Appointment and Qualifications of Directors under the Companies Act | Tabular Format

• • Public Company – 3 directors
  • Private Company – 2 directors
  • One Person Company – 1 Director

• • Fifteen (15).
  • First proviso to sec. 149(1) provides that a company may appoint > 15 directors after passing a special resolution.

Points to Remember

Limit of Maximum directors and their increase is not applicable to Government Companies and Sec. 8 Companies provided these companies has not committed a default in filing of their financial statements u/s 137 or annual return u/s 92 with the Registrar.

(ii)   Every other public company having;

(a)   paid-up share capital of ` 100 Cr. or more;

or

(b)   turnover of ` 300 Cr. or more.

Note: The paid-up share capital or turnover as on the last date of latest audited F.S. shall be considered for this purpose.

• • Every company shall have at least one director who stays in India for a total period of not less than 182 days during the financial year:
  • Provided that in case of a newly incorporated company the requirement u/s 149(3) shall apply proportionately at the end of the financial year in which it is incorporated.

Points to remember

To support and enable Companies in India to focus on taking necessary measures to address the COVID-19 threat, MCA vide General Circular No. 11/2020 dated 24.03.2020, relaxes this requirement for financial year 2019-20. Relevant provision as stated in the circular is as follows:

“Non-compliance of minimum residency in India for a period of at least 182 days by at least one director of every company, u/s 149 of the Companies Act, 2013 shall not be treated as a non-compliance for the financial year 2019-20.”

Important Questions

Q. No. 1:   As per the Articles of Association, the maximum number of Directors of each of the following companies is 9:

                       (i)   Good heart Company Limited.

                      (ii)   Frontline Trading Private Limited.

                    (iii)   Hindustan Zink limited (a Government company u/s 2(45) of the Companies Act, 2013).

The Board of Directors of the aforesaid companies proposes to increase the number of Directors to 15. Advise, whether under the provisions of the Companies Act, 2013, the Board of Directors can do so?

 HINT: Refer Sec. 149(1). Number of directors can be increased after altering AoA.

(i)   Number can be increased to 15, For above 15, special resolution will be required.

(ii)   Number can be increased to 15, For above 15, special resolution will be required.

(iii)   No limit in increase in number.

Q. No. 2:   In XYZ Ltd., an intermittent vacancy of the women director arises on 15th June 2021. By what time the vacancy so created should be filled if the immediate Board Meeting was held on (a) 14th August 2021 (b) 14th Oct. 2021.

HINT: Refer proviso to Sec. 149(1)(a) 14th Sep. 2021 (b) 14th Oct. 2021.

Q. No. 3:   Royal Limited is a company listed at Madras Stock Exchange, incorporated on 1st January, 2021. The Board of Directors of the company decides to appoint in its Board ‘Women Director’ and the ‘Resident Director’:

(i)   Explaining the provisions of the Companies Act, 2013, state whether it is mandatory for the company to appoint such directors in its Board.

(ii)   What would be your answer in case the company is a non-listed company and the Board of Directors decided not to have the Women Director in the company’s Board?

HINT: Refer proviso to Sec. 149(1) & 149(3).

(i)   Mandatory to appoint Women Director and Resident Directors.

(ii)   In case of unlisted company, appointment of women directors is not mandatory provided company is not covered under Rule 3.

(iii)   Not mandatory as company does not fall under the categories prescribed in Rule 3.

Q. No. 4:   The Articles of Association of Rajasthan Toys Private Limited provide that the maximum number of Directors in the company shall be 10. Presently, the company is having 8 directors. The Board of directors of the said company desire to increase the number of directors to 16. Advise whether under the provisions of the Companies Act, 2013 the Board of Directors can do so.            

[May 10 (5 Marks)]

HINT: BOD can increase the number of directors after altering AOA u/s 14 and by passing a Special resolution u/s 149(1).

Q. No. 5:   Examine the validity of the following appointments with reference to the provisions of the Companies Act, 2013:The Board of Directors of MNP Limited appointed Ms. Neha as a Women Director in the Board Meeting held on 10th September, 2021. The said appointment was made to fill the vacancy of the Woman Director, which had occurred as a result of resignation of Ms. Sheela on 30th June, 2021. Will your answer differ if the Board Meeting of the company was held on 8th November, 2021?

[May 15 (4 Marks)]

HINT: Refer Rule 3 – Valid appointment.

Q. No. 6:   Examine the validity of the following appointments with reference to the provisions of the Companies Act, 2013: LKG Limited was incorporated on 5th May, 2021 under the Companies Act, 2013. Mr. Ramanujam was appointed as the first Resident Director of the company in the Board Meeting held on 30th September, 2021.      

[May 15 (4 Marks)]

HINT: Refer Sec. 149(3) and Sec. 152(2). Appointment not valid as Sec. 152(2) provides that save as otherwise expressly provided in this Act, every director shall be appointed by the company in general meeting.

Q. No. 7:   Sky Limited, a listed company has been incorporated under the Companies Act, 2013. An intermittent vacancy of a woman director has arisen on 15th June, 2021. Advise the company to fill the vacancy as per the provisions of the Companies Act, 2013. The Board meeting was held on 14th August, 2021.

[Nov. 16 (4 Marks)]

 HINT: Refer Sec 149(1). Vacancy can be filled by 14th Sep., 2021.

Q. No. 8:   KMR Limited, a listed public company, has 15 directors on its Board. The Articles of Association of the said company provide for the maximum number of Directors in the company to be 15. Due to diversification and expansion of activities, the Board of Directors of the said company desire to increase the number of Directors to 18. Decide with reference to the applicable provisions of the Companies Act, 2013:

 (i)   Whether the Board of Directors can do so?

(ii)   Will your answer differ if the said Company would have been a Government Company?

[May 19 – Old Syllabus (4 Marks)]

Q. No. 9:   Ms. Nisha was appointed as director of LMN Limited on 10th Oct., 2021 in place of Ms. Rachna, who resigned from her office on 31st May, 2021 six months before expiry of term of her office. LMN Limited had its Board meeting on 31st July 2021.

Whether appointment of Ms. Nisha is valid?

[Nov. 20 – New Syllabus (2 Marks)]

HINT: Refer Rule 3 – Invalid appointment.

Q. No. 10:  XYZ Ltd. is a newly incorporated listed company formed on 01.01.2022. At present there are 10 directors and 1500 shareholders. Turnover as on 31.03.2022 is ` 320 crores.

(i)   There are no women directors as on 31.03.2022. Discuss how far the company can continue its operation without any women directors on board.

(ii)   Can XYZ Ltd. appoint another 6 more directors on board? Would your answer be different if XYZ Ltd. was a company where 52% of the paid-up share capital was held by State Government?

[MTP-Nov. 21]

HINT: Refer Rule 3 and Sec. 149(1).

(i)   As XYZ is a listed company and hence has to mandatorily have a woman director on Board. However, because the period of 6 months from date of commencement has not expired, it can continue its operation till 30th June, 2022 without a woman Director on board.

(ii)   A Government Company is exempted from the application of the Sec. 149(1)(b) requiring a company to have maximum 15 directors. Subject to that, it has not defaulted in filing its Financial Statements u/s 137 or Annual return u/s 92 with the registrar.

• • Every listed public company shall have at least 1/3rd of the total number of directors as independent directors.
  • Any fraction contained in such 1/3rd number shall be rounded off as one.
  • For other public companies, the C.G. may prescribe minimum number of independent directors.

(i)   Public companies having paid up share capital > ` 10 Cr;

or

(ii)   Public Companies having turnover > ` 100 Cr;

or

(iii)   Public companies having aggregate outstanding loans, debentures and deposits > ` 50 Cr.

Note: The paid-up share capital or turnover or outstanding loans, debentures and deposits as on the last date of latest audited F.S. shall be considered for this purpose.

Points to Remember

Sec. 177(2) – Audit Committee shall consist of a minimum of three directors with independent directors forming a majority.

Example – ABC Ltd. is having 5 directors in its audit committee. The number of independent directors so as to form a majority should be 3.

• • Any intermittent vacancy shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or 3 months from the date of such vacancy, whichever is later.

Example – A vacancy arises in the office of Independent director on 15th June 2019. Immediate next Board meeting was held on 14th August 2019. Vacancy is to be filled up by 14th Sep. 2019.

If, however, immediate next Board meeting was held on 14th Oct. 2019, the vacancy shall be filled by 14th Oct. 2019.

(a) A Joint venture,

(b) A wholly owned subsidiary, and

(c) A dormant company.

Points to remember

MCA vide its circular clarified that joint venture would mean a joint arrangement, entered into in writing, whereby the parties that have joint control of the arrangement, have rights to the net assets of the arrangement.

(a) Who, in the opinion of the Board*, is a person of integrity and possesses relevant expertise and experience;

(*In case of government company, which has not committed a default in filing of its financial statements u/s 137 or annual return u/s 92 with the Registrar, the word ‘Board’ shall be substituted by the words “Ministry or Department of the Central Government which is administratively in charge of the company or as the case may be the State Government”).

(b)       (i)   who is or was not a promoter of the company or its holding, subsidiary or associate company;

(ii)  who is not related to promoters or directors in the company, its holding, subsidiary or associate company;

(c)   who has or had no pecuniary relationship other than remuneration as such director or having transaction not exceeding 10% of his total income or such amount as may be prescribed with

• • the company, its holding, subsidiary or associate company, or
  • their promoters, or directors,

during the 2 immediately preceding FYs or during the current FY.

Note: This clause is not applicable to a government company which has not committed a default in filing of its financial statements u/s 137 or annual return u/s 92 with the Registrar.

In case a transaction entered into by an independent director with the company concerned is at par with any member of the general public and at the same price as is payable/paid by such member of public, it would not attract the bar of ‘pecuniary relationship’ under Section 149(6)(c) and therefore, an independent director will not be said to have ‘pecuniary relationship’ under this Section, in such cases.

(d)   none of whose relatives

(i)   is holding any security of or interest in the company, its holding, subsidiary or associate company during the 2 immediately preceding financial years or during the current financial year:

Provided that the relative may hold security or interest in the company of face value not exceeding ` 50 lakhs or 2% of the paid-up capital of the company, its holding, subsidiary or associate company or such higher sum as may be prescribed;

(iii)   has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, its holding, subsidiary or associate company or their promoters, or directors of such holding company, for such amount as may be prescribed during the 2 immediately preceding financial years or during the current financial year; or

(iv)   has any other pecuniary transaction or relationship with the company, or its subsidiary, or its holding or associate company amounting to 2% or more of its gross turnover or total income singly or in combination with the transactions referred to in sub-clause (i), (ii) or (iii);

(e)   who, neither himself nor any of his relatives—

(i)   holds or has held the position of a KMP or is or has been employee of the company or its holding, subsidiary or associate company in any of the 3 FYs immediately preceding the FY in which he is proposed to be appointed:

Provided that in case of a relative who is an employee, the restriction under this clause shall not apply for his employment during preceding 3 financial years.

(ii)   is or has been an employee or proprietor or a partner, in any of the 3 FYs immediately preceding the FY in which he is proposed to be appointed, of-

(A) a firm of auditors or CS in practice or Cost Auditors of the company or its holding, subsidiary or associate company; or

(B) any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to 10% or more of the gross turnover of such firm;

(iii)   holds together with his relatives 2% or more of the total voting power of the company; or

(iv)   is a Chief Executive or director, by whatever name called, of any non-profit organisation that receives 25% or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds 2% or more of the total voting power of the company; or

(f)   who possesses such other qualifications as may be prescribed.

• • An independent director shall 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.
  • None of the relatives of an independent director, for the purposes of sub-clauses (ii) and (iii) of clause (d) of sub-section (6) of section 149,-

(i) is indebted to the company, its holding, subsidiary or associate company or their promoters, or directors; or

(ii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, its holding, subsidiary or associate company or their promoters, or directors of such holding company,

• • at the first meeting of the Board in which he participates as a director,
    and
  • thereafter at the first meeting of the Board in every financial year,
    or
  • whenever there is any change in the circumstances which may affect his status as an independent director,

give a declaration that he meets the criteria of independence as provided in Sec. 149(6).

• • shall not be entitled to any stock option
    and
  • may receive remuneration by way of

(i) fee provided u/s 197(5),

(ii) reimbursement of expenses for participation in the Board and other meetings, and

(iii) profit related commission as may be approved by the members.

• • Subject to the provisions of Sec. 152, an independent director shall hold office for a term up to 5 consecutive years on the Board of a company,
  • but shall be eligible for reappointment on passing of a special resolution by the company and disclosure of such appointment in the Board’s report.

Points to Remember

It is clarified by MCA that one tenure of independent directors may be for a period of less than 5 years.

• • Notwithstanding anything contained in Sec. 149(10), no independent director shall hold office for more than 2 consecutive terms,
  • but such independent director shall be eligible for appointment after the expiration of 3 years of ceasing to become an independent director,
  • provided that an independent director shall not, during the said period of 3 years, be appointed in or be associated with the company in any other capacity, either directly or indirectly.

Points to Remember

It is clarified by MCA that if tenure of independent directors is fixed for a period less than 5 years, than cooling period of 3 years arises on completion of two tenures even if the total number of years of his appointment in such two consecutive terms is less than 10 years.

(i) an independent director, and

(ii) a non-executive director not being promoter or KMP

shall be held liable, only in respect of such acts of:

• • omission or commission by a company which had occurred with his knowledge,
  • attributable through Board processes, and
  • with his consent or where he had not acted diligently.

• • An independent director may be selected from a data bank.
  • The responsibility of exercising due diligence before selecting a person from the data bank, as an independent director shall lie with the company making such appointment.
  • The appointment of independent director shall be approved by the company in general meeting and the explanatory statement annexed to the notice of the general meeting shall indicate the justification for choosing the appointee for appointment as independent director.
  • The Central Government may prescribe the manner and procedure of selection of independent directors who fulfil the qualifications and requirements specified under section 149.

• • It contains names, addresses and qualifications of persons who are eligible and willing to act as independent directors.
  • Such data bank is maintained by any body, institute or association, as may be notified by the CG, having expertise in creation and maintenance of such data bank and put on their website for the use by the company making the appointment of such directors.
  • C.G. notifies the Indian Institute of Corporate Affairs at Manesar (Haryana), as an institute to create and maintain a data bank containing names, addresses and qualifications of persons who are eligible and willing to act as independent directors, for the use of the company making the appointment of such directors. (Notification will be effective from 01.12.2019)
  • The data bank shall create and maintain data of persons willing to act as independent director in accordance with such rules as may be prescribed.

Provided that any individual, including an individual not having DIN, may voluntarily apply to the institute for inclusion of his name in the data bank.

Point to remember

No application for renewal shall be filed by an individual who has paid life-time fees for inclusion of his name in the data bank.

*As amended by Companies (Appointment and Qualification of Directors) 5th Amendment Rules, 2020 w.e.f. 18.12.2020

(A)   as a director or KMP, as on the date of inclusion of his name in the databank, in one or more of the following, namely:

(a)   listed public company; or

(b)   unlisted public company having a paid-up share capital of ` 10 crore or more; or

(c)   body corporate listed on any recognized stock exchange or in a country which is a member State of the Financial Action Task Force on Money Laundering and the regulator of the securities market in such member State is a member of the International Organization of Securities Commissions; or

 (d)   bodies corporate incorporated outside India having a paid-up share capital of US$ 2 million or more; or

(e)   statutory corporations set up under an Act of Parliament or any State Legislature carrying on commercial activities; or

(B)   in the pay scale of Director or above in the Ministry of Corporate Affairs or the Ministry of Finance or Ministry of Commerce and Industry or the Ministry of Heavy Ind-ustries and Public Enterprises and having experience in handling the matters relating to corporate laws or securities laws or economic laws; or

(C)   in the pay scale of Chief General Manager or above in the SEBI or the RBI or the IRDAI or the Pension Fund Regulatory and Development Authority and having experience in handling the matters relating to corporate laws or securities laws or economic laws.

For the purpose of calculation of the period of 3 years referred above, any period during which an individual was acting as a director or as a KMP in 2 or more companies or bodies corporate or statutory corporations at the same time shall be counted only once.

*As amended by Companies (Appointment and Qualification of Directors) 5th Amendment Rules, 2020 w.e.f. 18.12.2020

(a) the expression “institute” means the ‘Indian Institute of Corporate Affairs at Manesar’ notified u/s 150(1) of the Companies Act, 2013 as the institute for the creation and maintenance of data bank of Independent Directors;

(b) an individual who has obtained a score of not less than 50%* in aggregate in the online proficiency self-assessment test shall be deemed to have passed such test;

(c) there shall be no limit on the number of attempts an individual may take for passing the online proficiency self-assessment test.

*As amended by Companies (Appointment and Qualification of Directors) 5th Amendment Rules, 2020 w.e.f. 18.12.2020

Points to remember

• • Provisions of Sec. 149(4), 149(5), 149(6), 149(7), 149(8), 149(9), 149(10), 149(11), 149(12)(i), 149(13) & Sec. 150 shall not be applicable over Section 8 Company, which has not committed a default in filing of its financial statements u/s 137 or annual return u/s 92 to the Registrar.

  • Detailed provisions as to creation and maintenance of data bank are covered in Companies (Creation and Maintenance of data bank of Independent Directors) Rules, 2019, effective from 01.12.2019.

Important Questions

Q. No. 11: Explaining the regulatory provisions of the Companies Act, 2013 and the rules thereof  regarding the appointment of independent directors on a company’s Board, state whether BCD company Ltd. is required to appoint Independent directors in the following situations:

                        a.   The company has a paid-up share capital of ` 10 crores.

                        b.   What shall be your answer in case the company’s paid up share capital is only ` 2 crores.

                         c.   Whether a person who hold the position of a key Managerial Personnel can be appointed as an Independent Director?

HINT: Refer Sec. 149(4) read with Rule 4. (i) 2 independent directors are mandatory (ii) Independent Directors not mandatory (iii) KMP cannot be appointed as Independent Director.

HINT: Refer Sec. 149(10) & 149(11). Reappointment for third term is not valid.

Q. No. 13: M Ltd. is an unlisted company engaged in FMCG sector having 11 directors on its Board. The company has paid-up share capital of ` 300 crore and a turnover of ` 500 crore. The provisions contained in the Companies Act, 2013 require the companies to have the following categories of directors on their Board

                      (a)   Woman director

                      (b)   Independent director

                   Keeping in view of the provisions of the Companies Act, 2013, M Ltd. appointed the directors as required by the Act. State the relevant provisions.

 HINT: Refer Sec. 149(1) with Rule 3 & 149(4) with Rule 4.

Q. No. 14: XYZ Limited is an unlisted public company having a paid-up capital of ` 20 crore as on 31st March, 2022 and a turnover of ` 150 crore during the year ended 31st March, 2022. The total number of directors is 13. State the following answers:

(i)   Minimum number of directors appointed as Independent Director in XYZ Limited.

(ii)   What will be the consequences where XYZ Ltd. ceases to fulfill any of the required conditions with respect to appointment of Independent directors for three continuous years?

(iii)   If suppose XYZ Ltd. (Unlisted public company) is a dormant company, what shall be the law related to the appointment of Independent director?

[MTP-March 18]

HINT: Refer Sec. 149(4) and Rule 4, (i) 2 Directors; (ii) Exemption from requirement of independent director will be available till such time company meet the conditions (iii) In case of dormant company – no requirement of minimum number of independent director.

Q. No. 15: XYZ Limited is an unlisted public company having a paid-up capital of ` 20 crores as on 31st
March, 2022 and a turnover of ` 150 crores during the year ended 31st March, 2022. The total number of directors is thirteen. State the minimum number of directors appointed as Independent Director in XYZ Limited. What, if XYZ Ltd. is a dormant company.

[MTP-April 18]

HINT: Refer Sec. 149(4) and Rule 4, No. of independent directors required – 2,

In case of dormant company – no requirement of minimum number of independent director.

Q. No. 16: XYZ Limited is an unlisted public company having a paid-up capital of ` 20 Cr. as on 31st March, 2022 and a turnover of ` 150 Cr. during the year ended 31st March, 2022. The total number of directors is 13.

 Referring to the provisions of the Companies Act, 2013 answer the following:

(i)   State the minimum number of independent directors that the company should appoint.

(ii)   How many independent directors are to be appointed in case XYZ Limited is a listed company?

[May 16 (4 Marks)]

HINT: Refer Sec. 149(4) and Rule 4 – (i) 2 Directors (ii) 5 Directors.

Mr. D & Mrs. E vacated their office of Director on 15-04-2022.

You are required to examine with reference to the provisions of the Companies Act, 2013 and what course of action would you suggest which can be taken up by the Company in this regard?

[May 17 (4 Marks), RTP-May 18]

HINT: Refer Sec. 149(1) and 149(4). One women director shall be appointed by the Board at the earliest but not later than immediate next Board meeting or 3 months from the date of such vacancy whichever is later.

Q. No. 18: CTC Limited is an unlisted public company having a paid-up capital of ` 100 crores as on 31st March, 2022. The company made a turnover of ` 300 crores for the financial year ended 31st March, 2022. The Articles of Association of the company provides for payment of sitting fee to Directors for each board meeting/committee thereof subject to a maximum of ` 40,000 per meeting. The board of directors is comprised of Independent Directors and woman directors also.  The Company is having 7 directors in its Audit Committee. Shri PKV, working as Financial Advisor of the company, was designated as Chief Financial Officer from 1st April, 2020. He retired from service on 31st March, 2021. He is in receipt of monthly pension of ` 80,000 from the company. It is proposed to appoint Shri PKV as Independent Director of the company. The board of director propose to fix sitting fee of  ` 50,000 per meeting to Independent director and ` 30,000 per meeting to Woman Director taking into consideration their experience and qualification. In the light of the provisions of the companies Act, 2013, advise the board of directors in the following matters:

                        1.   Appointment of Mr. PKV as independent director.

                        2.   Fixing sitting fee of ` 50,000 to independent director and ` 30,000 to Woman Director.

                        3.   Minimum number of independent directors.

                        4.   Maximum sitting fee to a director.

                   Assuming CTC Ltd. is a Government Company, what will be your advise in the matter of appointment of Mr. PKV as independent director. 

[May 18 – New Syllabus (8 Marks)

HINT: Refer Secs. 149(4), 149(6) and 197(5)* of Companies Act, 2013.

1.   Mr. PKV cannot be appointed as independent director of the company.

2.   Sitting Fees is allowed subject to condition that it shall not be less than the sitting fees payable to other directors and altering the Articles of Association by Special Resolution.

3.   Number of independent directors so as to form a majority should be 4.

4.   Maximum sitting fees payable to a director will be ` 1,00,000 provided there is no restriction in the Articles of Association.

5.   Mr. PKV cannot be appointed as independent director of the company if CTC ltd. is a government company.

Q. No. 19: M/s. Bosch and Lawrence Limited, an unlisted company has a paid up equity share capital of ` 11 crores as on 31st March, 2016. Mr. Robert was appointed as an Independent Director at the AGM of the company held on 29-09-2018 for a period of one year. Again, he was appointed in the subsequent AGM held on 28-09-2019 for a period of two years as his second consecutive term. Examine under the provisions of the Companies Act, 2013 whether he can be again appointed in the AGM to be held in September 2021 for another period of 2 years to complete his total term of 5 years?

HINT: Refer Sec. 149(10). Mr. Robert cannot be appointed as an Independent Director at the AGM proposed to be held in 2021.

Q. No. 20:  Considering the regulatory provisions of the companies Act, 2013 and the rules thereof regarding the appointment directors on a company’s Board, state whether Z Limited, a listed public company is required to appoint Independent Directors. Also, state whether appointment of Independent Director is required in the following cases:

(i)   The public company has a paid-up share capital of ` 10 crores

(ii)   What shall be your answer in case the company’s paid up share capital is only ` 2 crores?

(iii)   Whether a person who holds the position of a Key managerial personnel in the same company can be appointed as an Independent Director?

(iv)   In relation to mandatory women directors as required under the Companies Act, 2013 should such directors also be Independent Directors?

[Nov. 18-Old Syllabus (6 Marks)]

HINT: Refer proviso to Sec. 149(1), 149(4) and Rule 4. Z Ltd., being a listed company is required to have 1/3rd of total number of directors as independent directors.

(i)   Company shall have atleast 2 independent directors.

(ii)   No requirement to have independent director as paid up capital is less than ` 10 Cr.

(iii)   KMP cannot be appointed as independent director.

(iv)   It is not mandatory that women directors should be Independent Directors.

Q. No. 21:  ABC Limited is an unlisted public company having a paid up equity share capital of ` 20 Crores and a turnover of ` 150 Crores as on 31st March, 2022. The total number of directors on the Board is 13.

Referring to the provisions of the Companies Act, 2013 answer the following:

(i)   The minimum number of Independent Directors that the company should appoint.

(ii)   How many Independent Directors are to be appointed in case ABC Ltd. is a listed company?

[Nov. 18-New Syllabus (4 Marks)]

 HINT: Refer Sec. 149(4) and Rule 4 – (i) 2 Directors (ii) 5 Directors.

Q. No. 22:  Rudraksh Ltd., a public company, was incorporated for supply of solar panels for the emerging project of government for construction of highways. However, the said project did not turn up for two years due to some legal implications. During the said period, no any significant accounting transaction was made and so the company did not file financial statements and annual returns during the last two financial years. In the meantime, the Board proposed for Mr. Ram & Mr. Rahim to be appointed as an Independent Directors for their independent and expertise knowledge and experience for better working and improvement of financial position of the company.

Evaluate in the light of the given facts, nature of the proposal for an appointment of Mr. Ram & Mr. Rahim in the Rudraksh Ltd. for improvement of the company.

[RTP-May 19]

HINT: Proposal for appointment of Independent Director (Mr. Ram & Mr. Rahim) is not necessitated as a dormant company is not required to have independent director.

(i)   Good heart Company Limited.

(ii)   Frontline Trading Private Limited.

(iii)   Hindustan Zink Limited (a Government company u/s 2(45) of the Companies Act, 2013).

The Board of Directors of the aforesaid companies proposes to increase the number of Directors to 15. Advise, whether under the provisions of the Companies Act, 2013, the Board of Directors can do so?

• • Section 149(1) of the Companies Act, 2013 provides that every company shall have a Board of Directors consisting of individuals as directors and shall have a minimum number of  3 directors in the case of a public company, 2 directors in the case of a private company, and one director in the case of a One-Person Company. The maximum number of directors shall be 15.
  • However, a company may appoint more than 15 directors after passing a special resolution.
  • Limit of Maximum directors and their increase is not applicable to Government Companies and sec. 8 Companies provided these companies has not committed a default in filing of their financial statements u/s 137 or annual return u/s 92 with the Registrar.

Conclusion: Applying the provisions of sec. 149(1) and exemptions available, following conclusions may be drawn:

(a)  In the case of the first two companies, i.e. Good Heart Company Limited and Frontline Trading Private Limited, the Board of Directors can increase the number by simply appointing the additional 6 directors at the general meetings of the company after following the prescribed procedure and conditions. But before this, Articles of Association are to be altered so as to provide the maximum number of directors to 15.

(b)  In case of a Hindustan Zink Limited (a Government company), the limit of maximum directors and their increase shall not apply provided the company has not committed a default in filing of its financial statements u/s 137 or annual return u/s 92 with the Registrar.

• • Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014 provides that any intermittent vacancy of a woman director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or 3 months from the date of such vacancy whichever is later.
  • In the present case, an intermittent vacancy of the women director arises on 15th June, 2021.

Conclusion: Applying the provisions of Rule 3, following conclusions may be drawn:

(a)  If after the vacancy, the immediate next Board meeting was held on 14th August, 2021, then the vacancy shall be filled-up by 14th August, 2021 or by 14th September 2021 (3 months from the date of such vacancy) whichever is later. In this case, it shall be filled up by 14th Sep., 2021.

(b)  If after the vacancy, the immediate Board meeting was held on 14th October, 2021 then the vacancy shall be filled-up by 14th Oct., 2021 or by 14th Sep. 2021 whichever is later. In this case it shall be filled up by 14th Oct., 2021.

(i)   Explaining the provisions of the Companies Act, 2013, state whether it is mandatory for the company to appoint such directors in its Board.

(ii)   What would be your answer in case the company is a non-listed company and the Board of Directors decided not to have the Women Director in the company’s Board?

(iii)   What shall be your answer in case the company in question is not listed at any of the Exchanges. The paid-up share capital of the company is ` 50 crore and the turnover of the company is ` 200 crores. Decide whether the company is mandatorily required to appoint the woman director.

Proviso to Sec. 149(1) read with Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014 provides that following class of companies shall appoint atleast one women director:

(i)   Every listed company;

(ii)  Every other public company having;

(a)  paid-up share capital of ` 100 Cr. or more;

or

(b)  turnover of ` 300 Cr. or more.

The paid-up share capital or turnover as on the last date of latest audited F.S. shall be considered for this purpose.

• • In case of newly incorporated companies covered under prescribed criteria of Rule 3, appointment shall be made within six months from the date of incorporation.
  • Sec. 149(3) of Companies Act, 2013 provides that every company shall have at least one director who stays in India for a total period of not less than 182 days during the financial year:

Provided that in case of a newly incorporated company the requirement u/s 149(3) shall apply proportionately at the end of the financial year in which it is incorporated.

Conclusions: Applying the provisions of Sec. 149(1), 149(3) and Rule 3, following conclusions may be drawn:

(i)   It is mandatory to appoint women director (as company is a listed company) and resident director [as required by Sec. 149(3)].

(ii)  It case of unlisted company, appointment of women directors is not mandatory provided company is not covered under Rule 3.

(iii) Appointment of woman director is not mandatory as company does not fall under the categories prescribed in Rule 3.

[May 10 (5 Marks)]

• Section 149(1) of the Companies Act, 2013 provides that every company shall have a Board of Directors consisting of individuals as directors and shall have a minimum number of 3 directors in the case of a public company, 2 directors in the case of a private company, and one director in the case of a One-Person Company. The maximum number of directors shall be 15.
• However, a company may appoint more than 15 directors after passing a special resolution.
• In the present case, the number of directors is proposed to be increased to 16, company will be required to comply with the followings:

(i)   Alter the Articles of Association u/s 14, so as to increase the number of directors in the Articles from 10 to 16; and

(ii)  A special resolution is to be passed at a duly convened general meeting of the company to increase the number of directors to 16.

Conclusion: BOD can increase the number of directors after altering AOA u/s 14 and by passing a Special resolution u/s 149(1).

[May 15 (4 Marks)]

• • Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014 provides that any intermittent vacancy of a woman director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or 3 months from the date of such vacancy whichever is later.
  • In the present case, an intermittent vacancy of the women director arises on 30th June, 2021. Accordingly, this vacancy need to be filled latest by 29th September, 2021 or the day of the next Board Meeting, whichever is later. Ms. Neha was appointed in the next Board Meeting after the vacancy arose, i.e. on 10th Sep., 2021.

Conclusion: Appointment of Ms. Neha is valid. The answer will remain the same, even if MNP Ltd. appoints Ms. Neha in the Board Meeting held on 8th Nov., 2021, provided the said meeting is the first meeting of the Board after 30th June, 2021 i.e. after the resignation of Ms. Sheela.

[May 15 (4 Marks)]

Sec. 149(3) of Companies Act, 2013 provides that every company shall have at least one director who stays in India for a total period of not less than 182 days during the financial year:

• • Provided that in case of a newly incorporated company the requirement u/s 149(3) shall apply proportionately at the end of the financial year in which it is incorporated.
  • Sec. 152(1) of Companies Act, 2013 provides that 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.
  • Sec. 152(2) of the Companies Act, 2013 provides that save as otherwise expressly provided in this Act, every director shall be appointed by the company in general meeting.
  • In the Present case, LKG Ltd., was incorporated on 5th May, 2021. If no provision is made in the articles of the company for the appointment of the first directors, 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.

Conclusion: Appointment of Mr. Ramanujam as a First Resident Director of the company in the Board Meeting held on 30th Sep., 2021 is not in accordance with provisions of Sec. 152(2).

[Nov. 16 (4 Marks)]

• • Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014 provides that any intermittent vacancy of a woman director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or 3 months from the date of such vacancy whichever is later.
  • In the present case, an intermittent vacancy of the women director arises on 15th June, 2021.The immediate next Board meeting was held on 14th August, 2021.

Conclusion: Applying the provisions of Rule 3, the vacancy shall be filled-up by 14th August, 2021 or by 14th September, 2021 (3 months from the date of such vacancy) whichever is later.

In this case, it shall be filled up by 14th Sep., 2021.

   (i)   Whether the Board of Directors can do so?

  (ii)   Will your answer differ if the said Company would have been a Government Company?

 [May 19 – Old Syllabus (4 Marks)]

Sec. 149(1) of the Companies Act, 2013 provides that every company shall have a Board of Directors consisting of individuals as directors and shall have a minimum number of 3 directors in the case of a public company, 2 directors in the case of a private company, and one director in the case of a One-Person Company. The maximum number of directors shall be 15.

However, a company may appoint more than 15 directors after passing a special resolution.

Limit of Maximum directors and their increase is not applicable to Government Companies and Sec. 8 Companies provided these companies has not committed a default in filing of their financial statements u/s 137 or annual return u/s 92 with the Registrar.

In the present case, the number of directors is proposed to be increased to 16, company will be required to comply with the followings:

(i)   Alter the Articles of Association u/s 14, so as to increase the number of directors in the Articles from 15 to 18;

(ii)  A special resolution is to be passed at a duly convened general meeting of the company to increase the number of directors to 18.

Conclusion: Applying the provisions of Sec. 149(1) and exemptions available, following conclusions may be drawn:

(i)   BOD can increase the number of directors after altering AOA u/s 14 and by passing a Special resolution u/s 149(1).

(ii)  In case of Govt. companies limit of maximum directors not applicable, hence, BOD can increase the number.

Whether appointment of Ms. Nisha is valid?

[Nov. 20 – New Syllabus (2 Marks)]

• • Rule 3 of Companies (Appointment and Qualification of Director’s) Rules, 2014 provides that any intermittent vacancy of a woman director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or 3 months from the date of such vacancy whichever is later.
  • In the present case, an intermittent vacancy of the women director arises on 31st May, 2021. The immediate next Board meeting was held on 31st July, 2021.

Conclusion: Applying the provisions of Rule 3, the vacancy shall be filled-up by 31st August, 2021 (3 months from the date of such vacancy). Hence, appointment of Ms. Nisha is invalid.

Note: Answer given in suggested answers of ICAI consider 1st Sep. as the last date by which vacancy is to be filled up.

(i)   There are no women directors as on 31.03.2022. Discuss how far the company can continue its operation without any women directors on board.

(ii)  Can XYZ Ltd. appoint another 6 more directors on board? Would your answer be different if XYZ Ltd. was a company where 52% of the paid-up share capital was held by State Government?

[MTP-Nov. 21]

As per the Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014, following classes of companies shall appoint at least one woman director:

(i)   every listed company;

(ii)  every other public company having:

(a)  paid-up share capital of ` 100 crores or more; or

(b)  turnover of ` 300 crores or more;

A company, which has been incorporated under the Act and is covered under prescribed criteria shall comply with the provisions within a period of 6 months from the date of its incorporation.

Conclusion: In the given case, XYZ is a listed company and hence has to mandatorily have a woman director on Board. However, because the period of 6 months from date of commencement has not expired, it can continue its operation till 30th June, 2022 without a woman Director on board.

(ii) Maximum Number of directors:

As per Sec. 149(1) of the Companies Act, 2013 every company is required to constitute a Board of Directors. Maximum number of Directors shall be 15 which can be increased by passing a special resolution.