[Case Study] Non-appointment of women director in listed/specified public limited companies

[2022] 143 taxmann.com 77 (Article)

1. Law relating to the appointment of a woman director

The second proviso to sub-section (1) of section 149 of the Companies Act 2013 read with Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014 (chapter 11) is the governing provision for the appointment of a woman director. As per this provision, the appointment of a woman director is called for:-

(i) Every listed company shall appoint at least one woman director within a period of one year from the commencement of the second proviso to Section 149(1) of the Companies Act, 2013.

Regulation 17(1) (a) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, which is applicable to the listed companies, while specifying the composition of board of directors of the listed company says that the board of directors of the company shall have an optimum combination of executive and non-executive directors with at least one woman director.

(ii) Every other public company having a paid-up share capital of Rs. 100 crores or more or turnover of Rs. 300 crores or more as on the last date of the latest audited financial statements, shall also appoint at least one woman director within a period of one year from the commencement of second proviso to Section 149(1) of the Companies Act, 2013.

(iii) A newly incorporated company under the Companies Act, 2013 and covered under the second proviso to section 149(1) shall appoint at least one woman director within a period of 6 months from the date of its incorporation.

2. Woman director appointment in private companies

At this juncture, a critical question arises as to whether private companies are required to have woman directors on their board. By going through the above paragraphs, one can come to the conclusion that private companies are not required to appoint woman directors on its board.

3. Position in a Private company which is a subsidiary of a public company

If we refer the definition section, by virtue of proviso to clause (71) of section 2 of the Companies Act 2013, we can note that a private company is, for the purpose of the Companies Act 2013, deemed to be public company, if it is subsidiary of a public company. This obviously means that a private company which is a subsidiary of a public company shall be deemed to be public company for the purposes of this Act, even when such subsidiary company continues to be a private company in its articles. Hence, a private company which is a subsidiary of a limited company under section 2 (71) of the Companies Act 2013, read with Rule 3 thereon, is mandatorily required to appoint a woman director.

4. Intermittent vacancy of a woman director

In case of any intermittent vacancy of a woman director then the same vacancy is required to be filled up by the board of directors within 3 months from the date of vacancy or not later than immediate next board meeting, whichever is later as specified in Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014.

5. In summary

By reading the paragraphs above, one can come to a conclusion that the appointment of woman director is mandatory in a listed company, and in other unlisted public companies whose share capital is Rs 100 crore or more or turnover of Rs. 300 crore or more in terms of provisions of section 149 of the Companies Act 2013.

In respect of only those private companies, which are subsidiary of a limited company u/s 2 (71) of the Companies Act 2013, appointment of woman director would be mandatory.

6. In case of non-appointment of woman director

If the company contravenes the requirement of sub-section (1) of section 149 by not appointing woman director on its board, then, non-compliance happens. This would result into violation due to non-adhering the requirements of section 149 of the Companies Act 2013 and the company and its directors are liable for penal actions. Since the penalty for non-compliance of appointment of woman director is not mentioned separately, the punishment prescribed under section 172 of the Companies Act shall be applicable and the provisions of section 172 is as given below:-

Section 172: If a company is in default in complying with any of the provisions of this Chapter and for which no specific penalty or punishment is provided therein, the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand, and in case of continuing failure, with a further penalty of five hundred rupees for each day during which such failure continues, subject to a maximum of three lakh rupees in case of a company and one lakh rupees in case of an officer who is in default.

To understand the regulatory action on default / non-compliance, we could go through one the recent decided case on this matter by the Registrar of Companies of New Delhi.

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