PRESENTATION ON
Appointment and Qualification of
Directors
(Chapter XI – The Companies Act, 2013) &
E-Voting

K. SETHURAMAN
August 01, 2014
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APPOINTMENT AND
QUALIFICATIONS OF
DIRECTORS (SEC 149-172)
APPOINTMENT & QUALIFICATIONS OF DIRECTORS (SEC 149)
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• Minimum 2 directors in a private company, 3 directors in a public
company and one director in an OPC
• Maximum 15 directors
• Special resolution required for more than 15 directors.
WOMAN DIRECTOR
• Every listed company and other public companies having a paid
up capital of Rs 100 crore or more or turnover of Rs 300
crore or more to appoint at least one woman director within
one year.
• Intermittent vacancy of woman director to be filled up not later
than three months or next board meeting, whichever is later
RESIDENCY
• At least one director to stay in India for not less than 182
days in the previous calendar year.
MCA Clarification: During the calendar year 2014, the director(s)
should be resident in India for more than 136 days.
APPOINTMENT & QUALIFICATIONS OF DIRECTORS (SEC 149)
INDEPENDENT DIRECTOR
• Listed public company; other public companies having a
paid up capital of Rs 10 crore or more or turnover of Rs
100 crore or more or having outstanding loan, debentures
and deposits exceeding Rs 50 crore or more to have 1/3rd
Board strength as Independent Director within 1 year –
(Private companies exempted)
• Atleast 2 directors shall be there in the above companies;
higher number of independent directors may be required
due to composition of Audit Committee
• Independent director defined exhaustively u/s 149(6).
• Independent directors to abide by the code –
Schedule-IV.
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• Every independent director to give at the first meeting a
declaration in every financial year that he is independent.
APPOINTMENT & QUALIFICATIONS OF DIRECTORS (SEC 149)
• The Code inter alia sets out (a) Role and functions of
Independent Directors (b) their duties (c) manner of
appointment (d) holding of at least one meeting of
independent directors in a year without the attendance of
non-independent directors and members of management
• No remuneration other than sitting fee, commission on profit
and reimbursement of expenses to Independent Directors
• No stock Option to Independent Directors
• Independent director to hold office up to 5 consecutive years
• Reappointment on passing a special resolution for next five
years and disclosure in Board’s Report.
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• Intermittent vacancy of independent director to be filled up not
later than three months or next board meeting, whichever is
later
APPOINTMENT & QUALIFICATIONS OF DIRECTORS (SEC 149)
• Break of three years necessary after two terms for
reappointment.
• No association with the company directly or indirectly in
any capacity in the said three years.
• Existing tenure of the independent director not to be
counted. Clause 49 of LA is in the contrary.
• A person who has already served as an Independent
Director for five years or more in a company as on
01.10.2014 shall be eligible for appointment on
completion of his present term for one more term of up to
5 years only.
• Explanatory statement to the notice required in case of
appointment of independent director that he fulfills the
conditions specified in the Act.
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• Independent director not liable to retire by rotation.
INDEPENDENT DIRECTORS – ADDITIONAL REQUIREMENTS /
DISCLOSURES UNDER EQUITY LISTING AGREEMENT
• Requisition with deposit of Rs 1 lac required for
appointment of ID at the shareholders’ meeting
• Independent director to be excluded while computing
directors retiring by rotation in every AGM.
• Formal letter of appointment to be issued to IDs within
one working day from the date of appointment of ID
• Performance evaluation of Independent Directors:
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a) Nomination Committee to lay down the evaluation
criteria for performance evaluation of IDs
INDEPENDENT DIRECTORS – ADDITIONAL REQUIREMENTS /
DISCLOSURES UNDER EQUITY LISTING AGREEMENT
b) Company to disclose the criteria for performance
evaluation as IDs in its Annual Report
c) On the basis of the report of performance evaluation, it
shall be determined whether to extend or continue the term
of Independent Directors
• Separate Meetings of Independent Directors (at least
one meeting a year) without the presence of non
independent directors and members of management
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• The company to provide suitable training to independent
directors to familiarize them with the company, their roles,
rights, responsibilities in the company. Details of such
training imparted to be disclosed in the Annual
Report.
INDEPENDENT DIRECTORS – ADDITIONAL REQUIREMENTS /
DISCLOSURES UNDER EQUITY LISTING AGREEMENT
Liabilities of Independent Directors
 Independent Directors shall be held liable, only in respect
of such acts of omission or commission by a company
which had occurred with his knowledge, attributable
through board process and with his consent or
connivance or where he had not acted diligently.
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 He shall be deemed as an ‘Officer who is in default’
for penal provisions if he is aware of a contravention of
the provisions of 2013 Act by virtue of receipt of Board
proceedings or participation in the Board proceedings
without objecting to the same or where such
contravention had taken place with his consent or
connivance.
APPOINTMENT OF DIRECTOR BY SMALL SHAREHOLDER
(SECTION 151)
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 A listed company may have one director elected by small
shareholders (that is, shareholder holding shares of
nominal value not more than Rs 20,000)
 Requisition notice, of not less than 1000 small shareholders
or 1/10th of the total number of such small shareholders,
whichever is less, is required
 Company suo motu may appoint a small shareholder
director
 Small shareholder director:
(a) is not liable to retire by rotation
(b) his tenure on the board not to exceed 3 consecutive years
(c) not eligible for re-appointment
(d) shall meet with the criteria of independence under Section
149(6)
(e) not to hold position as small shareholder director in more
than two companies at the same time.
RIGHT OF PERSONS OTHER THAN RETIRING DIRECTORS
TO STAND FOR DIRECTORSHIP (SECTION 160)
 Proposal for appointment of director (other than
directors retiring by rotation) with notice and
deposit of Rs. 1 lakh – 14 days before meeting.
 Members to be informed at least seven days before
the meeting
 Members with e-mail address to be communicated
 Requisition notice to be placed on website of the
company, if any.
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 Deposit to be refunded if the person gets elected or
gets more than 25% of the valid votes cast in his
favour
APPOINTMENT OF ADDITIONAL / ALTERNATE/ NOMINEE
DIRECTOR (SECTION 161)
 Additional director to hold office up to next AGM.
 Board not to appoint a person as additional director who fails
to get elected in a general meeting.
 An alternate director for a director cannot act as alternate for
another director.
 A director may act in dual capacity for himself and an
alternate for any other director.
 Alternate director for an independent director should be
qualified for appointment as an independent director
 Alternate director to vacate office if the original director
returns to India
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 Causal vacancy of a director appointed by a company in
general meeting may be filled at Board meeting
DISQUALIFICATIONS FOR APPOINTMENT OF
DIRECTOR – SECTION 164
Additional disqualifications over and above section
274(1) of 1956 Act:
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 Order passed by the Tribunal disqualifying a person
for appointment.
 Person convicted of the offence dealing with
related party transactions during the last
preceding 5 years.
 Person convicted of any offence and sentenced to
imprisonment for 7 years or more.
No person who is or has been a director of a
company which:
a) Has not filed financial statements / annual
returns for three years;
a) Has failed to repay deposits, redeem
debentures, interest thereon or failed to pay
dividend declared and such failure
continues for one year or more
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Shall be eligible to be reappointed as a
director in the same company or any other
company for a period of 5 years.
NUMBER OF DIRECTORSHIPS (SEC 165)
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 No person to hold office in more than in 20 companies at
the same time including alternate directorship and
directorship in private companies.
 Maximum 10 public companies including private
companies which are either holding or subsidiary of a
public company.
 Only directorship in companies incorporated outside India
excluded.
 Members, by special resolution, may specify lesser
number.
 As per Clause 49 of Listing Agreement
(a) A person shall not serve as an independent director in
more than seven listed companies
(b) A WTD in any listed company can serve as an independent
director in not more than three listed companies
 Excess than specified here to be regularized
within one year from commencement of the Act.
 ROC and company to be informed about resignation
as a director (in case of excess in number).
 Company to inform the resignation to RoC in Form
DIR-12 and post the information on its website, if
any
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 Resignation of a director for compliance with the
limits is effective immediately on despatch of letter
of resignation.
DUTIES OF DIRECTORS (SECTION 166)
 Similar to UK Companies Act, 2006
 Duties of Directors are as under:
a) A director of a company shall act in accordance with
the company’s Articles.
b) A director of a company shall 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 the environment.
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c) A director of a company shall exercise his duties with
due and reasonable care, skill and diligence and shall
exercise independent judgement.
d) A director of a company shall not involve in a situation
in which he may have a direct or indirect interest that
conflicts or possibly may conflict, with the interest of
the company.
e) A director of a company shall not achieve or attempt to
achieve any undue gain or advantage either to himself
or his relatives, partners or associates and if such
director is found guilty of making undue gain, he shall
be liable to pay an amount equal to that gain to the
company.
f) A director of a company shall not assign his office and
any assignment so made shall be void.
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g) Director contravening is punishable with fine –
minimum Rs 1 lakh; maximum Rs 5 lakh
VACATION OF OFFICE OF DIRECTOR (SEC 167)
Additional Grounds:
 Director absenting himself from all meetings of Board held
during a period of 12 months with or without leave of
absence.
 Director convicted by a court of any offence and sentenced
to imprisonment for not less than 6 months.
Note: The office to be vacated even if he has filed an
appeal against the order of such Court
 Becomes disqualified by an order of Court/Tribunal
 He, having been appointed as director by virtue of his holding
any office or employment in the holding, subsidiary or
associate company ceases to hold such office or other
employment in the company
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 Penal provisions enhanced including imprisonment.
RESIGNATION OF DIRECTOR (SECTION 168)
 Board to take note of resignation when received in writing
and inform ROC and include in the Directors’ Report.
 Director to forward copy of resignation with detailed
reasons for resignation to ROC within 30 days.
 Resignation to take effect from the date of receipt of the
notice by the company or the date specified by the director
whichever is later.
 The company to inform RoC the resignation of director in
Form DIR – 12 within 30 days and post the intimation on its
website if any
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 Promoters or in their absence, the Central Government
to appoint minimum directors if all directors resign.
REMOVAL OF DIRECTORS (SECTION 169)
 A company may, by ordinary resolution, remove a director
 Special notice required of any resolution to remove a
director or appoint some one in his place upon removal.
 Company to send copy of the Special notice to the
director
 Company to send representation, if any, received from
director to members or to be read out at the meeting.
 Director removed shall not be reappointed as director by
the Board.
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 The directors appointed according to principle of
proportional representation or by the Tribunal under
Section 242 (oppression and mismanagement)
cannot be removed.
REGISTER OF DIRECTORS & KMPS AND THEIR
SHAREHOLDING (SECTION 170)
 Every company to keep at its registered office a register
of its directors and KMPs containing various particulars
as specified under Rule 17 of the Companies
(Appointment and Qualification of Directors) Rules, 2014
 The Company to include in the said Register details of
securities held by Directors and KMPs
(a) in the company
(b) in its holding company
(c) in its subsidiaries
(d) in its co-subsidiaries and
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(e) in its associate companies
REGISTER OF DIRECTORS & KMPS AND THEIR
SHAREHOLDING (SECTION 170)
 The Register is open for inspection by
Members and they have the right to take
extracts therefrom and Copies thereof;
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 The Register to be kept open at every AGM
and is accessible to any person attending the
meeting
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E-VOTING
VOTING THROUGH ELECTRONIC MEANS (SEC 108)
 Section 108 of Companies Act, 2013 and Clause 35B
of the Equity Share Listing Agreement govern e-voting
 Central Government has under Rule 20 of the
Companies (Management and Administration) Rules,
2014, prescribed the procedures for e-voting by every
listed company /a company having not less than 1000
shareholders (Effective 01.01.2015 this is mandatory)
 Notice of the meeting to be sent by (a) registered post
or speed post or (b) through e-mail or (c) by courier
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 Notice to be placed on Company’s website, if any and
website of the agency providing e-voting platform
VOTING THROUGH ELECTRONIC MEANS (SEC 108)
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 E-voting to remain open for not less than one day and
not more than three days; such voting period to be
completed three days prior to the date of the general
meeting.
 ‘Record date’ to be fixed for shareholders entitling
them to vote during e-voting period
 Shareholder cannot change his vote subsequently
once it is cast
 Board of directors to appoint a scrutinizer to scrutinize
e-voting process
 Advertisement in newspaper five days before
commencement of e-voting in a vernacular and
English daily
VOTING THROUGH ELECTRONIC MEANS (SEC 108)
 Scrutinizer to unblock the votes after e-voting period
in presence of two witnesses and to forward his
report to Chairman not exceeding three working days
from the conclusion of e-voting period
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 Results declared along with scrutinizers’ report to be
placed on Company’s website and e-voting service
providing Agency’s website
CLAUSE 35B OF LISTING AGREEMENT (E-VOTING)
 E-voting is a must for equity shares listed companies
in respect of resolutions to be passed at general
meetings or through postal ballot
 The company to enable shareholders who do not
have access to e-voting facility, as per the provisions
of the Companies (Management and Administration)
Rules, 2014
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Note: Further, in terms of Clause 35A of the Listing
Agreement, the company should submit to the stock
exchange, within 48 hours of conclusion of General
Meeting, details regarding the voting results
QUERIES ON E-VOTING
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(1) Is e-voting a must where the Company’s debentures only
are listed and shareholders are less than 1000? Yes
(2) Is e-voting a must, where an unlisted company has more
than 1000 shareholders? Yes
(3) Can notice of meeting be sent separately and not along
with the Annual Report? Yes
(4) Is fixing ‘record date’ a must for e-voting? Yes
(5) Can a shareholder who has voted during e-voting period,
vote again at the meeting? No. Vote is invalid if voted
(6) Is a company whose shares are listed required to follow
procedures of e-voting in a postal ballot? Yes
(7) Is e-voting a must for class meetings of shareholders or
requisition meeting by numbers or meetings of
debentureholders? No / Yes for requisition meeting
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QUERIES ON E-VOTING
8) Can a shareholder who has not voted during e-voting
period attend and vote at the meeting? Yes
9) Can a shareholder, who was not a member on the ‘record
date’ attend the meeting and vote at the meeting? Can
attend but cannot vote
10) Is voting rights on e-voting calculated based on
shareholding on the ‘record date’ or shareholding on the
meeting date if the member had not voted during e-voting
period? Voting right on ‘record date’ holding
11) What is the right of ‘proxy’ in e-voting and how does he
exercise his voting right in a meeting? Vote only on a poll
12) Can members voting on e-voting and members attending
the meeting in person be aggregated for the purpose of
quorum? (Yes / No)
QUERIES ON E-VOTING
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13.Can shareholders pass the resolutions on show of
hands at the meeting? No
14.Is it a must that Chairman should order a Poll to be
taken at the meeting to enable members who could not
vote during e-voting period? Yes
15.Is it a must to propose / second the resolution set out
in the notice in e-voting? Yes
16.Is there any consensus on e-voting today?
Yes.
(a) Send notice calling the general meeting separately and
it need not be sent along with the Annual Report in the
case of notice of AGM.
b) In the instructions for e-voting specifically state that:
i. Voting will be based on the holdings on the ‘record date’ only.
ii. Member can vote during the e-voting period or can vote at the
meeting.
iii. Members who are not holding shares on the ‘record date’ but
hold shares on the AGM date can neither vote on the e-voting
nor at the meeting but can attend the meeting as a member.
iv. Persons who do not have access to voting may be advised to
send their ballot by post to reach the company on or before
the closure of e-voting period.
c) Chairman to order a Poll to be taken at the meeting to enable
members present at the meeting to vote on poll
d) Voting results to be declared on the combined voting based on
e-voting and poll.
e) Resolution on e-voting deemed to be passed on the date of
the meeting, whenever Chairman declares the result.
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QUERIES ON E-VOTING
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THANK YOU