Published on January 30, 2014
Your Legal Team Appointment & Qualification of Directors and Meetings of Board and its Powers Chapter XI and XII 1
Your Legal Team Chapter XI APPOINTMENT AND QUALIFICATIONS OF DIRECTORS 2
Composition of Board - 149 Your Legal Team Topic CA 2013 CA 1956 Change/Remarks Minimum No of Directors 2- Private Co. 3-Publice Co. 1-One Man Co. 2- Private Co. 3-Publice Co. 1-One Man Co. Maximum No. of Directors 15 Directors 12 Directors Limit of max No. of directors has been increased from 12 to 15 Increase in no. of directors beyond Maximum Limit Special Resolution required C.G. Approval required No need to go to C.G., shareholders approval will do Women Director Foll Companies shall have at least 1 women director: Every listed company & every public company having paid–up share capital(PUSC) of Rs. 100 crores or more; or turnover of Rs. 300 crores or more No such provision Liisted Co. to comply within 1 year and public company within 3 years from the commencement of this provision Residential Status Every Co. to have at least 1 director who has stayed in India for a total period of not less than 182 days in previous calendar year. No such provision New provision Independent Director Every listed public company and public companies having PUSC of Rs.100 crores or more or Turnover of Rs.300 crores or more or if aggregate outstanding loans or borrowings or debentures or deposits, exceeding Rs. 200 crores, shall have at least one-third of the total number of directors as independent directors No such provision New provision 3
Small Shareholder Director - 151 Your Legal Team ApplicabilityModified • Only listed companies may appoint 1 Director elected by small shareholders • At present, Public Companies having a paid-up capital of Rs. 5 Crores or more or having 1000 or more small shareholders 4
Appointment of Directors- 152 Your Legal Team Declaration from DirectorEvery Co.-New • Person who is proposed as director in a general meeting, shall furnish DIN & declaration that he isn’t disqualified from being appointed as a director Consent to act as DirectorEvery Co.-New • Person appointed as director shall not act as a director unless he gives his consent to hold office as director Retirement through rotationModified • Same as before. • The only change is non-inclusion of independent director in the total no. of directors, while calculating 2/3rd rotational directors. 5
Right of persons other than retiring directors to stand for directorship 160 Your Legal Team Applicability-Modified • Also applicable on private companies now. • At present applicable on public and private companies which are subsidiaries of public companies Deposit Amount-Modified • Amount to be deposited along with notice of nomination of any person for the office of director has been increased from Rs. 500 to Rs. 1 Lakh Refund of Deposit AmountModified • Amount to be refunded, if 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 • At present, the amount is refunded, if the person gets elected as a director Mode of giving Notice to Members-Prescribed-Modified • 7 days advance notice through • Either serving individual notices & through electronic mode to those, who have opted for electronic mode and in writing to all other members • Notice of such candidature or intention on the website of Co. Exception to Individual Notice to Members- same • If Co. advertises such notice, not less than 7 days before the meeting at least once in a vernacular newspaper in the district in which R.O. is situated & at least once in English newspaper 6
Appointment of Additional Director, Alternate Director & Your Nominee Director- Section 161- Notified (except Alternate Director) Legal Team Additional Director (A.D.)Modified Alternate Director-Modified • Person who fails to get appointed as a Director in a general meeting, can’t be appointed by Board as A.D. • Shud not hold any other alternate directorship in the Co. • Absence of a director for a period of not less than 3 months from India (instead of State, where B.M. generally take place) • Alternate Director to an I.D. shud also satisfy criteria for I.D. • Alternate Director to vacate office, once the director returns to India. Nominee Director- New • Subject to AOA, Board may appoint nominee director, nominated by any institution or under any agreement or by C.G. or State Gov. by virtue of its shareholding in a Govt. Co. Casual Vacancy- Modified • Now not applicable on a private company, which is a subsidiary of a public Co. • Only applicable on a public company 7
Appointment of directors to be voted individually Sec 162-Notified Your Legal Team Section provides- At a general meeting of a Co., a motion for the appointment of 2 or more persons as directors of the Co. 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 being cast against it- No Change Modified- Now applicable on all companies. Earlier applicable only on public and its private subsidiaries 8
Option to adopt Principle of Proportional Representation for appointment of directors- Section 163- Notified Your Legal Team Section provides- the articles of a Co. may provide for the appointment of not less than two-thirds of the total number of the directors of a Co. in accordance with the principle of proportional representation, whether by the single transferable vote or by a system of cumulative voting- No change Modified- Now applicable on all companies Earlier applicable on Public Companies or private companies, which are subsidiaries of public companies 9
Disqualifications for Appointment of Director-164 Your Legal Team Disqualifications of Directors-Modified • A person who hasn’t obtained DIN • Person has been convicted of any offence & sentenced to imprisonment for a period of 7 years or more. • Order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force • Convicted of offence dealing with RPTs, during the last preceding 5 years Private Company also included for Sec 274(1)(g) • Non filing of accounts for 3 cont. F/Ys or non payment of div/deposit on due date for 1 year. • Such a director can’t be appointed in that Co. or any other Co. for 5 years from such failure Disqualifications 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 conviction resulting in sentence or order, until expiry of seven 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 10
Number of Directorships-165 Your Legal Team Maximum Number of Companies for directorshipModified • Increased from 15 to 20 Maximum No. of Directorships in Public Co.-New • 10 & private companies which are either holding or subsidiary of a Public Co. will be counted here Power given to members-New • Members may, by S/R decide lesser no. of companies in which a director of Co. may act as director Exceptions to Maximum LimitDropped • • • • Private Companies Alternate Directorships Unlimited Companies Sec 25 Co. 11
Duties of Directors- 166- New Provision Your Legal Team Shall act acc. to AOA of Co., but subject to the Act. Shall act in good faith in order to promote the objects of Co. Shall act for the benefit of its members as a whole, and in the best interests of Co. Shall act for the benefit of its employees, shareholders, community & for the protection of environment. Shall exercise his duties with due & reasonable care, skill & diligence & shall exercise independent judgment 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 Co. Shall not assign his office Shall not achieve or attempt to achieve any undue gain or advantage either to himself or his relatives, partners, or associates. 12
Vacation of Office of Director - 167 Your Legal Team Conditions of Vacation of office-Modified No Director Situation • If he incurs any of disqualifications of a director • If he absents himself from all B.M.s held during a period of 12 months with or without seeking leave of absence. • The promoters & in their absence, C.G. shall appoint the required no. of directors who shall hold office till directors are appointed by Co. in general meeting 13
Resignation of Director-168- New Provision Your Legal Team Notice of Resignation to Board •Resigning Director may resign from his office by giving a notice in writing to Co. & Board Duty of Board & Co. •Board to take note of the same & Co. shall intimate ROC of the same in Form 11.8 within 30 days and also post the same on website. Disclosure in Directors Report •Fact of such resignation shall be disclosed in Directors Report, laid in the immediately following G.M. of the Co. Duty of Director •Forward a copy of his resignation along with detailed reasons for resignation to ROC within 30 days, from date of resignation in Form 11.7 Resignation effective from •Either the date on which the notice is received by Co. or the date, if any, specified by director in the notice, whichever is later. Liability for acts •Director shall be liable even after his resignation for offences which occurred during his tenure Resignation or vacation by all directors •Promoters & in their absence, C.G. shall appoint the required no. of directors who shall hold office till directors are appointed by Co. in G.M. 14
Register of Directors and Key managerial personnel and their shareholding- 170 Your Legal Team Register of Director & Register of Director’s shareholding has been merged into one Form of change in KMP, besides director, will also be required to be filed, within 30 days of change in Form No. 11.8 Particulars of KMP will also be required to be mentioned in the Register. 15
Your Legal Team Chapter-XII MEETINGS OF BOARD AND ITS POWERS 16
Board Meetings- 173 Your Legal Team First Board meeting(B.M.)-New • To be held within 30 days of incorporation for every Co. Minimum No. of Meetings-Same • At least 4 B.M. every year Time Gap between 2 B.M.s-New • Should not be more than 120 days Video Conferencing(V.C.) New Specified matters which cant be done through V.C. Time for Notice of B.M.- New Mode of giving Notice of B.M.-New Shorter Notice of B.M.-New OPC, Dormant Co. & Small Co.-New • Directors can attend the meeting through through video conferencing or other audio visual means • Approval of annual financial statements and Board Report • Advance 7 days notice • Can also be given through electronic mode (not specified) • At least 1 independent director shud be present, if not , decisions taken by Board, shall be ratified by at least 1 independent director. • At least 1 .M. in each Half year and gap b/w 2 B.M. shall not be less than 90 days. 17
Quorum of Board Meetings -174 Your Legal Team Quorum of B.M.- Same V.C. presence-new • 1/3rd of its total strength or 2 directors, whichever is higher • Will now be included in quorum 18
Passing of Resolution by Circulation- 175 Your Legal Team Draft Circular resolutionModified No. of directors/members to be present in India- Dropped Passing of ResolutionModified Circulation to be decided in B.M.-Ne Noting in Minutes-New • Drafts of Circular resolution along with necessary papers to all the directors or members of Comm., at regd address either by hand delivery, post or courier or electronic means • At present, drafts to be circulated, to all, who are present in India and to others at their usual address • Requirement of presence of quorum no. of directors/members in India has been dropped • Will be taken as approved if majority of directors/members who are entitled to vote give consent. • Earlier, either by all directors who are present in India or majority of directors, who are entitled to vote. • If 1/3rd of total no. of directors require, to decide the resn in a B.M., then the Chairman shall do so. • The C/R shud be noted down in the subsequent Board Meeting or Comm. Minutes 19
Defects in appointment of Directors not to invalidate actions taken Notified- No change- Section 176 Your Legal Team No act done of a director shall be deemed to be invalid, notwithstanding that it was subsequently noticed that his appointment was invalid by reason of any defect or disqualification or had terminated by virtue of any provision contained in this Act or in the articles of the company Directors actions will not be valid, after his appointment has been noticed by the company to be invalid or to have terminated. Applicable on every Company. 20
Audit Committee (A.C.)- 177 Your Legal Team Which Co. to form Audit Comm.-Modified • Ever Listed Co. shall form this Comm. & public Co. of PUSC of Rs. 100 crores or more or whose aggregate outstanding loans or borrs or deb or dep. exceeds Rs. 200 crores. • At present, every Public Co. having P.U.C. not less than Rs. 5 crores shall form this Comm Composition of Comm.Modified • Min 3 directors, with majority of I.D., along with majority to read and understand financial stats • At present 3 directors, of which 2/3rd shall be other than M.D. or W.T.D. Terms of functioningModified • Shall act acc. to terms of reference specified by Board- however, new terms have been specified, which shall also be included. Right to be heardModified- • Auditors, KMP to shall attend Comm. meeting for consideration of auditor Report & will have a right to be heard but not right to vote. • At present, auditors and internal auditor don’t have right to be heard. Chairman of A.C. to attend AGM- Dropped • No such requirement now Recommendation of A.C. binding- Dropped • Recomm. on Financial Management matters & audit report, will no more be binding on Board. Vigil Mechanism- New • Every Listed Co. & prescribed companies to set up this mech. for directors and employees to report genuine concerns. 21
Nomination, Remuneration Comm.- New Provision- 178 Your Legal Team Class of Companies to set up Nomination & Remuneration Comm. Composition of Comm. Chairperson of Co. Role of Comm. Remuneration Policy Chairperson of Comm. to attend General Meetings Explanation • Every Listed Co. & Co. which has accepted deposits from public or borrowed money from banks & P.F.Is exceeding Rs. 50 crores. • 3 or more non-executive directors, out of which not less than one-half shall be I.D. • Can be a member of Comm. but not a Chairman of such Comm. • Identify persons who are qualified to become directors & in senior management & recommend to Board their appointment & removal & shall do evaluation of every director’s performance. • Comm. shall form a criteria of qualifications, positive attributes and independence of a director and recommend Board remuneration policy • Either Chairperson & in his absence, any other member to attend all general meetings of Co. • Senioe Management means personnel of Co., who are members of its core anagement team excluding BODs comprising all members of management one level below the executive directors, including the functional heads 22
Stakeholders Relationship Comm.- New Provision -178 Your Legal Team Which co. to form this Comm Composition of Comm. Role of Comm. Chairperson of Comm. to attend General Meetings • Co. having more than 1000 shareholders, debenture-holders, deposit-holders & any other security holders at any time during a financial year • Chairperson to be non-executive director & other members may be decided by Board. • Consider & resolve grievances of security holders of Co. • Either Chairperson & in his absence, any other member to attend all general meetings of Co. 23
Powers of Board- 179 Your Legal Team New Items which have to be taken up in a Board Meeting only are as follows: To approve financial statement and the Board’s report To diversify the business of Co. To approve amalgamation, merger or reconstruction To take over a company or acquire a controlling or substantial stake in another Co. Prescribed- To make political contributions To fill a casual vacancy in Board To enter into a joint venture or technical or financial collaboration or any collaboration agreement To commence a new business To shift the location of a plant or factory or the registered office To appoint or remove KMP & senior management personnel one level below KMP To appoint internal auditors To adopt common seal To take note of the disclosure of director’s interest & shareholding To sell investments held by Co. (other than trade investments), constituting 5% or more of paid up share capital & free reserves of investee Co. To accept public deposits & related matters To approve quarterly, half yearly and annual financial statements Modified-To issue securities, including debentures, whether in or outside India & To grant loans or give guarantee or provide security in respect of loans 24
Restrictions of powers of Board- Sec 180-Notified Your Legal Team Powers that can be exercised by Board only in a General Meeting-Modified Applicability of section- Modified Special Resolution- Modified Undertaking and substantially the whole of undertaking Defined • sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of Co. • to invest otherwise in trust securities the amount of compensation received by it as a result of any merger or amalgamation(earlier it was compensation received from compulsory acquisition) • To borrow money, where the money to be borrowed, together with the money already borrowed by Co. will exceed aggregate of its paid-up share capital & free reserves • to remit, or give time for the repayment of, any debt due from a director • Contribution to Charitable funds as donation- Shifted to a new section-Sec181 • Now also applicable on private Companies • Earlier on public companies and private companies, which were subsidiaries of public companies • Instead of ordinary resolution earlier, now we require special resolution • Earlier the meaning of underatking and substantially the whole of the underatking was not clear, in 25
Company to contribute to bona fide and charitable funds, etc Sec 181- Notified Prior Members approval Limit of Contribution Your Legal Team • Through ordinary resolution, if the contribution exceeds the foll limit • Approval is required if contribution in any financial year exceeds 5% of its average net profits for the 3 immediately preceding financial years. 26
Disclosure of Interest by Director- Sec 184 Your Legal Team When to disclose-Same • At first B.M. in which he participates as a director • Thereafter at the first B.M. in every financial year or • Whenever there is any change in the disclosures already made, then at first B.M. oard meeting held after such change • While the item is being discussed in B.M.- shall disclose at that time and shall not participate in that meeting Parties to Contract specified- New • with a body corporate in which such director or such director in association with any other director, holds more than two per cent. shareholding of that body corporate, or is a promoter, manager, Chief Executive Officer of that body corporate • with a firm or other entity in which, such director is a partner, owner or member Notice to be given in last month of F/Y- Dropped Form of Disclosure Duty of Director Notices to be kept and preserved • Requirement of renewal of notice in the last month of F/Y has been dropped • Form No. 12.1 • The notice shall be disclosed at the meeting held immediately after the date of notice • To be kept at registered office. And be preserved for a period of 8 years, from the end of F/Y to which it relates and shall be kept in the custody of the secretary of Co. or any other person authorized by Board 27
Prohibition on forward dealings in securities of Company by Director or KMP- Section 194- Notified Your Legal Team No director of a company or any of its key managerial personnel shall buy in the company, or in its holding, subsidiary or associate company a right to call for delivery or a right to make delivery at a specified price and within a specified time, of a specified number of relevant shares or a specified amount of relevant debentures a right, as he may elect, to call for delivery or to make delivery at a specified price and within a specified time, of a specified number of relevant shares or a specified amount of relevant debentures Contravention- liable to surrender securities to Co. company & Co. shalln’t register in his name , & if in Dmat form, then inform depository not to record such acquisition Relevant shares & ‘‘relevant debentures mean shares & debentures of Co. in which the concerned person is a WTD or other key managerial personnel or shares and debentures of its holding & subsidiary companies. 28
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