No Penalty for Appointing a Person Above 75 Years As a Director If Approval Was Taken Within Prescribed Period

Case Details: 20 Microns Ltd. v. Securities & Exchange Board India - [2024] 158 taxmann.com 295 (SAT-Mumbai)

Judiciary and Counsel Details

• • Tarun Agarwala, Presiding Officer & Ms Meera Swarup, Technical Member
  • Anand Kankani, Prakhar Godre & Ms Muskan Mubarakali Kadiwar for the Appellant.
  • Ankit Lohia, Shlok Bodas, Ravishekhar Pandey, Nishit Dhruva, Ms Shefali Shankar, Ms Rasika Ghate & Harsh Sheth, Advs. for the Respondent.

Facts of the Case

In the instant case, the appeal challenges fines imposed by BSE and NSE on a public limited company for non-compliance with Regulation 17(1A) of the SEBI (LODR) Regulations, 2015. The penalties stem from the appointment of Mr. Swaminathan Sivaram as an additional director in the non-executive independent director category through a board resolution. The appellant company, listed on both BSE and NSE, had a Board of Directors (BODs) composition in adherence to Regulation 17(1C) of the LODR Regulations, consisting of a chairman-cum-managing director, a managing director, a director, and four independent directors

The company, in compliance with the LODR Regulations, needed to appoint three independent directors. While two independent directors’ second terms were set to expire on 12.08.2024, the Nomination Remuneration Committee recommended and the Board of Directors (BOD) appointed Mr. Swaminathan Sivaram as an additional director in the non-executive independent director category.

The appointment was contingent upon members’ approval through a Special Resolution at the 36th Annual General Meeting held on 10.08.2023, given Mr. Swaminathan Sivaram had already reached the age of 75 years.

The BSE and NSE imposed fines on the appellant company for non-compliance with Regulation 17(1A) of the LODR Regulations, contending that approval from shareholders should be obtained before appointing a person who has reached the age of 75 years or beyond. The core question in this is whether approval is required to be taken from the shareholders of the Company through a special resolution before a person who has attained the age of 75 years can be appointed.

As per Regulation 17(1A), no listed company shall appoint a person as a non-executive director who has attained the age of 75 years unless the members of the Company pass a special resolution.

While as per Regulation 17(1C), listed entity shall ensure that approval of shareholders for appointment of a person on the board of directors is taken at the next general meeting or within a period of 3 months from the date of appointment whichever is earlier.

The appointment of Mr. Swaminathan Sivaram by the Board was made in compliance with Regulations 17(1A) and 17(1C) of the LODR Regulations.

SAT Held

The Securities Appellate Tribunal (SAT) ruled that Regulation 17(1A) and 17(1C) have to be read harmoniously with provisions of Section 152(2) and 161(1) which will make it clear that a person above the age of 75 years can be appointed by the board of directors. SEBI held that such an appointment is required to be approved subsequently within the prescribed period by a special resolution in the next general meeting by members of the company.

The SAT held that there was no violation of regulation 17(1A) and therefore, the impugned order by BSE and NSE imposing a penalty upon the appellant could not be sustained and was to be quashed.