by rotation shall not be applicable to appointment of independent directors.
  • 11. 150. MANNER OF SELECTION OF INDEPENDENT DIRECTORS AND MAINTENANCE OF DATABANK OF INDEPENDENT DIRECTORS. (1) Independent director may be selected from a data bank containing names, addresses and qualification of persons who are willing to act as an independent director. Data Bank can be maintained by any body, institute or association, as may be notified by central government. The responsibility of exercising due diligence before selecting a person from the data bank shall lie with the company making such appointment. (2) Independent director shall be appointed by the company in a general meeting and shall indicate the justification for choosing the appointee for appointment as independent director. (3) The databank shall be maintained in such a rules as prescribed. (4) CG may prescribe the manner and procedure for selection of independent directors
  • 12. RULE 5 : QUALIFICATION OF INDEPENDENT DIRECTORS (APPOINTMENT AND QUALIFICATION OF DIRECTOR RULE) An Independent director shall possess appropriate skills, expertise and knowledge in one or more fields of :- Finance Law Management Sales Marketing Administration Research Corporate governance Technical operations Or other disciplines related to company business.
  • 13. RULE 6: CREATION AND MAINTENANCE OF DATABANK OF PERSON OFFERING TO BECOME INDEPENDENT DIRECTOR (1) Any institute or association which has been authorised by central government shall create and maintain a databank of person willing and eligible to be appointed as independent director AND Such databank shall be published in MCA website or any other websites notified by CG (2) The databank shall include the following information to be eligible and willing to be appointed as independent director. a) DIN b) Personal details, parents name and spouse name (if married) c) Contact details d) Qualification details e) Any legal proceeding initiated or pending against such person f) The list of LLP or Companies where he held/holds the position before along with titles etc.
  • 14. (3) A disclaimer shall be conspicuously displayed on the website hosting databank that a company shall carry own due diligence before appointment of any person as a Independent director. (4) Any person willing to be Independent director shall submit form DIR 1 to agency (institute or body who is managing databank) (5) The agency may charge the reasonable fee from the applicant (6) Any person whose name is hosted in databank, shall intimate to the agency about any changes in his particulars within 15 days. (7) The databank posted in online shall be :- (a) accessible (b) substantially identical with the physical version (c) be searchable in various parameters (d) printed in formats convenient for printing and viewing online (e) contain a link to obtain the software required to view or print the particulars free of charge.
  • 15. 151. APPOINTMENT OF DIRECTOR ELECTED BY SMALL SHARE HOLDER A listed company may have one director elected by such small shareholders in such manner and with such terms and conditions as may be prescribed. Explanation: For the purpose of this section “ small shareholders” means a shareholder holding shares of nominal value of not more than twenty thousand rupees or such other sum of money as may be prescribed.
  • 16. RULE 7 : SMALL SHAREHOLDERS DIRECTOR APPOINTMENT AND QUALIFICATION OF DIRECTOR RULES Sub rule 1- Listed company upon notice Of Not less than one thousands share holders One-tenth of total number of such shareholder Whichever is lower have a small shareholders director elected by small shareholder.
  • 17. Nothing contained in this sub-rule 1 shall prevent a listed company to opt to have a director representing small shareholders on its own will. None of the procedure laid down in sub-rule 2 shall be followed if the company appoints on its own will Sub-rule 2: Procedures to be complied by small share holders who are willing to appoint small share holders director. 1) Shall leave a notice of their intention with the company at least fourteen days before the meeting. 2) They should specify the name, address, shares hold, folio number of the person who is being proposed as director and also of the small shareholders who are proposing. 3) If the proposed person doesn’t hold share in the company, the details of share held and folio number needn’t be specified
  • 18. Sub rule 3 rule 7: Documents to be submitted for the post of small shareholders director a) His director identification number b) Stating that he is not disqualified to become director under this act c) His consent to act as a director of the company Sub rule 4 rule 7: considering small share holders director as an independent director Small share holders director shall be considered as independent director subject to : a) He is eligible under section 149 (6) i.e. various points like integrity, not related to company in any way etc ( we have already discussed it in previous slides) b) He has given his declaration of independence as per subsection 7 of section 149.
  • 19. VARIOUS POINTS ABOUT SMALL SHAREHOLDERS DIRECTOR a)Such directors are not liable to retire by rotation b)The tenure of such director can’t exceed three years c)On the expiry of tenure they are not eligible for re-appointment. d)A person is not allowed to be appointed as small shareholders director if he is disqualified as mentioned in section 164. ( Disqualification of Director) e)The small shareholders director shall immediately vacate the office if he attracts any disqualification ( section 164 and section 167) f)No person shall hold the position of small shareholders director in two companies at the same time provided the second company in which he has been appointed relates to same business g)Small shareholder director shall not, for the period of three years from which he ceases to be director can’t relate to company either directly or indirectly.
  • 20. 152. APPOINTMENT OF DIRECTORS (1) Where no provision is made in the article then subscribers of the memorandum shall be deemed to be the first directors of the company. (2)Otherwise every director shall be appointed by the company in general meeting. (3)No person shall be appointed as director unless he has been allotted DIN (4) Every person proposed to be appointed shall furnish DIN and a statement mentioning that he is not disqualified.
  • 21. (5) Appointed director shall not act as director unless he gives his consent to hold office (6) Unless the articles provide for retirement of all directors at every annual general meeting, not less than 2/3 of the total number of directors of public company shall • i) Whose period of office is liable to determination by retirement of directors by rotation; and • ii) Save as otherwise provided in this act, be appointed by company in general meeting. (d)The directors to retire by rotation at every general meeting shall be those who have been longest in office since their last appointment, but as between those persons who became directors on the same day, those who are to retire shall, in default subject to any agreement between themselves, be determined by lot. (e) At the annual general meeting at which a director retires as aforesaid, the company may fill up the vacancy by appointing retiring director or some other person thereto
  • 22. If vacancy of retiring director is not so filled up in the meeting The meeting shall stand adjourned till the same day in the next week at the same time and place If that they is a national holiday, till the next succeeding day which is not a holiday at the same time and place Section 7(a) Vacancy of retiring director and filling up
  • 23. Retiring director shall be deemed to be re- appointed at adjourned meeting unless i) At that meeting or previous meeting a resolution for re-appointment of such director has been put to the meeting and lost; ii) Retiring director by notice in writing addressed to the company or its board of directors, expressed his unwillingness to be so re-appointed; iii) He is not qualified or disqualified for appointment; iv) Resolution is required to be passed by virtue of any provisions of this act Section 7(b) : In case adjourned meeting can’t appoint the Director
  • 24. 153. APPLICATION FOR ALLOTMENT OF DIN Every Individual intending to be appointed as director of the company shall make an application for allotment of DIN in such form and manner along with such fees as may be prescribed. Rule 9 : Application for allotment of DIN. Every person shall make application electrically in FORM DIR 3 The applicant shall download the form from the website and fill the form and sign the form after attaching the required documents and scan and file entire document electrically Documents include photograph, proof of identity, proof of residence, verification in DIR 4 This should be signed with digital signature and shall be verified by CA, CS or CWA in practice , company secretary full time in employment, managing director or director in which he is to be director
  • 25. 154. ALLOTMENT OF DIN The central government shall, within one month from the application under section 153, allot a DIN to an applicant in such a way as may be prescribed. Section 155 : Prohibition to obtain more than one DINNo individual, who has already been allotted DIN under section 154, shall apply for, obtain or possess another DIN. Section 156 : Director to Intimate DIN Every existing Director shall, within one month of the receipt of DIN from the Central Government, intimate his Director Identification Number to the company or all companies wherein he is a director.
  • 26. (1) What should company do? Within fifteen days of the receipt of intimation under section 156, furnish the DIN To the concerned department along with prescribed fees or with additional fees (2) What if company fails to submit? If the company fails to submit the DIN within time specified or within additional time (403) The company as well as officer in default shall be fined not less than 25000 up to 1 Lakhs
  • 27. Every person or company, while furnishing any return, information or the particulars as are required to be furnished under this Act, shall mention the Director Identification Number in such return, information or particulars in case such return, information or particulars relate to director or contain any reference of director. Contravention of section 152 and section 156 Imprisonment up to 6 months or with fine which may extend up to 50000 If the contravention is continuing one, with a further fine which may extend up to 500 per everyday after the first during which contravention continues
  • 28. Person should not be retiring director under section 152 Eligible to be appointed to the office of director If he or someone proposes him as a director not less than 14 days before meeting Notice should be left at registered office Deposit of one lakh or higher amount as may be prescribed
  • 29. Shall be refunded to the person , it the person gets elected. Shall be refunded if he gets more than 25% of total valid votes IF not it shall be forfeited by the company
  • 30. (1) Who can be additional director If articles of a company have conferred BOD the power to appoint Any person at any time who shall hold office up to next AGM or last date in which AGM should have been held whichever is earlier (1) Who can’t be additional director Person who has failed to be appointed as an director in AGM
  • 31. (2) Who can be alternate directors If authorized by the articles or by resolution passed by company in General meeting Appoint a person, not being person holding any alternate directorship for any other director in the company To act as an alternate director during his absence for a period of not less than 3 months from India Some conditions for alternate directors No person shall be appointed as alternate director for Independent director unless he is qualified to be appointed as independent director. Alternate director shall not hold office for a period longer than permissible to director If the term of office of the original director is determined so before so he returns to India, any provision for the automatic re-appointment shall apply to original not to the alternate director.
  • 32. Can company appoint director nominated by any other institution or authority ? Yes, subject to the articles of the company board may appoint any person as a director Nominated by any institution in pursuance of the provision of any law or time being in force or by Any agreement or by central government or the state government by virtue of its shareholding in a government company
  • 33. In case of public company Director appointed in GM Vacates his office before his terms expires THEN, The resulting casual vacancy may, in default of and subject To any regulations in the articles of the company, may filled by BOD at a meeting of board The person so appointed shall hold office only up to the date up to which director in whose place he is appointed would have held office if it had not been vacated
  • 34. (1)At a general meeting of the company, a motion or more persons as directors of the company by a single resolution • Shall not be moved, unless a proposal to move such a motion has first been agreed to at the meeting without any vote against it (2) A resolution moved in contravention of sub-section (1) shall be void, whether or not any objection was taken when it was moved. (3) A motion for approving a person for appointment, or for nominating a person for appointment as a director, shall be treated as a motion for his appointment.
  • 35. Not withstanding anything mentioned in this act , the articles of the company May provide for the appointment of not less than two thirds of the directors of the total number of directors of the company in accordance with the principle of proportional representation Whether by the single transferable vote or by a system of cumulative voting or otherwise and such appointments may be made once in every three years and casual vacancy shall be filled with the provisions laid down in sub-section 4 of section 161
  • 36. (1) Shall not be eligible for appointment Unsound mind, undischarged insolvent, has not paid any calls in respect of any shares held by him Order disqualifying him for appointment has been passed by court or tribunal, he has been convicted of the offence dealing with related party transaction at any time during preceding five years Convicted to court for any moral offence and sentenced thereof for not less than six months and five years has not been elapsed since then from the date of expiry of sentence
  • 37. (a) Has not filed financial statements or annual returns for any continuous period of three financial years (b) Has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date thereon or pay any dividend declared and such failure to pay or redeem continues for one or more year Those director in default are not eligible for re-appointed or appointed in other company for a period of five years from the date on which the said company fails to do so. Section (165) Number of directorship No person after commencement of this act, shall hold office as a director, or any alternate director For more than 20 c0mpany at a same time, also provided the maximum number of public companies shall not exceed ten. For reckoning the limit of public companies in which a person can be appointed as a director, directorship in private companies that are holding of subsidiary or public company is also included as public company.
  • 38. 166. Duties of Directors i) Should act in accordance with articles of the company Act in good faith in order to promote the objects of the company. Shall exercise his duties with due and reasonable care, skill and diligence Shall not involve in a situation in which he may have a direct or indirect interest that conflicts ,or possibly may conflict with the interest of the company Shall not achieve or attempt to achieve any undue advantage Director shall not assign his office or assignments so made shall be void. Directors contravention shall be punishable with fine which shall not be less than one lakh rupees but which may extend up to 5 lakhs rupees
  • 39. 167(1). Vacation of Office of Director • He is disqualified • Absents himself from all the meetings during a year with or without seeking leave of absence of board • Contravention of section 184 ( Disclosure of interest of director) • Disqualified by order of tribunal • Convicted by court for any offence • Removed in pursuance of the provision of this act • Appointed as employee in the holding subsidiary or any associate company. 167(2) • Fuctions as a director even when he knows he has become disqualified • Punishable with the imprisonment for a term which may extend to one year or with a fine which shall not be less than five lakhs rupees or with both 16(3) • Where all the directors vacate their offices under any of the disqualification • The promoter or in his absence CG shall appoint the directors 167(4) • A private company may by its article, provide any other ground for vacation of office of the director • In addition to any specified in sub- section
  • 40. 168. Resignation of Directors Notice in writing to the company Board shall on receipt of such notice of the same and intimate the registrar In such a manner, within such time and in such forms as may be prescribed and shall also place the fact of such resignation Provided that director shall also forward a copy of his resignation within thirty days of resignation in such a manner as may be prescribed. The resignation of the director shall take effect from the date on which notice is received by the company or the date, if any, specified by the director whichever is later. Directors shall be liable even after his resignation for the offences which incurred during his tenure. Every director resigned then promoter or in his absence CG shall appoint
  • 41. 169.Removal of Directors (1) By ordinary resolution Can’t remove director appointed by tribunal Nothing contained in this sub- section shall apply if company has availed itself to the principle of proportional representation Special notice is required of any resolution, to appoint any director under this section, or to appoint somebody in place of a director so removed Send a notice of a resolution, to remove any director to the concerned director Director can make representation in writing and request its notification to members of the company, the company, if the time permits to do so • State the fact that representation has been made • Send the copy of the resolution to every member of the company to whom notice of the meeting is sent. • If the notice is not send due to insufficient time or for the company’s default director without any prejudice of being heard orally require that the representation shall be read out at the meeting Representation need not be sent out and the representation need not be read out at the meeting either of the company or of any other aggrieved, the tribunal is satisfied that the rights conferred by this section are being abused to secure needless publicity for defamatory matter.
  • 42. 170. Register of directors and key managerial personnel and their shareholding • (1) Books at the registered office and it shall contain the details • (2) A return containing such particulars and documents as may be prescribed shall be filed with the registrar within thirty days from the appointment • Any changes shall also be filed within thirty days of change. 171. Members right to inspect Shall be open for inspection during business hours and it shall be free of cost Members shall have right to take extracts therefrom and copies thereof, on request of members, be provided free of cost within thirty days Shall also be kept open for inspection at every annual general meeting of the company and shall be accessible to any person attending the meeting if inspection is refused, or any copy required is not sent within thirty days from the date of receipt of such request, the registrar shall on an application made to him order immediate inspection and supply of copies required thereof
  • 43. 172. Punishment • If a company contravenes any of the provisions of this chapter and for which no specific punishment is provided therein • The company and every officer in default shall be punishable with fine which shall not be less than fifty thousands rupees but which may extend up to five lakh rupees
  • 44. Special Thanks To: CA Himanshu Rawat This mightn’t have been possible without his guidance and support.