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Company Management

BOD
v
• GM of Shareholders
• AGM & EGM
• Adolf A Berle - Professor E. Merrick Dodd
Dialogue – On the concept of the Corporation -
Joseph L. Weine
Chapter XI
Appointment
&
Qualifications
of
Directors
Board of Directors

Executive Owner Independent


Directors Directors Directors

Nominee Management Supervisory &


Directors Enforcement
Corporate Authorities

Shareholders Stakeholders Creditors


Executive Director – MD/WTD
Non-Executive Director; Not MD / SCRA, 1956
WTD SEBI, 1992
Independent Director

Every PLC & Pvt. Co. - Which is a subsidiary of a PLC -


Having a SC of more than Rs 5 Crore must have a MD / WTD /
Manager
SEBI (Listing Obligations & Disclosure Requirements)
Regulations, 2015 - (LODRR) (Clause 49 – Listing Agreement)
 BOD - shall have an optimum combination of
ED NED
Not less than 50% of BOD comprising NED

Where - Chairperson of BOD is a NED - At least 1/3rd BOD -


Should comprise Independent Directors (ID) &
Not less - In case Chairperson is an ED - At least ½ BOD should
comprise ID then 50% of BOD comprising NED
Where NE - Chairperson is a promoter of the Co. / is related to
any promoter / person occupying management positions at BOD
level / at one level below BOD, at least ½ of BOD shall consist of
ID’s.
BOD’s – Reg. 17

 (1) Composition of BOD’s of the listed entity shall be as


follows:
 Optimum combination of ED & NED with
At least one woman director &
Not less than 50% of BOD’s shall comprise of NED;
 Sec. 149(1) R/W Rule 3, Companies (Appointment &
Qualification of Directors) Rules, 2014 (Ch. 11)
 (i) Every listed Co.;
 (ii) Every other public company having –
(a) Paid - up share capital of Rs. 100 crore / more;/
(b) Turnover of Rs. 300 crore / more.
 Turnover - Last date of latest audited financial
statements 
 Explanation - For T/P/O/T/Cl. - Expression
“Related to any promoter" shall have the
following meaning:
 (i) If the promoter is a listed entity, its directors
other than ID’s, its employees / its nominees
shall be deemed to be related to it;
 (ii) If the promoter is an unlisted entity, its
directors, its employees / its nominees shall be
deemed to be related to it.
Officer who is in default - Sec. 2(60)
 For the P/O/A/P/-I/T/Act which enacts that an
officer of the Co. who is in default shall be liable
to any penalty / punishment by way of
imprisonment, fine / otherwise, means any of the
following officers of a Co., namely:-
 (i) Whole-time Director;
 (ii) KMP;
 (iii) Where there is no KMP - Such director /directors
as specified by BOD in this behalf & who has / have
given his / their consent in writing to BOD to such
specification, / all the directors, if no director is so
specified;
Officer who is in default
 (iv) Any person who, under the immediate
authority of BOD / any KMP,
Is charged with any responsibility
Including maintenance, filing / distribution of
accounts / records,
Authorises, actively participates in, knowingly
permits, / knowingly fails to take active steps to
prevent, any default;
 (v) Any person in accordance with whose advice,
directions /instructions BOD of the co. is
accustomed to act, other than a person who
gives advice to BOD in a professional capacity;
Officer who is in default
 (vi) Every director, in respect of a contravention of any
of T/P/O/T/A
 Who is aware of such contravention
By virtue of the receipt by him of any proceedings of
BOD /
Participation in such proceedings without objecting
to the same, /
where such contravention had taken place with his
consent /connivance;
 (vii) In respect of the issue / transfer of any shares of a
Co., the share transfer agents, registrars & MB’s to the
issue / transfer;
Shadow Directors
 Any person, other than a professional adviser,
with whose instructions the directors of the Co.
normally comply is a ‘shadow director’.
 Where a person (not a director) - exerts such an
influence over Co’s directors that those
directors are accustomed to acting in
accordance with that person’s instructions, that
person is a shadow director.
 Shadow director has many of the legal
responsibilities of a director.
Co. to have BOD’s - Sec. 149
 Co. to have BOD’s
Individuals as directors
 PLC
Minimum No. of 3 directors
 Pvt. Co
Minimum No. of 2 directors
 One Person Company (OPC)
One director
 Maximum
15 directors
 May appoint more than 15 directors after
passing a Spl. resolution:
Sec. 149.
 Such class/classes of Co’s as may be prescribed, shall
have at least one woman director
 Within one year from such commencement comply
with the requirements of the provisions of Ss. (1)
 (3) Every Co. shall have at least one director who
has stayed in India for a total period of not less than
182 days in the previous calendar year.
 (4) Every PLC shall have at least 1/3rd of the total
No. of directors as INDEPENDENT DIRECTORS &
CG may prescribe the minimum No. of ID’s in case
of any class / classes of PLC.
• Expln. - For T/P/O/T/Ss, any fraction contained in
such 1/3rd No. shall be rounded off as one.
No. of Directorships - Sec. 165
 (1) No person… Shall hold office as a director -
Including any alternate directorship, in more than 20
Co’s at the same time:
 P… Max. No. of PLC in which a person can be
appointed as a director shall not exceed 10.
 Explanation - For reckoning the limit of PLC in which
a person can be appointed as director, directorship in
Pvt. Co’s that are either HC / SC of a PLC shall be
included.
 (2) Sub/T/T/P of Ss (1) - Members of a Co. may, by Spl.
Res. Specify any lesser No. of Co’s in which a director
of Co. may act as directors.
Sec. 165
 (3) Any person holding office as director in Co’s more
than the limits as specified… Immediately before the
commencement of this Act shall, within a period of 1
year from such commencement -
(a) Choose not more than the specified limit of those
Co’s, as Co’s in which he wishes to continue to hold
the office of director;
(b) Resign his office as director in other remaining
Co’s; &
(c) Intimate the choice made by him - To each of the
Co’s in which he was holding the office of director
before such commencement & to ROC having
jurisdiction in respect of each such Co.
Sec. 165
 (4) Any resignation made in pursuance of Ss 3 (b) shall
become effective immediately on the despatch thereof to
the Co. concerned.
 (5) No such person shall act as director in more than the
specified No. of Co’s -
(a) After despatching the resignation of his office as
director / NED thereof, in pursuance of Ss (3) (b); /
(b) After the expiry of 1 year from the
commencement of T/A, whichever is earlier.
 (6) If a person accepts an appointment as a director in
contravention of Ss (1), he shall be punishable with
fine which shall not be less than Rs. 5,000 but
which may extend to Rs. 20,000 for every day
after the first during which the contravention
continues.
Small SH’s Directors - Sec. 151
A listed Co. may have one director elected
by such Small SH’s in such manner & with
such terms & conditions as may be
prescribed.
 Explanation - For the purposes of T/S “Small
SH’s” means a SH holding shares of nominal
value of not more than Rs. 25,000 / such other
sum as may be prescribed.
Appointment of directors - Sec. 152
 (1) Where no provision is made in AOA –
 For the appointment of the first director –
 Subscribers to MOA are individuals shall be deemed to be
the 1st directors - Until the directors are duly appointed.
 OPC
 An individual being member shall be deemed to be its 1st
director - Until the director/directors are duly appointed
by the member
 (2) Save as otherwise expressly P/I/T/A - Every director
shall be appointed in GM.
 (3) No person shall be appointed as a director –
 Unless he has been allotted – DIN U/ S 154
 (4) Every person proposed to be appointed as a director
 Shall furnish his DIN & a declaration that he is not
disqualified to become a director U/T/A.
Sec. 152
 (5) Shall not act as a director –
 Unless he gives his consent to hold the office as
director &
 Such consent has been filed with ROC - 30 days
of his appointment.
 P…in the case of appointment of an ID in the
GM –
 An explanatory statement for such appointment,
- shall include a statement that in the opinion of
BOD - Fulfils the conditions…
Retirement of all directors
 (6) (a) Unless AOA - Provide for the retirement
of all directors at every AGM
 Not less than 2/3rd of the total No. of directors of a PLC
shall -
(i) Be persons whose period of office is liable to
determination by retirement of directors by rotation;
&
(ii) save as otherwise expressly provided… be
appointed by the Co. in GM.
 (b) Remaining directors in the case of any such Co. shall,
in default of, & subject to any regulations in AOA - Also
be appointed by the Co. in GM.
Retirement of all directors
 (c) At 1st AGM of a PLC held next after the date of GM at
which - 1st directors are appointed in accordance with Cl.
(a) & (b) & at every subsequent AGM,
 1/3rd of directors for the time being as are liable to
retire by rotation, or
 If their No. is neither 3 nor a multiple of 3, then, the No.
nearest to 1/3rd - Shall retire from office.
 (d) Directors to retire by rotation at every AGM- Shall
be those who have been longest in office since their last
appointment,
 But as between persons who became directors on the
same day - Those who are to retire shall,
 In default of & subject to any agreement among
themselves
 Be determined by lot.
Retirement of all directors
(e) At the AGM at which a director
retires as aforesaid – Co. may fill up
the vacancy by appointing the retiring
director / some other person thereto.
Explanation - For the P/O/T/Ss “Total
No. of directors” - Shall not include
‘ID’ whether appointed U/T/A or any
other law for the time being in force,
on BOD.
 (7) (a) If - vacancy of - Retiring director is not so filled-up &
 The meeting has not expressly resolved not to fill the vacancy
 Meeting shall stand adjourned - Till the same day in the next
week, at the same time & place, or
 If that day is a national holiday - Till the next succeeding day
which is not a holiday, at the same time & place.

(b) If at the adjourned meeting also - Vacancy of - Retiring


director is not filled up &
that meeting also has not expressly resolved not to fill the
vacancy
Retiring director shall be deemed to have been re-
appointed at the adjourned meeting, unless
Right of persons other than Retiring Directors to stand for
directorship – Sec. 160
Sec. 160
 Along with the deposit of Rs. 1 lakhs / Such
higher amount as may be prescribed –
 Which shall be refunded to such person /, as the
case may be, to the member,
If the person proposed gets elected as a director /
gets more than 25% of total valid votes cast
Either on show of hands / on poll on such resolution.
 (2) Co. - Shall inform its members of the
candidature of a person for the office of director
U/Ss (1) in such manner as may be prescribed.
Appointment of directors to be voted individually –
Sec. 162
Option to adopt principle of proportional representation
for appointment of directors. Sec. 163

 N/A/C/I/T/Act – AOA - May provide for the


appointment of not less than 2/3rd of the total No.
of the directors - in accordance with the principle
of proportional representation, whether
by the single transferable vote or
by a system of cumulative voting / otherwise &
 Such appointments may be made once in every 3
years & casual vacancies of such directors shall
be filled as provided in Sec. 162 (4).
Disqualifications for appointment of director – Sec. 164..
(1) A person shall not be eligible for appointment as a director of a
Co. if -
(a) Of unsound mind & stands so declared by a competent court;

(b) An undischarged insolvent;


(c) Has applied to be adjudicated as an insolvent & his application is
pending;
(d) Has been convicted by a court of any offence, whether involving
moral turpitude / otherwise, & sentenced in respect thereof to
imprisonment for not less than 6 months & a period of 5 years has
not elapsed from the date of expiry of the sentence:

P… if a person has been convicted of any offence & sentenced in


respect thereof to imprisonment for a period of seven years / more,
he shall not be eligible to be appointed as a director in any Co.
(2) No person who is / has been a director of a Co. which -

(b)
(a) Has failed
has not to repay
filed financial statements / annual returns for
►Deposits accepted
any continuous by itof
period / 3 financial years; or
►Pay interest thereon /
►To redeem any debentures on the due date /
►Pay interest due thereon /
►Pay any dividend declared &
►Such failure to pay /redeem continues for one year
/more
• No Person Shall be eligible to be re-appointed as
a director of that Co. / appointed in other Co.
for a period of 5 years from the date on which
the said Co. fails to do so.
Conditions to be Fulfilled for the Appointment of A MD /
WTD /A Manager without the Approval of CG
SCHEDULE V (See SS 196 & 197)
No person shall be eligible for appointment
as a
Managing Director
Whole-time director or
Manager (hereinafter referred to as
managerial person)
 Of a Co. unless he satisfies the following
conditions, namely:
(a) He had not been sentenced to imprisonment for any period, /
to a fine exceeding Rs. 1000, for the conviction of an offence
under any of the following Acts, namely:—
(i) Indian Stamp Act, 1899 (2 of 1899);
(ii) Central Excise Act, 1944
(iii) Industries (Development and Regulation) Act, 1951
(iv) Prevention of Food Adulteration Act, 1954
(v) Essential Commodities Act, 1955
(vi) Companies Act, 2013;
(vii) Securities Contracts (Regulation) Act, 1956
(viii) Wealth-tax Act, 1957
(ix) Income-tax Act, 1961
(x) Customs Act, 1962
(xi) Competition Act, 2002
Application for allotment of DIN - Sec. 153
 Every individual intending to be appointed as director -
Shall make an application for allotment of DIN to the CG -
Such form & manner & along with such fees as may be
prescribed.

Allotment of DIN – Sec. 154


 CG shall, within 1 month from the receipt of the
application U/S 153, allot a DIN - to an applicant in such
manner as may be prescribed.

Prohibition to obtain more than one DIN – Sec. 155

 No individual, who has already been allotted a DIN U/S


154, shall apply for, obtain or possess another DIN
Director to intimate DIN – Sec. 156
 Every existing director shall - within 1 month of
the receipt of DIN - Intimate his DIN to the
Co./All Co’s wherein he is a director.
Company to Inform DIN to ROC - Sec. 157

 (1) Every Co. shall, within 15 days of the receipt of


intimation - Furnish - DIN of all its directors to ROC
any other officer /authority as may be specified by CG
 With such fees as may be prescribed /
 With such additional fees as may be prescribed within the time
specified U/S 403 &
 Every such intimation shall be furnished in such form &
manner as may be prescribed.
 (2) If a Co. fails to furnish DIN - Before the
expiry of the period –
Co. shall be punishable with fine which shall
not be less than Rs. 25,000 but which may
extend to Rs. 1 lakh &
Every officer of the Co. who is in default shall
be punishable with fine which shall not be less
than shall not be less than Rs. 25,000 but
which may extend to Rs. 1 lakh.
Obligation to indicate DIN – Sec. 158
Punishment for contravention – Sec. 159
 Every person / Co. - While furnishing any return,
information / particulars as are required to be furnished
U/T/A - Shall mention DIN in such return, information /
particulars in case such return, information or particulars
relate to the director/ contain any reference of any director.
 If any individual / Director of a Co. - Contravenes any of
the provisions of SS 152, 155 & 156 - Such
individual/Director - shall be
 Punishable with imprisonment for a term which may extend to 6
months/With fine which may extend to Rs. 50,000 & where the
contravention is a continuing one,

with a further fine which may extend to Rs. 500 for


every day.
Appointment of Additional Alternate & Nominee director.
Sec. 161
P… if the term of office of the original director is determined
before he so returns to India, any provision for the automatic re-
appointment of retiring directors in default of another
appointment shall apply to the original, & not to the alternate
director.
(3) Subject to AOA – BOD may appoint any person as a director
nominated by any institution in pursuance of T/P/O/ any law for
the time being in force / of any agreement / by CG / SG by virtue
of its SH’ing in a Govt. Co.
(4) In the case of a PLC - If the office of any director appointed by
the Co. in GM is vacated before his term of office expires in the
normal course, the resulting casual vacancy may, in default of and
subject to any regulations in AOA - be filled by the BOD’s at a
meeting of BOD:
P… any person so appointed shall hold office only up to the date
up to which the director in whose place he is appointed would have
held office if it had not been vacated.
Removal of Directors – Sec. 169
(4) …Director concerned makes with respect thereto
representation in writing to the Co. &
Requests its notification to members of the Co., the Co. shall, if the
time permits it to do so -

(a) In any notice of the Res. given to members of the Co., state the
fact of the representation having been made; &

(b) Send a copy of the representation to every member of the Co. to


whom notice of the meeting is sent (whether before /after receipt
of the representation by the Co.), & if a copy of the representation
is not sent as aforesaid due to insufficient time / for the Co’s
default, the director may without prejudice to his right to be heard
orally require that the representation shall be read out at the
meeting:
 P… copy of the representation need not be sent
out & the representation need not be read out at
the meeting if, on the application either of the Co./
of any other person who claims to be aggrieved,
 NCLT is satisfied that the rights conferred by T/Ss
are being abused to secure needless publicity for
defamatory matter; &
 NCLT may order the Co’s costs on the application
to be paid in whole / in part by the director
notwithstanding that he is not a party to it.
 (8) Nothing in T/S Shall be taken -
(a) As depriving a person removed U/T/S of
any compensation / damages payable to him in
respect of the termination of his appointment
as director
As per the terms of contract / terms of his
appointment as director, /
Of any other appointment terminating with
that as director; /
 (b) As derogating from any power to remove a
director under other P/O/T/A.
Punishment -172
• If a Co. contravenes any of the P/oT/Ch. & for
which no specific punishment is provided therein,
the Co. & every officer of the Co. 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 lakh.
• Duties of directors – Sec. 166
• Vacation of office of director – Sec. 167
• Resignation of director – Sec. 168 - A director
may resign from his office by giving a notice.
• Removal of directors – Sec. 169
• Most innovative
companies in the world
1. Boston Consulting Group 
2. Forbes List
Forbes list of the world's most innovative companies
Four Indian Companies in top 50.
1 Salesforce.com - US
2 Alexion Pharmaceuticals
3 Amazon.com
4 Red Hat - Open Source Software Co.
5 Baidu  (China’s Search Engine)
6 Intuitive Surgical da Vinci 
7 Rakuten (e-commerce firm)
8 Edwards Lifesciences (invented Artificial Heart valve)
9 Larsen & Toubro (INDIA)?

10 ARM Holdings (UK Based) microprocessors -smartphones and tablets

12 Hindustan Unilever
19 Infosys 
29 Tata Consultancy Services
38 Sun Pharmaceuticals