Corporate Governance: Directors Appointment

Appointment and Retirement of Directors

• Retirement by Rotation: Unless a public company's articles of association dictate otherwise, a minimum of two-thirds of the total directors must be appointed with a term subject to retirement by rotation. These directors are appointed by a general meeting.
• Non-Rotational Directors: The remaining directors are appointed by the company in a general meeting, subject to the company's articles.
• Retirement Schedule: At the first annual general meeting following the appointment of the initial directors, and at every subsequent annual meeting, one-third of the directors subject to retirement by rotation retire from office.
• Exemption for Private Companies: Private limited companies that are not subsidiaries of public companies are exempt from the rotation requirements and can appoint all directors with permanent positions.

Deemed Reappointment of Directors

• Adjourned Meetings: If a retiring director's position remains unfilled after a general meeting, and the meeting does not explicitly decide not to fill the vacancy, the meeting is adjourned to the same time and place the following week. If this date is a national holiday
• Deemed Reappointment: If the vacancy remains unfilled at the adjourned meeting as well, and the meeting does not explicitly decide not to fill the vacancy, the retiring director is deemed to have been reappointed with immediate effect.
• Exceptions to Deemed Reappointment: A retiring director is not deemed to be reappointed if:
  • A resolution for reappointment was put to the meeting but failed.
  • The retiring director has expressed their unwillingness to be reappointed in writing.
  • They're disqualified from holding the position based on provisions within the Act.
  • A special or ordinary resolution is required for their appointment or reappointment.
  • The appointment of two or more directors using a single resolution resulted in a violation of Section 162.

Exemptions from Rotation

• Government Companies: The requirements of Sections 152(6) and 152(7) do not apply to government companies that are not listed on a stock exchange, provided at least 51% of their paid-up share capital is held by the Central Government, a State Government, or a combination of both.
• Subsidiaries of Government Companies: This exemption also applies to subsidiaries of government companies mentioned above.

Director Identification Number (DIN)

• Purpose: The Central Government assigns a unique Director Identification Number (DIN) to individuals who wish to be appointed as directors.
• Previous DINs: DINs obtained prior to the notification of the 'Specification of Definitions Details Rules' remain valid under the Companies Act, 2013.
• Designated Partnership Identification Number (DPIN): The term "DIN" encompasses DPINs issued under the Limited Liability Partnership Act, 2008.
• DIN Changes: The DIN Cell of the Ministry informs the Registrar of changes submitted in Form DIR-6, and individuals are required to inform companies they're directors of within 15 days of any changes to their own information.

Right to Stand for Directorship

• Eligibility: Individuals who are not retiring directors can also stand for election to the board.
• Written Notice: Individuals seeking to stand for directorship must provide a written notice at least 14 days prior to the general meeting where the election will take place.

Limitations on Directorships

• Maximum Directorships: An individual cannot hold office as a director, including alternate directorships, in more than 20 companies at a time.
• Public Company Limit: The maximum number of public companies an individual can be director in is 10. This includes directorship in private companies that are either holding or subsidiary companies of a public company.
• Exemption for Dormant and Section 8 (Non-Profit) Companies: Directorships in dormant companies and Section 8 companies do not count towards the limit of 20.
• Exemption for Section 8 Companies: The limit of 20 directorships does not apply to Section 8 companies, provided they've not defaulted on filing their financial statements or annual returns.
• Lesser Number of Directorships: Companies can, through a special resolution, reduce the maximum number of directorships a director of their company can hold.

Transition Period

• One-Year Deadline (Prior to 2014): Individuals holding more directorships than permitted under the Companies Act, 2013, had one year (until March 31, 2015) to choose the companies they wanted to continue serving as directors of.

This quiz focuses on the appointment and retirement of directors in public companies, highlighting the rules governing rotational and non-rotational directors. It also addresses exemptions for private companies and the implications of adjourned meetings for retiring directors. Test your understanding of these vital corporate governance concepts!