Directors & Managerial Personnel - 2 | Company Law - B Com PDF Download

(g) Appointment of Directors elected by Small shareholders (Section 151)

According to section 151 of the Companies Act, 2013:

A listed company may have one director elected by such small shareholders in such manner and on such terms and conditions as may be prescribed.

Here, “Small Shareholders” means a shareholder holding shares of nominal value of not more than ` 20,000 or such other sum as may be prescribed.

The Companies (Appointment and Qualification of Directors) Rules, 2014 provides for the procedure for appointment of small shareholders’ director according to which:

(1) A listed company, may upon notice of not less than

• One thousand small shareholders, or
• One tenth of the total number of such shareholders, whichever is lower, have a small shareholders’ director elected by the small shareholders.

However, a listed company may opt to have a director representing small shareholders’ suo motu and in such a case the provisions of sub-rule (2), given below, shall not apply for appointment of such director.

(2) The small shareholders intending to propose a person as a candidate for the post of small shareholders’ director shall leave a notice of their intention with the company at least fourteen days before the meeting under their signatures specifying the name, address, shares held and folio number of the person whose name is being proposed for the post of director and of the small shareholders who are proposing such person for the office of director.

However, if the person being proposed does not hold any shares in the company, the details of shares held and folio number need not be specified in the notice.

(3) The notice shall be accompanied by a statement signed by the person whose name is being proposed for the post of small shareholders’ director stating:\

1. His Director Identification Number;
2. That he is not disqualified to become a director under the Act; and
3. His consent to act as a director of the company.

(4) Such director shall be considered as an independent director subject to, his being eligible under sub-section (6) of section 149 and his giving a declaration of his independence in accordance with sub-section (7) of section 149 of the Act. 

(5) The appointment of small shareholders’ director shall be subject to the provisions of section 152 except that :

1. Such director shall not be liable to retire by rotation;
2. Such director’s tenure as small shareholders‘ director shall not exceed a period of three consecutive years; and
3. Sn the expiry of the tenure, such director shall not be eligible for re-appointment.

(6) A person shall not be appointed as small shareholders’ director of a company, if he is not eligible for appointment in terms of section 164 which specifies the disqualifications for appointment of a director. 

(7) A person appointed as small shareholders’ director shall vacate the office if:

1. The director incurs any of the disqualifications specified in section 164;
2. The office of the director becomes vacant in pursuance of section 167;
3. The director ceases to meet the criteria of independence as provided in sub-section (6) of section 149.

(8) No person shall hold the position of small shareholders’ director in more than two companies at the same time. 

However, the second company in which he has been so appointed shall not be in a business which is competing or is in conflict with the business of the first company.

(9) A small shareholders’ director shall not, for a period of three years from the date on which he ceases to hold office as a small shareholders’ director in a company, be appointed in or be associated with such company in any other capacity, either directly or indirectly.

(h) Appointment of directors to be voted individually (Section 162)

According to this section:

1. Two or more directors of a company cannot be elected as directors by a single resolution.
2. Thus, each director shall be appointed by a separate resolution a proposal to move such a resolution has first been agreed to at the meeting without any vote being cast against it.
3. A resolution moved in contravention of this provision shall be void, whether or not any objection thereto was raised at the time it was so moved.
4. 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.

Non applicability of section 162: The Ministry of Corporate Affairs has clarified via Notifications No. 463(E) and 464(E) dated 5th June, 2015, that section 162 of the Companies Act, 2013, shall not apply to:

• A Government company in which the entire paid up share capital is held by the Central Government, or by any State Government or Governments or by the Central Government and one or more State Governments;
• A subsidiary of a Government company, referred to in (a) above, in which the entire paid up share capital is held by the Government company;
• A Private company

(i) Option to adopt principle of proportional representation for appointment of directors (Section 163)

(1) According to this section:

• Notwithstanding anything contained in the Companies Act, 2013, the articles of a company may provide for the appointment of not less than two-thirds of the total number of the directors of a company in accordance with the principle of proportional representation.
• Such appointments may be made once in every 3years whether by the single transferable vote or by a system of cumulative voting or otherwise. Single transferable vote means, a candidate gets elected if he gets the required number of votes fixed as quota. These systems of voting ensure that the Board will have fair representation of the minority interest.
• Casual vacancies of such directors shall be filled as provided in sub-section (4) of section 161.

(2) Non applicability of section 163: 

The Ministry of Corporate Affairs has notified via Notifications No. 463(E) dated 5th June, 2015, that section 163 of the Companies Act, 2013, shall not apply to:

• A Government company in which the entire paid up share capital is held by the Central Government, or by any State Government or Governments or by the Central Government and one or more State Governments;
• A subsidiary of a Government company, referred to in (a) above, in which the entire paid up share capital is held by the Government company.

(j) Disqualifications for appointment of director (Section 164) 

According to this section:

(1) A person cannot be appointed as director of a company in any of the following cases:

• He is of unsound mind and stands so declared by a competent court.
• He is an undischarged insolvent.
• He has applied to be adjudicated as an insolvent and his application is pending. d) he has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than 6 months and a period of 5 years has not elapsed from the date of expiry of the sentence.

However, if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of 7 years or more, he shall not be eligible to be appointed as a director in any company.

Word “or otherwise” in clause (d) above, means any offence in respect of which he has been convicted by s Court under this Act or the Companies Act, 1956. Rule 2(1)(s) of the Companies (Specification of definitions details) Rules, 2014.

• An order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force.
• He has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and 6 months have elapsed from the last day fixed for the payment of the call.
• He has been convicted of the offence of dealing with related party transactions under section 188 at any time during the last preceding 5 years, or
• He has not complied with sub-section (3) of section 152 which requires a director to have a Director Identification Number under section 154. 

(2) No person who is or has been a director of a company which:

• Has not filed financial statements or annual returns for any continuous period of 3 financial years, or
• 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 period of 5 years from the date on which the said company fails to do so. [Section 164 (2)] 

(3) Non applicability of section 164(2):

Section 164(2) is not applicable to Government Company.

(4) A private company may by its articles provide for any disqualifications for appointment as a director in addition to those specified in sub-sections (1) and (2) of section 164 as stated above [i.e., point (1) and (2) above]. 

(5) However, the disqualifications referred to in clauses (d), (e) and (g) of sub-section (1) [given in point (1) above] shall not take effect:

• For 30 days from the date of conviction or order of disqualification.
• 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 such appeal or petition is disposed off, or
• Where any further appeal or petition is preferred against order or sentence within 7 days, until such further appeal or petition is disposed off.

Resignation of Director (Section 168) 

Provisions regarding resignation of directors have been provided for the first time under the Companies Act, 2013. According to this section:

• A director may resign from his office by giving a notice in writing to the company.
• The Board shall on receipt of such notice take note of the same.
• The company shall within 30 days from the date of receipt of notice of resignation from a director, intimate the Registrar in Form DIR-12 and post the information on its website, if any.
• 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.
• Such director shall also forward a copy of his resignation along with detailed reasons for the resignation to the Registrar within 30days from the date of resignation in Form DIR- 11 along with the prescribed fee.

Removal of Directors (Section 169)

Section 169 of the Companies Act, 2013 came into force partially 4 from 1st April, 2014 which provides the provisions for removal of directors. According to this section:

• A company may, by ordinary resolution, remove a director other than a director appointed by the Tribunal under section 242 of the Act, before the expiry of the period of his office after giving him a reasonable opportunity of being heard. [Section 169(1)].
• It is further provided that the directors appointed on the principle of proportional representation under section 163 cannot be removed by an ordinary resolution as aforesaid. {Proviso to section 169(1)].
• A special notice shall be required of any resolution, to remove a director under section 169 or to appoint somebody in place of a director so removed, at the meeting at which he is removed. [Section 169 (2)].
• On receipt of the notice of a resolution to remove a director under section 169, the company shall forthwith send a copy thereof to the director concerned, and the director, whether or not he is a member of the company, shall be entitled to be heard on the resolution at the meeting. [Section 169(3)].
• The vacancy resulting from the aforesaid removal if he had been appointed by the company in general meeting or by the Board, may be filled in by the appointment of another director at the same meeting at which the director is removed, provided special notice of the proposed appointment has been given under section 169(2). [Section 169(5)].
• A director so appointed shall hold office for the remaining period for which the director who has been removed would have held office if he had not been removed. [Section 169(6)].
• If the vacancy is not filled in the same meeting as above, then it may be filled as a casual vacancy in accordance with the provisions of this Act provided that the director who was so removed from office shall not be reappointed as a director .[Section 169(7)].
• Nothing in this section shall be taken to deprive a person removed under this section of his rights to compensation or damages payable to him in respect of the premature termination of the directorship, or terms of his appointment as director or of any appointment terminating with that as a director.[Section 169(8)(a)].
• Nothing in this section shall be derogating from any power to remove a director under any other provisions of this Act. [Section 169(8)(b)]

Vacation of office of director (Section 167) 

According to this section:

(a) The office of a director shall become vacant in case [Section 167(1)]:

1. He incurs any of the disqualifications specified in section 164.
2. He absents himself from all the meetings of the Board of Directors held during a period of 12months with or without seeking leave of absence of the Board.
3. He acts in contravention of the provisions of section 184 relating to entering into contracts or arrangements in which he is directly or indirectly interested.
4. He fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested, in contravention of the provisions of section 184.
5. He becomes disqualified by an order of a court or the Tribunal.
6. 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 6 months. It is further provided that the office shall be vacated by the director even if he has filed an appeal against the order of such court.
7. He is removed in pursuance of the provisions of this Act.
8. He, having been appointed a director by virtue of his holding any office or other employment in the holding, subsidiary or associate company, ceases to hold such office or other employment in that company.

(b) If a person, functions as a director even when he knows that the office of director held by him has become vacant on account of any of the disqualifications specified in sub-section (1), he shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than ` 1,00,000 but which may extend to ` 5,00,000, or with both. [Section 167 (2)]. 

(c) Where all the directors of a company vacate their offices under any of the disqualifications specified in sub-section (1), the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in the general meeting. [Section 167 (3)].

(d) A private company may, by its articles, provide any other ground for the vacation of the office of a director in addition to those specified in sub-section (1). [Section 167 (4)].