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Chapter XI- Appointment and Qualifications of Directors
1
September 13, 2013
 ―Board of Directors‖ or ―Board‖, in relation to a company, means the collective body
of the directors of the Company, as defined under Section 2(10)
Requirements u/s 149(1):
 Every Company shall have a Board of Directors consisting of individuals as directors
and shall have—
 Minimum number of
3 directors - Public Company
2 directors - Private Company
1 director - One Person Company (new)
 Maximum number of directors have been increased from 12 to 15
 Special resolution has to be passed for appointment of more than 15 directors (no
Central Government approval required)
2
Requirements u/s 149(1) –
 For prescribed class of Companies, there should be at least 1 woman director
 Draft Rules prescribe –
-Every Listed Company ( within 1 yr from commencement of related provision)
-Public Company with - Paid –up capital of Rs. 100 crore or more, or
- Turnover of Rs. 300 crore or more
(For Public Companies, 3yrs from commencement of related provision)
 For all the above requirements u/s 149 (1), a transition period of 1 year from the
commencement of the Act (exception-Woman Director for Public Companies)
 At least 1 director should have stayed in India for a total period of not less than 182
days in the previous calendar year (new)
3
Every Listed Public Company to have minimum 1/3rd of total number of
directors as independent director (Any fraction in 1/3rd to be rounded off as 1)
 In case of other class or classes of Public Companies, Central Government
may prescribe for minimum number of Independent Directors
 To comply within 1 year from commencement of the Act or notification of
Rules, as may be applicable
 Draft Rules prescribe-
Public Companies having
- paid-up share capital of Rs 100 crore or more or
- turnover of Rs. 300 crore or more or
- in aggregate, outstanding loans or borrowings or debentures or
deposits, exceeding Rs. 200 crore.
 These criteria shall continue to apply during the tenure of the Independent
Director even if amounts under these criteria falls below the specified limits
 Higher number of Independent Directors, if prescribed under any
law/regulations governing such class of Companies
4
5
 A term up to 5 consecutive years
 Eligible for reappointment on passing of a special resolution by the
Company and disclosure of such appointment in the Board’s Report
 Not to hold office for more than 2 consecutive terms
 However, eligible for appointment after the expiration of 3 years cooling
period (Not to be associated with the Company in any capacity, either
directly or indirectly during these 3 years)
 Any tenure of an Independent Director on the date of commencement of
this Act shall not be counted as a term
6
An Independent Director in relation to a Company is:
 A 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, in
the opinion of the Board
 Not a promoter (present or past) of the Company or its holding, subsidiary
or associate Company
 Not related to promoters or directors in the Company, its holding,
subsidiary or associate Company
7
 Does not have any pecuniary relationship with the Company, its holding,
subsidiary or associate Company, or their promoters, or directors, during the
2 immediately preceding financial years or during the current financial year
 None of the relatives of such person should have pecuniary relationship or
transaction with the Company, its holding, subsidiary or associate Company,
or their promoters, or directors, amounting to 2% or more of its gross
turnover or total income or Rs. 50 lakh or such higher amount as may be
prescribed, whichever is lower, during the 2 immediately preceding
financial years or during the current financial year
8
 Neither himself nor his relative:
- is / was KMP or Employee of the Company, its holding, subsidiary or associate
Company
- Is / was Employee or Proprietor or Partner of:
(i) a firm of auditor or CS in practice or Cost accountant of the Company, its
holding, subsidiary or associate Company
(ii) legal or a consulting firm having any transaction with the Company, its
holding, subsidiary or associate company amounting to 10% or more of the
gross turnover of such firm
in any of the three financial years immediately preceding the financial year in which he
is proposed to be appointed
 Does not hold (together with relatives) 2% or more of voting power of the Company
9
 Not a CEO or Director of a Non Profit Organisation:
(i) which receives 25% or more of its total receipts from the Company, its
promoters, directors, holding, subsidiary or associate company
(ii) which holds 2% or more of the total voting power of the Company
 Possess such other qualification as may be prescribed
Draft Rules prescribe-
• Appropriate balance of skills, experience and knowledge in one or more fields of
finance, law, management, etc. or other disciplines related to the company’s
business:
• The Board’s report made for the first time after the appointment of the independent
director, shall furnish a statement that in its opinion the independent director
possesses appropriate balance of skills, experience and knowledge, as
required
10
 The definition of Independent Director in the Companies Act, 2013 is more rigorous
than that provided under Clause 49 of the Equity Listing Agreement
 However, a Listed Company (equity listed) should also consider following additional
criteria provided under Clause 49, while evaluating independence of a person:
(i) he should not be related to persons occupying position at one level below the
Board in the Company
(ii) he should be at least 21 years of age
(iii) No material pecuniary relationship with senior management
11
 Required to declare his independence:
 At the first meeting of Board in which he participates as Director
 First Meeting of the Board in every Financial Year
 If any change in circumstances which may affect his status as an
Independent Director
12
 The Company and Independent Directors shall abide by the provisions
 The Code includes following:
 Guidelines of professional conduct
 Role and functions
 Duties
 Manner of appointment
 Re-appointment
 Resignation or removal
 Separate meetings
 Evaluation mechanism
13
Few important points of Code are:
 The appointment of independent directors shall be formalized through a letter of
appointment
 The letter shall inter-alia provide expectations of Board from appointed director, list of
actions which directors are not supposed to do, details of remuneration, etc
 The terms and conditions of appointment shall be open for inspection by members
during normal business hours and also be posted on Company’s website
 Any vacancy in office of independent director to be filled within 180 days. (However, if
the Company has requisite number of Independent Directors on the Board, it may not
appoint any director in such vacancy)
 Independent directors of the company are required to hold at least one meeting in a
year, without non-independent directors and members of management attending it
 Performance evaluation of Independent Directors to be done by the entire Board,
excluding the director being evaluated
14
 Remuneration by way of sitting fee
 Profit related Commission
 Reimbursement of expenses for participation in Board / Other Meetings
Independent Directors are not entitled to any stock options
15
Notwithstanding anything contained in the Act-
An Independent Director or
A Non-executive Director (not being promoter or KMP)
shall be held liable only -
 In respect of such acts of omission or commission by the Company which -
occurred with his knowledge, attributable through Board processes and with
his consent or connivance or where he had not acted diligently
 Independent Director may be selected from a data bank maintained by any
body, institute or association, as may by notified by the Central Government
 Responsibility of exercising due diligence before selection on the Company
making such appointment
 The appointment is to be approved in General Meeting
 Explanatory statement annexed to Notice shall indicate the justification for
choosing the appointee for appointment as Independent Director
 Explanatory statement shall also include a statement that in the opinion of
the Board, appointee fulfills the conditions specified in the Act for such
appointment. {proviso to Section 152(5)}
 Central Government may prescribe manner and procedure of selection of
Independent Directors
16
 “Small shareholders” means a shareholder holding shares of nominal
value of not more than Rs. 20,000 or such other sum as may be prescribed
 A listed company (earlier, Public Companies with paid up capital >= Rs. 5
crore and >= 1000 shareholders) may have 1 director elected by such
small shareholders in such manner and with such terms and conditions as
may be prescribed
 Draft Rules prescribe-
A listed company may elect a small shareholders’ director from amongst the
small shareholders:
• suo motu or
• upon the notice of not less than 500 or 1/10th of the total number of small
shareholders, whichever is lower
17
Key highlights of Draft Rules-
 Such Director shall be considered as an Independent Director subject to his
giving a declaration as is required to be given by Independent Directors under
Section 149 of the Act.
 The small shareholders’ director shall not be liable to retire by rotation
 The director’s tenure as small shareholders’ director shall not exceed a period
of 3 consecutive years
 On the expiry of the tenure, the director shall not be eligible for re-appointment
 Such Director shall vacate office if he ceases to be a small shareholder
 No person shall hold the office of small shareholders’ director in more than 2
companies at the same time
18
 Deemed to be First Directors –
• the subscribers to the memorandum (where no provision in Articles
and until duly appointed)
• Individual member In case of one person company (until director
duly appointed under provisions of this section)
 Save as otherwise expressly provided in this Act, every director shall
be appointed by the company in the general meeting
 No person shall be appointed as a director of a company unless he has
been allotted with a Director Identification Number (DIN)
19
 A person appointed as a director shall not act as a director unless he gives
his consent to hold the office as director and such consent has been filed
with the Registrar within 30 days of his appointment
Draft Rules mention-
Every person who has been appointed to hold the office of a director shall
on or before the appointment furnish to the company a consent in writing
 Retirement by rotation – numbers to retire same as Companies Act, 1956
For the purpose of the retiring directors, independent directors shall not be
included for the calculation of the total number of directors
20
 153- Application for DIN
 154- Allotment of DIN by Central Government within 30 days
 155- Unique and single DIN for a single individual
 156- Intimation of DIN to Company in which he is a Director within 30 days
 157-Company to furnish to ROC within 15 days of receipt of intimation (penal
provisions, if not complied)
 158-DIN to be mentioned while furnishing any returns, information, etc. as
required under the Act, in case such return relate to, or contain any
reference of director
 159-Penal provision for non-compliance with Sec 152, 155, 156 (made
stringent)
Key highlights of Draft Rules-
 Concerned Director to intimate company within 15 days of change in
particulars specified in DIN application
 Company to disclose the changes in particulars of the concerned Director in
the Annual Return
21
 Notice in writing not less than 14 days before the meeting to be left by such
person or a member at registered office of the Company along with a deposit
of Rs. 1 lakh or such higher amount as may be prescribed
(previously, deposit of Rs. 500 was required)
 This deposit amount shall be refunded to such person/member, as the case
may be, if-
• The proposed person gets elected as a Director, or
• Gets more than 25% of total valid votes cast either on show of hands or on
poll on such resolution
 The Company shall inform the members of the candidature in such manner as
may be prescribed
Draft Rules prescribe-
- Similar manner as before, however shall inform in electronic mode, if opted
by member and by placing on website of the Company, if any
22
 Additional Director: The articles may confer on its Board the power to appoint
any person, other than a person who fails to get appointed as a director in a
general meeting, as an additional director at any time who shall hold office up to
the date of the next AGM or the last date on which the AGM should have been
held, whichever is earlier
 Alternate Director: The Board by its articles or by a resolution passed in
general meeting, appoint a person, to act as an alternate director for a director
during his absence for a period of not less than 3 months from India
 One Alternate Director to any Director in the Company cannot act as Alternate
Director to other Director(s) of that Company
 Alternate Director to an Independent Director should also be qualified to be
appointed as Independent Director
23
 Alternate Director not to hold office for period longer than that permissible to
Original Director and shall vacate office when the Original Director returns
to India
 Nominee Director- Subject to the Articles, the Board may appoint any
person as a director nominated by any institution in pursuance of provisions
of any law for the time being in force or of any agreement or by the
Central/State Government by virtue of its shareholding in a Government
Company – Sec. 161(3)
 Casual vacancy in the office of a Director may, in default of and subject to
any regulations in the Articles of the Company, be filled up by the Board at
its meeting
24
 Now applicable to Private Companies as well
 Now applicable to Private Companies as well
25
Criteria in addition to Sec 274 of Companies Act, 1956:
 convicted by a court of any offence, whether involving moral turpitude or
otherwise
 convicted of any offence and sentenced to imprisonment for a period of 7
years or more, he shall not be eligible to be appointed as a Director in any
Company ( i.e. disqualified for his life time)
 an order disqualifying him for appointment as a director has been passed
by a court or Tribunal and the order is in force (now under any Act)
(earlier, under specified section 203 of Companies Act, 1956)
 convicted of the offence dealing with related party transactions under
Section 188 at any time during the last preceding 5 years; or
 not complied with Section 152(3) (i.e. not allotted with a DIN)
26
 No person who is or has been a director of any company (now includes
private companies also) which –
a. has not filed financial statements or annual returns for any
continuous period of 3 financial years; or
b. has failed to repay the deposits accepted by it or pay interest thereon
or to redeem any debentures on the due date or pay interest due
thereon or pay any dividend declared and such failure to pay or
redeem continues for 1 year or more
shall be eligible to be re-appointed as a director of that company or
appointed in other company for a period of 5 years from the date on which
said company fails to do so
 The power of Central Government to exempt the disqualification
application has been dispensed with
 A private company may, by its Articles, provide for additional grounds of
disqualifications
27
 Disqualifications regarding conviction for offences shall not take
effect-
i. for 30 days from the date of conviction or order of disqualification
ii. where an appeal or petition is preferred within 30 days as aforesaid
against the conviction resulting in sentence or order, until expiry of 7
days from the date on which the appeal or petition is disposed off; or
iii. where any further appeal or petition is preferred against order or
sentence within 7 days, until such further appeal or petition is disposed
off.
28
 Number of directorships, including any alternate directorship not in more
than 20 companies at the same time (earlier 15 companies with certain
exceptions)
 Maximum number of public companies in which a person can be
appointed as a director shall not exceed 10
 Directorship, in private companies that are either holding or
subsidiaries of public companies shall be included in the said limit of 10
public companies
 Members of a company may by special resolution specify any lesser
number of directorships to be held by its Directors
29
 If holding directorships more than the prescribed
numbers, then, within a period of 1 year from commencement
of the Act-
a. choose not more than the specified limit of those companies, as
companies in which he wishes to continue to hold the office of
director
b. resign his office as director in the other remaining companies
and
c. intimate the choice made by him to each of the companies in
which he was holding the office of Director before such
commencement and to the Registrar having jurisdiction in
respect of each such company
30
 Such resignation to reduce number of directorships shall become
effective immediately on the dispatch thereof to the company
concerned
 Penalty- fine of not less than Rs. 5000 but which may extend to Rs.
25000 for every day after the first during which the contravention
continues
31
 A director shall –
• act in accordance with the Articles of the company
• act in good faith in order to promote the objects of the company for the
benefit of its members as a whole, and in the best interests of the
Company, its employees, the shareholders, the community and for the
protection of environment
• exercise his duties with due and reasonable care, skill and diligence and
exercise independent judgement
• not involve in a situation in which he may have a direct or indirect interest
that conflicts, or possibly may conflict, with the interests of the company
32
 A director shall –
• not assign his office and any assignment so made shall be void.
• not achieve or attempt to achieve any undue gain or advantage
either to himself or to his relatives, partners or associates (if found
guilty, is liable to pay an equal amount of that gain, to the
Company)
 If there is a contravention to provisions of this section, director shall
be punishable with fine of not less than Rs. 1 lakh but which may
extend to Rs. 5 lakhs.
33
 The office of a director shall become vacant in the following cases-
a. If he incurs any of the disqualifications specified in Section 164
b. he absents himself from all the meetings of the Board of Directors
held during a period of 12 months with or without seeking leave
of absence of the Board
c. he fails to disclose his interest in any contract or arrangement or
acts in contravention of Section 184 in this regard
d. he becomes disqualified by an order of a court or the Tribunal
(under any Act)
34
e. he is convicted by a court of any offence, whether involving moral
turpitude or otherwise and sentenced in respect thereof to imprisonment
for not less than six months:
Provided that the office shall be vacated by the director even if he has
filed an appeal against the order of such court
f. he is removed in pursuance of the provisions of this Act
g. he ceases to hold any office or other employment in the
holding, subsidiary or associate by virtue of which he was appointed
 Private Companies may, by its Articles, provide for additional grounds for
vacation of office by Director
 Penalty- if continues as Director, even though disqualified as above-
imprisonment which may extend to 1 year or with fine which shall not be
less than Rs. 1 Lakh but which may extend to Rs. 5 lakhs, or both
35
 A director may resign from office by giving a notice in writing and –
• the Board shall on receipt of such notice, take note of the same and
• the Company shall intimate the same to the Registrar and
• The Company shall also place the fact of such resignation in the report
of directors laid in the immediately following general meeting by the
company
 The Director shall also forward a copy of his resignation along with
detailed reasons for the resignation to the Registrar within 30 days
 The resignation of a director shall take effect from the date on which the
notice is received by the company or the date, if any, specified by the
director in the notice, whichever is later
 Director shall be liable even after his resignation, for offence which occurred
during his tenure
36
Draft Rules mention-
 The Company shall within 30 days from the date of receipt of notice of
resignation from a director
 intimate the Registrar and
 post the information on its website, if any.
 A director who resigns from his office, may within 30 days from the date of
resignation, forward to the Registrar a copy of his resignation along with
reasons for the resignation and along with the prescribed fee
37
38
 By ordinary resolution (with certain exceptions), after giving a
reasonable opportunity of being heard
 Copy of representation in writing, given by Director may be sent to
members of the Company to whom notice of the meeting is sent, or, the
notice may state the fact of such representation being made
 Representation, if not sent to members, may be required by the Director, to
be read at the meeting, without prejudice to his right to be heard orally
(Tribunal may disallow, on application by Company/member, if this right is
abused by Director for defamatory matter)
 Special notice (Sec 115) is required for removal/appointment of Director in
place of such Director, at the meeting at which he is removed. If
appointment is not made in same meeting, the vacancy can be filled as
a casual vacancy
 Members holding not less than 1% total voting power or aggregate sum not
exceeding Rs. 5 lakh paid up may move resolution by special notice
 Single register for Directors/KMPs and their security-holdings to be kept at
registered office containing particulars as may be prescribed
 Details of securities in the company or its holding, subsidiary, subsidiary of
company’s holding company or associate companies
 Filing with ROC within 30 days from the appointment and change of every
director and key managerial personnel
 Register shall be open for inspection during business hours (earlier could
restrict to 2 or more business hours)
 Members have a right to take extracts. Copies, if requested, to be provided
within 30 days, free of cost
 Register shall be made accessible to any person (includes proxies)
attending the AGM (earlier this requirement was not there for Register u/s
303)
39
 Draft Rules prescribe certain new additions in Register
 Spouse’s name (if married) – earlier, it was required for married
women only
 Residential address (present as well as permanent)
 Reasons for cessation of office
 Office of KMP held or relinquished in any other body corporate
 Membership number of ICSI in case of Company Secretary
 If a company contravenes any of the provisions of this Chapter XI and
for which no specific punishment is provided therein, the company and
every officer of the company who is in default shall be punishable with
fine which shall not be less than Rs. 50,000 but which may extend to
Rs. 5 Lakhs
40
Thank You
41

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Chapter xi 13.09.2013.appointment and qualification of directors

  • 1. Chapter XI- Appointment and Qualifications of Directors 1 September 13, 2013
  • 2.  ―Board of Directors‖ or ―Board‖, in relation to a company, means the collective body of the directors of the Company, as defined under Section 2(10) Requirements u/s 149(1):  Every Company shall have a Board of Directors consisting of individuals as directors and shall have—  Minimum number of 3 directors - Public Company 2 directors - Private Company 1 director - One Person Company (new)  Maximum number of directors have been increased from 12 to 15  Special resolution has to be passed for appointment of more than 15 directors (no Central Government approval required) 2
  • 3. Requirements u/s 149(1) –  For prescribed class of Companies, there should be at least 1 woman director  Draft Rules prescribe – -Every Listed Company ( within 1 yr from commencement of related provision) -Public Company with - Paid –up capital of Rs. 100 crore or more, or - Turnover of Rs. 300 crore or more (For Public Companies, 3yrs from commencement of related provision)  For all the above requirements u/s 149 (1), a transition period of 1 year from the commencement of the Act (exception-Woman Director for Public Companies)  At least 1 director should have stayed in India for a total period of not less than 182 days in the previous calendar year (new) 3
  • 4. Every Listed Public Company to have minimum 1/3rd of total number of directors as independent director (Any fraction in 1/3rd to be rounded off as 1)  In case of other class or classes of Public Companies, Central Government may prescribe for minimum number of Independent Directors  To comply within 1 year from commencement of the Act or notification of Rules, as may be applicable  Draft Rules prescribe- Public Companies having - paid-up share capital of Rs 100 crore or more or - turnover of Rs. 300 crore or more or - in aggregate, outstanding loans or borrowings or debentures or deposits, exceeding Rs. 200 crore.  These criteria shall continue to apply during the tenure of the Independent Director even if amounts under these criteria falls below the specified limits  Higher number of Independent Directors, if prescribed under any law/regulations governing such class of Companies 4
  • 5. 5  A term up to 5 consecutive years  Eligible for reappointment on passing of a special resolution by the Company and disclosure of such appointment in the Board’s Report  Not to hold office for more than 2 consecutive terms  However, eligible for appointment after the expiration of 3 years cooling period (Not to be associated with the Company in any capacity, either directly or indirectly during these 3 years)  Any tenure of an Independent Director on the date of commencement of this Act shall not be counted as a term
  • 6. 6 An Independent Director in relation to a Company is:  A 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, in the opinion of the Board  Not a promoter (present or past) of the Company or its holding, subsidiary or associate Company  Not related to promoters or directors in the Company, its holding, subsidiary or associate Company
  • 7. 7  Does not have any pecuniary relationship with the Company, its holding, subsidiary or associate Company, or their promoters, or directors, during the 2 immediately preceding financial years or during the current financial year  None of the relatives of such person should have pecuniary relationship or transaction with the Company, its holding, subsidiary or associate Company, or their promoters, or directors, amounting to 2% or more of its gross turnover or total income or Rs. 50 lakh or such higher amount as may be prescribed, whichever is lower, during the 2 immediately preceding financial years or during the current financial year
  • 8. 8  Neither himself nor his relative: - is / was KMP or Employee of the Company, its holding, subsidiary or associate Company - Is / was Employee or Proprietor or Partner of: (i) a firm of auditor or CS in practice or Cost accountant of the Company, its holding, subsidiary or associate Company (ii) legal or a consulting firm having any transaction with the Company, its holding, subsidiary or associate company amounting to 10% or more of the gross turnover of such firm in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed  Does not hold (together with relatives) 2% or more of voting power of the Company
  • 9. 9  Not a CEO or Director of a Non Profit Organisation: (i) which receives 25% or more of its total receipts from the Company, its promoters, directors, holding, subsidiary or associate company (ii) which holds 2% or more of the total voting power of the Company  Possess such other qualification as may be prescribed Draft Rules prescribe- • Appropriate balance of skills, experience and knowledge in one or more fields of finance, law, management, etc. or other disciplines related to the company’s business: • The Board’s report made for the first time after the appointment of the independent director, shall furnish a statement that in its opinion the independent director possesses appropriate balance of skills, experience and knowledge, as required
  • 10. 10  The definition of Independent Director in the Companies Act, 2013 is more rigorous than that provided under Clause 49 of the Equity Listing Agreement  However, a Listed Company (equity listed) should also consider following additional criteria provided under Clause 49, while evaluating independence of a person: (i) he should not be related to persons occupying position at one level below the Board in the Company (ii) he should be at least 21 years of age (iii) No material pecuniary relationship with senior management
  • 11. 11  Required to declare his independence:  At the first meeting of Board in which he participates as Director  First Meeting of the Board in every Financial Year  If any change in circumstances which may affect his status as an Independent Director
  • 12. 12  The Company and Independent Directors shall abide by the provisions  The Code includes following:  Guidelines of professional conduct  Role and functions  Duties  Manner of appointment  Re-appointment  Resignation or removal  Separate meetings  Evaluation mechanism
  • 13. 13 Few important points of Code are:  The appointment of independent directors shall be formalized through a letter of appointment  The letter shall inter-alia provide expectations of Board from appointed director, list of actions which directors are not supposed to do, details of remuneration, etc  The terms and conditions of appointment shall be open for inspection by members during normal business hours and also be posted on Company’s website  Any vacancy in office of independent director to be filled within 180 days. (However, if the Company has requisite number of Independent Directors on the Board, it may not appoint any director in such vacancy)  Independent directors of the company are required to hold at least one meeting in a year, without non-independent directors and members of management attending it  Performance evaluation of Independent Directors to be done by the entire Board, excluding the director being evaluated
  • 14. 14  Remuneration by way of sitting fee  Profit related Commission  Reimbursement of expenses for participation in Board / Other Meetings Independent Directors are not entitled to any stock options
  • 15. 15 Notwithstanding anything contained in the Act- An Independent Director or A Non-executive Director (not being promoter or KMP) shall be held liable only -  In respect of such acts of omission or commission by the Company which - occurred with his knowledge, attributable through Board processes and with his consent or connivance or where he had not acted diligently
  • 16.  Independent Director may be selected from a data bank maintained by any body, institute or association, as may by notified by the Central Government  Responsibility of exercising due diligence before selection on the Company making such appointment  The appointment is to be approved in General Meeting  Explanatory statement annexed to Notice shall indicate the justification for choosing the appointee for appointment as Independent Director  Explanatory statement shall also include a statement that in the opinion of the Board, appointee fulfills the conditions specified in the Act for such appointment. {proviso to Section 152(5)}  Central Government may prescribe manner and procedure of selection of Independent Directors 16
  • 17.  “Small shareholders” means a shareholder holding shares of nominal value of not more than Rs. 20,000 or such other sum as may be prescribed  A listed company (earlier, Public Companies with paid up capital >= Rs. 5 crore and >= 1000 shareholders) may have 1 director elected by such small shareholders in such manner and with such terms and conditions as may be prescribed  Draft Rules prescribe- A listed company may elect a small shareholders’ director from amongst the small shareholders: • suo motu or • upon the notice of not less than 500 or 1/10th of the total number of small shareholders, whichever is lower 17
  • 18. Key highlights of Draft Rules-  Such Director shall be considered as an Independent Director subject to his giving a declaration as is required to be given by Independent Directors under Section 149 of the Act.  The small shareholders’ director shall not be liable to retire by rotation  The director’s tenure as small shareholders’ director shall not exceed a period of 3 consecutive years  On the expiry of the tenure, the director shall not be eligible for re-appointment  Such Director shall vacate office if he ceases to be a small shareholder  No person shall hold the office of small shareholders’ director in more than 2 companies at the same time 18
  • 19.  Deemed to be First Directors – • the subscribers to the memorandum (where no provision in Articles and until duly appointed) • Individual member In case of one person company (until director duly appointed under provisions of this section)  Save as otherwise expressly provided in this Act, every director shall be appointed by the company in the general meeting  No person shall be appointed as a director of a company unless he has been allotted with a Director Identification Number (DIN) 19
  • 20.  A person appointed as a director shall not act as a director unless he gives his consent to hold the office as director and such consent has been filed with the Registrar within 30 days of his appointment Draft Rules mention- Every person who has been appointed to hold the office of a director shall on or before the appointment furnish to the company a consent in writing  Retirement by rotation – numbers to retire same as Companies Act, 1956 For the purpose of the retiring directors, independent directors shall not be included for the calculation of the total number of directors 20
  • 21.  153- Application for DIN  154- Allotment of DIN by Central Government within 30 days  155- Unique and single DIN for a single individual  156- Intimation of DIN to Company in which he is a Director within 30 days  157-Company to furnish to ROC within 15 days of receipt of intimation (penal provisions, if not complied)  158-DIN to be mentioned while furnishing any returns, information, etc. as required under the Act, in case such return relate to, or contain any reference of director  159-Penal provision for non-compliance with Sec 152, 155, 156 (made stringent) Key highlights of Draft Rules-  Concerned Director to intimate company within 15 days of change in particulars specified in DIN application  Company to disclose the changes in particulars of the concerned Director in the Annual Return 21
  • 22.  Notice in writing not less than 14 days before the meeting to be left by such person or a member at registered office of the Company along with a deposit of Rs. 1 lakh or such higher amount as may be prescribed (previously, deposit of Rs. 500 was required)  This deposit amount shall be refunded to such person/member, as the case may be, if- • The proposed person gets elected as a Director, or • Gets more than 25% of total valid votes cast either on show of hands or on poll on such resolution  The Company shall inform the members of the candidature in such manner as may be prescribed Draft Rules prescribe- - Similar manner as before, however shall inform in electronic mode, if opted by member and by placing on website of the Company, if any 22
  • 23.  Additional Director: The articles may confer on its Board the power to appoint any person, other than a person who fails to get appointed as a director in a general meeting, as an additional director at any time who shall hold office up to the date of the next AGM or the last date on which the AGM should have been held, whichever is earlier  Alternate Director: The Board by its articles or by a resolution passed in general meeting, appoint a person, to act as an alternate director for a director during his absence for a period of not less than 3 months from India  One Alternate Director to any Director in the Company cannot act as Alternate Director to other Director(s) of that Company  Alternate Director to an Independent Director should also be qualified to be appointed as Independent Director 23
  • 24.  Alternate Director not to hold office for period longer than that permissible to Original Director and shall vacate office when the Original Director returns to India  Nominee Director- Subject to the Articles, the Board may appoint any person as a director nominated by any institution in pursuance of provisions of any law for the time being in force or of any agreement or by the Central/State Government by virtue of its shareholding in a Government Company – Sec. 161(3)  Casual vacancy in the office of a Director may, in default of and subject to any regulations in the Articles of the Company, be filled up by the Board at its meeting 24
  • 25.  Now applicable to Private Companies as well  Now applicable to Private Companies as well 25
  • 26. Criteria in addition to Sec 274 of Companies Act, 1956:  convicted by a court of any offence, whether involving moral turpitude or otherwise  convicted of any offence and sentenced to imprisonment for a period of 7 years or more, he shall not be eligible to be appointed as a Director in any Company ( i.e. disqualified for his life time)  an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force (now under any Act) (earlier, under specified section 203 of Companies Act, 1956)  convicted of the offence dealing with related party transactions under Section 188 at any time during the last preceding 5 years; or  not complied with Section 152(3) (i.e. not allotted with a DIN) 26
  • 27.  No person who is or has been a director of any company (now includes private companies also) which – a. has not filed financial statements or annual returns for any continuous period of 3 financial years; or b. has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for 1 year or more shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of 5 years from the date on which said company fails to do so  The power of Central Government to exempt the disqualification application has been dispensed with  A private company may, by its Articles, provide for additional grounds of disqualifications 27
  • 28.  Disqualifications regarding conviction for offences shall not take effect- i. for 30 days from the date of conviction or order of disqualification ii. where an appeal or petition is preferred within 30 days as aforesaid against the conviction resulting in sentence or order, until expiry of 7 days from the date on which the appeal or petition is disposed off; or iii. where any further appeal or petition is preferred against order or sentence within 7 days, until such further appeal or petition is disposed off. 28
  • 29.  Number of directorships, including any alternate directorship not in more than 20 companies at the same time (earlier 15 companies with certain exceptions)  Maximum number of public companies in which a person can be appointed as a director shall not exceed 10  Directorship, in private companies that are either holding or subsidiaries of public companies shall be included in the said limit of 10 public companies  Members of a company may by special resolution specify any lesser number of directorships to be held by its Directors 29
  • 30.  If holding directorships more than the prescribed numbers, then, within a period of 1 year from commencement of the Act- a. choose not more than the specified limit of those companies, as companies in which he wishes to continue to hold the office of director b. resign his office as director in the other remaining companies and c. intimate the choice made by him to each of the companies in which he was holding the office of Director before such commencement and to the Registrar having jurisdiction in respect of each such company 30
  • 31.  Such resignation to reduce number of directorships shall become effective immediately on the dispatch thereof to the company concerned  Penalty- fine of not less than Rs. 5000 but which may extend to Rs. 25000 for every day after the first during which the contravention continues 31
  • 32.  A director shall – • act in accordance with the Articles of the company • act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the Company, its employees, the shareholders, the community and for the protection of environment • exercise his duties with due and reasonable care, skill and diligence and exercise independent judgement • not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company 32
  • 33.  A director shall – • not assign his office and any assignment so made shall be void. • not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners or associates (if found guilty, is liable to pay an equal amount of that gain, to the Company)  If there is a contravention to provisions of this section, director shall be punishable with fine of not less than Rs. 1 lakh but which may extend to Rs. 5 lakhs. 33
  • 34.  The office of a director shall become vacant in the following cases- a. If he incurs any of the disqualifications specified in Section 164 b. he absents himself from all the meetings of the Board of Directors held during a period of 12 months with or without seeking leave of absence of the Board c. he fails to disclose his interest in any contract or arrangement or acts in contravention of Section 184 in this regard d. he becomes disqualified by an order of a court or the Tribunal (under any Act) 34
  • 35. e. he is convicted by a court of any offence, whether involving moral turpitude or otherwise and sentenced in respect thereof to imprisonment for not less than six months: Provided that the office shall be vacated by the director even if he has filed an appeal against the order of such court f. he is removed in pursuance of the provisions of this Act g. he ceases to hold any office or other employment in the holding, subsidiary or associate by virtue of which he was appointed  Private Companies may, by its Articles, provide for additional grounds for vacation of office by Director  Penalty- if continues as Director, even though disqualified as above- imprisonment which may extend to 1 year or with fine which shall not be less than Rs. 1 Lakh but which may extend to Rs. 5 lakhs, or both 35
  • 36.  A director may resign from office by giving a notice in writing and – • the Board shall on receipt of such notice, take note of the same and • the Company shall intimate the same to the Registrar and • The Company shall also place the fact of such resignation in the report of directors laid in the immediately following general meeting by the company  The Director shall also forward a copy of his resignation along with detailed reasons for the resignation to the Registrar within 30 days  The resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later  Director shall be liable even after his resignation, for offence which occurred during his tenure 36
  • 37. Draft Rules mention-  The Company shall within 30 days from the date of receipt of notice of resignation from a director  intimate the Registrar and  post the information on its website, if any.  A director who resigns from his office, may within 30 days from the date of resignation, forward to the Registrar a copy of his resignation along with reasons for the resignation and along with the prescribed fee 37
  • 38. 38  By ordinary resolution (with certain exceptions), after giving a reasonable opportunity of being heard  Copy of representation in writing, given by Director may be sent to members of the Company to whom notice of the meeting is sent, or, the notice may state the fact of such representation being made  Representation, if not sent to members, may be required by the Director, to be read at the meeting, without prejudice to his right to be heard orally (Tribunal may disallow, on application by Company/member, if this right is abused by Director for defamatory matter)  Special notice (Sec 115) is required for removal/appointment of Director in place of such Director, at the meeting at which he is removed. If appointment is not made in same meeting, the vacancy can be filled as a casual vacancy  Members holding not less than 1% total voting power or aggregate sum not exceeding Rs. 5 lakh paid up may move resolution by special notice
  • 39.  Single register for Directors/KMPs and their security-holdings to be kept at registered office containing particulars as may be prescribed  Details of securities in the company or its holding, subsidiary, subsidiary of company’s holding company or associate companies  Filing with ROC within 30 days from the appointment and change of every director and key managerial personnel  Register shall be open for inspection during business hours (earlier could restrict to 2 or more business hours)  Members have a right to take extracts. Copies, if requested, to be provided within 30 days, free of cost  Register shall be made accessible to any person (includes proxies) attending the AGM (earlier this requirement was not there for Register u/s 303) 39
  • 40.  Draft Rules prescribe certain new additions in Register  Spouse’s name (if married) – earlier, it was required for married women only  Residential address (present as well as permanent)  Reasons for cessation of office  Office of KMP held or relinquished in any other body corporate  Membership number of ICSI in case of Company Secretary  If a company contravenes any of the provisions of this Chapter XI and for which no specific punishment is provided therein, the company and every officer of the company who is in default shall be punishable with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 5 Lakhs 40