DIRECTORS
Provisions of Companies Act, 2013 & Clause 49 of Listing Agreement
Company To Have Board of Directors (S. 149)
Companies Act, 1956
Section 149 -Companies
Act,2013 (Notified w. e. f. 1st
April, 2014)
Minimum Number
Of Directors
Private Company – At least 2
Directors
Public Company – 3 Directors
One Person Company – No
Concept
Private Company – 2 Directors
Public Company – 3 Directors
One Person Company – 1
Director
Maximum Number
Of Directors
12 Directors
15 Directors
Can appoint more than 15 directors after passing a Special Resolution
Resident Director & Woman Director (S. 149)
Resident Director:
 Every Company to appoint at least 1 Resident Director who has stayed in India for not
less than 182 days in Prv. Calendar Year.
Woman Director:
 Every Listed Company;
 Every Unlisted Public Company Paid‐up Share Capital of Rs. 100 Crore or more, or
 Turnover of Rs. 300 Crore or more
(as on the last date of latest audited financial statements)
 Existing company covered under the limits shall appoint at least 1 Woman Director
within 1 year from the 1st April, 2014.
 Vacancy of a woman director shall be filled-up by the Board
 latest by the next Board meeting
or
 3 Months from the date of such vacancy
whichever is later
Independent Director (S.149)
 Companies to appoint Independent Directors:
 Every Listed Company - at least 1/3rd of the Total Number of Directors
 Every Public Company having Paid‐up Share Capital, of Rs. 10 Crore or more; or
 Turnover Rs. 100 Crore more; or
 In aggregate, Outstanding loans, debentures and deposits, exceeding Rs. 50
Crore.
atleast 2 Independent Directors
(as on the last date of latest audited financial statements)
 If any of 3 condition cease for 3 consecutive years then not required to comply with
this provision until this condition meet.
Independent Director (S.149)
 Existing company covered under the limits shall appoint Independent Director
within 1 year from the 1st April, 2014.
 If a Company is required to appoint higher number of Independent Directors; for
composition of Audit Committee: such higher number is applicable to the Company.
 Declaration of Independence to be given by the Independent Director at–
 1st Board Meeting, in which he participates
 1st Board Meeting of every Financial Year,
 Whenever there is change affecting his status as an Independent Director
Who can be an Independent Director? (S.149(6))
•
Executive and Nominee Director and Person below the age of 21 years not to be
appointed as ID
•
Every person to be appointed as ID must fulfill the requirements laid out under
section 149(6) of the Companies Act, 2013
 An independent director must possess appropriate skills, experience and knowledge
in one or more fields of finance, law, management, sales, marketing, administration,
research, corporate governance, technical operations or other disciplines related to
the company’s business.
Independent Director (S.149)
Provisions applicable
Companies Act, 2013
Terms of office
Maximum of 2 Consecutive Terms of 5 Consecutive
Years each.
Appoint for 1st Term
Appointed by the Board; appointment to be approved by
the Shareholders
Re-appoint for 2nd Term
By passing a Special Resolution and disclosure in the
Board’s Report
After expiration of 2 Terms
Cooling off period of 3 years for next term
Restriction
During 3 years should not be appointed in or be
associated with the company in any other capacity, either
directly or indirectly
Prohibition
Stock options
Exclude
MD, WTD & Nominee Director
Independent Director (S.149)
Companies Act, 2013
Limit
on
Directorship
Independent No such provision (as per the Clause 49: Maximum 7 Listed
Companies; if acting as a WTD in any Listed Company then
Maximum 3 Listed Companies)
Retire by Rotation
Not Liable
Intermittent Vacancy
Not later than immediate BM or 3 months from date of such
vacancy; whichever is later
Resignation or Removal
An Independent Director who resigns or is removed; to be
replaced by New Independent Director within 180 days
from resignation or removal
Separate Meeting
As per Schedule IV - At least 1 Meeting in a year; all the
independent directors shall present.
Sitting
Fees,
& Can be paid. Commission payment subject to members
reimbursement of expenses; 'approval.
and
Profit
related
Commission
Independent Director (S.149)


Liability of Independent Director and Non Executive Director is distinguished
from rest of the board.
Independent Director and Non Executive Director shall be held liable,

Acts of omission or commission by a company which had occurred:

With his knowledge, attributable through board processes, and

With his consent / connivance / not acted diligently
(MCA vide General Circular No. 14-2014 dated 09-06-2014: Clarified many
issues relating to independent directors pecuniary interest, appointment etc.)
Schedule IV: Code of Independent Directors
 The Company and Independent Director to fulfill the requirements of Schedule IV.
 This code is a guide to professional conduct for Independent Directors
 This code provides in detail:
 Guidelines for professional conduct
 Role and Functions
 Duties
 Manner of appointment
 Resignation or Removal
 Separate Meetings
 Evaluation Mechanism
Appointment of Director (S. 152)
 Save as otherwise provided every Director of the Company is to be appointed in the
General Meeting
 Every person proposed to be appointed as a Director has to submit DIN, a
declaration of his Qualification & his Consent in Form No. DIR-2
 Every Company has different kind of Directors:
 First Directors: As per the Articles –if not provided then, Subscriber to the
Memorandum are deemed as First Directors
 Additional Directors (S. 161(1)):
 Appointed by Board: as per the provisions of Articles.
 Hold office upto the next AGM.
 Appointment if not regularized at AGM, then Directorship ceases.
Appointment of Directors Contd….
 Alternate Director (S. 161(2)):
 Appointment by Board; as per the provisions of Articles or Shareholders Resolution;
in place of a director, who stays out of India for more than 3 months
 Appointee cannot hold alternate directorship for any other director in the same
Company.
 Alternate Director to any Independent Director should also qualify to become an
Independent Director, and fulfill criteria u/s 149(6).
 To vacate office: on expiry of Period permissible to the Original Director or original
director Returns to India.
 Nominee Director (S. 161(3)): As per the Articles the Board may appoint any person as
a director nominated by any institution in pursuance of law or any agreement or CG or
SG by virtue of their shareholding.
Appointment of Directors Contd….
 Director Appointed in Casual Vacancy (S. 161(4)):
 Vacancy created due to Death / Resignation / removal/ disqualification: be filled by
the Board at its Meeting only
 To hold office only up to the date the Original Director would have hold office.
 Appointment of Person other than Retiring Director (S. 160):
 A person other than Retiring Director can be proposed to be appointed as a Director
at any General Meeting; if:
 Notice proposing his candidature given by himself or any other member, 14 days
before the meeting along with a Deposit of Rs. 1 Lac.
 If the resolution for appoint fails to get 25% or more vote, the amount of deposit is
forfeited.
Appointment of Directors Contd…
 Small Shareholders Director (S. 151):
 A Company may on its own or upon notice from Small Shareholder of either:
 1000 or more shareholders;
or
 1/10th of the total number;
which ever is lower, appoint a small
shareholders director
 Proportional Representation (S. 163):
 If articles permit; 2/3rd of the total directors can be appointed through Proportional
Representation
 Appointment of Directors To Be Voted Individually (S. 162):
 At a General Meeting a Single Resolution for appointment of 2 or more persons as
Directors not to be passed unless: the passing of the same has been agreed upon earlier with out a single vote cast
against such decisions.
 Resolution in contravention of the above to be void
Retirement by Rotation (S. 152)
 Retirement by Rotation (Applies to Public Company)
 If Articles specifically states- All the Directors shall retire at every AGM.
 Otherwise: 2/3rd of the Total Number of Directors (does not include Independent Director) to
be Rotational;
 Of the above 2/3rd , 1/3rd to retire at the every AGM.
 Who is to retire:-
(i) Who have been longest in office,
(ii) Where appointed on the same day: Subject to Agreement amongst themselves,
be determined by lot.
Vacancy of Retiring Director (S. 152)
 Filled at AGM by appointing the retiring Director himself or some other person.
 If not filled-up & not expressly resolved not to fill up: meeting adjourned
 Still undecided at the adjourned meeting; then the Retiring director shall be deemed
to be reappointed unless  A resolution for the re-appointment of such director has been pu to the meeting
and lost.
 Unwillingness to be re-appointed.
 Disqualified for appointment.
 A resolution, whether special or ordinary, is required, or Section 162
(Appointment of Directors to be voted individually) is applicable to the case.
Resignation of Director (S. 168)
 Notice in writing to Company along with Copy of Resignation letter;
 Director to file Form DIR 11 with the Registrar with resignation letter and detail
reason for resigning with 30 days.
 Company shall intimate to the Registrar within 30 days of date of receipt of
resignation in Form DIR 12.
 Resignation effective from–
i)
ii)
Date of receipt by the company, or
specified by the Director in the notice
Which ever
is Later
 Director shall be liable for the offences which occurred during his tenure.
•
If all the Directors resigns – The Promoters or Central Government shall appoint
other Directors.
Removal of Directors (S. 169)
 By passing an Ordinary Resolution:
 remove a Director before the expiry of his term
 giving him reasonable opportunity of being heard.
 But cannot remove Director appointed by Tribunal.
 Special notice by members required for removal of the Director & to appoint
another person as Director in place of the Director so removed.
 Vacancy to be filled up by giving special notice or at Board meeting.
 Appointed Director shall hold office till the period of preceded Director.
 The Company to pay compensation or damages to the Director so removed.
Vacation of Office of Director (S. 167)
An office of Director to be vacant if he:
 Incurs disqualification u/s. 164 (Disqualification of Directors).
 Absent from All Board Meeting during 12 Months (without leave if absence).
 Contravenes the provisions of entering Contracts or Arrangement in which he is interested
(directly or indirectly).
 Fails to disclose interest in the above mentioned contracts or arragements
 Disqualified by an order of the Court or Tribunal.
 Convicted for an offence involving Moral Turpitude – Imprisonment for not less than 6 months.
 Removed in pursuance of this Act.
 If he is appointed as a Director by virtue of his position in and is ceased from holding, subsidiary
or associate company.
 Punishment to Director who functions as such after knowing his office is vacant: Imprisonment –
extend to 1 Year or Fine of not less than Rs.1 Lac but extend to Rs. 5 Lacs; or With Both


If all the Directors vacate – The Promoters or CG shall appoint other Directors.
Private Company may by its Articles add other condition in addition to the above.
Disqualifications of Directors (S. 164)

Applies to both Public & Private Companies; Private Companies may by its articles add grounds for
disqualification in additions to those given below)
 A person shall not be eligible for appointment as a Director of a company if he is:
1. Unsound Mind & declared so by competent court
2. Undischarged Insolvent
3. Applied to be adjudicated as Insolvent and application pending
4. Convicted by court of offence
involving moral turpitude
Imprisonment of not less than 6 months: till the time 5 years
have not elapsed since the expiry of the sentence
Imprisonment of 7 years or more: not eligible ever
5. Order disqualifying him has been passed and the order is still in force
6. Calls remained unpaid for last 6 months since called: shares held either singly or jointly
7. Convicted of offence involving RPT (S. 188) at any time during the last 5 years
8. Has not complied with provisions of S. 152 (3) (not been allotted DIN)
•
Disqualification 4., 5., & 6. shall not take effect:
• 30 days from the date of conviction or order
• Appeal or petition preferred within 30 days until expiry of 7 days after the disposal of petition
• Any further appeal preferred until the disposal of such appeal
Disqualification of Directors (S. 164) Contd…
 A person who is a Director of the Company which has:
 Not filed Financial St. or Annual Return for a continuous period of 3 FY.
 failed to repay deposits or interest thereon or redeem debentures or interest
thereon or pay declared dividend for continuous period of 1 year or more.
 Director of such Company to be disqualified for a period of 5 years form the date
the company fails to do so.
 Where company fails to do any of the above, it shall intimate the ROC in form
DIR 9
 Directors to intimate to other Companies; about his disqualification (if any) in
Form DIR-8 before he is appointment or re-appointment
 An application for removal of disqualification of Director to be made in Form
DIR 10
Number of Directorships (S. 165)
 Hold Directorship in not more than 20 Companies at the same time(including alternate
directorship).
 Maximum in 10 Public Companies include Holding / Subsidiary.
 By Special Resolution members can specify any lesser number of Companies in which
the director may act as such .
 If more than 20 Companies –
 Choose within limits in which to continue.
 Resign from other Companies.
 Intimate the Companies and Registrar.
Within 1 Year from the Commencement of this Act.
Resignation shall become effective immediately.
 Punishment: Fine – not less than Rs. 5,000 but extend to Rs. 25,000
Duties of Directors (S. 166)
i)
Act in accordance with the Articles of the company.
ii)
Act in good faith.
iii)
Exercise due & reasonable care & diligence; and independent judgment.
iv)
Not involve in conflicts of interest with the Company.
v)
Shall not achieve undue advantage either to himself ort his relatives.
vi)
Shall not assign office.
vii)
Punishment where the Director fails to fulfill the duties –
Director – fine – not be less than Rs. 1 Lac but extend to Rs. 5 Lacs.
Register of Directors and KMP and their Shareholding
& Members right to inspect (S. 170 & 171)
 Register to be kept at Registered Office:
 containing particulars of directors &KMP &
 shall include details of securities held by them in the Company, its Hold Co.,
Subsi. Co., Asso. Co.

A return containing particulars of appointment of Director or KMP and changes
therein to be filed with the Registrar in Form DIR 12: within 30 days of such
appointment of any change therein
 Register shall be open for inspection during business hours. Members shall have a
right to take copies of the Register
 Register shall be kept open at every AGM & be accessible to person attending the
meeting.
 If inspection refused or copies not sent: the Registrar shall on application made to it,
order for immediate inspection or supply of copies.
Meetings of Board (S. 173)
AS per Companies
Act, 2013 – Section
173 (Notified
w.e.f.1st April, 2014.)
As per Listing
Agreement
AS per Companies
Act, 1956 – Section 285
Within 30 days of
Incorporation
Not required
No provision in Sec. 285
but as per Sec. 224 (5)
within 1 month
Minimum Number Every Year - 4 Board
of Board Meetings Meetings
Every Year - 4 Board
Meeting
Once in Every 3 Months;
and Every Year - 4 Board
Meeting
Maximum time
gap between 2
Board meetings
120 days
Maximum time gap of
120 days
No such Requirement
Notice of Board
Meeting
Not less than 7 Days
(Shorter Notice: least 1
Independent Director
present)
As per Clause 41: 7
clear calendar days
prior to the meeting
for Consideration of
Financial Results)
No such Requirement
First Board
Meeting
Meetings of Board (S. 173)
 Notice of the Board Meeting shall be sent to all the Directors.
 Directors can attend the meeting either:
 Personally ;or
 Video Conferencing; or
 Any other Audio Visual Means
 Incase of less than 7 days notice (shorter notice) to transact urgent business at least 1
independent director to be present at the meeting.
 Incase of absence of Independent Director decision taken at the meeting called on
shorter notice shall be circulated to all the directors and ratified by at least 1
Independent Director.
 Default – Every responsible officer shall be liable to Fine of Rs. 25,000
Quorum (S. 174)
 1/3rd of the Total Strength or 2 directors whichever is higher.
“Total Strength” not to include: directors whose places are vacant.
Any fraction of a number shall be rounded off as one
 If Interested Directors are more than or equal to 2/3rd; not less than 2 Non interested
Directors present at the meeting shall be the quorum.
 Directors who participate by video conferencing or by other audio visual shall also be
counted in Quorum.
 Adjourned Meeting to be held next week, same day, time & place.
 If that day is a National Holiday, then meeting to be held on next Succeeding Day.
 If Number of Directors reduced below the quorum then continuing director/s to act
only for the purpose of –
 Increasing the number of directors to that fixed for the quorum, or
 Calling a general meeting of the company
Passing of Resolution by Circulation (S. 175)
 The Resolution considered as passed at a Meeting of the Board / Committees if-
 It is circulated in draft along with necessary papers
 Send to all Directors / committee members
 Approved by Majority of the directors or committee members to entitled to vote.
 A resolution shall be noted at a subsequent meeting of the Board or the committee
and made part of the minutes of such meeting.
Defects in appointment of Directors not to
invalidate actions taken (S. 176)
 Where after appointment of Director it is noticed that appointment of Director was
invalid for the following reasons:
× any defect or
× disqualification or
× terminated by any provision contained in this Act or in the Articles of the
company.
It shall not invalidate any Act done by such Director
However, any act by the Director after the Company noticing that his appointment is
invalid , shall be void and invalid.
Audit Committee (S. 177)
Section 177 -As per Companies
Act, 2013
As per Listing
Agreement clause 49
Section 292A -As per
Companies Act, 1956
Applicable to Every Listed Company,
Every Public Company (i) Paid‐up Share capital of Rs. 10
Crore or more; or
(ii) Turnover of Rs. 100 Crore or
more; or
(iii) In aggregate, outstanding
loans or borrowings or debentures
or deposits Rs. 50 crore or more.
(as on the date of latest audited
financial statements)
Every Listed Company
Every Public Company
having Paid‐up Share
capital of Rs. 5 Crore or
more
Constitution
Minimum 3 Directors at Minimum 3 Directors &
least 2/3rd independent
2/3rd shall be Directors
directors.
other then Managing
Director or Whole Time
1 member to have
Director
financial management
expertise
Minimum 3 Directors with
majority independent directors.
(Existing company covered under
the limits shall reconstitute within
1 year from the 1st April, 2014.)
Audit Committee (S. 177)
Section 177 -As per
Companies Act, 2013
As per Listing
Agreement clause 49
Section 292A -As per
Companies Act, 1956
Chairman of the
Audit Committee
shall attend the
AGM
No Provision
Present at AGM to
answer shareholder
queries
Attend the AGM to
provide clarification on
matters relating to audit
Meeting
No Requirement
At lest 4 times in a
year and not more
than 4 months elapse
between 2 Meetings.
No Requirement
Quorum
No Requirement
2 members or 1/3rd of
the total number of
members present
(atleast 2 Independent
Members present)
No Requirement
Disclosure in
Board’s Report
(i)
Composition of Audit No such provision
Committee.
(ii) Recommendation of
Audit Committee not
accepted then
disclose reason
No such provision
Vigil Mechanism (S. 177)
Section 177 -As per
Companies Act, 2013
As per Listing
Agreement clause 49
Section 292A -As per
Companies Act, 1956
Establishment of
Vigil Committee
New Concept
(i) Every Listed Company,
(ii) Every other Company (a) accept deposits from the
public;
(b) borrowed money from
banks and PFI more than Rs. 50
crore.
Whistle Blower (a
non mandatory item
as per Clause 49) is
now made mandatory,
in the name of Vigil
Mechanism
No such provision
Disclosure of
details of
establishment
(i) On Website
(ii) Boards Report
(i) On Website
(ii) Boards Report
No such provision
Punishment
a. Company fine - > Rs. 1 Lakh but
extend to Rs. 5 Lakh and
b. Every officer (i) imprisonment – extend
to 1 year or
(ii)
fine - >Rs. 25,000
but extend to Rs. 1 Lakh
,or with both
No such provision
a. Company and
b. every officer –
(i) Imprisonment extend to 1 year, or
with
(ii) Fine - extend to
Rs. 50,000,
or with both.
Nomination & Remuneration Committee
(S. 178)
 Applicable to –
a.
Every Listed Company,
b.
Every Public Company –
(i)
Paid‐up Share capital of Rs. 10 Crore or more; or
(ii)
Turnover of Rs. 100 Crore or more; or
(iii) In aggregate, outstanding Loans or Borrowings or Debentures or Deposits
of Rs. 50 crore or more.

Constitute –
(i)
3 or more Non‐Executive Directors out of which not less than ½ to be
Independent Directors.
(ii)
Chairman of the Company not to be a chairman of the Committee but can
be appoint as member.
Nomination & Remuneration Committee
(S. 178) Continued…
 Role –
(i)
Formulate policy and recommend to Board on Co.’s policies pertaining to
remuneration of directors, KMP, other employees,
(ii) criteria for determining qualifications, positive attributes and independence of
directors
(iii) Evaluate every director’s performance
 Attend General Meeting – Chairman of the Committee or in absence of him any
other member of the committee authorised by him in this behalf.

a.
b.
Punishment Company
fine - not less than Rs. 1 Lakh but extend to Rs. 5 Lakh and
Every officer
(i) imprisonment – extend to 1 year; or
or
(ii) fine - not less than Rs. 25,000 but extend to Rs. 1 Lakh
with both
Stakeholders Relationship Committee (S. 178)
Applicable to –
Every Company consisting of more than 1000 –Shareholders, Debenture‐holders,
Deposit‐holders and any other Security holders at any time during a financial year.
It is not clear whether 1000 holders, or of a single category.
 Composition –
(i)
Members as may be decided by the Board and
(ii)
A chairman of the meeting shall be a Non‐Executive Director.
 Role - Consider and resolve the grievances of security holders of the company
Cl.49 provides for wider scope.

Attend General Meeting – Chairman of the Committee or in absence of him any
other member as may be authorised.

Punishment for violation-
a.
Company: Fine - not less than Rs. 1 Lakh but extend to Rs. 5 Lakh
b.
Every officer: Imprisonment – extend to 1 year, or with fine - not less than Rs.
25,000 but extend to Rs. 1 Lakh, or with both
Powers of Board and Restrictions (S. 179 & 180)

Powers to be Exercised by Board only at its meetings (Sec.179) :
 power to make calls on shareholders
 power to authorise the buy back
 Power to borrow monies
 Invest the funds of the company
 Issue securities, including debentures in India or outside India
 Diversify the business of the company
 Grant loans or give guarantee or security
 approve financial statement and the Board’s report
 approve amalgamation, merger or reconstruction
 Take over, Acquire a controlling or substantial stake
 Make Political contributions
 Appoint Internal & Secretarial Auditor
 Invite or Accept or renew public deposits and related matters
 Appoint or remove KMP
 Note of the disclosure of director’s interest and shareholding
 Review or change the terms and conditions of public deposit
 Take note of appointment or removal of one level below the KMP
 Buy, sell investments held by the company constituting 5% or more of the paid up share capital + free
reserves of the investee company
 Approve quarterly, Half yearly and annual financial statements or results as the case may be
Powers of Board& Restrictions (S. 179 & 180)
 Powers of the Board to borrow money, give loans, give guarantee, provide security;
and invest funds can be delegated
 Shareholders approval by Special Resolution required for exercising the following
powers:
 To Sell, Lease or otherwise dispose of the whole or substantially the whole of the
undertaking of the company.
 (Undertaking means Investment exceeds 20% of the Networth or generates 20%
of the total income during the Previous FY)
 (substantially the whole of the undertaking means 20% or more of the value of
the undertaking )
 To invest otherwise in trust securities the amount of compensation received by it as
a result of any merger or amalgamation.
 To borrow money together with the money already borrowed by the company will
exceed aggregate of its paid-up share capital + free reserves apart from temporary
loans.
 To remit or give time for the repayment of any debt due from a director.
Other Restrictions: Contribution to bona fide and
charitable funds Political Contributions (S. 181 & 182)
 Contribution to Charitable Funds:
 Contribution is < 5% of Average Net Profit of last 3 FY: Shareholders approval not
required, Board can decide
 Contribution is >5% of Average Net Profit of last 3 FY: Shareholders approval to be taken
 Political Contributions:
 Company may contribute directly or indirectly to any political party other
than
Government Company and Company in existence for > 3 financial years
 Contribution is < 7½ % of Average Net Profit of last 3 FY: Shareholders approval not
required, Board can decide
 Contribution is > 7½ %of Average Net Profit of last 3 FY: Shareholders to be taken
 Punishment -
(i)
company - Fine - extend to 5 times the Amount so contributed, and
(ii)
every officer - Imprisonment - Extend to 6 months; & Fine – Extend to 5 times the
amount so contributed.
Power of Board and other persons to make contributions
to national defence fund, etc. (S. 183)

The Board of Directors of any company or

Any person or authority exercising the powers of the Board of Directors of a
company, or

the company in general meeting, may:
 Contribute to the National Defence Fund or any other Fund approved by the Central
Government for the purpose of national defence.
Disclosure of interest by Director (S. 184)
 Meaning of Interested Director: as defined u/s 2(49): a Director who ;
by himself or through relatives;
or firm or Body Corporate or
association of persons in which the
Director or his relatives is partner
/Director / Members
Interested in a Contract / Arrangement : entered or to be entered by the Company
 Every director shall disclose his concern or interest in –
(i)
Any Company or
(ii)
Bodies Corporate,
(iii)
Firms, or
(iv)
Other Association of Individuals
which shall include the shareholding
Disclosure of Interest by Directors (S. 184)
 Disclose concern or interest (including shareholding)-
(i)
At the 1st Meeting of the Board in which he participates as a director and
(ii)
At the 1st Meeting of the Board in every financial year and
(iii) Whenever there is any change, then at the 1st Board meeting after such
change.
 Every Director who is interested in the contract or arrangement
(directly or
indirectly), that a company enters in to with
 A Company: in which director (single or with other director) hold more than 2%
shareholding or is promoter or CEO
 A firm or other entity in which the director is a partner or owner or member
To disclose interest at the meeting and shall not participate in the meeting
 Director shall disclose his interest in Form MBP-1.
 Punishment: Director: Imprisonment for a term upto 1 year; or with Fine – not less
than Rs. 50,000 but extend to Rs. 1 Lakh, or with both.
Loan To Directors (S. 185)
 Public and private companies cannot give any loan or provide any security or
guarantee whether directly or indirectly in connection with a loan to a Director or
any person in whom the director is interested
Persons in whom the director is interested
Director
Lending Company
or Holding
Company
Firm
Director or Relative
is a Partner
Private Company
Director is a
Director or Member
Any Body
Corporate
> 25% of the Total
Voting Power
exercised or
controlled by any
such director or by 2
or more Director
Relative or Partner
Directions or
Instructions by any
director of the
lending company
Loan To Directors (S. 185)

Loan can be given (a)
To MD & WTD :
(i) as a part of Service condition extended by company to all its employees; or
(ii) Scheme Approved by the members by a special resolution; or
(b)
By a Company which in ordinary course of business provide loan, & interest rate not less
than the bank rate declared by the RBI.

Nothing in this section to apply to:
 Any loan/guarantee/security provided by a Holding. Co. to / for its wholly owned subsidiary.
 Any guarantee given or security provided by a holding company in respect of loan made by
bank or FI to its Subsidiary Company.
Such loans must be utilized by the Subsidiary for its principle business activities

Punishment (i)
Company - Fine – not less than Rs. 5 Lakh but extend to Rs. 25 Lakh, and
(ii)
Director or Other Person - Imprisonment - Extend to 6 Months; or with Fine of not less
than Rs. 5 Lakh but extend to Rs. 25 Lakh; or with both.
Loan & Investment by Company (S. 186)

Company can not Directly or Indirectly - Make loan or Guarantee or Security to any person or body
corporate, or acquire securities by way of subscription or other wise, of any other body corporate up to
following limits:
(A)
(i) 60% of
paid-up share capital +
free reserves +
securities premium account, or
(ii) 100% of
free reserves +
securities premium account
(B)
(i) > 60% of
paid-up share capital +
free reserves +
securities premium account, or
(ii) > 100% of
free reserves + securities premium acct
(i)
Unanimous Board Resolution
(i)
Unanimous Board Resolution
(ii)
Prior Approval by Special Resolution
Which
ever
is
more
Which
ever
is
more
(C) Prior approval of Public Financial Institution where term loan is subsisting, if falling within (B) above: and Prior
approval of PFI is required in case of (A) above, only if default in repayment of loan installments or payment of
interest thereon is made.
Loan & Investment by Company (S. 186)
 Company to disclose in the FS:
 full particulars of loan given or guarantee or security provided
 utilization of funds
 Rate of Interest can not be less than Prevailing yield of 1 Year, 3 Years, 5 Years
or 10 Years Government Security closest to the tenor of the loan
 Company Can invest only through 2 layers of investment companies, subject to
Exceptions –
(i)
company can acquire company incorporated outside India which has more
than 2 layers of investment subsidiaries
(ii)
Subsidiary Company can have investment subsidiary for meeting the
requirements of law.
 Company in default in Repayment of any Deposit or Interest not to give loan or
guarantee or make acquisition till default is subsisting.
Loan & Investment by Company (S. 186)
 Exemption withdrawn form:
(i)
Private Company
(ii)
Investment / loan / guarantee by holding company to subsidiary company.
 Exemption to Make loan or give Guarantee or provide Security -
(i)
Banking Company,
(ii)
Insurance Company,
(iii)
housing finance company
(iv)
Company engaged in business of financing companies
(v)
Company providing Infrastructural facility
 Any Acquisition by-
(i)
NBFC,
(ii)
Company whose principal business is acquisition of securities,
(iii)
Right issue
(iv)
*Banking, Insurance or Housing Finance Company
*MCA inserted vide Companies(Removal of Difficulties)Order,2015 dated 13/02/2015
Loan & Investment by Company (S. 186)
 Where a Company gives loan or guarantee or security or makes acquisition of securities
to/of its wholly owned subsidiary or joint venture company, Company is not required to
obtain approval of the shareholders even if the above said limits have crossed.
 Company required to maintain a Register of Loan, Guarantee & Security, which is to be
kept open for inspection and extracts to be given at such fees as prescribed
 MCA vide General Circular No. 15-2014 dated 09-06-2014 clarified that registers
maintained by the Companies pursuant to section 372A need not rewrite the register into
the New Format (MBP2), entries on or after 01-04-2014 are to be made as per the new
format.
 Punishment -
(i)
Company Fine – not less than Rs. 25000 but extend to Rs. 5 Lakh, and
(ii)
Director or other person(a) Imprisonment - Extend to 2 years; and with
(b) Fine – not less than Rs. 25000 but extend to Rs. 1 Lakh
Investments of Company to be held in its own
name (S. 187)
 All investments held by a company in any property, security or other asset shall be
made and held by it in its own name.
 If the Company holds shares in its subsidiaries in others names, then maintain a
Register in Form MBP 3
 The Register shall be kept open for members or debenture-holders inspection at free
of cost during business hours .
 Punishment -
(i) Company -
Fine – not less than Rs. 25,000 but extend to Rs. 25 Lakh, and
(ii) Every Officer –
(a) Imprisonment - Extend to 6 months, or with
(b) Fine – not less than Rs. 25000 but extend to Rs. 1 Lakh, or with both
Related Party Transactions (S. 188)
Transactions by Company whether
Limits {transaction wihtin the limit :
directly or through appointment of agent Board Resolution
Where the limit exceeds: Prior approval of
Shareholders by Special Resolution}
(a) Sale, purchase or supply of any good or
materials
10% of the Turnover or 100 Crore Rupees;
which ever is lower
(b) Selling or otherwise disposing of or
buying property of any kind
10% of Networth or100 Crore Rupees, which
ever is lower
(c) Leasing of property of any kind
10% of Networth or 10% of Turnover or 100
Crore Rupees which ever is lower
(d) Availing or rendering of services
10% of Turnover or 50 Crore Rupees which
ever is lower
The above limit to apply to transaction entered either individually or taken together with
previous transactions during the year
e) Appointment to any office or place of
profit in company, subsidiary or associate
Monthly remuneration of 2.5 lakh Rupees
Underwriting subscription of any securities
or derivatives
Remuneration of : 1% of Networth
Related Party Transactions (S. 188)
 Turnover & Networth to be as per the Audited Financial Statement of the Preceding FY
 Related Party is a Member: Not be Eligible to Vote
 Where a Director is interested such director not to be present at the meeting during such
discussion
 Term “Relative” defined under section 2 (77) and List of relatives prescribed in Rule.
 MCA vide General Circular No. 30-2014 dated 17-07-2014 clarified that the term
‘Related Party’ is to be construed with reference to only that transaction which is
considered at the Board Meeting
 MCA vide Notification No. 590(E) dated 14-08-2014 by the Companies (Meetings of
Board and its Powers) Second Amendment Rules, 2014 bought about many amendments
in the Principle Rules, one of the major amendments was the revisions of the limits for
related party transactions.
Related Party Transactions (S. 188)
 In case of wholly owned subsidiary, Special Resolution passed by the Holding
Company, fulfils the requirement for transaction between the two.
 Central Government approval done away.
 “Cash at prevailing market price” is now suitably replaced for “Arm’s Length
Transaction”
 Related Party Transactions are to be detailed in Board’s Report along with
justification
 Nothing in this section to apply to transactions that are in ordinary course of
business on arms length basis
 Company can Recover loss from director or any other employee who had entered
into such contract or arrangement in contravention of the provisions
Related Party Transactions (S. 188)
 MCA vide General Circular No. 30-2014 dated 17-07-2014 clarified that:
 the transaction arising out of amalgamations, arrangements and compromise: not
be considered as related party transactions
 Past contracts of companies fulfilling the requirements of section 297 of the
Companies Act 1956 and came into effect before 01-04-2014 shall not require
fresh approvals; however any modifications or changes must be as per the new
provisions
 Punishment –
(i)Listed Company
Director or any other employee of a company (a) Imprisonment - extend to 1 year, or with
(b) Fine – not be less than Rs. 25000 but extend to Rs. 5 Lakh
(c) or with both
(ii)Any other Company
Director or any other employee of a company–
Fine – not be less than Rs. 25000 but extend to Rs. 5 Lakh
Register of contracts or arrangements in which directors
are interested (S. 189)

Every company shall maintain 1 or more registers under sub-section (2) of section 184 or section
188 in form No. MBP 4 .

Director or KMP to disclose within 30 days of appointment or cessation or concern or interest in
other associations to be entered in the Register.

Register to be kept at Registered office and Open for inspection by members and provide extracts
on payment of Fees.

The register must be placed before every board meeting and signed by all the directors present at
the meeting. Register also to be produced at the AGM & remain accessible to person attending the
meeting

Where request for extract of the register received: provide the same within 7 days ; for fees as
specified in the articles but not more than Rupees 10 per page

Nothing above shall apply to Transactions not exceeding Rs.5 lakh in the aggregate in any year &
to a Banking Company for collection of bills in ordinary course of business

Punishment – Every Director – Fine Rs. 25000
Contract of Employment with Managing or
Whole-time Directors (S. 190)
 Every Public Company shall keep at the registered office
 A written copy of Contract of Service with a Managing or Whole-time Director,
or
 If contract is not in writing a written memorandum setting out its terms.
 Copies of Contract or memorandum keep open for members inspection at free of
cost.
 Punishment –
(i)
Company – Fine – Rs 25000 and
(ii)
Every Officer – Fine – Rs. 5000 for each default
Other Provisions related to Directors
 Payment to director for loss of office, etc., in connection with transfer of undertaking,
property or shares. (S. 191)
 Restriction on non-cash transactions involving directors (S. 192)
 Prohibition of forward dealings in securities of company by director or key managerial
personnel (S. 194): Directors / KMPs prohibited from forward dealing in securities and
if Director / KMP enters into such transaction: shall be liable to surrender the shares to
the Company.
Prohibition on Insider Trading of Securities
(S. 195)
 Director and KMP shall not enter into act of Insider Trading concerning.
 Nothing to apply to communication in ordinary course of business/ profession /
employment or under any law
 Insider Trading means – an act of Subscribing, buying, selling, dealing or agreeing
to subscribe or buy, sell or deal in any securities by a Director or KMP either as
principal or agent if such person is reasonably expected to have access to any nonpublic price sensitive information in respect of securities of company.
-an act of counseling about procuring or communicating directly or indirectly any
non-published price sensitive information to any person
 Punishment - Any person –
(i)
Imprisonment - extend to 5 Years, or with
(ii)
Fine – not less than Rs. 5 lakhs but extend to Rs. 25 Crore, or
(iii) 3 times the amount of profits made out of insider trading, whichever is
higher, or with both
Appointment of Managing Director, Whole Time
Director or Manager (S. 196)
 Can not appoint / employ MD and Manager at the same time.
 Managing Director (MD), Whole Time Director (WTD) or Manager to be Appointment /
Reappointment of for a Term not exceeding 5 Years at a time.
 Can reappoint only within 1 Year before the expiry of Term.
 Subject to Schedule V and Section 197: Managing Director, Whole Time Director or
Manger: appointed by the Board; subject to the approval of the Members and the CG
(where the appointment not as per the conditions of Schedule V)
 A Return of appointment in Form MR-1 to be filed with the Registrar with in 60 days of
such appointment.
 Conditions to be complied while appointment / re‐appointment of any managerial person
[MD/WD/Mgr] mentioned here. Where Conditions complied: No approval of the CG
necessary.
 Section 196 & Part I of this Schedule: applicable to private companies also.
Remuneration of Directors [S. 197]
 Section 197 & Schedule V: Applicable Public Companies & their Subsidiaries
 Private companies (which are not subsidiaries of public companies) can pay
remuneration to its Directors and Managerial Personnel without any limit and no
approval of members / CG required.
 S. 2(78): Remuneration means any money or its equivalent given or passed to any
person for services rendered by him and includes perquisites as defined under the
Income‐tax Act, 1961.” {substantially different from Definition under Companies
Act, 1956 (Section 198)}
 All components of remuneration to be taken on actual expenditure basis, while
perquisites to be taken as per Income Tax Act and Rules.
 Where Remuneration paid is in excess of the limit prescribed under this section or
without prior CG approval, if required, Director to refund the excess to the
Company. Waiver by Company: permissions of CG required
Remuneration of MD / WD / Manager
 Overall ceiling on remuneration of all directors: 11% of Net Profit (NP).
 More than 11% : Shareholders & CG approval required.
 NP to be calculated according to Section 198
 Sitting fees for Board Meeting excluded from the limit of 11%
Executive Directors’ Remuneration when
NP is adequate
 Remuneration:
 1- MD/WTD/Manager: 5% or less of NP
 More than 1 MD/WTD/Manager: 10% or less of NP
No Shareholders approval required.
 1- MD/WTD/Manager: more than 5% of NP
 More than 1 MD/WTD/Manager: more than10% of NP
Shareholders approval to be taken.
 Remuneration if not in accordance with the provisions of Schedule V: Central
Government approval to be taken.
Remuneration of Non Executive Directors (NED)
 Company has a MD/WTD/ Manager: 1% or less of NP
 Other Cases: 3% or less of NP
No Shareholders approval required.
 Company has a MD/WTD/ Manager: more than 1% of NP
 Other Cases: more than 3% of NP
Shareholders approval required.
 NEDs now can be paid monthly remuneration
 A director or manager may be paid remuneration either by way of a monthly payment
or at a specified percentage of the net profits of the company or partly by one way and
partly by the other but this is subject to the limits of 11% and 1% or 3%.
 Calculation of Profits for the purpose of payment of remuneration to directors
(executive or non executive) to be as per S. 198 of the Act.
Remuneration for Professional Services &
Payment of Commission
 Remuneration paid to NED for professional services is excluded for the limits of 11%
and 1% or 3%, if:
 the services rendered are of a professional nature; and
 in the opinion of the Nomination and Remuneration Committee or the Board in
other cases, the director possesses the requisite qualification for the practice of the
profession.
 A Company in a Special Economic Zone (has not raised money by public issue and
has not defaulted in repayment of deposits) - may pay remuneration up to Rs.
2,40,00,000 per annum.
 a managing or whole‐time director of a company who is in receipt of any
commission from the company can be paid any remuneration or commission from
any holding company or subsidiary company of such company provided it is
disclosed by the company in the Board's report
Sitting Fees
 For attending meeting of the Board or committee to a director shall not exceed Rs. 1
lakh per meeting.
 For Independent Directors and Women Directors, the sitting fee shall not be less than
the sitting fee payable to other directors.
Recovery of Remuneration in certain Cases (S. 199)
 Where a company is required to re-state its Financial Statements due to fraud or non-
compliance.
 Recover remuneration (including stock option) in excess of what would have been
payable as per restatement of financial statements

from any past or present
(i)
Managing Director, or
(ii)
Whole-time Director, or
(iii)
Manager, or
(iv)
Chief Executive Officer
 Compensation for loss of office of managing or whole-time director or manager:-
Company may pay compensation/consideration to a MD/WTD or manager for loss or
retirement – Company not to make payment of compensation subject to circumstances
as per S.202(2)
Central Government or company to fix limit
with regard to remuneration (S. 200)
Applications to the Central Government for approval Under Section 196 & 197 where
the Company has no profit or inadequate profit, may fix the remuneration to such
amount or % of profit as it may deem fit;
& while fixing the amount the CG & Company to have regard toFinancial and operating performance of the company during the 3 preceding FY.
Remuneration or Commission drawn in any other capacity.
Remuneration or Commission drawn from any other Company
Professional qualifications and experience of the individual concerned
Difference if any between the remuneration policy for the directors & other employees
alo0ng with reasons for the same
Securities held by the director, (including details of the shares pledged) at the end of the
Preceding FY.
The relationship between remuneration and performance.
The principle of proportionality of remuneration within the company.
Appointment of Key Managerial Personnel (KMP)
(S. 203)
Every listed company & Every other public company having Paid-up Share
Capital of Rs. 10 crore or more shall have whole-time Key Managerial Personnel.
(a) Managing Director, Chief (b) Company Secretary*; and
Executive Officer or Manager
and in their absence, a Wholetime Director;
(c) Chief Financial Officer
{MCA vide Notification No. GSR 390(E) dated 09-06-2014 inserted New Rule 8A
after existing Rule 8 lowering the limit of Paid up capital for appointing a whole-time
company secretary to Rupees 5 Crores.}
Appointment of Key Managerial Personnel
(S. 203)
 MD and CFO should not be appointed as Chairman unless-
(i) provided in the Articles of Association, or
(ii) Companies not having multiple businesses
{The above provisions not to apply to public companies engaged in multiple
business and have appointed 1 CEO for each business and has Paid up Share Capital
100 crores or more & Annual Turnover of 1000 crores or more: MCA vide
Notification No. SO 1913(E) dated 25/07/2014}
 Except in Subsidiary Company Whole-time KMP shall not hold office in more than
1 company at the same time; (within a period of 6 months from 1st April, 2014
choose one company)
 In case of casual vacancy office of KMP shall be filled up within 6 Months .
 Punishment –
(i)
(ii)
Company – Fine - > Rs. 1 Lakh but < Rs. 5 Lakh
Director & KMP – Fine – extend to Rs. 50,000
If Continuing – Rs. 1,000 per day.
Secretarial Audit (S. 204)
 Secretarial Audit applicable to-
(a) Every Listed Company
(b) Every Public Company (i) Paid-up Share Capital of Rs. 50 Crore or more; or
(ii) Turnover of Rs. 250 Crore or more.
 The Secretarial Audit Report to be in Form No. - MR.3.
 If any qualification or observation or other remarks of the company secretary in
practice, the Board of Directors, in their report shall explained in full.
 Punishment –
(i)
company, or
(ii)
any officer of the company, or
(iii)
the company secretary in practice,
fine not less than Rs. 1 Lakh but may extend to Rs. 5 Lakh.
Thank You!!!!
By Haresh Jani & Associates
Company Secretaries