Corporate and Economic Laws€¦ · Corporate and Economic Laws CA Final 12 | Company Law Author: CA. Aseem Trivedi MCQ-9. The director’s tenure as small shareholders’ director

(1)

Corporate and Economic Laws CA Final

2 | Company Law Author: CA. Aseem Trivedi

Chapter -2

APPOINTMENT oF DIRECTORS

CONCEPT-1

MODES OF APPOINTMENT OF DIRECTORS

Appointment of Director- at a Glance

CONCEPT INDEX

1. Modes of Appointment of Directors

2. Appointment of Directors in General Meetings

3. Appointment of Directors by BOD

4. Stand For Directorship

5 Single Resolution

Proportionate representation of Director

Chapter 02 Appointment of Directors

Author: CA. Aseem Trivedi Company Law | 3

First directors:- According to section 152(1) Where no provision

is made in the articles of a company for the appointment of the

first director, the subscribers to the memorandum who are

individuals shall be deemed to be the first directors of the

company until the directors are duly appointed and in case of a

One Person Company an individual being member shall be

deemed to be its first director until the director or directors are

duly appointed by the member in accordance with the

provisions of this section.



Other Directors:- According to section 152(2) save as otherwise

expressly provided in this Act(like section 161), every director

shall be appointed by the company in General Meeting. It is

expressly provided under the act that first directors will be

appointed as discussed above and additional director, alternate

director, Nominee director and director on casual vacancy shall

be appointed by BOD (section 161).

MCQ-1. Where no provision is made in the articles of a

company for the appointment of the first director

(a) All the subscribers to the memorandum shall be deemed to

be the first directors of the company until the directors are

duly appointed

(a) The subscribers to the memorandum who agreed to

become directors and who are individuals shall be deemed

to be the first directors of the company until the directors

are duly appointed

(c) The subscribers to the memorandum who are

individuals shall be deemed to be the first directors of the

company until the directors are duly appointed

(d) The subscribers to the memorandum who are individuals

shall be deemed to be the first directors of the company for

the life time.



Q.1. What are essential formalities to be completed

before Appointment of Director?

Following are the [Prescribed in Sec. 152 (3) to 152(5)]

Verify first that whether the person has Director

Identification Number

Every proposed Director in general meeting or otherwise

shall furnish DIN and a declaration that he is not disqualified

(u/s 164) to become a Director

Proposed Director shall give his consent in Form DIR-2 to

hold the office as director and such consent be filed with the

Registrar in Form DIR-12 within 30 days of his appointment

for example:- Mr. X appointed as a director in general

Meeting of the ABC ltd. on 25.09.2014, Mr. X filed the

consent to hold office as director to registrar on 11.12.2014,

Is Mr. X can act as director? In the given case Mr. X has

failed to file consent with registrar within 30 days of his

appointment. Hence Mr. X cannot act as a director.

MCQ-2. Following may not have DIN

(a) Proposed Director

(b) Appointed directors

(c) First Directors

(d) None of the above



CONCEPT-2

APPOINTMENT OF DIRECTORS IN GENERAL MEETINGS

Q.2. Which Director of the company is required to be

appointed by shareholders in General Meeting?

As discussed in above paragraphs except First Director,

Additional Director, Alternate Director, Nominee Director and

Director to be appointed to fill casual vacancy by Board, every

other director is appointed by shareholders in their General

Meeting.

MCQ-3. Usually directors in routine appointed by

(a) BOD

(b) MD

(c) Shareholders

(d) All the above

Q.3. What do you mean by Small Shareholders and

what are requirements of Small Shareholders

Director under the Company’s Act 2013?

Small Shareholders means a shareholder holding shares of

nominal value ( please note it is not fair market value) of not

more than 20,000/- rupees or such other sum as may be

prescribed (not yet prescribed). It should be noted that it is



optional for a listed company to have a small shareholders

directors. It is not mandatory to have such director. If company

at its own appoints the directors representing small shareholder,

the procedure given in this regard by appointment of SSD by

shareholders will not applicable.

MCQ-4. MCQ-54 Small Shareholders means

(a) Shareholder holding shares of Fair value not more than

20000/-

(b) Shareholder holding shares of nominal Value not more

than 20000/-

(c) Shareholder holding shares of net realisable value not more

than 20000/-

(d) Shareholder holding shares of Discounted value not more

than 20000/-

MCQ-5. Appointment of SSD is mandatory for

(a) Listed Company

(b) Limited Company

(c) Private Company




MCQ-6. MCQ-56 If Listed entity suo motu appoints the SSD

(a) Provisions of section 151 still be applicable

(b) Provisions of section 151 may be applicable

(c) Provisions of section 151 will not be applicable

(d) Provisions of section 151 may or may not be applicable

Q.4. What are the provisions and procedures to appoint

a SSD?

According to section 151, a Listed Company may have one

director elected by such small Shareholders in such manner and

with such terms and conditions as may be prescribed.

(i) Meaning of such small shareholders:- A listed company,

may upon notice of

(a) Not less than 1000 or

(b) 1/10th of the total number of small shareholders ( not

all shareholders please note)

whichever is lower,

have a small shareholders’ director elected by the small

shareholders. Further a listed company may suo-moto

opt to have a director representing small shareholders.

(ii) How they propose company to appoint SSD:-

(a) The small shareholders intending to propose a person as

a candidate for the post of small shareholder’s director



shall leave a signed notice of their intention with the

company at least 14 days before the meeting specifying

the their details and proposed director’s details. The

details include name, address, shares held and folio

number etc. If the proposer does not hold any shares in

the company, the details of shares held and folio

number need not be specified in the notice.

(b) The notice shall be accompanied by a statement signed

by the proposed director for the post of small

shareholders’ director stating

(a) His Director Identification Number;

(b) That he is not disqualified to become a director

under the Act; and

(c) His consent to act as a director of the company.

(c) If proposed director is qualified u/s 149 (6) for

appointment as an independent director and has given

declaration for his independence u/s 149 (7) then such

director shall be considered as an independent director.

(iii) Tenure of SSD:- The director’s tenure as small shareholders’

director shall not exceed a period of 3 consecutive years

and he shall not be liable to retire by rotation. Further he

shall not be eligible for reappointment after the expiry of

his tenure.



(vi) Disqualification for SSD :- If the person is not eligible for

appointment according to section 164, then he can’t be

appointed as small shareholder’s director.

(v) Vacation of office of SSD:- Small shareholders’ director shall

vacate the office if -

(a) He ceases to be a small shareholder, on and from the

date of cessation;

(b) He incurs any of the disqualifications specified in section

164;

(c) He office of the director becomes vacant in pursuance

of section 167;

(d) He ceases to meet the criteria of independence as

provided section 149 (6).

(vi) No of SSD directorship: - Simultaneously he shall not hold

the office of small shareholders’ director in more than two

companies. If second company is in competitive business or

is in conflict with business of the first company the he shall

not be appointed in second company.

(vii) Cooling period:- He shall directly or indirectly not be

appointed or associated in any other capacity with the

company for a period of 3 years from the date of cessation

as a small shareholder’s director.

(viii) No Association with the company for next 3 years



Special Note: - A small Shareholder Director shall not, for a

period of 3 years from the date on which he ceases to hold

office as a small shareholders director in a company, be

appointed in or be associated with such company in any other

capacity, either directly or indirectly.

MCQ-7. Notice to the company for appointment of SSD can

be given by

(a) not less than 1000 or 1/10th of the total number of all

shareholders Whichever is more

(b) not less than 1000 or 1/10th of the total number of small

shareholders whichever is more

(c) not more than 1000 or 1/10th of the total number of small

shareholders whichever is less

(d) not less than 1000 or 1/10th of the total number of small

shareholders whichever is less

MCQ-8. SSD proposed by small shareholders

(a) shall also small shareholder

(b) Shall be a Shareholder

(c) May or may not be small shareholder

(d) May or may not be shareholders



MCQ-9. The director’s tenure as small shareholders’ director

(a) shall not exceed a period of 3 years

(b) shall not exceed a period of 3 consecutive years

(c) shall not lower than a period of 3 consecutive years

(d) shall not exceed a period of 3 years

MCQ-10. Small shareholders’ director shall vacate the office if -

(a) he ceases to be a small shareholder, on and from the date

of cessation;

(b) he incurs any of the disqualifications specified in section

164;

(c) the office of the director becomes vacant in pursuance of

section 167;

(d) All the above

MCQ-11. SSD shall not hold the office of small shareholders’

director in

(a) More than two companies

(b) More than 1 companies

(c) More than 20 Companies


♠♠♠♠



Let’s Rehearse

Q.5. ABC Listed company want to appoint Mr.

Ghanshyam Das who is holding 1000 equity shares

of Rs. 10 each of the company , as a director of

representative of Small shareholders on the board

of the said company . State the provisions of

section 151 of the companies Act, 2013, it is further

given that Mr. Ghanshyam das hold the position of

small shareholder director already 2 companies.

Answer

According to section 151, a listed company may have one

director elected by small shareholder-

Either on its motion

Upon notice of not less than 1000 small shareholders or

1/10th of total no. such shareholders whichever is lower

But it should be noted that a person shall not hold the position

of SSD in more than two companies at the same time

In the given case, ABC ltd on its motion appoint SSD to Mr.

Ghanshayam however Mr Ghanshayam not eligible for SSD,

because he is already SSD in two companies



Q.6. (November 2008 Modified)

The Board of Directors of M/s Ghanshyamdas Limited, listed

company having a paid-up capital of Rs. 6 crores consisting of

equity share capital of Rs.5 crores and preference share capital

of Rs. 1 crore and also 1,100 'Small Shareholders' holding equity

shares seeks your advice on the following:

(a) Is it necessary for the Company to appoint a Director to

represent the 'Small Shareholders'?

(b) In case the Company decides to appoint such a Director.

The procedure to be followed by the company for such

appointment and the period for which such appointment

can be made.

(c) Can such a director be removed by the Company before

the expiry of his period of appointment without the

consent of the 'Small Shareholders'? Advise explaining the

relevant provisions of the Companies Act, 2013 and the

Rules.

Answer

(i) As per Section 151 of Companies Act, 2013, listed company

is required to appoint small shareholders' director.

(ii) A company may either

Elect small shareholders director on its own.

Appoint small shareholders director on notice of small

shareholders.



Notice in writing should propose the name of person

proposed as small shareholder director. Notice should be

given at least 14 days before meeting. Notice should be

given by at least 1/10th of total number of small

shareholders or by 1000 small shareholders, whichever is

lower. Notice must contain the prescribed particulars. The

person whose name is proposed as director will sign and

file with the company his consent in writing to act as a

director. The person proposed to be appointed as small

shareholders director must have obtained DIN and he

should not be disqualified to act as director.

On receipt of valid notice, company may appoint small

shareholders' director. In case of listed company

appointment of small shareholders director should be made

by passing postal ballot. Small shareholders' director can be

appointed for a maximum period of 3 years. Alternatively,

company may appoint small shareholders director on its

own. In such case, notice is not required to be given and

signed by 1000 small shareholders.

(ii) Small shareholders director can be removed by the

shareholders at a general meeting as per the provision of

Section 169 of the Companies Act, 2013 before the expiry

of his tenure.

♠♠♠♠



CONCEPT-3

APPOINTMENT OF DIRECTORS BY BOD

Q.7. Can directors be appointed by Board of directors if

yes which type of directors can be appointed by

the board?

Yes following chart is showing situations where directors can be

appointed by board of directors.



Q.8. Who shall be the Additional Director?

Meaning: An additional director is required to enable the

companies to have the benefit of the services of a person, who

otherwise is suitable for serving on the Board, and whose

presence in the Board is desirable in the interests of the

company till upto the time the next annual general meeting is

held.

Appointment:- As per section sec 161(1)

If authorized by the AOA of the company,

The board may appoint any person, as an additional

director any time. Additional director may be appointed by

passing a resolution at BM or by passing a resolution by

circulation. The only condition is that the Board cannot by

appointing any director exceed the maximum strength fixed

for the BOD of the company

Provision relating to Disqualification u/s 164, vacation of

office u/s 167 are apply to additional director as they apply

to other director.

While calculating the number of directors who are liable to

retirement by rotation such additional directors should not

be excluded from the total no. of directors

Tenure: - Additional director shall hold office upto the date

of Next Annual General Meeting or upto the last date when

the AGM was supposed to be held, which ever earlier for



example Mr Ghanshyam das appointed as an additional

director in board meeting on 20/01/14. AGM of the

company to be held in 12/11/2014 which could not be held

due to some reasons. , hence in this case if the AGM is not

held within the stipulated time, the office of the additional

director shall be vacated .The words shall ‘hold office only

upto the date of next AGM ‘shall be construed as director

shall hold office upto the last date on which the next AGM

should have been held and not the actual holding of that

meeting. In the given case Mr Ghanshayamdas’s office of

director shall deemed to be vacated on 12.11.2014

MCQ-12. Additional Director can be appointed by

(a) BOD

(b) Share holders

(c) Anyone of the above

(d) Both the above

MCQ-13. Additional Director can be appointed by BOD if

(a) Authorised by Act

(b) Authorised by AOA

(c) Authorised by MD

(d) If authrised by anyone of the above

MCQ-14. Additional director shall hold office



(a) Upto the date of Next extraordinary General Meeting or

upto the last date when the AGM was supposed to be

held, which ever earlier

(b) Upto the date of Next Annual General Meeting or upto the

last date when the AGM was supposed to be held, which

ever later

(c) Upto the date of Next Annual General Meeting or upto the

last date when the AGM was supposed to be held, which

ever earlier

(d) Upto the date of Next Annual General Meeting only that

too when meeting hold.

MCQ-15. Additional Dirctor

(a) Can be reappointed only for one more tenure

(b) Cannot be reappointed

(c) May be reappointed as many time as one desire


♠♠♠♠



Let’s Rehearse

Q.9. Mr. Ghanshyam das appointed as an additional

director in board meeting on 20/01/14. AGM of the

company to be held in 12/11/2014 which could not

be held due to some reasons. Mr. Ghanshyam

wishes to carry the office after 12/11/2014. Advice

Answer

If the AGM is not held within the stipulated time, the office of

the additional director shall be vacated .The words shall ‘hold

office only upto the date of next AGM ‘shall be construed as

director shall hold office upto the last date on which the next

AGM should have been held and not the actual holding of that

meeting. In the given case Mr. Ghanshayam Das’s office of

director shall deemed to be vacated on 12.11.2014

Q.10. (NOV 2015, 8 MARK)

Queens Ltd is a Company listed at Bombay Stock

Exchange. Company’s Articles empower the Board of

Directors to appoint Additional Director. The Board of

Directors, therefore, appoints Mr. K, as the Additional

Director. It may, however, be pointed out that earlier, the

proposal to appoint Mr. K, as a Director on the

Company’s Board was rejected by the Members at the

Company’s Annual General Meeting. Examining the



Provisions of the Companies Act, 2013, answer the

following:

(a) Whether Mr. K’s appointment as Additional Director by

the Board of Directors is valid?

(b) Whether the Company’s Annual General Meeting can

appoint Mr. K as the Additional Director when the

proposal to appoint comes before the Meeting for the first

time?

(c) In case the AGM of the Company is not held within the

stipulated time, decide whether Mr. K who was appointed

by the Board as Additional Director, for the first time, can

continue to act as a Director?

Answer

(1) Invalid. A person who fails to get appointed as a Director

in a General Meeting, cannot be appointed as Additional

Director by BOD.

(2) Yes. Normally, BOD has to appoint “Additional Director”.

The Company’s AGM can appoint Additional Directors, if

AOA provides such power.

The power to appoint additional directors is expressly

given to the Board of directors by section 161(1) of the

companies Act, 2013. Accordingly, it is not possible for the

members to exercise this power. Thus, additional directors

cannot be appointed in the annual general meeting or any



other general meeting However, in some exceptional cases

like when there is a deadlock in the Board or where all the

directors become interested, the power to appoint

additional directors may be exercised by the members for

limited purpose to call general meeting etc.

(3) No. Additional Director holds office only upto the date of

next AGM or last date on which such AGM should have

been held, whichever is earlier.

Q.11. (Nov. 2014)

Mr. Nandu is appointed as an additional Director by the

Board of Directors of Munnabhai Company Limited at its

meeting held on 1st October, 2014 for a period as

permitted by the law.

Draft a resolution and state the body which appoints Nandu.

Subject - Appointment of an additional

director

Passing Authority - Board of directors

Nature of the Resolution - Resolution with simple majority

Ans

“RESOLVED” THAT Pursuant to Regulation NO.----- of the

articles of association of the Company and the provisions of

section 161(1) of the companies Act, 2013, Shri Nandu who

holds Director Identification No. -----------------, and who has

field his consent with the company as per the provisions of



section 152 (5) of the companies Act, 2013, and who is not

disqualified as per the provisions of section 164 the Companies

Act, 2013, be and is hereby appointed as an additional director

of the company.

RESOLVED FURTHER THAT Shri Nandu shall hold office of

additional director till the next annual general meeting or the

last date on which the AGM should have been held, whichever

is earlier.”

Q.12. Who shall be the Alternate Director? [Section

161(2)]

Meaning: - This provision of companies act allows an individual

director to nominate a representative for him to carry out the

responsibilities of the director in the absence of the original

director. This provision is a facility for a temporary period and

not as a permanent solution, as it would otherwise not serve

the purpose. The purpose of allowing a director to appoint a

representative is in the interest of the subject company than the

interests of the concerned director. Appointment of such an

alternate is an attempt to ensure that the company’s business is

not hampered during the period when the original director is

unable to perform his functions as a director due to physical

unavailability. First Proviso to Section 161(2) prescribed that no

person shall be appointed as an alternate director for an

independent director unless he is qualified to be appointed as



an independent director under the provision of this act.

Alternate director shall be considered while calculating the

number of directorship held by a director. BM notice also send

to alternate director and original director.

Appointment:-The Board of Directors of a company may,

If so authorised by its articles or

By a resolution passed by the company in general meeting,

Appoint a person, to act as an alternate director for a

director during his absence for a period of not less than 3

months from India:

It should be noted that a person holding any alternate

directorship for any other director in the same company

cannot be appointed as alternate director for any other

director of the company.

Tenure:- Provided further that an alternate director shall not

hold office for a period longer than that permissible to the

director in whose place he has been appointed and shall vacate

the office if and when the director in whose place he has been

appointed returns to India

Special Note:- It is also provided in the act that 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, and not to the alternate director.



MCQ-16. Alternate director is a

(a) Permanent appointment

(b) Temporary Appointment

(c) Normal Appointment

(d) Extraordinary appointment

MCQ-17. Alternate director is appointed by

(a) Director going abroad

(b) BOD

(c) By Shareholders

(d) Any one of the above

MCQ-18. The Board of Directors of a company may appoint

alternate director

(a) if so authorised by its articles and also by a resolution

passed by the company in general meeting,

(b) if so authorised by its articles or by a resolution passed by

the company in general meeting,

(c) if so authorised by this act or by a resolution passed by the

company in general meeting,

(d) if so authorised by this act or by a Special resolution passed

by the company in general meeting,

MCQ-19. The Board of Directors of a company may appoint

alternate director ,



(a) if so authorised by its articles

(b) by a resolution passed by the company in general meeting,

(c) for a director during his absence for a period of not less

than 3 months from India

(d) Either of (a) and (b) with (c)

♠♠♠♠



Let’s Rehearse

Q.13. Can an alternate director be appointed for an

independent director? If so, are there any

conditions for appointment of a person as an

alternate director to an independent director?

Ans:

Proviso to sub-section (2) to section 161 provides that no person

shall be appointed as an alternate director for an independent

director unless he is qualified to be appointed as an

independent director under the provisions of the Act. Hence it

is possible to have an alternate director as independent director

if he fulfills all the requirements to become an independent

director.

Q.14. Does an alternate director need to obtain a

Director Identification Number under Section 153 of

the Companies Act, 2013?

Answer

As per the provisions of section 153, every individual intending

to be appointed as director of a company is required to obtain

DIN by complying with the provisions of the Companies Act,



2013 and Director Identification Number Rules. Therefore,

alternate director is required to obtain DIN.

Q.15. Referring to the provisions of the Companies Act,

2013, examines the validity of the following:

Mr. Bablu who is not qualified to be appointed as an

independent director is appointed by the Board of

Directors of Bubbles Company Limited, as an alternate

director for an independent director, as a director.

Nov. 2014

Answer

The Board of Directors of a company may,




director during his absence for a period of not less than three

months from India:





Section 161(2) also provides that a person can be appointed as

an alternate director for an independent director only if he is

qualified to be appointed as an independent director as per

section 149(6). In the given case, the appointment of Mr. Bablu



as an alternate director for an independent director is not valid,

since Mr. Bablu is not qualified to be appointed as an

independent director.

Q.16. Nov. 2014

Referring to the provisions of the Companies Act, 2013,

examine the validity of the following:

The Board of Directors of Ajadi Limited appointed Mr.

Nandu as an alternate director a period of two months

against a director who has proceeded abroad on leave

for a period of six months. Articles of Association of the

company are silent.

Answer

The given problem relates to section 161(2) of the companies

Act, 2013. According to section 161(2)-The Board of Directors

of a company may,





months from India:







Provided further that an alternate director shall not hold office

for a period longer than that permissible to the director in

whose place he has been appointed and shall vacate the office if

and when the director in whose place he has been appointed

returns to India

In view of the provisions of section 161(2), the appointment of

Mr. Nandu as an alternate director is not valid since the Board,

in the given case, is not authorized to appoint the alternate

director by the articles or by a resolution passed in general

meeting.

Q.17. (CA FINAL, May 2002)

Mr. Quasim, a director of Jille-ilahi Limited proceeding on

a long foreign tour, appointed Mr. Yaqoob as an alternate

director to act for him during his absence. The articles of

the company provide for the appointment of an alternate

director. Mr. Quasim claims that he has a right to appoint

an alternate director. Examine the given case in the light

of the provisions of the Companies Act, 2013.

Answer

In the present case, the appointment of Mr. Yaqoob as an

alternate director by Mr. Quasim would amount to assignment

of office which is prohibited under section 166(6) and therefore,

the appointment of Mr. Yaqoob as an alternate director is void.

The provisions to appoint alternate directors are as follows.



According to section 161(2)-The Board of Directors of a

company may,





months from India:





an alternate director is appointed by the Board of directors and

not by the director in whose place he is appointed (i.e. the

original director). Therefore, in the present case Mr. Quasim has

no power to nominate a person to act as an alternate director,

in his place and the appointment of Mr. Yaqoob is not in order.

While appointing the alternate director, the Board is not bound

to even consider the candidature of Mr. Yaqoob.

Q.18. (CA FINAL, DEC 1999)

X, an employee of Aabadi Ltd., was appointed as an

alternate director. In the meantime, the original director

returned and wanted to attend the Board meeting.

Advice.

Answer



An alternate director shall not hold office for a period longer

than that permissible to the original director. The alternate

director shall vacate his office when the original director

returns, irrespective of the fact as to whether the original

directors attend the Board meetings or not. Thus, after an

original director comes back to India, only he can attend the

Board meetings. The alternate director would automatically

cease to be director. In the given case, the contention of the

original director is correct and he is entitled to attend the Board

meeting.

Q.19. Appointment of Directors by Nomination or

nominee director?

Meaning:-The concept of 'nominee directors' could be said to

be comparatively of recent origin. This concept has come into

vogue because of the loan facilities provided by the financial

institutions. Such institutions while granting loans to companies

generally impose a condition as to the appointment of their

representative(s) on the board s of the companies who avail

loan from them. A Nominee Directors is expected to safeguard

the interests of the financial institutions, whose nominee he is.

The difference between such directors and other directors

appointed by the shareholders is that the shareholders '

directors are subject to retirement by rotation and other

applicable provisions of the Act, whereas, the nominee directors



appointment and function is governed by the respective Acts,

and they are beyond the purview supervision of the

shareholders.

Appointment:- According to Section 161(3) Subject to the

articles of a company, the Board may appoint any person as a

director nominated by

Any institution

in pursuance of the provisions of any law for the time

being in force or

of any agreement.

Or by the Central Government or the State Government by

virtue of its shareholding in a Government Company.

1. In case of Specified IFSC Public Company - In sub-section

(3)of Section 161, the following proviso shall be inserted,

namely:-

“Provided that in case of a Specified IFSC public company,

the Board may appoint, any person nominated by any

institution or company or body corporate as a director in

pursuance of the provisions of any law for the time being

in force or of any agreement or by the Central

Government or the State Government by virtue of its

shareholding in a Government company.”- Notification

Dated 4th January 2017.

http://ebook.mca.gov.in/notificationdetail.aspx?acturl=6CoJDC4uKVUR7C9Fl4rZdatyDbeJTqg3ks3gwg9KmdTHOB/K5jVGhQ==






2. In case of Specified IFSC Private Company - In sub-section

(3) of Section 161, the following proviso shall be inserted,

namely:-

“Provided that in case of a Specified IFSC private company,

the Board may appoint, any person nominated by any

institution or company or body corporate as a director in

pursuance of the provisions of any law for the time being

in force or of any agreement or by the Central

Government or the State Government by virtue of its

shareholding in a Government company.”- Notification

Dated 4th January 2017.

MCQ-20. What shall be the tenure of nominee directors –

(a) 1 year

(b) 3 years

(c) 5 years

(d) Depends on the party who wants to get him appointed

Q.20. How to appoint director in case of causal

vacancy?

Meaning: - Casual Vacancy in the office of the director may be

due to

Death of the director

Resignation by director

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Disqualification of director subsequent to appointment

Removal of director before expiry of the term.

According to 161 (4) if the office of any director appointed by

the company in general meeting 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 the articles

of the company, be filled by the Board of Directors at a

meeting of the Board which shall be subsequently approved by

members in the immediate next general meeting. The board must exercise the above power at a meeting of the board. The above power cannot be exercised by passing a resolution by circulation.

Tenure of director to fill up by a casual vacancy

A person appointed as a director to fill up a casual vacancy

would continue in office until the date when retirement of the

original director in whose place the former is appointed would

fall due in the usual course, irrespective of the date of next

AGM following the date of filling of casual vacancy.

MCQ-21. Section 161(4) to fill casual vacancy is applicable to

(a) Public company only

(b) All companies including private companies

(c) All companies except OPC and Small Companies

(d) All companies except government companies



MCQ-22. Section 161(4) can be used to fill casual vacancy of

(a) Every director

(b) Only directors appointed in general meeting

(c) only managing director

(d) all the above

MCQ-23. A person appointed as a director to fill up a casual

vacancy would continue in office until

(a) Up to conclusion of next AGM

(b) Up to remaining tenure of the person in whose place he is

appointed

(c) Up to remaining tenure of the a person who is longest in

the office of director

(d) Uncertain period

MCQ-24. Casual Vacancy under 161(4)

(a) In default of and subject to any regulations in the articles of

the company, may be filled by the Board of Directors by

resolution by circulation which shall be subsequently

approved by members in the immediate next general

meeting.

(b) In default of and subject to any regulations in the articles of

the company, be filled by the Board of Directors at a

meeting of the Board which shall be subsequently

approved by members in the immediate next general

meeting.



(c) In default of and subject to provisions of companies act, be

filled by the Board of Directors at a meeting of the Board

which shall be subsequently approved by members in next

AGM.

(d) In default of and subject to any regulations in the articles of

the company, be filled by the Board of Directors at a

meeting of the Board which shall be subsequently

approved by members in the next AGM by special

Resolution.

♠♠♠♠



Let’s Rehearse

Q.21. (CA FINAL, JUNE 2009)

The Board of directors of XYZ Ltd. filled up a casual

vacancy caused by death of Mr. Pappu by appointing

Mr. Chandu as a director on 3rd April, 2014. Unfortunately

Mr. Chandu expired on 15th May, 2014 after working

about 40 days as a director. The board now wishes to fill

up the casual vacancy by appointing Mrs. Chandni

widow of chandu in the forthcoming meeting of the

Board.Advise the Board in this regard.

Answer

According to section 161(4) of the companies Act, 2013, the

Board is authorized to fill a casual vacancy in the office of a

director only if he was appointed by the shareholders in general

meeting. In the given case, a casual vacancy is due to death of

Mr. Pappu. Assuming that Mr. Pappu was appointed as a

director in general meeting, such casual vacancy can be filled up

by the board under section 161(4) of the companies Act, 2013,

and has actually been filled up by appointing Mr. Chandu.

Further as Mr. Chandu dies and again there is a casual vacancy.

However, this casual vacancy cannot be filled up by the board

under section 161(4) of the companies Act, 2013 since the casual

vacancy arisen in the office of Mr. Chandu who was not

appointed in general meeting. Accordingly, the proposal of the



Board to appoint Mrs. Chandni chandu to fill the casual

vacancy is not valid.

The Board may be advised to appoint Mrs. Chandni as an

additional director under section 161(1) of the companies Act,

2013, if so authorized by the articles. As additional director,

Mrs. Chandni shall hold office till the next annual general

meeting. Further if company want to have her as regular

director they can resort to procedures given in section 160.

♠♠♠♠



CONCEPT-4

STAND FOR DIRECTORSHIP

Q.22. Can any person who is not retiring director, stand

for directorship for appointment in general

meeting?

Yes , according to section 160 (1) A person who is not a retiring

director in terms of section 152 shall, subject to the provisions

of this Act, be eligible for appointment to the office of a

director at any general meeting, if he, or some member

intending to propose him as a director, has, not less than 14

days before the meeting, left at the registered office of the

company, a notice in writing under his hand signifying his

candidature as a director or, as the case may be,

Non applicability of section 160: The MCA has clarified via

Notifications No. 463(E), 464(E) and 466(E) dated 5th June,

2015, that section 160 of the Companies Act, 2013, shall not

apply to:

(a) A Government company in which the entire paid up

share capital is held by the Central Government, or by

This section is applicable to IFSC unlisted company as per

Articles of company



any State Government or Governments or by the Central

Government and one or more State Governments;

(b) A subsidiary of a Government company, referred to in (a)

above, in which the entire paid up share capital is held by

the Government company.

(a) A Private company

(b) Section 8 Companies whose articles provide for election of

directors by ballot.

MCQ-25. Who can Stand for directorship

(a) Only retiring director

(b) Only shareholders

(c) Only promotor

(d) Any person

MCQ-26. Provisions of section 160 not applicable to

(a) Private company

(b) 100% government company

(c) S.8 Company if AOA provides election by ballot

(d) All The above



Q.23. What is procedure for such person’s appointment?

(1) Security Deposit Rs. 100000/-

The intention of such member to propose him as a candidate

for that office, along with the deposit of Rs. 1,00,000/-( in case

of Nidhi companies it is 10,000/-) or such higher amount as

may be prescribed

It should be further noted that requirements of deposit of

amount shall not apply in case of appointment of an

independent director or a director recommended by the

Nomination and Remuneration Committee, if any, constituted

under sub-section (1) of section 178 or a director recommended

by the Board of Directors of the Company, in the case of a

company not required to constitute Nomination and

Remuneration Committee

(2) Refund of Deposit

The amount so deposited shall be refunded to such person or,

as the case may be, to the member, if the person proposed

gets 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.

General Circular no. 38/2014 dated 14.10.2014

It has been clarified that in case of a company registered under

section 8 of the companies Act, 2013, the board of director of

such a company may decide, whether the deposit made by or



on behalf of the person failing to secure more than 25% of

valid votes is to be forfeited or refunded.

Case Law: Namita Gupta v Cachar Native joint Stock Co. Ltd.

(1999)

The provision of Section 160 is mandatory. Non-compliance of

procedure prescribed under section 160 would render the

appointment invalid. Where the company failed to inform its

members about the candidature of the person proposed as

director, the appointment of director was held to invalid.

(3) Information to members:-

The company shall inform its members of the candidature of a

person for the office of director under sub-section (1) by way of

notice as follows

Rule 13 Provides that the company shall at least 7 days before

the general meeting, informs its member of the candidature of a

person for the office of a director or the intention of a member

to propose such person as a candidature for that office

By serving individual notice, on the members though

electronic mode to such members who have provided their

e-mail addresses to their company for communication

purpose, and in writing to all other members; and



By placing notice of such candidature or intention on the

website of the company, if any:

It shall not be necessary for the company to serve individual

notices upon the members as aforesaid, if the company

advertise such candidature or intention, not less than 7 days

before the meeting:

At least once in a vernacular newspaper in the principal

vernacular language of the district in which registered office

of the company is situated, and circulating in that district,

and

At least once in English language in an English newspaper

circulating in that district.

MCQ-27. Security deposit of rs. 100000/- shall be given by

(a) Independent Directors also

(b) Directors nominated by Nomination and remuneration

committee

(c) Directors appointed by BOD


MCQ-28. The companies over which this section is applicable

to follow procedures given in section 160 is

(a) Mandatory

(b) Recommendatory

(c) Optional

(d) Compulsory in first year of incorporation



Let’s Rehearse

Q.24. [CA (Final) Nov. 1999]

Notice has been received from a member proposing

himself for appointment as a director after the issue of

notice convening the annual general meeting. As a

secretary of a public company, how will you deal with

the above situation?

Answer

Section 160 explains the right of a person, other than retiring

director, to stand for directorship. A notice received under

section 160 shall be valid, if following requirements complied

with:

The notice is given at least 14 days before the general

meeting.

It is deposited at the registered office of the company.

The notice is signed by the person eligible to give notice.

A sum Rs. 1 lakh or such higher amount as may be

prescribed, is deposited along with the notice.

The notice given by the member in this case is in accordance

with the provision 160 as it is received by the company at least

14 days before the general meeting and the notice complies

with other requirements of section 160 also. Now the company

shall inform its members about the candidature of the proposed



director by serving individual notices or by advertisement in

accordance with the provisions of section 160 read with Rule 13

of the companies (Appointment and Qualification of directors )

Rules, 2014.

Q.25. [CS (Final) Dec. 2000 (modi.)]

CA. Santosh Gupta, vice-president of HMLSPL, was

appointed as an additional director in January, 2014. On

the office of managing director falling vacant he was

appointed as managing director on existing

remuneration. Whether Santosh will cease to be

managing director in the next annual general meeting?

Answer

‘Retiring director’ for the purpose of sections 152 and 160 of

the companies Act, 2013, means a director retiring by rotation.

Where a director retires by rotation, he can be reappointed

without complying with the requirements of section 160 of the

companies Act, 2013 [section 152 (6) (e)]. It should be noted

that an additional director holds office up to the date of next

annual general meeting and therefore he does not retire by

rotation. Hence we can conclude that if an additional director

seeks appointment as a regular director, he must comply with

the requirements of section 160 as follows



1. Requirements of notice

(a) Notice proposing the appointment of additional

director must be given to the company either by the

additional director himself or by some other of the

company.

(b) Notice shall be given at least 14 days before the annual

general meeting.

(c) Notice shall be deposited at the registered office of the

company.

(d) A sum of RS. 1 lakh shall be deposited along with the

notice.

(e) The amount deposited with the company shall be

refunded, if the person proposed as a director-

(i) Gets elected as a director; or

(ii) Gets more than 25% of the total valid votes cast

(whether on a show of hands or on poll).

(2) Duty of the company to inform its members

The company shall inform its members about the candidature of

the person proposed as a director in such manner as may be

prescribed.

In the given case, Santosh will hold office up to the date of next

annual general meeting. Since, he will cease to be a Director; he

will also vacate the office of managing director. Further, even if

the annual general meeting is not held, he will cease to be an



additional director on the last day, on which the annual general

meeting ought to have been held. However, if a notice is given

of the candidature of santosh as given above he shall continue

as a managing director.

♠♠♠♠



CONCEPT-5

SINGLE RESOLUTION

Q.26. Can there be a single resolution to appoint several

directors in a meeting?

According to section 162 (1) At a General Meeting of a

Company, a motion shall not be moved for the appointment of

two or more persons as Directors of the Company by a single

resolution, unless a resolution has first been agreed at meeting

without any vote being cast against it.

Resolution moved in contravention of section162(1),shall be

void, whether any objection was taken or not

Motion for approving a person for appointment or for

nominating a person for appointment shall be treated as a

motion for his appointment

Section 162 of the Act prohibits companies from passing a single

resolution for appointment of two or more directors unless such

a motion has first been agreed to unanimously by all the

shareholders. Now, private company is exempted from the

applicability of Sections 162 of the 2013 Act. Hence more than

one director can be appointing via a single resolution.

(1) This Section shall not apply to



Private Companies

where entire PSC is held by CG or SG or Both or More

State Govt. or Subsidiary of Govt. Company

IFSC unlisted public company

(2) Section 162 is not applicable when directors are appointed

by BOD, it applies in general meetings only

(3) If the appointment of director is not voted individually and

in contravention of section 162 , appointment will be void

MCQ-29. Directors in BOD meeting

(a) Shall be appointed by individual resolution

(b) Can be appointed by single resolution

(c) Can be appointed by single resolution if approved by

100% share holders

(d) Can not be appointed by single resolution

MCQ-30. If 3 director of a listed company appointed by single

resolution without getting unanimous permission

from shareholders

(a) Such appointments will be void

(b) Such appointment shall be valid for first name in the

resolutiona and void for others

(c) Such appointment is valid just ratification by general

meeting is required after 3 months




MCQ-31. Section 162 is not applicable to

(a) Private Companies

(b) where entire PSC is held by CG or SG or Both or More

State Govt. or Subsidiary of Govt. Company

(c) IFSC unlisted public company

(d) All the above

MCQ-32. Section 162 is not applicable to

(a) Public Companies

(b) Government company where CG held 60% paid up share

capital

(c) IFSC listed public company


]



Let’s Rehearse

Q.27. In Mackduck Enterprises Pvt. Ltd., Huey, Dewey

and Louie, three Directors were to be appointed.

The item was included in agenda for the Annual

General Meeting scheduled on 30th September,

2014, under the category of 'Ordinary Business'. All

the three persons as proposed by the Board of

directors were elected as directors of the company

by passing a 'single resolution' avoiding the

repetition (multiplicity) of resolutions. After the

three directors joined the Board, certain members

objected to their appointment and the resolution.

Examine the provisions of Companies Act, 2013

and decide, whether the contention of the

members shall be tenable and whether both the

appointment of Directors and the 'single resolution'

passed at the Company's Annual General Meeting

shall be void.

Answer:

The matter of appointment of directors in place of those

retiring at the annual general meeting has been correctly

stated in the agenda as the ordinary business to be transacted

at the general meeting. But in accordance with the provisions

of section 162(1) of the Companies Act, 2013, at a general

meeting of a company, a motion for the appointment of two



or more persons as directors of the company 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. Section 162 (2) further provides that

a resolution moved in contravention of sub-section (1) shall

be void, whether or not any objection was taken when it

was moved but this provision is not applicable to private

company and in the given question the company is a private

company hence appointment even by single resolution shall be

valid.

Q.28. Raksha Pvt. Ltd. in its Annual General Meeting

appointed of three directors by passing single

resolution. No objection was made to the

resolution. Examine the validity of appointment of

directors with reference to provision of Companies

Act, 2013.

Answer:

According to section 162 (1) At a General Meeting of a

Company, a motion shall not be moved for the appointment of

two or more persons as Directors of the Company by a single

resolution. It should be further noted that This Section shall not

apply to Private Companies vide notification no. G.S.R 464(E)

dated 05/06/2015. Hence appointment of 3 directors by

passing Single Resolutions is valid.



CONCEPT-6

PROPORTIONATE REPRESENTATION OF DIRECTOR

Q.29. What is proportionate representation of directors

and can directors appointment will be there

according with this approach?

What is such method:- Method of shareholder voting in which one

is not required to vote for a different candidate for

each available seat on a board of directors, but can

give multiple seat votes to the same candidate.

According to Section 163 The articles of a company may

provide for the appointment of not less than two-thirds of the

total number of the directors of a company in accordance with

the principle of proportional representation, whether by the

single transferable vote or by a system of cumulative voting or

otherwise and such appointments may be made once in every

three years and casual vacancies of such directors shall be filled

as provided in subsection (4) of section 161.

This Section shall not apply where entire PSC is held by CG or

SG or Both or More State Govt. or Subsidiary of Govt.

Company

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