Appointment and Qualifications of Directors – CA Final Law Study Material

Appointment and Qualifications of Directors – CA Final Law Study Material is designed strictly as per the latest syllabus and exam pattern.

Appointment and Qualifications of Directors – CA Final Law Study Material

Question 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?
Answer:
Increase in number of Directors:

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.

Question 2.
In XYZ Ltd., an intermittent vacancy of the women director arises on 15th June 2020. By what time the vacancy so created should be filled if the immediate Board Meeting was held on (a) 14th August 2020 (b) 14th Oct. 2020.
Answer:
Filling of casual vacancy in case of Woman Director:

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, 2020.

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, 2020, then the vacancy shall be filled-up by 14th August, 2020 or by 14th September 2020 (3 months from the date of such vacancy) whichever is later. In this case, it shall be filled up by 14th Sep., 2020.

(b) If after the vacancy, the immediate Board meeting was held on 14th October, 2020 then the vacancy shall be filled-up by 14th Oct., 2020 or by 14th Sep. 2020 whichever is later. In this case it shall be filled up by 14th Oct., 2020.

Question 3.
Royal Limited is a company listed at Madras Stock Exchange, incorporated on 1st January, 2018. 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
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.
Answer:
Requirement of Woman Director and resident 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:

Every listed company;
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 atleast 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:

It is mandatory to appoint women director (as company is a listed company) and resident director [as required by Sec. 149(3)].
It case of unlisted company, appointment of women directors is not mandatory provided company is not covered under Rule 3.
Appointment of woman director is not mandatory as company does not fall under the categories prescribed in Rule 3.

Question 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)]
Increase in number of Directors beyond 15:

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).

Question 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, 2020. 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, 2020. Will your answer differ if the Board Meeting of the company was held on 8th November, 2020? [May 15 (4 Marks)]
Answer:
Filling of casual vacancy in case of Woman Director:

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, 2020. Accordingly this vacancy need to be filled latest by 29th September, 2020 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., 2020.

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., 2020, provided the said meeting is the first meeting of the Board after 30th June, 2020 i.e. after the resignation of Ms. Sheela.

Question 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, 2020 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, 2020. [May 15 (4 Marks)]
Answer:
Requirement of Resident Director:
Sec. 149(3) of Companies Act,2013providesthatevery company shall have atleast 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, 2020. 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., 2020 is not in accordance with provisions of Sec. 152(2).

Question 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, 2020. Advise the company to fill the vacancy as per the provisions of the Companies Act, 2013. The Board meeting was held on 14th August, 2020. [Nov. 16 (4 Marks)]
Answer:
Filling of casual vacancy in case of Woman Director:

In the present case, an intermittent vacancy of the women director arises on 15th June, 2020. The immediate next Board meeting was held on 14th August, 2020.

Conclusion: Applying the provisions of Ryle 3, the vacancy shall be filled-up by 14th August, 2020 or by 14th September, 2020 (3 months from the date of such vacancy) whichever is later.

In this case, it shall be filled up by 14th Sep., 2020.

Question 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)]
Answer:
Increase in number of Directors:

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:

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

BUD can increase the number of directors after altering AOA u/s 14 and by passing a Special resolution u/s 149(1).
In case of Govt. companies limit of maximum directors not applicable, hence, BOD can increase the number.

Question 9.
Ms. Nisha was appointed as director of LMN Limited on 10th Oct., 2020 in place of Ms. Rachna, who resigned from her office on 31st May, 2020 six months before expiry of term of her office. LMN Limited had its Board meeting on 31st July 2020.
Whether appointment of Ms. Nisha is valid? [Nov. 20 – New Syllabus (2 Marks)]
Answer:
Filling of casual vacancy in case of Woman Director:

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, 2020. The immediate next Board meeting was held on 31st July, 2020. ”

Conclusion: Applying the provisions of Rule 3, the vacancy shall be filled-up by 31st August, 2020
(3 months from the date of such vacancy). Hence, appointment of Ms. Nisha is invalid.

Question 10.
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:
(а) 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?
Answer:
Appointment of Independent Director:
As per sec. 149(4) of Companies Act, 2013, every listed public company shall have at least one- third of the total number of directors as independent directors. As per Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, the following class or classes of companies shall have at least 2 directors as independent directors:

the Public Companies having paid up share capital of 10 crore rupees or more; or
the Public Companies having turnover of 100 crore rupees or more; or
the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding 50 crore rupees.

As per section 149(6) of Companies Act, 2013, a person is not eligible to be appointed as independent director if he 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.

Conclusion: Applying the provisions of Sec. 149(4), Sec. 149(6) and Rule 4, following conclusions may be drawn:

(a) As the company has paid up share capital of ₹ 10 Crores, 2 independent directors are mandatory as per requirement of Rule 4.
(b) In case paid up share capital of the company is ₹ 2 Crores, independent directors are not mandatory.
(c) As provided by sec. 149(6), KMP cannot be appointed as Independent Director.

Question 11.
Mr. Azad, an independent director of X company, was appointed in the AGM for a period of three years. After the expiry of 3 years he was re-appointed for a period of 5 years. Considering that though Mr. Azad has completed two tenures/terms but hasn’t completed ten years in total, therefore he may be appointed in the upcoming AGM for another 2 years to complete his total term of 10 years. Conferring in the light of the Companies Act, 2013, state the validity of reappointment of Mr. Azad for further term in the company.
Answer:
Tenure of Independent Auditor
Sec. 149(10) of Companies Act, 2013 provides that 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.

Section 149(11) of Companies Act, 2013 provides that 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 he 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.

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

In the present case, Mr. Azad, an independent director, has completed two tenures in the company, one for three years and second for 5 years.

Conclusion: Reappointment for third term is not allowed in continuation, a cooling off period of 3 years will be required after completion of two tenures, irrespective that period served under two 2 tenures is less than 10 years.

Question 12.
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.
Answer:
Appointment of 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:

Every listed company;
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.

Appointment of Independent Director:

As per Sec. 149(4) of Companies Act, 2013, every listed public company shall have at least one- third of the total number of directors as independent directors.

As per Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, the following class or classes of companies shall have at least 2 directors as independent directors:

the Public Companies having paid up share capital of 10 crore rupees or more; or
the Public Companies having turnover of 100 crore rupees or more; or
the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding 50 crore rupees.

Conclusion: Considering the requirements of sec. 149(1) read with Rule 3 and sec. 149(4) read with Rule 4, company must have one woman director and two independent directors.

Question 13.
XYZ Limited Is an unlisted public company having a paid-up capital of ₹ 20 crores as on 31st March, 2021 and a turnover of ₹ 150 crores during the year ended 31st March, 2021. 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 fulfil 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]
Answer:
Requirement of Independent Directors:

As per Sec. 149(4) of Companies Act, 2013, every listed public company shall have at least one- third of the total number of directors as independent directors.

As per Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, the following class or classes of companies shall have at least 2 directors as independent directors:

the Public Companies having paid up share capital of 10 crore rupees or more; or
the Public Companies having turnover of 100 crore rupees or more; or
the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding 50 crore rupees.

Where a company ceases to fulfil any of the above 3 conditions for 3 consecutive years, it shall not be required to comply with these provisions until such time as it meets any of such conditions.

Following classes of unlisted public companies shall not be required to have minimum independent director:
(a) A Joint venture
(b) A wholly owned subsidiary, and
(c) A dormant company.

Conclusion: Applying the provisions of Sec. 149(4) and Rule 4, following conclusions may be drawn:

(i) Company must appoint 2 independent directors;

(ii) Exemption from requirement of independent director will be available till such time company meet the conditions as prescribed in Rule 4.

(iii) In case of dormant company, requirement of minimum number of independent director does not apply.
XYZ Limited is an unlisted public company having a paid-up capital of ₹ 20 crores as on 31st March, 2021 and a turnover of ₹ 150 crores during the year ended 31st March, 2021. The total number of ; directors is 13. State the minimum number of directors appointed as Independent Director in XYZ ; Limited. What, if XYZ Ltd. is a dormant company. [MTP-April 18]

Question 15.
XYZ Limited is an unlisted public company having a paid-up capital of 20 Cr. as on 31st March, 2021 and a turnover of ₹ 150 Cr. during the year ended 31st March, 2021. 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)]
Answer:
Requirement of Independent Directors:
(i) Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, provides that the following class of companies shall have at least 2 directors as independent directors:
(a) the Public Companies having paid up share capital of ₹ 10 crore or more; or
(b) the Public Companies having turnover of ₹ 100 crore or more; or
(c) the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding ₹ 50 crore.

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.

In the present case, XYZ Limited is an unlisted public company having a paid-up capital of ₹ 20 crores as on 31st March, 2021 and a turnover of ₹ 150 crores during the year ended 31st March, 2021.
Conclusion: Company must have at least 2 directors as independent directors.

(ii) Section 149 (4) of the Companies Act, 2013 provides that every listed public company shall have at least 1 /3rd of the total number of directors as independent directors. The explanation to section 149(4) specifies that any fraction contained in such 1/3rd numbers shall be rounded off as one.
In case, XYZ Limited is a listed company, 1/3rd of total number of directors shall be the independent directors.
Conclusion: Company must have atleast 5 directors (1/3rd of 13 = 4.33 rounded as 5) as independent directors.

Question 16.
The composition of the Board of Directors of a listed company as on 31-03-2021 comprised of
(i) Mr. A, Director,
(ii) Mr. B, Director,
(iii) Mr. C, Director,
(iv) Mr. D, Director,
(v) Mrs. E, Independent Director,
(vi) Mr. F, Independent Director and
(vii) Mr. G, Independent Director.
Mr. D & Mrs. E vacated their office of Director on 15-04-2021.
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]
Answer:
Requirement as to woman director and independent 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:

Every listed company;
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.

Any intermittent vacancy of a women director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy whichever is later.
Section 149(4) provides that every listed company shall have at least 1 /3rd of the total number of Directors as Independent Directors.
In the present case, composition of board of directors of listed company as on 31-3-2021 comprised of total 7 directors. Out of which 4 were directors and 3 were independent directors. Later Mr. D (Director) and Mrs. E (Independent Director) vacated their offices on 15-4-2021.

Conclusion: Applying the provisions of Sec. 149(1) read with Rule 3 and Sec. 149(4), following conclusions may be drawn:

(i) 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.

(ii) Section 149(4) is already compiled with as 1/3rd of the total number of remaining directors (i.e. 5) arrives at 1.67 rounded off as 2. Company is already having two independent directors Mr. F and G. Even after filling of casual vacancy in office of woman director, requirement of independent director remains fulfilled.

Question 17.
CTC Limited is an unlisted public company having a paid-up capital of ₹ 100 crores as on 31st March, 2021. The company made a turnover of ₹ 300 crores for the financial year ended 31st March, 2021. 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, 2019. He retired from service on 31st March, 2020, He is in receipt of monthly pension of ₹ 80,000 from the company. It is proposed to appoint Sliri 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:

Appointment of Mr. PKV as independent director.
Fixing sitting fee of ₹ 50,000 to independent director and ₹ 30,000 to Woman Director.
Minimum number of independent directors.
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)]
Answer:
Appointment of Independent Directors and Sitting Fees:
(i) Appointment of Mr. PKV as Independent Director:

In the present case, Mr. PKV had worked as CFO of the company for the year 2019-20. Hence Mr. PKV cannot be appointed as independent director of the company.

(ii) Fixing Sitting Fees of ₹ 50,000 to independent director and ₹ 30,000 to woman director:

As per section 197(5) read with Rule 4 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a company may pay a sitting fee to a director for attending board or committee meetings, such sum as may be decided by Board which shall not exceed ₹ 1 Lac per meeting. It is also provided that for independent director and woman director the sitting fees shall not be less than the sitting fees payable to other directors.

In the present case, Board is willing to fix sitting fees of ₹ 50,000 to independent director and ₹ 30,000 to woman director. It is being 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.

(iii) Minimum number of independent director:

As per sec. 149(4) of Companies Act, 2013, every listed public company shall have at least one-third of the total number of directors as independent directors. As per Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, the following class or classes of companies shall have at least 2 directors as independent directors:
(a) the Public Companies having paid up share capital of 10 crore rupees or more; or
(b) the Public Companies having turnover of 100 crore rupees or more; or
(c) the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding 50 crore rupees.

However, in case a company covered under rule 4 is required to appoint a higher number of independent directors due to composition of its audit committee, such higher number of independent directors shall be applicable to it.
As per section 177(2) of the Companies Act, 2013, the Audit Committee shall consist of a minimum of three directors with independent directors forming a majority.
In the present case, CTC Ltd. is having 7 directors in its audit committee, therefore the number of independent directors so as to form a majority should be 4.

(iv) Maximum sitting fees to a director:

As per sec. 197(5) read with Rule 4 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a company may pay a sitting fee to a director for attending board or committee meetings, such sum as may be decided by Board which shall not exceed ₹ 1 Lac per meeting.

Hence the maximum sitting fees payable to a director will be ₹ 1,00,000 provided there is no restriction in the Articles of Association.

(v) Appointment of Mr. PKV as independent director in case of government company:

No exemption is granted to government company from application of this clause. So, Mr. PKV cannot be appointed as independent director of the company, as he had worked as CFO of the company for the year 2019-20.

Question 18.
M/s. Bosch and Lawrence Limited, an unlisted company has a paidup 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 29-9-2018 for a period of one year.

Again, he was appointed in the subsequent AGM held on 28-9-2019 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? [RTP-Nov. 18]
Answer:
Tenure of Independent Auditor

Sec. 149(10) of Companies Act, 2013 provides that an independent director shall hold office for a term up to S consecutive years on the Board ofa 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.

Sec. 149(11) of Companies Act, 2013 provides that 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 he 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.

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

In the present case, Mr. Robert was appointed as an Independent Director at the AGM of the company held on 29-9-2018 for a period of one year. Again, he was appointed in the subsequent AGM held on 28-9-20 19 for a period of two years as his second consecutive term.

Conclusion: Reappointment for third term is not allowed in continuation, a cooling off period of 3 years wIll be required after completion of two tenures, irrespective that period served under two tenures s less than 10 years.

Question 19.
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)]
Answer:
Requirement of Independent Director:

As per Sec. 149(4) of Companies Act, 2013, every listed public company shall have at least one- third of the total number of directors as independent directors.

As per Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, the following class or classes of companies shall have at least 2 directors as independent directors:
a. the Public Companies having paid up share capital of 10 crore rupees or more; or
b. the Public Companies having turnover of 100 crore rupees or more; or
c. the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding 50 crore rupees.

Conclusion: Z Ltd., being a listed company is required to have 1/3rd of total number of directors as independent directors.

Requirement of Independent Directors in other cases:

Assuming that company is an unlisted company, it shall have atleast 2 independent directors as per requirements of Rule 4 as discussed above.
Assuming that company is an unlisted company, it does not require to have independent director as paid up capital is less than ₹ 10 Cr.
As per provisions of Sec. 149(6) of Companies Act, 2013, a person who holds the position of a Key managerial personnel in the same company, cannot be appointed as independent director.
It is not mandatory that women directors should be Independent Directors.

Question 20.
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, 2021. 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)]
Answer:
Requirement of Independent Directors:
(i) Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, provides that the following class of companies shall have at least 2 directors as independent directors:

(a) the Public Companies having paid up share capital of ₹ 10 crore or more; or
(b) the Public Companies having turnover of ₹ 100 crore or more; or
(c) the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding ₹ 50 crore.

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.
In the present case, ABC Limited is an unlisted public company having a paid-up capital of ₹ 20 crores as on 31st March, 2021 and a turnover of ₹ 150 crores during the year ended 31st March, 2021.
Conclusion: Company must have at least 2 directors as independent directors.

(ii) Sec. 149(4) of the Companies Act, 2013 provides that every listed public company shall have at least 1/3rd of the total number of directors as independent directors. The explanation to section 149(4) specifies that any fraction contained in such 1/3rd numbers shall be rounded off as one.

In case, ABC Limited is a listed company, 1/3rd of total number of directors shall be the independent directors.
Conclusion: Company must have atleast 5 directors (1/3rd of 13 = 4.33 rounded as 5) as independent directors.

Question 21.
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 retuns 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 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]
Answer:
Requirement of Independent Directors:

As per Sec. 149(4) of Companies Act, 2013, every listed public company shall have at least one- third of the total number of directors as independent directors.

As per Rule 4 of the Companies (Appointment and Qualification of Directors] Rules, 2014, the following class or classes of companies shall have at least 2 directors as independent directors:

the Public Companies having paid up share capital of 10 crore rupees or more; or
the Public Companies having turnover of 100 crore rupees or more; or
the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding 50 crore rupees.

Where a company ceases to fulfil any of the above 3 conditions for 3 consecutive years, it shall not be required to comply with these provisions until such time as it meets any of such conditions.

However, following classes of unlisted public companies shall not be required to have minimum independent director:
(a) A Joint venture
(b) A wholly owned subsidiary, and
(c) A dormant company.

In the present case, Rudraksh Ltd. has not filed financial statements or annual returns for 2 financial years consecutively, status of the company will be of dormant company.

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

Question 22.
The Board of directors of M/s ABC Limited, an unlisted company having a paid-up capital of ₹ 6 crores consisting of equity share capital of ₹ 5 crores and preference share capital of ₹ 1 crore and also 1,100 ‘Small Shareholders’ holding equity shares seeks your advice on the following:
“Is it necessary for the Company to appoint a Director to represent the ‘Small Shareholders'”? Advise explaining the relevant provisions of the Companies Act, 2013 and the Rules.
Answer:
Requirement of Small Shareholder’s Director:

Section 151 of Companies, Act, 2013 read with Rule 7 of the Companies (Appointment and
Qualification of Directors) Rules, 2014 provides that 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.

In the present case, the Board of directors of M/s ABC Limited, an unlisted company having a paid-up capital of ₹ 6 crores consisting of equity share capital of ₹ 5 crores and preference share capital of ₹ 1 crore and also 1,100 ‘Small Shareholders’ holding equity shares seeking advice for requirement of director to represent the small shareholders.

Conclusion: Requirement of Small shareholder director applies in case of listed company. Whereas in the present case, ABC Ltd. is an unlisted company, so requirement of director to represent small shareholder is not applicable.

Question 23.
M/s. Bharat Pharma Limited is a company listed with Bombay Stock Exchange. The company were having 500 small shareholders in the said company, so they wanted to appoint Mr. A as a Director as their representative on the Board of Directors of the said company.

Mr. A is holding 1000 equity shares of 10 each in the said company. State in the light of the Companies Act, 2013 whether the proposal to appoint Mr. Aasa Small Shareholders’ Director can be adopted by the company. Examine, if Mr. A is already holding a position of small shareholders director in more than two companies.
Answer:
Appointment of director elected by small shareholders:

Section 151 of Companies Act, 2013 provides that 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.

Rule 7 of the Companies (Appointment and Qualification of Directors) Rules, 2014 provides that a listed company, may upon notice of not less than 1,000 small shareholders or l/10th of the total number of such shareholders, whichever is lower, have a small shareholders’ director elected by the small shareholders.

In the present case, there are 500 small shareholders in the company who wanted to appoint Mr. A as a Director as their representative on the Board of Directors of the said company. Mr. A is holding 1000 equity shares of 10 each in the said company.

Sec. 151 read with Rule 7 does not prescribe any eligibility criteria in terms of shareholding in the company for being appointed as a small shareholder director.
Rule 7 further provides that no person shall hold the position of small shareholders’ director in more than two companies at the same time.

Conclusion: Assuming that the notice is being served by minimum prescribed number of small shareholders (1/10th of total number), (Mr. A can be appointed as director.
If Mr. A is already holding a position of small shareholders director in more than 2 companies, then he cannot be appointed.

Question 24.
M/s. Neemuch Pharma Limited is a company listed with Malhargarh Sto’ck Exchange. Some small . shareholders of the said company want to appoint Mr. Avadhesh as a Director as their representative on the Board of Directors of the said company. Mr. Avadhesh is holding 1000 equity shares of 10 each in the said company. State the provisions of the Companies Act, 2013 in relation to the proposal to appoint Mr. Avadhesh as a Small Shareholders’ Director. [Nov. 11 (8 Marks)]
Answer:
Appointment of director elected by small shareholders:

Section 151 of Companies, Act, 2013 provides that 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.

In the present case, some small shareholders in the company wanted to appoint Mr. Avadhesh as a Director as their representative on the Board of Directors of the said company. Mr. Avadhesh is holding 1000 equity shares of 10 each in the said company.

Sec. 151 read with Rule 7 does not prescribe any eligibility criteria in terms of shareholding in the company for being appointed as a small shareholder director.

Conclusion: Assuming that the notice is being served by minimum prescribed number of small shareholders (1000 small shareholders or 1/10th of total number, whichever is lower), Mr. Avadhesh can be appointed as director.

Question 25.
DD Ltd. is a listed company and it has been served with notice for appointment of small shareholders’ director. Referring to the provisions of the Companies Act, 2013, advise on the following:

(a) Define the expression ‘small shareholder’ and specify the number of small shareholders who may serve notice on the company for a director representing them.
(b) Is it possible to appoint a person who does not hold any share in the company, as small shareholders’ director?
(c) What is the tenure of small shareholders’ director and whether he can be reappointed as such, after expiry of his tenure? Also state whether he can be appointed as an officer of the company on expiry of his tenure as small shareholders’ director. [May 16 (4 Marks)]
Answer:
Requirement as to appointment of small shareholder director:
Section 151 of Companies, Act, 2013 provides that 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.

(a) Meaning of Small Shareholder:
A shareholder holding shares of nominal value of not more than ₹ 20000 or such other sum as may be prescribed.
Number of small shareholders who may serve notice on the company for a director representing them:
Rule 7 of the Companies (Appointment and Qualification of Directors) Rules, 2014 provides that a listed company, may upon notice of not less than 1,000 small shareholders or 1/10th of the total number of such shareholders, whichever is lower, have a small shareholders’ director elected by the small shareholders.

(b) Appointment of a person as small shareholder director who does not hold any share in the company:
Sec. 151 read with Rule 7 does not prescribe any eligibility criteria in terms of shareholding in the company for being appointed as a small shareholder director.

Rule 7 provides that if the person being proposed does not hold any shares in the company, the details of shares held and folio number need not be specified in the notice. It implies that it is possible to appoint a person who does not hold any share in the company, as small shareholders’ director.

(c) Tenure of Small shareholder director:
Rule 7 provides tenure of small shareholders’ director shall not exceed a period of 3 consecutive years and on the expiry of the tenure, such director shall not be eligible for re-appointment.

Eligibility for being appointed as an officer in the company after expiry of tenure:
A small shareholders’ director shall not, for a period of three 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.

Question 26.
Mr. Intelligent, was appointed as a small shareholder’s director of XYZ Limited, which is in the business of Oil refining. Subsequently, A Limited and B Limited have also appointed him as small shareholder’s director, is the appointment valid? [Nov. 16 (2 Marks)]
Answer:
Appointment of small shareholder’s director:

Rule 7 of the Companies (Appointment and Qualification of Directors) Rules, 2014, read with section 151 of the Companies Act, 2013 provides that, no person shall hold the position of small shareholders’ director in more than 2 companies at the same time. However, the second company in which he has been so appointed shall not be in a business which is competing or is in conflict with the business of the first company.

In the given ease, Mr. Intelligent was appointed as a small shareholder’s director of XYZ Ltd. Subsequently A Ltd. and B Ltd. have also appointed him as small shareholder’s director.

Conclusion: Appointment of Mr. Intelligent in both A Ltd. and B Ltd. is invalid. However, he can accept appointment in either A Ltd. or B Ltd., provided that company is not having a business which is competing or is in conflict with the business of the XYZ Ltd.

Question 27.
ABC Ltd. is a listed company having 50,00,000 equity shares of ₹ 100 each as its paid up capital. Of the total shareholders of the company there are 20000 shareholders who are holding shares of nominal value of not more than ₹ 20000 each.

A group of shareholders who had applied for these shares at the time of issue of such shares by the company by issuing prospectus and been allotted these shares, wants to appoint a small shareholder’s director to safeguard their interest and to get a proper representation in the company. A total number of 1500 such small shareholders decided to propose Mr. X as their candidate for this post.

In the light of the Companies Act, 2013 on the basis of the facts provided, determine the following situations-

(1) What procedure should be followed by group of shareholders to have Mr. X, a small shareholder director in the Board of Directors of the company?

(2) What are the provisions related to his (Mr. X) status as an independent director and what exceptions are available to him in relation to his appointment as a director? [MTP-Aug. 18]
Answer:
Procedure for appointment of director elected by small shareholders:

Sec. 151 of Companies Act, 2013 provides that 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.

Rule 7 of the Companies (Appointment and Qualification of Directors) Rules, 2014 provides that a listed company, may upon notice of not less than 1,000 small shareholders or 1/10th of the total number of such shareholders, whichever is lower, have a small shareholders’ director elected by the small shareholders.

Small shareholders intending to propose a person as a candidate for the post of small shareholders shall leave a notice of their intention with the company at least 14 days before the meeting under their signatures specifying the name, address, shares held and folio number of the person whose name is being proposed for the post of director and of the small shareholders who are proposing such person for the office of director.

If the person being proposed does not hold any shares in the company, the details of shares held and folio number need not be specified in the notice.

The notice shall be accompanied by a statement signed by the person whose name is being proposed 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.

A person shall not be appointed as small shareholders’ director of a company, if the person is not eligible for appointment in terms of Sec. 164.

Status of Small Shareholder Director:
Rule 7 of the Companies (Appointment and Qualification of Directors) Rules, 2014 provides that
such director shall be considered as an independent director subject to, his being eligible u/s 149 (6)
and his giving a declaration of his independence in accordance with Sec. 149(7).

Exceptions subject to which small shareholder directors are appointed: The appointment of small shareholders’ director shall be subject to the provisions of section 152 except that-
(a) such director shall not be liable to retire by rotation;
(b) such director’s tenure as small shareholders’ director shall not exceed a period of 3 consecutive years; and
(c) on the expiry of the tenure, such director shall not be eligible for re-appointment.

Question 28.
The Board of Director of M/s. Diya Steels and Aluminium Limited, a listed company having a paid up equity share capital of ₹ 15 crores and preference share capital of ₹ 1 crore and 1100 small shareholders holding equity shares, seeks your advice on the following:

(i) Is it mandatory for the company to appoint a Director to represent Small Shareholders?
(ii) If the company decides to appoint such a Director, the procedure to be followed by the company for such appointment and the tenure for which such appointment can be made.
(iii) Whether such a Director be considered as an Independent Director?
(iv) When does a person appointed as a small shareholders Director vacate his office?
Advise suitably in the light of the provisions of the Companies Act, 2013 and the rules framed thereunder. [Nov. 18 – New Syllabus (8 Marks)]
Answer:
Provisions as to appointment of directors elected by Small Shareholders:

(a) Mandatory Requirement to appoint a Director to represent Small Shareholder:

Sec. 151 of Companies Act, 2313 provides that 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.

Conclusion: Use of the term ‘may’ make it clear that there is no mandatory requirement for a listed company to have a director elected by such small shareholders on its Board.

(b) Procedure to be followed for appointment of director to represent small shareholder:

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 their details and proposed director’s details.

The details shall include name, address, shares held and folio number etc. of small shareholders and proposed director. If the proposed director does not hold any shares in the company, the details of shares held and folio number need not be specified in the notice.

The notice shall be accompanied by a statement signed by the person whose name is being proposed 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.

Tenure: Rule 7 of the Companies (Appointment and Qualification of Directors) Rules, 2014 provides that the tenure of small shareholders’ director shall not exceed a period of 3 consecutive years and on the expiry of the tenure, such director shall not be eligible for re-appointment.

(c) Status of Small Shareholder Director: Rule 7 of the Companies (Appointment and Qualification of Directors] Rules, 2014 provides that such director shall be considered as an independent director subject to, his being eligible u/s 149(6] and his giving a declaration of his independence in accordance with Sec. 149(7).

(d) Vacation of Office by Small Shareholder Director: A person appointed as small shareholders’ director shall vacate the office if –

he incurs any of the disqualifications specified in Sec. 164;
the office of the director becomes vacant in pursuance of section 167;
he ceases to meet the criteria of independence as provided in Sec. 149(6).

Question 29.
B Ltd. is a listed Company and it has been served with a notice for appointment of a small shareholders’ director. Referring to the provisions of the Companies Act, 2013, examine the following;
(i) The tenure of small shareholders’ director and whether he can be re-appointed as such, after expiry of his tenure?
(ii) Whether He can be appointed as an officer of the Company on expiry of his tenure as small shareholders’ director. (May 19 – Old Syllabus (4 Marks))
Answer:
(i) Tenure of Small Shareholder Director:

‘Sec. 151 of Companies, Act, 2013 provides that 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.
Rule 7 of the Companies (Appointment and Qualification of Directors) Rules, 2014 provides that the tenure of small shareholders’ director shall not exceed a period of 3 consecutive years.
Rule 7 further provides that on the expiry of the tenure, such director shall not be eligible for re-appointment.

(ii) Eligibility for being appointed as an officer in the company after expiry of tenure:
A small shareholders’ director shall not, for a period of three 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.

Question 30.
Eighty-two shareholders of Perish Limited, a listed Company holding shares of nominal value of ₹ 19,000 each proposed Mr. Babulal as a Director on the Board. The paid-up share capital of Perish Limited is ₹ 6.2 Crores (6,20,000 equity shares of ₹ 100 each). The Company has 800 such shareholders, who are holding shares of nominal value of ₹ 19,000 or less. Examine with reference to relevant provisions of the Companies Act, 2013, whether Mr. Babulal can be appointed as a Director of Perish Limited? (Nov. 20 – New Syllabus (4 Marks)]
Answer:
Appointment of director elected by small shareholders:

Sec. 151 of Companies Act, 2013 provides that 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.

Small shareholders intendingto propose a person as a candidate for the post of small shareholders shall leave a notice of their intention with the company at least 14 days before the meeting under their signatures specifying the name, address, shares held and folio number of the person whose name is being proposed for the post of director and of the small shareholders who are proposing such person for the office of director.

In the present case. Perish Limited is a listed Company having 800 small shareholders. 82 shareholders proposed Mr. Babulal as a Director on the Board.

Conclusion: As the proposal is made by more than requisite number (10% oftotal small shareholders) of small shareholders, Mr. Babulal can be appointed as a director subject to compliance of other requirements of Rule 7.

Question 31.
The articles of association of M/s XY Ltd. provide for five directors and all the five directors are in positions. How many directors are liable to retire at the ensuing annual general meeting.
Answer:
Number of directors liable to retire by rotation:
Section 152(6) of Companies Act, 2013 provides that unless the articles provide for the retirement of all directors at every AGM, not less than 2/3rd of the total number of directors of a public company shall be persons whose period of office is liable to determination by retirement of directors by rotation.

At the first AGM of a public company held next after the date of the general meeting at which the first directors are appointed and at every subsequent AGM, l/3rd of such of the directors for the time being as are liable to retire by rotation, or if their number is neither 3 nor a multiple of 3, then, the number nearest to l/3rd, shall retire from office.

The directors to retire by rotation at every AGM shall be those who have been longest in office since their last appointment, but as between persons who became directors on the same day, those who are to retire shall, in default of and subject to any agreement among themselves, be determined by lot. ”

In the present case, there are 5 directors. Not less than 2/3rd of 5 directors shall be directors liable to retire by rotation. Hence minimum 4 directors shall be directors liable to retire by rotation. No. of directors to retire at AGM will be 1/3rd of 4, i.e. 1.33 or nearest, i.e. 1.
Conclusion: One director who has been longest in the office shall retire.

Question 32.
ABC company Limited in its first general meeting appointed 6 directors whose period of office is liable to be determined by rotation. Briefly explain the procedure and rules regarding retirement of these directors. Will it make any difference if ABC company does not carry on business for profit?
Answer:
Number of directors liable to retire by rotation:
Section 15 2 (6) of Companies Act, 2013 provides that unless the articles provide for the retirement of all directors at every AGM, not less than 2/3rd of the total number of directors of a public company shall be persons whose period of office is liable to determination by retirement of directors by rotation.

At the first AGM of a public company held next after the date of the general meeting at which the first directors are appointed and at every subsequent AGM, 1/3rd of such of the directors for the time being as are liable to retire by rotation, or if their number is neither 3 nor a multiple of 3, then, the number nearest to l/3rd, shall retire from office.

In the present case, ABC company Limited in its first general meeting appointed 6 directors whose period of office is liable to be determined by rotation. All directors are being appointed as rotational directors. No. of directors to retire at AGM will be 1/3rd of 6, i.e. 2.

Conclusion: Two directors who has been longest in the office shall retire. No special provisions exist for a company that does not carry on business for profit, hence answer will remain same if ABC company does not carry on business for profit.

Question 33.
The promoters of a public company propose to have the strength of the board of directors as 11. They also propose to make the managing director and whole-time directors as directors not liable to retire by rotation. They seek your advice on the following matters
(a) Maximum number of persons who can be appointed as directors not liable to retire by rotation.
(b) How many of the remaining directors will have to retire by rotation every year at the annual general meeting.
Answer:
Number of directors liable to retire by rotation:
Section 152(6) of Companies Act, 2013 provides thatunless the articles provide for the retirement of all directors at every AGM, not less than 2/3rd of the total number of directors of a public company shall be persons whose period of office is liable to determination by retirement of directors by rotation.

In the present case, company has 11 directors. Not less than 2/3rd of 11 directors shall be directors liable to retire by rotation. Hence minimum 8 directors shall be directors liable to retire by rotation. Remaining directors, i.e. 3 can be directors not liable to retire by rotation.

No. of directors to retire at AGM will be 1/3rd of 8, i.e. 2.67 or nearest, i.e. 3.

Conclusion:
(a) Maximum 3 directors can be non-rotational. Managing Director and whole-time director can be appointed as non rotational directors,
(b) Nearest of 1/3rd of rotational directors, i.e. 3 directors, will have to retire by rotation at the AGM, but eligible for re-appointment.

Question 34.
Is it possible for a retiring director to continue in his office beyond the date of the AGM which had to be adjourned due to disturbance at the meeting. Explain.
Answer:
Continuation of Retiring director in the office:
Section 152(7) of Companies Act, 2013 provides that if the vacancy of the retiring director is not filled-up and the meeting has not expressly resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the next week, at the same time and place, or if that day is a national holiday, till the next succeeding day which is not a holiday, at the same time and place.

It further provides that if at the adjourned meeting also, the vacancy of the retiring director is not filled up and that meeting also has not expressly resolved not to fill the vacancy, the retiring director shall be deemed to have been re-appointed at the adjourned meeting, unless-

at that meeting or at the previous meeting a resolution for the re-appointment of such director has been put to the meeting and lost;
the retiring director has, by a notice in writing addressed to the company or its Board of directors, expressed his unwillingness to be so re-appointed;
he is not qualified or is disqualified for appointment;
a resolution, whether special or ordinary, is required for his appointment or re-appointment by virtue of any provisions of this Act; or
section 162 is applicable to the case.

Conclusion: Retiring director continue and he shall be deemed to have been re-appointed at the adjourned meeting if the vacancy of the retiring director is not filled up and that meeting also has not expressly resolved not to fill the vacancy, subject to conditions as specified.

Question 35.
A company has 11 directors on the Board consisting of the following:
(a) Mr. Active, Mr. Archive as nominees from two Public Financial Institutions.
(b) Mr. First, Mr. Second, Mr. Third appointed at the 2nd AGM.
(c) Mr. Fourth, Mr. Fifth appointed at the 3rd AGM.
(d) Mr. Addition was appointed as additional director subsequent to 3rd AGM.
(e) Mr. Casual was appointed as director in place of Mr. Soul who died and was earlier appointed during the 3rd AGM.
(f) Mr. Excellent was appointed as Managing Director for 5 years w.e.f. 2nd AGM.
(g) Mr. One more was appointed as additional Director soon after Mr. Addition was appointed as Additional Director.
List out in order, who shall be vacating the office at the 4th AGM of the company.
Answer:
Determination of order in which directors have to vacate the office:
Section 152(6) of the Companies Act, 2013 provides that unless the Articles provide for retirement of all the directors at every general meeting, not less than 2/3rd of the total number of directors of a public company, shall be persons whose period of office is liable to determination by retirement of directors by rotation.

The directors to retire by rotation at every annual general meeting shall be those who have been longest in office since their last appointment, but as between persons who became directors on the same day, those who are to retire shall, in default of and subject to any agreement among themselves, be determined by lot.

Sec. 161(1) of Companies Act, 2013 provides that additional Director shall hold office up to the date of the next AGM or the last date on which the AGM should have been held, whichever is earlier.

The position in regard to the 11 directors is as under:

Provisions regarding appointment and removal of directors, does not apply over the nominee directors. Hence, Mr. Active and Mr. Archive, who are nominees of Public Financial Institutions respectively, will not be considered for total number of directors for the purpose of Sec. 152(6).
Mr. First, Mr. Second, Mr. Third, Mr. Fourth, Mr. Fifth are appointed in AGM and hence considered as rotational directors for the purpose of Sec. 152(6),
Mr. Addition & Mr. One More, who were appointed as Additional Directors subsequent to 3rd AGM will be considered as Non-Rotational directors who, shall vacate office on the date of 4th AGM.
Mr. Casual was appointed in place of Mr. Soul who died and will, therefore, hold office till the date Mr. Soul would have held office.
Mr. Excellent, the Managing director may be a rotational or non-rotational director depending upon terms of appointment.

Total number of directors for the purpose of Sec. 152(6) counted as 9. 2/3rd of 9, i.e. 6 should be rotational director and 1/3rd of 6, i.e. 2 directors shall retire by rotation. It is assumed that Mr. First, Mr. Second, Mr. Third, Mr. Fourth, Mr. Fifth and Mr. Casual are rotational directors, two amongst Mr. First, Second and Third who were appointed in 2nd AGM and have been longest in office, shall vacate office. Amongst themselves, either they can decide by mutual consent or by draw of lots.

Conclusion: Any two out of Mr. First, Mr. Second and Mr. Third (either by mutual consent or by draw a lot) shall retire by rotation. Mr. Addition and Mr. One More being the additional directors shall vacate the office on the date of 4th AGM.

Question 36.
The Articles of Association of XBL Limited provided of maximum number of Directors 12. Presently, the company is having 10 directors. Since XBL Limited was expanding its business, so it’s Board of directors was desiring to increase the number of directors to 16.

During the time, out of the 10 directors in its hoard, two of the directors have retired by rotation at an Annual General Meeting. The place of retiring directors was not so filled up and the meeting has also not expressly resolved ‘not to fill the vacancy’. Due to some reasons, the AGM was adjourned to a later date. At this adjourned meeting also, the place of retiring directors could not be filled up, and the meeting has also not expressly resolved ‘not to fill the vacancy’.

Referring to the provisions of the Companies Act, 2013, decide:

(i) Whether the Board of Directors can increase the number of directors to 16 though specified maximum to 12, in the Article of Association.
(ii) What will be the consequences if at the adjourned meeting also, the place of retiring directors could not be filled up, and the meeting has also not expressly resolved ‘not to fill the vacancy’.
(iii) What if/at the adjourned meeting, a Retiring director has given a notice in writing addressed to the company and the Board of Directors expressing his desire not to be re-elected. [MTP-April 18]
Answer:

(i) Increase in Number of Directors
(ii) Filling of vacancy in case of retiring directors:
(iii) Filling of vacancy in case of retiring directors:

Conclusions:

Number can be increased to 15, For above 15, special resolution will be required.
Retiring director deemed to be re-appointed at adjourned meeting.
Retiring director shall not be deemed to have been re-appointed at adjourned meeting.

Question 37.
AGM of Hero Ltd. has been scheduled in compliance with the requirements of the Companies Act, 2013. In this connection, it has some directors who are rotational and out of which some have been appointed long back, some have been appointed on the same day.

Decide in this connection:
(i) Which of the directors shall be retiring by rotation and be eligible for re-election?
(ii) In case two directors were appointed on the same day, how would you decide their retirement by rotation?
(iii) In case the meeting could not decide how the vacancies caused by retirement to be dealt with, what shall be consequences?
(iv) What will be your answer, assuming that the matter could not be decided even at the adjourned meeting? [May 11 (8 Marks)]
Answer:
Rotational Directors and Retirement of Directors:
(i) Section 152(6) of the Companies Act, 2013 provides that unless the Articles provide for retirement of all the directors at every general meeting, not less than 2/3rd of the total number of directors of a public company, shall be persons whose period of office is liable to determination by retirement of directors by rotation.

(ii) Section 15 2 (6) of the Companies Act, 2013 provides that the directors to retire by rotation at every annual general meeting shall be those who have been longest in office since their last appointment, but as between persons who became directors on the same day, those who are to retire shall, in default of and subject to any agreement among themselves, be determined by lot.

(iii) Section 152(6) provides that the vacancy caused by the retirement of directors at the AGM may be filled in the same AGM by appointing either the retiring directors or some other person. The AGM may also decide not to fill the vacancy arising from the retirement of one or more directors.

Section 152(7) provides that if the vacancy of the director retiring by rotation, is not so filled- up and the meeting has not expressly resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the next week, at the same time and place, or if that day is a national holiday, till the next succeeding day which is not a holiday, at the same time and place.

(iv) It further provides that if at the adjourned meeting also, the vacancy of the retiring director is hot filled up and that meeting also has not expressly resolved not to fill the vacancy, the retiring director shall be deemed to have been re-appointed at the adjourned meeting, unless:

(a) at that meeting or at the previous meeting a resolution for the re-appointment of such director has been put to the meeting and lost;
(b) the retiring director has, by a notice in writing addressed to the company or its Board of directors, expressed his unwillingness to be so re-appointed;
(c) he is not qualified or is disqualified for appointment;
(d) a resolution, whether special or ordinary, is required for his appointment or re-appointment by virtue of any provisions of this Act; or
(e) section 162 is applicable to the case.

Question 38.
A and B were appointed as first directors on 4th April, 2020 in Sun Glass Ltd. Thereafter, C, D and E were appointed as directors on 6th July, 2020 and F, G and H were also appointed as directors on 7th August, 2020 in the company, in the AGM of the company held after the above appointments, A and B were proposed to be retired by rotation and re-appointed as directors.

At the AGM, resolution for A’s retirement and re-appointment was passed. However, before the resolution for ‘B’ could be taken up for consideration, the meeting was adjourned. In the adjourned meeting also, the said resolution could not be taken up and the meeting was ended without passing the resolution for B’s retirement and re-appointment.

In the light of above and with reference to relevant provision of the Companies Act, 2013, answer the following:
(i) Whether proposals for retirement by rotation and re-appointment of A and B only were sufficient?
(ii) What will be the status of B as a director in the company? [Nov. 15 (8 Marks)]
Answer:
Rotational Directors and Retirement of Directors:

Section 152(6) of the Companies Act, 2013 provides that unless the Articles provide for retirement of all the directors at every general meeting, not less than 2/3rd of the total number of directors of a public company, shall be persons whose period of office is liable to determination by retirement of directors by rotation.

Section 152(6) of the Companies Act, 2013 provides that the directors to retire by rotation at every annual general meeting shall be those who have been longest in office since their last appointment, but as between persons who became directors on the same day, those who are to retire shall, in default of and subject to any agreement among themselves, be determined by lot.

Section 152(6) provides that the vacancy caused by the retirement of directors at the AGM may be filled in the same AGM by appointing either the retiring directors or some other person. The AGM may also decide not to fill the vacancy arising from the retirement of one or more directors.

In the given case there are total 8 directors, out of which A and B were appointed as first directors of Sun Glass Ltd. The number of directors liable to retire by rotation at the next AGM are 2 [1/3 of (2/3 of 8)]. In this case Mr. A and B have been longest in office since their last appointment are liable to retire.

Conclusion:

Proposals for retirement by rotation and re-appointment of A and B only were sufficient.
Mr. B will be deemed to be re-appointed.

Question 39.
Two (2) out of Ten (10) directors on the board of XYZ Limited have retired by rotation at an AGM. These two (2) vacancies or place of retiring directors is not filled up and the meeting has also not expressly resolved ‘not to fill the vacancy’. Since the AGM could not complete its business, it is adjourned to a later date. Neither place of retiring directors could be filled up at this adjourned meeting nor did the meeting expressly resolve ‘not to fill the vacancy’.

Analyse & apply relevant provisions of the Companies Act, 2013 and decide:

(i) Whether in such a situation the retiring directors shall be deemed to have been reappointed at the adjourned meeting?
(ii) What will be your answer in case at the adjourned meeting, the resolutions for reappointment of these directors were lost?
(iii) Whether such directors can continue in case the directors do not call the Annual General Meeting? [May 19-New Syllabus (8 Marks)]
Answer:
Filling of vacancy in case of Retiring Director:

Sec. 152(7) of the Companies Act, 2013 provides that if at the AGM at which a director retires and the vacancy is not so filled up and the meeting has not expressly resolved not to fill the vacancy, the meeting shall stand adjourned to same day in the next week, at the same time and place, or if that day is a national holiday, till the next succeeding day which is not a holiday, at the same time and place.

If at the adjourned meeting also, the vacancy of the retiring directors is not filled up and that meeting also has not expressly resolved not to fill the vacancy, the retiring director shall be deemed to have been re-appointed at the adjourned meeting, unless at the

at that meeting (i.e. adjourned meeting) or at the previous meeting (i.e. original meeting) a resolution for the re-appointment of such director has been put to the meeting and lost;
the retiring director has, by a notice in writing addressed to the company or its BOD, expressed his unwillingness to be so re-appointed;
he is not qualified or is disqualified for appointment.

Conclusion: Applying the provisions of Sec. 152(7)

The retiring directors shall be deemed to have been re-appointed.
If the resolutions for the reappointment of the retiring directors were lost, the retiring directors shall not be deemed to have been re-appointed.
There is no specific provision under Companies Act, 2013 for such a situation in which directors do not call AGM. It is a reasonable presumption that directors liable to retire by rotation cannot continue beyond the last day the AGM ought to have been held and so their offices shall be vacated.

Question 40.
Eternal Ltd., a wholly owned government company consisting of 10 directors in its Board with the subsidiary company, Evergreen Ltd., having 9 directors in its board. Referring to the provisions of the Companies Act, 2013, examine the following situations:
(i) Number of directors liable to retire by rotation in Eternal Ltd. at an AGM.
(ii) Number of directors liable to retire in Evergreen Ltd.
(iii) What will be the legal situation in case Eternal Ltd. is a listed Government Company? (MTP-Oct. 19]
Answer:
Rotational Directors and Retirement of Directors:
Section 152(6) of the Companies Act, 2013 provides that unless the Articles provide for retirement of all the directors at every general meeting, not less than 2/3rd of the total number of directors ola public company, shall be persons whose period of office is liable to determination by retirement of directors by rotation.

However, the government companies are exempted from the applicability of Sec. 152(6). A Government company, which is not a listed company, in which not less than 51% of paid up of share capital is held by the Central Government, or by any State Government (s) or by the Central Government and one or more State Governments; and a subsidiary of a unlisted Government company, the provision as to retirement by rotation is not applicable. This exemption will be applicable 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.

Conclusion: Based on the provisions of Sec. 152(6), as stated above, following conclusions may be drawn:

(i) Since Eternal Ltd. is a wholly owned Government Company (unlisted), so Sec. 152(6) will not be applicable. None of the directors of Eternal Ltd. are required to retire by rotation u/s 152(6). It is assumed that company has not committed a default in filing its financial statements under Section 137 or Annual Return under Section 92 with the Registrar.

(ii) Since Evergreen Ltd. is a subsidiary company of Eternal Ltd. so retirement by rotation is also not applicable here. None of the directors of Evergreen Ltd. are required to retire by rotation u/s 152 (6). It is assumed that company has not committed a default in filing its financial statements under Section 137 or Annual Return under Section 92 with the Registrar.

(iii) In case Eternal Ltd. is a listed Government Company, then Sec. 152(6) will be applicable and, with 10 directors in its Board, 3 can be non-retiring and out of 7 retiring directors, 2 must retire every year.

Question 41.
What do you understand by the term “Director Identification Number” (DIN)? Describe the procedure to obtain the same as enumerated under the Companies Act, 2013 read With the relevant Rules.
Answer:
Director Identification Number:
Director Identification Number (DIN) is a Unique Identification Number issued by MCA. Sec. 153 of Companies Act, 2013 provides that every individual intending to be appointed as director of a company shall make an application for allotment of DIN to the C.G. in such form and manner and along with such fees as may be prescribed.

Procedure to obtain DIN:
Rule 9 of the Companies (Appointment and Qualification of Directors) Rules, 2014 provides the manner for making an application for allotment of DIN. Accordingly:

(1) Every applicant, who intends to be appointed as director of an existing company shall make an application electronically in Form DIR-3, to the C.G. for allotment of DIN along with prescribed fees.

(2) The C.G. shall provide an electronic system to facilitate submission of application for the allotment of DIN through the portal on the website of the MCA.

(3) The applicant shall download Form DIR-3 from the portal, fill in the required particulars sought
therein, verify and sign the form and after attaching copies of the following documents, scan and file the entire set of documents electronically-

photograph;
proof of identity;
proof of residence;
board resolution proposing his appointment as director in an existing company; and
specimen signature duly verified.

Form DIR-3 shall be signed and submitted electronically by the applicant using his or her own Digital Signature Certificate and shall be verified digitally by a company secretary in full time employment of the company or by the managing director or director or CEO or CFO of the company in which the applicant is intended to be appointed as director in an existing company.

(4) In case the name of person does not have a last name, then his or her father’s or grandfather’s surname shall be mentioned in the last name along with the declaration in Form No. DIR 3A.

Sec. 154 of Companies Act, 2013 provides that the C.G. shall, within one month from the receipt of the application u/s 153, allot a DIN to an applicant in such manner as may be prescribed.

Rule 10 of the Companies (Appointment and Qualification of Directors) Rules, 2014 provides the manner for making in which C.G. makes allotment of DIN. Accordingly:

On the submission of the Form DIR-3 on the portal and payment of the requisite amount of fees through online mode, an application number shall be generated by the system automatically.

After generation of application number, the C.G. shall process the applications received for allotment of DIN and decide on the approval or rejection thereof and communicate the same to the applicant along with the DIN allotted in case of approval by way of a letter by post or electronically or in any other mode, within a period of one month from the receipt of such application.

Question 42.
What is Director Identification Number (DIN)? Mr. Mohan, a newly appointed director of RST Limited applied for DIN. Advise him about the list of scanned documents required to be submitted. [Nov. 13 (5 Marks)]
Answer:
Director Identification Number:
Director Identification Number (DIN) is a Unique Identification Number issued by MCA. Sec. 153 of Companies Act, 2013 provides that every individual intending to Be appointed as director of a company shall make an application for allotment of DIN to the C.G. in such form and manner and along with such fees as may be prescribed.

List of scanned documents required to be attached with DIR-3:
Rule 9 of the Companies (Appointment and Qualification of Directors) Rules, 2014 provides the manner for making an application for allotment of DIN. Accordingly, following scanned documents are required to be attached with the application for DIN:

Photograph;
Proof of identity;
Proof of residence;
Board resolution proposing his appointment as director in an existing company; and
Specimen signature duly verified.

Question 43.
Some changes in the particulars of a Director, who has already obtained a Director Identification Number have taken place. Now the Director wants to incorporate the changes in his DIN in the database maintained by the Central Government in this regard. Describe the procedure to be followed by the Director. [May 15 (4 Marks)]
Or
Surya, a director in New Age Limited holding Directors Identification Number (DIN) wants to make certain changes in the particulars of his DIN. What procedure would you follow to get changes incorporated in the DIN already allotted to Surya? |May 17 (4 Marks)]
Answer:
Procedure for changes in the particulars specified in DIN application
Rule 12 of the Companies (Appointment and Qualification of Directors) Rules, 2014 deals with the procedure for changes to be made in particulars incorporated in DIN. Accordingly,

(1) Every individual who has been allotted a DIN shall, in the event of any change in his particulars as stated in Form DIR-3, intimate such change(s) to the C.G. within a period of 30 days of such change(s) in Form DIR-6 in the following manner, namely;—

(a) the applicant shall download Form DIR-6 from the portal and fill in the relevant changes, verily the Form and attach duly scanned copy of the proof of the changed particulars and submitted electronically;
(b) the form shall be digitally signed by a CA in practice or a CS in practice or a cost accountant in practice;
(c) the applicant shall submit the Form DIR-6.

(2) The Central Government, upon being satisfied, after verification of such changed particulars from the enclosed proofs, shall incorporate the said changes and inform the applicant by way of a letter by post or electronically or in any other mode confirming the effect of such change in the electronic database maintained by the Ministry.

(3) The DIN cell of the Ministry shall also intimate the change(s) in the particulars of the director submitted to it in Form DIR-6 to the concerned Registrar(s) under whose jurisdiction the registered office of the company(s) in which such individual is a director is situated.

(4) The concerned individual shall also intimate the change(s) in his particulars to the company or companies in which he is a director within fifteen days of such change.

Question 44.
Mr. Vinay Kumar, applied for the first time for allotment of a Directors Identification Number (DIN) on 1st May, 2020 as lie is planning to incorporate a private limited company in Form No. DIN-3 under the Companies Act, 2013. The status of his DIN applications presently is showing as “Put Under Resuhmission”. He seeks your guidance as to whether his application has been rejected and is he required to obtain a fresh DIN. Advise. [Nov. 17 (2 Marks)]
Answer:
Implication of “Put under resubmission”
Sec. 154 of the Companies Act, 2013 provides that, the C.G. shall, within one month from the receipt of the application u/s 153, allot a Director Identification Number (DIN) to the applicant in such manner as may be prescribed. Accordingly, if the DIN application is put under Resubmission due to any reason like:

Proof of Identity/ residence is not enclosed or expired.
Proof of Date of Birth is not enclosed.
Supporting documents are not properly attested.
Non-submission of affidavit (if required).

Applicant can submit additional documents for rectifying the DIN application, within a period of 15 days from the date on which it is marked as Resubmission
On resubmitting with the additional documents, same DIN will be approved, if documents are found in correct order as per marked in resubmission.

Question 45.
Mr. Thangavel is a Director in 7 Companies with a DIN (Director Identification Number) allotted to him. Again, another DIN was inadvertently allotted to him which was never used for filing any document with any Authority. He desires to surrender the second DIN and keep all his directorship with the first DIN. Advise him the procedure to be followed under the provisions of the Companies Act, 2013 and the Rules made thereunder for surrendering the second DIN inadvertently obtained by him. . [Nov. 19 – New Syllabus (4 Marks)]
Answer:
Surrender of DIN:
Rule 11 of the Companies (Appointment and Qualification of Directors) Rules, 2014 deals with the procedure for surrender of DIN inadvertently obtained. Accordingly,

The C.G. or Regional Director (Northern Region), Noida or any officer authorised by the Regional Director may, upon being satisfied on verification of particulars or documentary proof attached with the application received from any person, cancel or deactivate the DIN in case –

(a) the DIN is found to be duplicated in respect of the same person provided the data related to both the DIN shall be merged with the validly retained number;
(b) the DIN was obtained in a wrongful manner or by fraudulent means;
(c) of the death of the concerned individual;
(d) the concerned individual has been declared as a person of unsound mind by a competent Court;
(e) the concerned individual has been adjudicated an insolvent:
(f) an application made in Form DIR-5 by the DIN holder to surrender his or her DIN along with declaration that he has never been appointed as director in any company and the said DIN t has never been used for filing of any document with any authority, the Central Government may deactivate such DIN:
Provided that before deactivation of any DIN in such case, the Central Government shall verify e-records.

Question 46.
The management of ATP Ltd., a company listed with the Stock Exchange, Mumbai wants to appoint Mr. A as a director of the company at the AGM of the company to be held on 24th May 2021. It may be noted that Mr. A is not retiring director.

The Management seeks your guidance regarding the procedure to be adopted for the purpose. You are required to state the procedure to be followed for giving effect to such proposal and formalities to be observed after appointment of Mr. A as director, by the management of ATP Limited as per the provisions of the Companies Act, 2013.
Or
Notice has been received from a member proposing himself for appointment as a director after the issue of notice convening the AGM. As a secretary of a public company, how will you deal with the above situation.
Answer:
Procedure for appointment of person other than retiring director:
Sec. 160 of Companies Act, 2013 provides that a person who is not a retiring director 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. For this purpose, following requirements need to be complied with:

A notice in writing by the person signifying his candidature as a director or, as the case may be, the intention of such member to propose him as a candidate for that office has to be left at the registered office of the company, not less than 14 days before the meeting.
Along with the notice, a deposit of ₹ 1 Lac or such higher amount as may be prescribed shall also be made.
The company shall inform its members of the candidature of a person for the office of director under sub-section (1) in such manner as may be prescribed.

Rule 13 of the Companies (Appointment and Qualification of Directors) Rules, 2014 provide the manner in which company shall inform its members of the candidature of a person for the office of director. Accordingly, the company shall, at least 7 days before the general meeting, inform its members of the candidature of a person for the office of a director or the intention of a member to propose such person as a candidate for that office-

by serving individual notices, on the members through electronic mode to such members who have provided their email addresses to the company for communication purposes, 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 advertises 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 the 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.

Question 47.
Mr. Suresh, additional director appointed by the board of directors of public company is proposed to be appointed as a regular director in the AGM. Explain the requirements under the Companies Act, 2013 to give effect to the proposed appointment.
Answer:
Appointment of Additional Director as Regular Director in AGM:
Section 161(1) of the Companies Act, 20f3 provides the provisions relating to Additional Directors, in accordance with which additional director will hold office upto the date of the next AGM or the last date on which such AGM should have been held, whichever is earlier. Therefore, additional director cannot be treated as retiring director. Hence’to appoint Mr. Suresh, an additional director as a regular director, provisions of Sec. 160 need to be complied with.

Provisions of Sec. 160:

Procedure for appointment of person other than retiring director:
Sec. 160 of Companies Act, 2013 provides that a person who is not a retiring director 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. For this purpose, following requirements need to be complied with:

A notice in writing by the person signifying his candidature as a director or, as the case may be, the intention of such member to propose him as a candidate for that office has to be left at the registered office of the company, not less than 14 days before the meeting.
Along with the notice, a deposit of ₹ 1 Lac or such higher amount as may be prescribed shall also be made.
The company shall inform its members of the candidature of a person for the office of director under sub-section (1) in such manner as may be prescribed.

by serving individual notices, on the members through electronic mode to such members who have provided their email addresses to the company for communication purposes, and in writing to all other members; and
by placing notice of such candidature or intention on the website of the company, if any:

Question 48.
The Articles of Association of a company have fixed the maximum strength of the board as 12 directors. At present the Board has 9 directors of whom 6 are liable to retire by rotation and 3 not liable to retire by rotation. The Board wishes to appoint 3 additional directors. Can they appoint as desired as per provisions of the Companies Act, 2013?
Answer:
Appointment of Additional Directors:
Section 161(1) of the Companies Act, 2013 provides the provisions relating to Additional Directors. Accordingly:

Articles of a company may confer on its Board of Directors the power to appoint any person.
A person who fails to get appointed as a director at the general meeting, cannot be appointed as an additional director.
Additional director will hold office upto the date of the next AGM or the last date on which such AGM should have been held, whichever is earlier.

Sec. 152(6) of the Companies Act, 2013 provides that unless the articles provide for the retirement of all directors at every AGM, not less than 2/3rd of the total number of directors of a public company shall be persons whose period of office is liable to determination by retirement of directors by rotation. For purpose of Sec. 152(6), additional directors are counted for the purpose of total number of directors.

In the present case, the Articles of Association of a company have fixed the maximum strength of the board as 12 directors. At present the Board has 9 directors of whom 6 are liable to retire by rotation and 3 not liable to retire by rotation. The Board wishes to appoint 3 additional directors.

Conclusion: Though BOD can appoint additional directors as per the authorization of AOA, but it results into violation of Sec. 152(6). As after appointing 3 additional directors, total number of directors becomes 12 and non-rotational directors are 6 which is less than 2/3rd of total number.

Question 49.
Prince Ltd. desires to appoint an additional director on its Board of directors. The Articles of the company confer upon the Board to exercise the power to appoint such a director. As such M is appointed as an additional director. In the light of the provisions of the Companies Act, 2013, examine:

(i) Whether M can continue as director if the annual general meeting of the company is not held within the stipulated period and is adjourned to a later date?
(ii) Can the power of appointing additional director be exercised by the Annual General Meeting?
(iii) As the Company Secretary of the company what checks would you make in relation to appointment of M as an additional director? [MTP-May 20J
Answer:
Appointment of Additional Director:
Section 161(1) of the Companies Act, 2013 provides the provisions relating to Additional Directors. Accordingly:

Articles of a company may confer on its Board of Directors the power to appoint any person.
person who fails to get appointed as a director at the general meeting, cannot be appointed as an additional director.
Additional director will hold office upto the date of the next AGM or the last date on which such AGM should have been held, whichever is earlier.

Conclusion: Applying the provisions of Sec. 161(1), following conclusions may be drawn:

M can not continue as director till the adjourned AGM, since he can hold the office of directorship only up to the date of the next AGM or the last date on which the, AGM should have been held, whichever is earlier.
Power to appoint additional directors cannot be exercised by members in meeting. This power vests with the Board of Directors provided conferred by the articles of the company.
Following checks should be placed in relation to appointment of M as additional director:

(a) Mr. M must have got the Directors Identification Number (DIN);
(b) Mr. M must furnish the DIN and a declaration that he is not disqualified to become a director under the Companies Act, 2013;
(c) Mr. M must have given his consent in Form DIR-2 to act as director and such consent has been filed with the Registrar within 30 days of his appointment;
(d) Appointment of Mr. M is made by the Board of Directors;
(e) Name of Mr. M is entered in the statutory records as required under the Companies Act, 2013.

Question 50.
The Board of directors of XYZ Limited appointed Mr. A as a Director in the casual vacancy caused by resignation of Mr. X. Mr. A is proposed to be re-appointed as a Director at the AGM, when he vacates his office.

Examine with reference to the relevant provisions of the Companies Act, 2013 whether Mr. A can be considered as a ‘Retiring Director’ and state the legal requirements to be fulfilled to give effect to the proposed appointment of Mr. A as a Director at the Annual General Meeting.
Answer:
Status of directors appointed to fill casual vacancy:

Sec. 161(4) of the Companies Act, 2013 provides that 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. Person so appointed shall hold office only up to the date up to which the director in whose place he is appointed would have held office if it had not been vacated.

A retiring director is a director who retires by rotation as per provisions of Sec. 152(6). A retiring director, who retires by rotation is eligible for reappointment without complying with the provisions of Sec. 160.

In the present case, Board of directors of XYZ Limited appointed Mr. A as a Director in the casual vacancy caused by resignation of Mr. X. Mr. A is proposed to be re-appointed as a Director at the AGM, when he vacates his office.

Conclusion: Applying the provisions of Secs. 152(6), 160 and 161(4), Mr. A cannot be considered as ‘Retiring director’.

Legal requirements to be fulfilled to give effect to the proposed appointment of Mr. A as a Director at the Annual General Meeting: Requirements of Sec. 160 are required to be complied with for appointment in AGM.

Question 51.
Mr. Sachin was appointed as an additional Director of Conservative Finance Ltd. w.e.f. 1st Jan., 2020, in a casual vacancy by way of a circular resolution passed by the Board of Directors. The next AGM of the company was due on 30th Sep., 2020, but the same was not held due to delay in the finalization of the accounts. Some of the shareholders of the company have questioned the validity of the appointment of Mr. Sachin and his continuation as additional director beyond 30th Sep., 2020. Advise the company on the complaints made by the shareholders.
Answer:
Appointment of Additional Director to fill casual vacancy:

Section 161(1) of the Companies Act, 2013 provides that the articles of a company may confer On its Board of Directors the power to appoint any person, other than a person who fails to get appointed as a director in a general meeting, as an additional director at anytime who shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier.

Section 161(4) of the Companies Act, 2013 provides that 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.

In the present case, Mr. Sachin was appointed as an additional Director of Conservative Finance Ltd. w.e.f. 1st Jan., 2020, in a casual vacancy by way of a circular resolution passed by the Board of Directors. The next AGM of the company was due on 30th Sep., 2020, but the same was not held due to delay in the finalization of the accounts.

Conclusion: Applying the provisions of Sec. 161(1) and 161(4), it can be concluded that appointment of Mr. Sachin is not valid as casual vacancy cannot be filled by circular resolution. If Mr. Sachin is appointed as additional director, then the provisions of Sec. 161(1) will apply and such appointment cannot be treated as filing of casual vacancy. Compliant of the shareholders stands valid and Mr. Sachin cannot continue as a director.

Question 52.
Authorised by Articles, the Board of Directors of Paras Medicines Limited made the following appointments:
(i) Mr. Anderson, who could not be appointed as director in the general meeting, appointed as Additional Director.
(ii) In pursuance of an agreement with a financial institution, Mr. Black is appointed as a Nominee Director.
(iii) Mr. Mohan appointed as alternate Director for a period of three months. Mr. Mohan is already holding alternate directorship for some other director in this company.
Decide the validity of the above appointments under the provisions of the Companies Act, 2013. Also point out whether the acts done by the said directors are valid under the Companies Act 2013?
Answer:
Validity of Appointments and acts done by directors:

(i) Appointment of Additional Director
Sec. 161(1) of the Companies Act, 2013 provides that the articles of a company may confer on its Board of Directors the power to appoint any person, other than a person who fails to get appointed as a director in a general meeting, as an additional director at any time who shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier.

Conclusion: Appointment of Mr. Anderson as additional director is not valid as he fails to get appointed in the general meeting.

(ii) Appointment of Nominee Director:
Sec. 161(3) of Companies Act, 2013 provides that 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 C.G. or the S.G. by virtue of its shareholding ¡na Government company.
Conclusion: Appointment of Mr. Black as nominee director is valid.

(iii) Appointment of Alternate Directors:

Sec. 161(2) of the Companies Act, 2013 provides that, 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.

A person hoiding any alternate directorship for any other director in the company or holding directorship in the same company cannot be appointed as alternate director.

Conclusion: Appointment of Mr. Mohan as alternate Director is not valid as he is already holding alternate directorship for some other director in this company.

Validity of acts done by the directors whose appointments are defective:
Sec. 176 of Companies Act, 2013 provides that no act done by a person as a director shall be deemed to be invalid, notwithstanding that it was subsequently noticed that his appointment was invalid by reason of any defect or disqualification or had terminated by virtue of any provision contained in this Act or in the articles of the company. Hence, acts done by the said directors till it is noticed that their appointment was not in order, remains valid.

Question 53.
Referring to the provisions of the Companies Act, 2013, examine the validity of the following:

(i) The Board of Directors of AJD Limited appointed Mr. N as an alternate director for 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.
(ii) Mr. P who is not qualified to be appointed as an Independent director is appointed by the Board of Directors of XYZ Company Limited, for an independent director, as an alternate director.
(iii) On thè request of bank providing financial assistance the Board of Directors of PQR Limited decides to appoint on Its Board Mr. Peter as nominee director. Articles of Association of the Company do not confer upon the Board of Director any such power. Further, there is no agreement between the company and the bank for any such nominatIon. [Nov. 14(8 Marks)]
Answer:
Appointment of Alternate Director and Nominee Director:

Sec. 161(2) of the Companies Act, 2013 provides the provisions relating to appointment of Alternate Director. Accordingly:
(a) Board of Directors ofa company may, if so authorised by its articles orbya 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.
(b) A person holding any alternate directorship for any other director in the company or holding directorship in the same company cannot be appointed as alternate director.
(c) 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 this Act.

Sec. 161(3) of Companies Act, 2013 provides that 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 C.G. or the S.G. by virtue of its shareholding in a Government company.

Conclusions: Applying the provisions of Sec. 161(2) and 161(3), following conclusions may be drawn:

Appointment is not valid because the power to appoint alternate director is not authorised by its articles or by a resolution passed by the company in general meeting.
Appointment is not valid as Mr. P is not qualified to be appointed as an independent director.
Appointment of Mr. Peter as nomine, director is not valid as Articles do not confer upon the Board of Directors any such power and a such, there is no agreement between the company and the bank for any such nomination.

Question 54.
Queens Limited is a company listed at Bombay Stock Exchange. Company’s Articles empower the g 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 AGM.

Examine the provisions of the Companies Act, 2013, answer the following:
(i) Whether Mr. K’s appointment as additional director by the Board of Directors is valid?
(ii) 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?
(iii) 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? [Nov. 15 (8 Marks)]
Answer:
Appointment of Additional Director:
Section 161(1) of the Companies Act, 2013 provides the provisions relating to Additional Directors. Accordingly:

Articles of a company may confer on its Board of Directors the power to appoint any person.
A person who fails to get appointed as a director at the general meeting, cannot be appointed as an additional director.
Additional director will hold office up to the date of the next AGM or the last date on which such AGM should have been held, whichever is earlier.

Conclusion: Applying the provisions of Sec. 161(1), following conclusions may be drawn:

Appointment of Mr. K is not valid as the proposal to appoint Mr. K as a director on the Company’s Board was rejected by the members at the company’s AGM.
Power to appoint additional directors cannot be exercised by members in meeting. This power vests with the Board of Directors provided conferred by the articles of the company.
Mr. K cannot continue as director, since he can hold the office of directorship only up to the date of the next AGM or the last date on which the AGM should have been held, whichever is earlier.

Question 55.
Mr. Abhi was appointed as an additional director of Pioneer Limited on 14th March, 2020. The AGM of the company was scheduled to be held on 29th Sep., 2020 but due to heavy rains and floods all records of the company were destroyed.

In order to rebuild the records, the company approached the ROC for extension of time for holding the AGM till 30th Dec., 2020. In the light of the Companies Act, 2013 advise Mr. Abhi, who was appointed as additional director during the year. [May 17 (4 Marks)]
Answer:
Tenure of Additional Director:
Section 161(1) of the Companies Act, 2013 provides the following provisions relating to Additional Directors:

Articles of a company may confer on its Board of Directors the power to appoint any person.
A person who fails to get appointed as a director at the general meeting, cannot be appointed as an additional director.
Additional director will hold office upto the date of the next AGM or the last date on which such AGM should have been held, whichever is earlier.

In the present case, Mr. Abhi was appointed as an additional director of Pioneer Limited on 14th March, 2020. The AGM of the company was scheduled to be held on 29th Sep., 2020 but due to heavy rains and floods all records of the company were destroyed. In order to rebuild the records, the company approached the ROC for extension of time for holding the AGM till 30th Dec., 2020.
Conclusion: Mr. Abhi may continue till 30th Dec., 2020.

Question 56.
Mr. Narayan, a Director of KPR Limited who is proceeding on a long foreign tour, appointed Mr. Shankar as an alternate director to act for him during his absence. The Articles of the company provide for appointment of alternate directors. Mr. Narayan claims that he has a right to appoint an alternate director. [May 17 (2 Marks)]
Answer:
Appointment of Alternate Director:

Sec. 161(2) of the Companies Act, 2013 provides that, 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.

A person holding any alternate directorship for any other director in the company or holding directorship in the same company cannot be appointed as alternate director.

In the present case, Mr. Narayan, a Director of KPR Limited who is proceeding on a long foreign tour, appointed Mr. Shankar as an alternate director to act for him during his absence. The Articles of the company provide for appointment of alternate directors.
Conclusion: Appointment is not valid as authority to appoint alternate director vested in BOD.

Question 57.
The Board of Directors of Sakthi Limited decides to appoint on its Board, Mr. Ravi as a nominee director upon the request of a bank which has extended a long term financial assistance to the company. The Articles of Association of the company do not confer upon the Board any such power. Also, there is no formal agreement between the company and the bank for any such nomination. [May 17 (2 Marks), RTP-May 18]
Answer:
Appointment of Nominee Director:

In the present case, Board of Directors of Sakthi Limited decides to appoint on its Board, Mr. Ravi as a nominee director upon the request of a bank which has extended a long term financial assistance to the company. The Articles of Association of the company do not confer upon the Board any such power. Also, there is no formal agreement between the company and the bank for any such nomination.

Conclusion: Decision of Board of Directors to appoint Mr. Ravi as nominee director is not valid as Articles do not confer upon the Board of Directors any such power and as such, there is no agreement between the company and the bank for any such nomination.

Question 58.
Mr. Single, a director of XYZ Ltd. goes Singapore, for a period of 6 months. Board appoints Mr. Replacement, in his place as an alternate director. Mr. Replacement was also holding directorship in XYZ Ltd. Identify the nature of appointment of Mr. Replacement in XYZ Ltd. as an alternate director. [MTP-Aug.18]
Answer:
Appointment of Alternate Director:

Sec. 161(2) of the Companies Act, 2013 provides that, 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.

A person holding any alternate directorship for any other director in the company or holding directorship in the same company cannot be appointed as alternate director.
In the present case, Mr. Single, a director of XYZ Ltd. goes Singapore, for a period of 6 months.
Board appoints Mr. Replacement, in his place as an alternate director. Mr. Replacement was also holding directorship in XYZ Ltd.

Conclusion: Appointment of Mr. Replacement as an alternate director is invalid as he is already a director is same company.

Question 59.
On the ground of the conviction for an offence dealing with related party transaction, Mr. Gap was disqualified to hold the directorship in XYZ Ltd, His vacancy was filled up by Mr. Samarth by the Board as a director on 3rd April, 2020 which was subsequently approved by the members in the immediate next general meeting.

Unfortunately, Mr. Samarth expired on 15th May, 2020 after working about 40 days as a director. The Board now wishes to fill up the said vacancy by appointing Mr. Able in the forthcoming meeting of the Board. Advise the Board on the validity of the following appointments as per the provisions under the Companies Act, 2013.

(i) Holding of Mr. Samarth in place of Mr. Gap
(ii) Appointment of Mr. Able in place of Mr. Samarth. [MTP-April 19]
Answer:
Filling of Casual vacancy in the Office of Director:

Section 161(4) ofthe Companies Act, 2013 provides that 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 ofthe 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.

Any person so appointed shall hold office only up to the date up to which the director in whose place he is appointed would have held office if it had not been vacated.

In the present case, due to disqualification of Mr. Gap, casual vacancy created and such vacancy was filled up by Mr. Samarth by the Board as a director on 3rd April, 2 020 which was subsequently approved by the members in the immediate next general meeting. Unfortunately, Mr. Samarth expired on 15th May, 2020 after working about 40 days as a director. The Board now wishes to fill up the said vacancy by appointing Mr. Able in the forthcoming meeting of the Board.

Conclusion: Applying the provisions of Sec. 161(4), following conclusions may be drawn:

Appointment of Mr. Samarth in place of Mr. Gap was a valid appointment
Appointment of Mr. Able in place of Mr. Samarth will be invalid appointment.

The Board may however appoint Mr. Able as an additional director u/s 161(1) of the Companies Act, 2013 provided the AOA authorises the board to do so, in which case Mr. Able will hold the office up to the date of the next AGM or the last date on which the AGM should have been held, whichever is earlier.

Question 60.
The Board of Directors of Tours Ltd., in terms of the Articles of the Company, filled up the casual vacancy caused by the resignation of Mr. Philip (who was appointed in a duly held general meeting) by appointing Mr. Max as a director on 1 st May, 2020. Unfortunately, Mr. Max expired on 15th May after working for a period of about 10 days as a director.

The Board now intends to fill up the casual vacancy by appointing Mrs. Nini (Wife of late Mr. Max) in the forthcoming meeting of the Board. Referring to and analysing the provisions of the Companies Act, 2013 Advise the Board whether it can do so. ‘ [May 19-Old Syllabus (4 Marks)]
Answer:
Filling of Casual vacancy in the Office of Director:

Section 161(4) of the Companies Act, 2013 provides that if the office of any director appointed by the company in general meeting is vacated before his term of office expires m 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.

Any person so appointed shall hoffl office only up to the date up to which the director in whose place he is appointed would have held office if it had not been vacated.

In the present case, Mr. Max was appointed in place of the Mr. Philip who resigned. However, Mr.
Max expired on 15th May, 2020 and again a vdcancy has arisen in the office of director which the Board is willing to fill by appointing Mrs. Nini. ,

Conclusion: Board of Directors cannot fill the vacancy arises on death of Mr. Max u/s 161(4) as Mr. Max was not appointed in general meeting. However, Board may appoint Mrs. Nini as an additional director u/s 161(1) of the Companies Act, 2013 provided the articles authorises the board to do so, in which case Mrs. Nini will hold the office up to the date of the next AGM or the last date on which the annual general meeting should have been held, whichever is earlier.

Question 61.
M/s. Bright Motors (P) Limited at the AGM held on 30.09.2018 appointed Mr. Anmol as a Non-Executive Director on the board of the company fora period of 3 years. On 2nd October, 2019 Mr. Anmol suffered a severe heart failure and expired. The board of directors of the company on 16th October, 2019 appointed Mr. Pratcek to fill the casual vacancy so created.

The appointment of Mr. Prateek was made for a term of three years by the board. Subsequently at the AGM held on 29-09-2020 Mr. Prateek’s appointment was not proposed or approved as the board was of the view that, it is not required. But the CFO of the company is of the opinion that the board of directors have contravened the provisions of the Companies Act, 2013 in respect of non-approval of the appointment of Mr. Prateek and his office tenure. Decide. [May 19-New Syllabus (4 Marks)]
Answer:
Filling of Casual vacancy in the Office of Director:

Any person so appointed shall hold office only up to the date up to which the director in whose place he is appointed would have held office if it had not been vacated.

In the present case, the board of directors of the company on 16th October, 2019 appointed Mr. Prateek to fill the casual vacancy. The appointment of Mr. Prateek was made for a term of three years by the board. Subsequently at the AGM held on 29-09-2020 Mr. Prateek’s appointment was not proposed or approved as the board was of the view that it is not required.

Conclusion: Applying the provisions of Sec. 161(4), it can be concluded that BOD have contravened the provisions of the Sec. 161(4) of Companies Act, 2013 in respect of non-approval of the appointment of Mr. Prateek and his office tenure.

Question 62.
You are the CFO and in-charge of legal compliances of a large multi-national company in India. The Board of Directors of the Company are broad based and comprise of competent directors who are Indian as well as Foreign Nationals. Mr. ‘X’, who is a Director (Business Development) on the Board is very often on business tour abroad. He approached you and wants to know from you the regulatory provisions of the Companies Act, 2013 relating to appointment of Alternate Directors. Analyse the following situations and advise suitably, Mr. X referring to the provisions of the Companies Act, 2013.

(a) To how many directors can a person be appointed as an alternate director and how many votes does he have in one Board Meeting?
(b) If the original director joins the Board Meeting through video conferencing without returning to India, then, can the alternate director appointed in his place attend the same board meeting? If yes, whose presence and vote will be counted?
(c) In case of a private company, where an alternate director is appointed in place of a non-executive director whose term is indefinite, then, what will be the tenure of such alternate director provided the original director does not return to India for a longer period say 3-4 years?
(d) CananExecutiveDirector/WhoIeTimcDiTector/ManagingDircctorappointalternatedirectors? [Nov. 19 – New Syllabus (8 Marks)]
Or
The Board of Directors of the Universal Ltd. which is an M NC comprised of directors who were Indian as well as of Foreign Nationals. Mr. “X”, who is a Director on the Board is very often on business tour abroad. He approached you being legal expert of the company to know from you the regulatory provisions of the Companies Act, 2013 relating to appointment of Alternate Directors.

Examine the following situations and advise suitably, Mr. X referring to the provisions of the Companies Act, 2013.
(a) Number of directors for which a person can be appointed as an alternate director.
(b) Where an alternate director is appointed in place ofa director whose term is indefinite, then, what will be the tenure of such alternate director?
(c) CananExecutiveDirector/WholeTimeDirector/ManagingDirectorappointalternatedirectors? [RTP-Nov. 20]
Answer:
Appointment of Alternate Director:
Sec. 161 (2) of the Companies Act, 2013 provides that, 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.

A person holding any alternate directorship for any other director in the company or holding directorship in the same company cannot be appointed as alternate director.

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.

As per Sec. 165 of the Companies Act, 2013, no person shall hold office as a director, including any alternate directorship, in more than 20 companies at the same time. However, the maximum number of public companies in which a person can be appointed as a director shall not exceed 10.

Conclusion: Based on the provisions stated above, following conclusions may be drawn:

(a) A person can be appointed as an alternate director only for one director in the same company but maximum 20 different companies and in one Board Meeting, an alternate director shall have one vote only.

(b) The office of alternate director is separate from the attendance of the original director in the Board Meeting and as per Sec. 161(2) of the Companies Act, 2013, an alternate director is appointed to hold the office of original director during his absence from India.

Hence, an alternate director may continue to hold office even if the original director joins the meeting by video conferencing, but the original director will be deemed to have joined only as a invitee and the attendance of the alternate director shall be counted for the purpose of the Board Meeting. This is specific only with respect to matters which shall not be dealt with through video conferencing. In matters where video conferencing is allowed, voting of original director will be counted.

(c) Tenure of alternate director will be the tenure of director in whose place alternate director is appointed, provided no disqualification arises. As per Sec. 167, the office of director becomes vacant, if he absents himself from all the Board Meetings held during a period of 12 months. Hence if the original director does not return to India for a period of 3-4 years, the office of director held by him shall become vacant as soon as period of 12 months expires during which he has not attended any Board meeting.

On vacation of office of director of original director, the office held by alternate director shall also become vacant. However, if original director attends the Board meeting through video conferencing, provisions of Sec. 167 will not be applicable and original as well as alternate director continues.

(d) An Executive Director/Whole Time Director/Managing Director cannot appoint alternate directors. Appointment of alternate director can only be made through Board.

Question 63.
The Board of Directors of a Company appointed Mr. Sarvesh as an additional director on 30th July, 2020. Mr. Sarvesh continued to hold his office till 15th October, 2020. The Company had its annual general meeting on 30th October, 2020 which should have held on 30th September, 2020. Whether Mr. Sarvesh can hold office till 15th October, 2020? [Nov. 20 – New Syllabus (2 Marks)]
Answer:
Tenure of Additional Director:

As per Sec. 161(1) of the Companies Act, 2013 additional director can hold office upto the date of the next AGM or the last date on which such AGM should have been held, whichever is earlier.

In the present case, Board of Directors appointed Mr. Sarvesh as an additional director on 30th July, 2020. Mr. Sarvesh continued to hold his office till 15th October, 2020. The Company had its annual general meeting on 30th October, 2020 which should have held on 30th September, 2020.

Conclusion: Applying the provisions of Sec. 161(1), it may be concluded that Mr. Sarvesh cannot continue hold office till 15th Oct. 2020, since he can hold the office of directorship only up to the date of the next AGM or the last date on which the AGM should have been held, whichever is earlier. Hence, he can hold office till 30th Sep. 2020.

Question 64.
In ABC Ltd. three Directors were to be appointed. The item was included in agenda for the Annual General Meeting scheduled on 30th Sep. 2020, 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 resolution. 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:
Appointment of Directors to be voted individually:
Sec. 162 of Companies Act, 2013 provides that at a general meeting of a company, a motion for the appointment of 2 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.

A resolution moved in contravention shall be void, whether or not any objection was taken when it was moved.

In the present case, ABC Ltd. has appointed three directors in AGM by passing single resolution. After the three directors joined the Board, certain members objected to their appointment and the resolution.

Conclusion: Contention of the members shall be tenable and appointment of Directors and the ‘single resolution’ passed at the Company’s Annual General Meeting shall be void.

Question 65.
XYZ Company Ltd. in its annual general meeting appointed all its directors by passing one single resolution. No objection was made to the resolution. Examine the validity of appointment of directors explaining the relevant provisions of the Companies Act, 2013. Will it make any difference, if XYZ Company was a private company?
Answer:
Appointment of Directors to be voted individually:
Sec. 162 of Companies Act, 2013 provides that at a general meeting of a company, a motion for the appointment of 2 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. ;

A resolution moved in contravention shall be void, whether or not any objection was taken when it was moved.

In the present case, XYZ Company Ltd. in its annual general meeting appointed all its directors by passing one single resolution. No objection was made to the resolution.

Conclusion: Applying the provisions of Sec. 162, it can be concluded that appointment is invalid. Provisions of Sec. 162 shall not apply in case of a private company if it has not committed a default in filing of its financial statements u/s 137 or annual return u/s 92 with the Registrar. Assuming that no default is been committed by the private company in filing of its financial statements u/s 137 or annual return u/s 92 with the Registrar, directors may be appointed by passing one single resolution.

Question 66.
Mr. Bond and Mr. Janies were appointed as Directors of Jamesbond Ltd. at the AGM held on 30th September, 2020 by a single resolution. State the relevant provisions of the companies Act, 2013 and identify is it possible to appoint the above Directors by a single resolution? [May 18 – New Syllabus (4 Marks)]
Answer:
Appointment of Directors to be voted individually:

Sec. 162 of Companies Act, 2013 provides that at a general meeting of a company, a motion for the appointment of 2 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.

A resolution moved in contravention shall be void, whether or not any objection was taken when it was moved.

Question 67.
State with reference to the relevant provisions of the Companies Act, 2013 whether the following persons can be appointed as a Director of a company:
(i) Mr. A, who has huge personal liabilities far in excess of his Assets and Properties, has applied to the court for adjudicating him as an insolvent and such application is pending.
(ii) Mr. B, who was caught red-handed In a shop lifting case two years ago, was convicted by a court and sentenced to Imprisonment for a period of eight weeks.
(iii) Mr. C, a Former Bank Executive, was convicted by a court eight years ago for embezzlement of funds and sentenced to imprisonment for a period of one year.
(iv) Mr. D is a Director of DLT Limited, which has not filed its Annual Returns pertaining to the Annual General Meetings held in the calendar years 2018,2019 and 2020.
Answer:
Disqualifications of Directors:
(i) Section 164(1)(c) states that a person shall not be eligible for appointment as a director of a’ company if he has applied to be adjudicated as an insolvent and his application is pending. Therefore, Mr. A cannot be appointed as a Director of a Company.

(ii) Section 164(1)(d) states that a person shall not be eligible for appointment as a director of a company if he has been convicted by a court for any offence involving moral turpitude or otherwise and sentenced in respect theceof to imprisonment for not less than 6 months, and a period of 5 years has not elapsed from the date of expiry of the sentence. In the present case, the period of sentence was only eight weeks, i.e., less than six months. Hence, Mr. B does not come under the purview of this disqualification and can be appointed as a director of a company.

(iii) As more than 5 years have elapsed from the expÌry of the sentence, Mr. C is no longer disqualified
and can be appointed as a director of a company.

(iv) Section 164(2) states that a person who is or has been a director of a company which has not filed the financial statements or annual returns for any continuous period of 3 financial years, then such a person shall not be eligible either to be appointed as a director of other company or reappointed as a director in the same company. In the present case, DLT Limited has failed to file annual returns. Hence, the disqualification for Mr. D is attracted and he cannot be appointed as a director in other company nor can he be reappointed in the same company.

Question 68.
Mr. John ¡sa director of MNC Ltd., which had accepted deposits from public. The Financial position of MNC Ltd. turned very bad and ft failed to repay the deposits which fell due for payment on 10th April, 2020 and such repayment has not been made till 5th May, 2021. Another company JKL Ltd. wants to appoint the said Mr. John as Its director at Its AGM to be held on 6th May, 2021. You are required to state with reference to the provisions of the Companies Act, 2013 whether Mr. John can be appointed as a director of JKL Ltd.
Answer:
Disqualifications of directors for non-filing of statements and non-payment of dues, etc.

Section 164(2) of the Companies Act, 2013 provides that a person who is or has been a director of a company which—
(a) has not filed financial statements or annual returns for any continuous period of 3 financial years; or
(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more, shall not be eligible to be re-appointed as a director of that company or appointed in other company for a period of Jive years from the date on which the said company fails to do so.

In the instant case, MNC Ltd., has failed to repay its deposit on due dates and the default continues for more than one year.
Conclusion: Mr. John will not be eligible to be appointed as a director of JKL Ltd.

Question 69.
Mr. Ramanathan is a director of Fraudulent I.td., Honest Ltd. and Regular Ltd. For the financial Year ended on 31st March, 2020, two irregularities were discovered against fraudulent Ltd. Fraudulent Ltd. did not file its financial statements for the year ended 31.3.2020 and failed to pay interest on loans taken from a financial institution for the last three years.

On 5th Jan., 2021 Mr. Ramanathan is proposed to lie appointed as additional director of Goodwill Ltd., which company has sought a declaration from Mr. Ramanathan and he also submitted the declaration stating that the disqualification specified in Section 164 of the Companies Act, 2013 is not attracted in his case. Decide under the provisions of the Companies Act, 2013:

(i) Whether the declaration submitted by Mr. Ramanathan to Goodwill Ltd. is in order?
(ii) Whether Mr. Ramanathan can continue as a Director in Honest Ltd. and Regular Ltd.?
Answer:
Disqualifications of directors for non-filing of statements and non-payment of dues, etc.

(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more, shall not be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so.

In the instant case, Mr. Ramanathan is a director of Fraudulent Ltd., Honest Ltd. and Regular Ltd. For the financial year ended on 31st March, 2020 two irregularities were discovered against Fraudulent Ltd. Fraudulent Ltd. did not file its financial statements for the year ended 31.3.2020 and failed to pay interest on loans taken from a financial institution for the last 3 years.

As the financial statements were not filed only for one year, no disqualification attaches to him. Further, the non-payment of interest to the financial institution is no ground for disqualification under section 164(2) of the Act.

Conclusions: Applying the provisions of Sec. 164(2), following conclusions may be drawn:

Declaration of Mr. Ramanathan is in order.
Mr. Ramanathan can continue his directorship in all companies as no disqualification attaches to him u/s 164(2) of the Companies Act, 2013.

Question 70.
Mr. Ravindranathan is holding the post of Director in three companies out of which Good luck Colors Limited is one. For the financial year ended on 31st March, 2019, Good luck Colors Limited failed to pay interest on loans taken from a financial institution and also failed to repay the matured deposits.

On 1st June, 2020, Mr. Ravindranathan accepting the post of Additional Director in Soma Footwear Limited submitted a declaration that the disqualification specified In Section 164 of the Companies Act, 2013 is not applicable in his case. Decide whether the Declaration submitted by Mr. Ravindranathan to Soma Footwear Limited is in order.
Answer:
Disqualifications of directors for non-payment of dues, etc.
Section 164(2) of the Companies Act, 2013 provides that a person who is or has been a director of a company which—
(a) has not filed financial statements or annual returns for any continuous period of 3 financial years; or
(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more, shall not be eligible to be re-appointed as a director of that company or appointed in other company for a period offive years from the date on which the said company fails to do so.

In the instant case, Mr. Ravindranathan is holding the post of Director in 3 companies out of which Good luck Colors Limited is one. For the financial year ended on 31st March, 2019, Good luck Colors Limited failed to pay interest on loans taken from a financial institution and also failed to repay the matured deposits. On 1st June, 2020, Mr. Ravindranathan accepting the post of Additional Director in Soma Footwear Limited submitted a declaration that the disqualification specified In Section 164 of the Companies Act, 2013 is not applicable in his case.

Failure to pay interest on loan taken from a financial institution does not attract any disqualification u^s 164(2). However, failure to repay the matured deposits on due dates attract disqualification u/s 164(2) if such failure continues for one year or more. Question is silent as to date of default.

Conclusion: If it is assumed that one year has elapsed from the failure of company to repay deposits on 1st June 2020, declaration is considered as not in order. If it is assumed that one year has not elapsed from the failure of company to repay deposits on 1st June 2020, declaration is considered & as to be in order.

Question 71.
State with reference to the provisions of the Companies Act, 2013, whether the following persons can be appointed as a Director of a company:
(i) Mr. L, who has not paid any calls in respect of any shares of the company held by him and five months have passed from the last day fixed for the payment of calls.
(ii) Mr. G is Director of LDT Limited, who has not filed the company’s annual return pertaining to the annual general meeting held in the calendar years 2018,2019 and 2020. [Nov. 16 (4 Marks)]
Answer:
Disqualifications of Directors:
(i) As per Sec. 164(1) (f) of the Companies Act, 2013, a person shall not be eligible for appointment as a director of company, if he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and 6 months have elapsed from the last day fixed for the payment of the call.
In the present case, Mr. L who has not paid any calls in respect of any shares of the company held by him and 5 months have passed from the last day fixed for the payment of calls.

Conclusion: Mr. L can be appointed as a Director of a company as only 5 months have passed from the last day fixed for the payment of calls.

(ii) As per Sec. 164(2) (a) of the Companies Act, 2013, no person who is or has been a director of a company which has not filed financial statements or annual returns for any continuous period of three financial years shall be eligible to be re-appointed as director of that company. Further, he cannot be appointed in other company for a period of 5 years from the date on which the said company fails to do so.

In the present case, Mr. G is director of LDT Limited, who has not filed the company’s annual return pertaining to the annual general meeting held in the calendar years 2017, 2018 and 2019. It means that the LDT Limited has not filed the annual return for the continuous period of three financial years i.e. 2017-18, 2018-19 and 2019-20.
Conclusion: Mr. G who is a director of LDT Limited cannot be appointed as a Director of a company.

Question 72.
Mr. Dhruv is a Director of M/s. LT Limited and XT Limited respectively. M/s LT Limited did not file its financial statements for the year ended 31st March, 2018, 2019 & 2020 respectively with the Registrar of Companies (ROC) as mandated under the Companies Act, 2013. M/s. LT Limited also did not pay interest on loans taken from a public financial institution from 1st April 2019 and also failed to repay matured deposits taken from public on due dates from 1st April 2019 onwards.

Answer the legality of the following in the light of the relevant provision of the Companies Act, 2013:

(i) Whether Mr. Dhruv is disqualified under Companies Act, 2013 and if so, whether he can continue as a Director in M/s LT Limited? Further can he also seek reappointment when he retires by rotation at the AGM of M/s. XT limited scheduled to be held in September 2021?

(ii) Mr. Dhruv is proposed to be appointed as an Additional Director of M/s. MM Limited in June 2021. Is he eligible to be appointed as an Additional Director in M/s. MN Limited? Decide. [May 13 (8 Marks), May 19-New Syllabus (4 Marks)]
Answer:
Disqualifications of directors for non-filing of statements etc.
Section 164(2} of the Companies Act, 2013 provides that a person who is or has been a director of a company which—
(a) has not filed financial statements or annual returns for any continuous period of 3 financial years; or

(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more,
shall not be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so.

In the instant case, Mr. Dhruv is a director of LT Ltd. and XT Ltd. LT Ltd. has committed following irregularities:

Non filing of financial statements for year ended 31st March 2018 to 2020 (3 Years);
Non payment of interest on loans taken from financial institution; and
Non repayment of matured deposits taken from the public from 1st April 2019.

Non filing of financial statements and non repayment of matured deposits are covered u/s 164(2).

Sec. 167(l)(o) of the Companies Act, 2013 provides that the office of a director shall become vacant in case he incurs any of the disqualifications specified in Sec. 164.

Proviso to Sec. 167(l)(a) states that if disqualification u/s 164(2) is attracted, the office of the director shall become vacant in all the companies, other than the company which is in default u/s 164(2).

Conclusion: Applying the provisions of Sec. 164(2), following conclusions may be drawn:

(i) Mr. Dhruv will become disqualified u/s 164, however he can continue in LT Ltd. but need to vacate the office in XT Ltd. as per requirement of Sec. 167(1) (a). No question of reappointment at the time of retirement by rotation arises, as he is required to vacate the office immediately in XT Ltd. due to provisions of Sec. 167(l)(a).

(ii) In view of disqualification u/s 164(2), Mr. Dhruv is not eligible to be appointed as additional director in MN Ltd. in June 2021.

Question 73.
Mr. ‘K’ is a small shareholder director in M/s KGP Tyres Limited from 1st April 2020 and in M/s VSR Cotton Mills Limited from 1st April 2021, in compliance with the relevant provisions of the Companies Act, 2013. M/s KGP Tyres Limited has not paid interest on the public deposits due from 1st July 2020. In the light of the information given above, examine the following under the provisions of the Companies Act, 2013.

(i) Whether the office of Mr. ‘K’, small shareholder director, shall become vacant in M/s KGP Tyres Limited and M/s VSR Cotton Mills Limited?
(ii) If yes, state the period from which the office of the directorship shall become vacant. [Nov. 19 – New Syllabus (4 Marks)]
Answer:
Disqualifications of directors for non-payment of interest on deposits:
As per Rule 7 of Companies (Appointment and qualification of Directors) Rules, 2014, a person appointed as small shareholders’ director shall vacate the office if –
(a) he incurs any of the disqualifications specified in Sec. 164;
(b) the office of the director becomes vacant in pursuance of section 167;
(c) he ceases to meet the criteria of independence as provided in Sec. 149(6).

Section 164(2) of the Companies Act, 2013 provides that a person who is or has been a director of a company which has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more, shall not be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so.

Sec. 167(1)(a) of the Companies Act, 2013 provides that the office of a director shall become vacant in case he incurs any of the disqualifications specified in Sec. 164.

Conclusion: Applying the provisions as stated above, following conclusions may be drawn:

Office need to be vacated in M/s VSR Cotton Mills Limited, but not in M/s KGP Tyres Limited
Office is to be vacated from 1st July 2021.

Question 74.
The Board of Director of ABC Ltd. declared interim dividend for the current financial year 20202021. The proposal of dividend declaration was accepted at the meeting and dividend was declared. However, due to some reasons, the company failed to pay the dividend to the shareholders within prescribed period. Mr. futuristic, a director on the board of this company, had offer of appointment in other company PQR Ltd. He wishes to take up the post in the appointed company. Discuss on the appointment of Mr. Futuristic in PQR Ltd. [MTP-Oct. 20]
Answer:
Disqualifications of directors for non-payment of dividend:

As per Sec. 164(2)(b) of the Companies Act, 2013, a person who is or has been a director of a company which has failed to pay any dividend declared and such failure continues for one year or more, shall not be eligible to be re-appointed as a director of that company or appointed in other company for a period of 5 years from the date on which the defaulted company fails to do so.

In the present case, ABC Ltd. in which Mr. futuristic is a director fails to pay the declared dividend. Mr. Futuristic had offer of appointment in other company PQR Ltd. and he wishes to take up the post in the other company.

Conclusion: Since Mr. futuristic was a director in a company which failed to pay dividend even after 1 year of declaration and so was a defaulted company, therefore, he cannot be appointed in PQR Ltd.

Question 75.
Mr. Balan is a Director of Green Tea Plantation Limited and True Spicy Agro Products Limited for the year ended 31st March, 2020. Some irregularities were found in the affairs of Green Tea Plantations Limited for mismanagement. Green Tea Plantation Limited did not file the financial statements for the year ended 31st March, 2020. It also failed to pay interest on loans taken from a Nationalized Bank for the last two years.

On 5th January, 2021 his name is proposed to be appointed as an additional Director of Standard Agro Products Limited. The company has sought declaration from Mr. Balan and he submitted the declaration that he is not attracted by the disqualification stated under the provisions of Sec. 164 of the Companies Act, 2013. Decide under the provisions of the Companies Act, 2013:

(i) Is the declaration submitted by Mr. Balan to Standard Agro Products Limited in order?
(ii) Can he continue as a Director of Green Tea Plantation Ltd., and True Spicy Agro Products Limited? [Nov. 20 – Old Syllabus (4 Marks)]
Answer:
Disqualifications of directors for non-filing of statements and non payment of dues, etc.

Section 164(2) of the Companies Act, 2013 provides that a person who is or has been a director of a company which-
(a) has not filed financial statements or annual returns for any continuous period of 3 financial years; or
(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more,
shall not be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so.

In the instant case, Mr. Balan is a director of Green Tea Plantation Ltd. and Ture Spicy Agro Products Ltd. For the financial Year ended on 31st March, 2020, two irregularities were discovered against Green Tea Plantation Ltd. Green Tea Plantation Ltd. did not file its financial statements for the year ended 31.3.2020 and failed to pay interest on loans taken from a nationalized bank for the last 2 years.

As the financial statements were not filed only for one year, no disqualification attaches to him. Further, the non payment of interest to the nationalised bank is no ground for disqualification under section 164(2) of the Act.

Conclusions: Applying the provisions of Sec. 164(2), following conclusions may be drawn:

Declaration of Mr. Balan is in order.
Mr. Balan can continue his directorship in all companies as no disqualification attaches to him u/s 164(2) of the Companies Act, 2013.

Question 76.
Excel limited is a listed company with a turnover of ₹ 60 crore in the FY 2020-2021. The company appoints Ms. R as the women director on 1st March 2021. Ms. R is already a director in 12 companies including 10 public companies. Also, Ms. R is chartered accountant in practice. Evaluate in the light of the given facts, the validity of appointment of Ms. R in Excel Limited. [MTP-April 18, RTP-May, Nov. 20-New Syllabus (2 Marks)]
Answer:
Number of directorships:

Sec. 165(1) of the Companies Act, 2013 provides that no person shall hold office as director, including any alternate directorship, in more than 20 companies at the same time. Out of the limit of 20, the maximum number of public companies in which a person can be appointed as a director shall not exceed 10.

Explanation to Sec. 165(1) provides that private companies that is either holding or subsidiary company of a public company shall be included in reckoning the limit of public companies in which a person can be appointed as a director.

In the present case, Ms. R was appointed as a women director on 1st March, 2021 in Excel Limited. She was already holding directorship in 12 companies including 10 public companies.

Conclusion: Appointment of Ms. R in Excel Limited is not valid as she was already a director in 10 public companies, this appointment will lead to her directorship in 11 public companies. In this case, either she can choose between the companies in which she wishes to continue to hold the office of director and resign from office as director in the other remaining companies to maintain the limit of holding of directorship.

Question 77.
Mr. Influential is already a director of 19 companies out of which 10 are public limited companies and 9 are private companies. He is being appointed as a director of another company named Expensive Remedies Ltd. Advise Mr. Influential in regard to the following:

(i) Restrictions on the number of directorships to be held by an individual and whether he can accept the new appointment in view thereof.
(ii) What are the companies to be excluded for the purpose of calculating the ceiling on the appointment of directors in a public company?
Answer:
(i)
Number of Directorships:

In the present case, Mr. Influential is already a director of 19 companies out of which 10 are public limited companies and 9 are private companies. He is being appointed as a director of another company named Expensive Remedies Ltd.

Conclusion: As Mr. Influential is already a director of 10 public companies, he cannot accept the new appointment as director in one more public company.

(ii) Companies Excluded for the purpose of calculating the ceiling on the appointment of directors in a public company:

Explanation I to Sec. 165(1) provides that for reckoning the limit of public companies in which a person can be appointed as director, directorship in private companies that are either holding or subsidiary company of a public company shall be included.
Explanation II to Sec. 165(1) provides that for reckoning the limit of directorships of 20 companies, the directorship in a dormant company shall not be included.
Sec. 165(1) shall not apply to Sec. 8 companies, which has not committed a default in filing of its financial statements u/s 137 or annual return u/s 92 with the Registrar.

Question 78.
Mr. Raj is director in 10 public limited companies as on 30th July, 2020 and continues to be so till 26th September, 2020. The following companies appoint Mr. Raj as a director at their respective : AGMs held on dates mentioned against their names:

(i) MLP Ltd. (AGM held on 27th Sep., 2020)
(ii) PAT Private Ltd. (AGM held on 25th Sep., 2020)
(iii) KMC Ltd. (AGM held on 29th Sep., 2020)

You are required to state with reference to the relevant provisions of the Companies Act, 2013 the options available to Mr. Raj in respect of accepting or not accepting the appointment of the above companies.
Answer:
Number of Directorships:

In the present case, Mr. Raj is director in 10 public limited companies as on 30th July, 2020 and continues to be so till 26th September, 2020. It is not clarified by the question about the status of directorship in existing companies after 26.09.2020. Mr. Raj is appointed as directors in MLP Ltd., PAT Private Ltd. and KMC Ltd. in their respective AGMs.

Conclusion: Assuming that there is no change in existing status of directorship of Mr. Raj after 26.09.2020, appointment in MLP Ltd., and KMC Ltd. is not proper as total number of companies in which Mr. Raj becomes a director exceeds 10. In this case, either he can choose between the companies in which he wishes to continue to hold the office of director and resign from office as director in the other remaining companies to maintain the limit of holding of directorship.

However, appointment in PAT Private Ltd. can be accepted provided it is not a holding or subsidiary company of a public company.

Question 79.
Mr. fortune is holding directorship in the following types of companies:

(i) 4 Public companies
(ii) 10 private companies
(iii) 2 companies registered under section 8 of the Companies Act, 2013.

Mr. Fortune further received offer from 7 public companies, 6 private companies and 2 companies registered under section 8 of the Companies Act, 2013. He wants to take up maximum permissible directorship.
His order of preference is as follows:

(i) Public companies
(ii) Private companies (not being holding or subsidiary of any public company) and
(iii) Companies registered under section 8 of the Companies Act, 2013

Advice Mr. Fortune referring to the restriction provisions imposed in the Companies Act, 2013. [MTP-March 18]
Answer:
Number of Directorships:

Further provisions of Sec. 165(1) shall not apply to Sec. 8 companies, which has not committed a default in filing of its financial statements u/s 137 or annual return u/s 92 with the Registrar.

Conclusion: Applying the provisions of Sec. 165(1), Mr. Fortune can hold the directorship as follows:

6 Public companies as the maximum number of public companies in which one can be a director is 10 only.
No more private company as his total holding has already reached the maximum permissible limit of 20 companies.
2 more companies registered u/s 8 of the companies Act, 2013 as there is no restriction on the number of directorship, a person can hold in the companies registered u/s 8.

Question 80.
Referring to the provisions of the Companies Act, 2013, examine the validity of the following appointment of Directors:

(i) Brown Limited, having a turnover of ₹ 60 crore in the financial year 2020-21 appoints Ms. Rose as the women director on 1st March 2021. Ms. Rose already holds directorship in 12 companies including 10 public companies. She is whole time Cost Accountant in practice.

(ii) Ms. Jasmine holds directorship in 8 public companies including managing directorship in 2 companies and directorship in 6 companies. In addition, she also holds alternate directorship in 3 companies and independent directorship in 3 subsidiary companies of Brown Limited. [Nov. 17 (4 Marks)]
Answer:
(i) Number of directorships:

In the present case, Ms. R was appointed as a women director on 1st March, 2021 in Excel Limited. She was already holding directorship in 12 companies including 10 public companies.

(ii) In the present case, Ms. Jasmine holds directorship in 8 public companies including managing directorship in 2 companies and directorship in 6 companies. In addition, she also holds alternate directorship in 3 companies and independent directorship in 3 subsidiary companies of Brown Limited.

Ms. Jasmine was already holding directorship, in 8 public companies and alternate directorship in 3 companies (assuming these companies as private) and independent directorship in 3 subsidiary companies of Brown Limited. Directorship in 3 subsidiary companies of Brown Limited will be considered as directorship in 3 more public companies.

Conclusion: Total holding of directorship by Ms. Jasmine in public companies amounts to 11 (8+3) which is invalid. In this case, either she can choose between the companies in which she wishes to continue to hold the office of director and resign from office as director in the other remaining companies.

Question 81.
Mr ‘R’ holds directorship in 10 Public Companies and 11 Private Companies as on 31.05.2020. One of the above Private Company is a dormant Company. Apart from the dormant Company, on 30.06.2020 a Private Company (in which Mr. R is holding directorship) has become a subsidiary of a Public Company.
In the light of the provisions of the Companies Act, 2013 examine and decide:

(i) The validity of holding directorship of Mr ‘R’ with reference to number of directorship as on 31.05.2020 and as on 30.06.2020.
(ii) Whether a Company has power to specify any lesser n umber of Companies in which a director of the Company may act as a director? [Nov. 19 – New Syllabus (4 Marks)]
Answer:
Number of Directorships:

Explanation I to Sec. 165(1) provides that for reckoning the limit of public companies in which a person can be appointed as director, directorship in private companies that are either holding or subsidiary company of a public company shall be included.

Explanation II to Sec. 165(1) provides that for reckoning the limit of directorships of 20 companies, the directorship in a dormant company shall not be included.

In the present case, Mr ‘R’ holds directorship in 10 Public Companies and 11 Private Companies as on 31.05.2020. One of the above Private Company is a dormant Company. Apart from the dormant Company, on 30.06.2020 a Private Company (in which Mr. R is holding directorship) has become a subsidiary of a Public Company.

Conclusion: Based on the provisions of Sec. 165 as stated above, following conclusions maybe drawn:

(i) Directorship holding as on 31.05.2020 is valid as total directorship in companies other than dormant company is within limit of 20. However directorship holding on 30.06.2020 is invalid as total directorship in public companies exceeds 10.

(ii) The members of a company may, by special resolution, specify any lesser number of companies in which a director of the company may act as directors.

Question 82.
‘X’ was appointed as a director for life by the articles of association of a private company incorporate { on 1st May 2020. The articles also empowered ‘X’ to appoint a successor. ‘X’ appointed, by will ‘Y’, to succeed him after his death. Can ‘G’ succeed ‘X’ as a director after the death of ‘X’?
Answer:
Assignment of Office of Director:

Sec. 166(6) of the Companies Act, 2013 provides that a director of a company shall not assign his office and any assignment so made shall be void.
In the present case, ‘X’ was appointed as a director for life by the articles of association of a private company incorporate on 1st May 2019. The articles also empowered ‘X’ to appoint a successor. ‘X’ appointed, by will ‘Y’, to succeed him after his death.
Appointment of a successor cannot be considered as assignment of office.
Conclusion: G can succeed as the appointment by X does not amount to assignment.

Vacation of office of director (See. 167)

Question 83.
M/s Iqbal Sons Ltd. issued shares of the nominal value of ₹ 10 per share out of which ₹ 5 was payable on application and balance ₹ 5 was payable on call. The call money was invited by the board of directors but some shareholders including a non-executive director failed to pay the same within the prescribed period. Explain the status of the director who defaulted in paying call money.
Answer:
Director’s disqualification as to non-payment of call money:

Sec. 164(1)(f) of the Companies Act, 2013 provides that a person shall not be eligible for appointment as a director of a company, if he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and 6 months have elapsed from the last day fixed for the payment of the call.

Sec. 167(1)(a) of the Companies Act, 2013 provides that the office of a director shall become vacant in case he incurs any of the disqualifications specified in Sec. 164.
In the present case, a non-executive director failed to pay the call money within the prescribed period. Question does not specify the period of default.

Conclusion: Assuming that the 6 months elapsed since the date of default relating to non-payment of call money, concerned director need to vacate the office as per provisions of Sec. 167.

Question 84.
Mr. A is director of ABC Ltd. which failed to repay matured deposits from 1st April. 2020 onwards and the default continues. But ABC Ltd. is regular in filing annual accounts and annual returns. Mr. A is also a director of PQR Ltd. and XYZ Ltd. Answer the following questions with reference to the relevant provisions of the Companies Act, 2013:

(a) Whether Mr. A is disqualified and if so whether he is required to vacate his office of director in PQR Ltd. and XYZ Ltd.
(b) Is it possible for Board of directors of DEF Ltd. to appoint Mr. A as an additional director at the board meeting to be held on 15th May 2021. Would your answer be different if Mr. A ceased to be a director of ABC Ltd, by resignation on 1st March 2021.
Answer:
Disqualifications for Appointment of Director:

Sec. 164(2) of the Companies Act, 2013 provides that a person who is or has been a director of a company which:
(A) has not filed the financial statements or annual returns for any continuous 3 financial years; or
(B) has failed to repay the deposits accepted by it or pay interest thereon on due date or redeem its debentures on due date or pay interest due thereon or pay any dividends declared and such failure continues for one year or more

shall not be eligible to be re-app<3inted as a director of that company or appointed in other company for a period of 5 years from the date on which the said company fails to do so.

Sec. 167(l)(a) of the Companies Act, 2013 provides that the office of a director shall become vacant in case he incurs any of the disqualifications specified in Sec. 164.

Proviso to Sec. 167(1)(a) states that if disqualification u/s 164(2) is attracted, the office of the director shall become vacant in all the companies, other than the company which is in default u/s 164(2).

Conclusions: Applying the provisions of Sec. 164(2) and Sec. 167(1)(a), following conclusions may be drawn:

Mr. A becomes disqualified w.e.f. 1st April 2021 and he need to vacate the office in PQR Ltd. and XYZ Ltd. Though, he may continue in ABC Ltd.
Board of Directors of DEF Ltd. cannot appoint Mr. A as an additional director on 15.05.2021 due to disqualification attracted u/s 164(2) for 5 years w.e.f. 01.05.2021.

However, if Mr. A ceased to be a director of ABC Ltd. by resignation on 1st March 2021, he may be appointed as additional director in DEF Ltd.

Question 85.
Mr. Vikram, a director of M/s Tubelight Limited has made default in filing of annual accounts and annual returns with Registrar of Companies for a continuous period of 3 financial years ending on 31st March 2020. Examine the validity of the following under the Companies Act, 2013:

(i) Whether Mr. Vikram can continue to be a director of M/s Tubelight Limited (defaulting company) and also M/s Green Light Limited, where he is also a director? Also state whether he can be re-appointed as director in these two companies.
(ii) What would your answer be in case Mr. Vikram is a nominee director of a Public Financial Institution?
(iii) What would be your answer in case the defaulting company (i.e. M/s. Tubelight Limited) is a private limited company? [Nov. 17 (4 Marks)]
Answer:
Disqualifications for Appointment of Director:

Sec. 164(2) of the Companies Act, 2013 provides that a person who is or has been a director of a company which:

(a) has not filed the financial statements or annual returns for any continuous 3 financial years; or
(b) has failed to repay the deposits accepted by it or pay interest thereon on due date or redeem its debentures on due date or pay interest due thereon or pay any dividends declared and such failure continues for one year or more
shall not be eligible to be re-appointed as a director of that company or appointed in other company for a period of 5 years from the date on which the said company fails to do so.

Sec. 167(l)(a) of the Companies Act, 2013 provides that the office of a director shall become vacant in case he incurs any of the disqualifications specified in Sec. 164.
Proviso to Sec. 167(l)(a) states that if disqualification u/s 164(2) is attracted, the office of the director shall become vacant in ail the companies, other than the company which is in default u/s 164(2).

Conclusions: Applying the provisions of Sec. 164(2) and Sec. 167(l)(a), following conclusions may be drawn:

Mr. Vikram cannot continue to be director of Green Light Limited. Though, he may continue in M/s Tubelight Limited. Mr. Vikram shall be disqualified in all companies for appointment or reappointment for 5 years.
No exemption has been provided in case of hominee directors from the provisions of Sec. 164(2) and Sec. 167(1), hence, answer will remain same even if Mr. Vikram is a nominee director of a Public Financial Institution.
Provisions of Sec. 164(2) and Sec. 167(1) are equally applicable in case of private companies; hence answer will remain same even if the Tubelight Limited is a Private Limited Company.

Resignation of director (Sec. 168)

Question 86.
Due to internal problems in the working of M/s Infighting Detergents Ltd., Mr. Satyam and Mr. Shivam, Directors, have submitted their resignations and decided to disassociate themselves with the working of the company. Mr. Sundram, the Managing Director, decides to refuse their Resignations. Examine whether the Managing Director can compel Mr. Satyam and Mr. Shivam to continue as per the provisions of the Companies Act, 2013.
Answer:
Resignation of Director

Section 168(1) of the Companies Act, 2013 provides that a director may resign from his office by giving a notice in writing to the company. The Board shall on receipt of such notice take note of the same.

Section 168(2) of the Companies Act, 2013 provides that the resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later.

There is no requirement of acceptance of resignation of directors by the Board or members.

In the present case, due to internal problems in the working of M/s Infighting Detergents Ltd., Mr. Satyam and Mr. Shivam, Directors, have submitted their resignations and decided to disassociate themselves with the working of the company. Mr. Sundram, the Managing Director, decides to refuse their Resignations.

Conclusion: No right given to MD to reject the resignation of a director and hence, he cannot compel Mr. Satyam and Mr. Shivam to continue.

Question 87.
Mr. Raj, a director of POL Ltd., submitted his resignation from the post of director to the Board of Directors on 30th june, 2020 and obtained a receipt therefore on the same day. The Board of Directors of POL Ltd. neither accepted the resignation nor did it file the required form with the Registrar of Companies. You are required to state whether Mr. Raj ceases to be the Director of POL Ltd. and if yes, since when?
Answer:
Resignation of Director

Rule 15 of the Companies (Appointment and Qualification of Directors) Rules, 2014 provides that the company shall within 30 days from the date of receipt of notice of resignation from a director, intimate the Registrar in Form DIR-12 and post the information on its website, if any.

Rule 16 of the Companies (Appointment and Qualification of Directors) Rules, 2014 provides that such director may also forward a copy of his resignation along with detailed reasons for the’ resignation to the Registrar within 30 days from the date of resignation in FORM DIR-11 along with the prescribed fee.

Section 168 (2) of the Companies Act, 2013 provides that the resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later.

In the present case, Mr. Raj, a director of POL Ltd., submitted his resignation from the post of director to the Board of Directors on 30th June, 2020 and obtained a receipt therefore on the same day. The Board of Directors of POL Ltd. neither accepted the resignation nor did it file the required form with the Registrar of Companies.

Conclusion: Resignation of Mr. Raj shall take effect from the date on which the notice is received by the company or the date, if any, specified by Raj in the notice, whichever is later, even if the company fails to intimate about the resignation of Mr. Raj to RoC.

Question 88.
Vijay, a director resigns after giving due notice to the company and he forwards a copy of resignation in e-form DIR-11 to the Registrar of Companies (RoC) within the prescribed time. What would be the status of Vijay if the company fails to intimate about the resignation of Vijay to ROC? [May 17 (4 Marks), RTP-May 18]
Answer:
Resignation of Director

In the present case, Vijay, a director resigns after giving due notice to the company and he forwards a copy of resignation in e-form DIR-11 to the RoC within the prescribed time.

Conclusion: Resignation of Vijay shall take effect from the date on which the notice is received by the company or the date, if any, specified by Vijay in the notice, whichever is later, even if the company fails to intimate about the resignation of Vijay to RoC.

Question 89.
A company has in its Articles of Association provided for appointment of not less than two thirds of the total number of its directors according to the principle of proportional representation. Can the directors so appointed be removed by the company in general meeting as per the provisions of the Companies Act, 2013?
Answer:
Removal of Directors appointed by the principle of proportional representation:

Sec. 169(1) of the Companies Act, 2013 provides that a company may, by ordinary resolution, remove a director, not being a director appointed by the Tribunal under section 242, before the expiry of the period of his office after giving him a reasonable opportunity of being heard.

It is also provided that these provisions shall not apply where the company has availed itself of the option given to it u/s 163 to appoint not less than 2/3rd of the total number of directors according to the principle of proportional representation.

In the present case, a company has in its Articles of Association provided for appointment of not less than 2/3rd of the total number of its directors according to the principle of proportional representation.

Conclusion: Directors elected by the principle of proportional representation cannot be removed in general meeting.

Question 90.
Mr. Stubborn is a director of Doubtful Industries Ltd. He along with other two directors has been running the Company for the past twenty years without declaring any dividends or giving any benefit to the shareholders. Frustrated by this, some shareholders are desirous of giving notice to pass a resolution with the support of other shareholders for his removal as a director in the AGM of the company to be held in the month of December of 2020. State the procedure to be followed for the removal of Mr. Stubborn as a director.
Answer:
Procedure for Removal of Directors:
Sec. 169(1) of the Companies Act, 2013 provides that a company may, by ordinary resolution, remove a director, not being a director appointed by the Tribunal under section 242, before the expiry of the period of his office after giving him a reasonable opportunity of being heard. Detailed procedure for removal is being prescribed by section 169(2) to sec. 169(4).

Step 1: Requirement of Special Notice – Sec. 169(2)
A special notice shall be required of any resolution, to remove a director under this section, or to appoint somebody in place of a director so removed, at the meeting at which he is removed.
Special notice shall not be sent earlier than three months from the date of meeting but at least 14 clear days before the date of the meeting, at which the resolution is to be moved.

Step 2: Sending the copy of notice to director – Sec. 169(3)
On receipt of notice of a resolution to remove a director, the company shall forthwith send a copy thereof to the director concerned, and the director, whether or not he is a member of the company, shall be entitled to be heard on the resolution at the meeting.

Step 3: Director’s right as to representation – Sec. 169(4)
Where notice has been given of a resolution to remove a director and the director concerned makes with respect thereto representation in writing to the company and requests its notification to members of the company, the company shall, if the time permits it to do so,-

(a) in any notice of the resolution given to members of the company, state the fact of the representation having been made; and

(b) send a copy of the representation to every member of the company to whom notice of the meeting is sent, and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company’s default, the director may without prejudice to his right to be heard orally require that the representation shalL be read out at the meeting.

Question 91.
Mr X, a shareholder In M/S ABC Ltd. holding 50,000 equity shares of 10 each fully paid up want to give a special notice to the company for removal of Mr. M, a director of M/s ABC Ltd. without stating any reason in the notice. You are required to state as per the provisions of the Companies Act, 2013, whether Mr. X is entitled to do so.
Answer:
Requirement of Special Notice for removal of director:

Sec. 169(1) of the Companies Act, 2013 provides that a company may, by ordinary resolution, remove a director, not being a director appointed by the Tribunal u/s 242, before the expiry of the period of his office after giving him a reasonable opportunity of being heard.

As per sec. 169(2), a special notice shall be required of any resolution, to remove a director or to appoint somebody in place of a director so removed, at the meeting at which he is removed.

Special notice shall not be sent earlier than three months from the date of meeting but at least 14 clear days before the date of the meeting, at which the resolution is to be moved.

Sec. 115 of the Companies Act, 2013 provides that where, by any provision contained in this Act or in the articles of a company, special notice is required of any resolution, notice of the intention to move such resolution shall be given to the company by such number of members holding not less than 1% of total voting power or holding shares having paid up value of ₹ 5 lakh rupees.

It was held in case of LIC vs. Escorts Ltd. that a member giving a special notice is not bound to give reasons for the resolutions to be proposed at the meeting.

In the present case, Mr X, a shareholder in M/s ABC Ltd. holding 50,000 equity shares of ₹ 10 each fully paid up want to give a special notice to the company for removal of Mr. M, a director of M/s ABC Ltd. without stating any reason in the notice.
Conclusion: Mr. X is entitled to give special notice to the company.

Question 92.
Mr. X is named as a director for life in the articles of association of M/s ABC (P) Limited which was incorporated on 1st April 2012. The Articles of Association of the company also provide that he cannot be removed by the members in general meeting. Some of the members want to remove Mr. X by passing an ordinary resolution in general meeting. State with reference to the relevant provisions of the Companies Act, 2013 whether the proposed action is valid.
Answer:
Removal of Directors:

Any provisions in the Articles which is contrary to the statutory provisions is ultra vires the Act and is not having any effect as such.

Mr. X is named as a director for life in the articles of association of M/s ABC (P) Limited which was incorporated on 1st April 2012. The Articles of Association of the company also provide that he cannot be removed by the members in general meeting. Some of the members want to remove Mr. X by passing an ordinary resolution in general meeting.

Conclusion: Provisions contained in the Articles of Association are contrary to the provisions of sec. 169(1) and hence the proposed action by shareholders to remove the director is valid subject to compliance of conditions as stated in sec. 169.

Question 93.
Mr. X, a 15% shareholder of the company and other shareholders have lost confidence in the managing director of the company. He is the director not liable to retire by rotation and was re-appointed as the managing director for 5 years with effect from 1 st April 2020 in the last general meeting of the company. Mr. X seek your advice to remove the managing director after following the procedure laid down under the companies Act, 2013.
(a) Specify the steps to be taken by Mr X and the company in this behalf.
(b) Is it necessary to state reasons to support the resolution for his removal.
Answer:
Removal of Managing Director appointed as non rotational director:
Sec. 169 (1) of the Companies Act, 2013 provides that a company may, by ordinary resolution, remove a director, not being a director appointed by the Tribunal under section 242, before the expiry of the period of his office after giving him a reasonable opportunity of being heard.

(a) Steps to be taken for Removal of Managing Director:

Procedure for Removal of Directors:
Sec. 169(1) of the Companies Act, 2013 provides that a company may, by ordinary resolution, remove a director, not being a director appointed by the Tribunal under section 242, before the expiry of the period of his office after giving him a reasonable opportunity of being heard. Detailed procedure for removal is being prescribed by section 169(2) to sec. 169(4).

(a) in any notice of the resolution given to members of the company, state the fact of the representation having been made; and
(b) send a copy of the representation to every member of the company to whom notice of the meeting is sent, and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company’s default, the director may without prejudice to his right to be heard orally require that the representation shalL be read out at the meeting.

(b) It was held in case of LIC vs Escorts Ltd. that a member giving a special notice is not bound to give reasons for the resolutions to be proposed at the meeting.

Question 94.
Super Speciality Hospital Limited has a paid up share capital of Rs. 10 crores and annual turnover of Rs. 90 crores. There are 5 directors in its board. Two doctors Mr. ZA and Mr. AZ are appointed as independent directors. Mr. ZA was appointed fora period of 5 years on 1st August, 2017 while Mr. AZ was originally appointed for 3 years on 1st August, 2016 and was subsequently reappointed for 5 years on 1st August, 2019. Now, in August, 2021, the Company wants to remove both the independent directors. Referring to the relevant provisions of Companies Act, 2013, decide whether the company can do so. [Nov. 19 – Old Syllabus (4 Marks)]
Answer:
Removal of Independent Directors:
Sec. 169(1) of the Companies Act, 2013 provides that a company may, by ordinary resolution, remove a director, not being a director appointed by the Tribunal u/s 242, before the expiry of the period of his office after giving him a reasonable opportunity of being heard.

An independent director re-appointed for second term u/s 149(10) shall be removed by the company only by passing a special resolution and after giving him a reasonable opportunity of being heard.

In the present case, in Super Speciality Hospital Limited, 2 doctors Mr. ZA and Mr. AZ are appointed as independent directors. Mr. ZA was appointed for a period of 5 years on 1st August, 2017 while Mr. AZ was originally appointed for 3 years on 1st August, 2016 and was subsequently reappointed for 5 years on 1st August, 2019. Now, in August, 2021 the Company wants to remove both the independent directors.

Conclusion: Company can remove both independent directors, however to remove, Mr. AZ, special resolution will be required. Company is simultaneously required to appoint two independent directors so as to fulfil the requirements of Sec. 149(4).

Other Comprehensive Questions

Question 95.
Mr. Ram have been appointed as a director in X Ltd. due to his holding of an office as Managing Director (MD) in its holding company, ABC Limited. In due course of time, Mr. Ram was offered by HXL Limited to join the company as a managerial personnel on very good package.

He was offered the said position on the term that he has to resign from the ABC Ltd. Mr. Ram served a notice in writing to the company by mail and through post to his registered office on 1.02.2021. His notice of resignation specified the date 15.02 2021 as the last date in the ABC Ltd. However, due to pressure of HXL Ltd., he joined the company on 13.02.2021.
Analyse, Integrate and apply in terms of the Companies Act, 2013, the legal position of Mr. Ram in | the given situations-

(i) Holding of directorship of Mr. Ram in X Ltd. after ceasing to hold office as MD in ABC Ltd.
(ii) joining of HXL Ltd, on 13.02.2021. [MTP-March 18]
Answer:
Vacation of Office of Director:

Sec. 167(1)(/J) of the Companies Act, 2013 provides that the office of a director shall become vacant in case he, having been appointed a director by virtue of his holding any office or other employment in the holding, subsidiary or associate company, ceases to hold such office or other employment in that company.

Sec. 168 provides that a director may resign from his office by giving a notice in writing to the company. The Board shall on receipt of such notice take note of the same and intimate the Registrar of Companies. The resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later.

In the present case, Mr. Ram have been appointed as a director in X Ltd. due to his holding of an office as Managing Director (MD) in its holding company, ABC Limited. In due course of time, Mr. Ram was offered by HXL Limited to join the company as managerial personnel on very good package. He was offered the said position on the term that he has to resign from the ABC Ltd. Mr. Ram served a notice in writing to the company by mail and through post to his registered office on 1.02.2021. His notice of resignation specified the date 15.02 2021 as the last date in the ABC Ltd. However, due to presShre of HXL Ltd., he joined the company on 13.02.2021.

Conclusion: Applying the provisions of sections 167(l)(h) and 168, following conclusions may be drawn:

(i) Holding of directorship of Mr. Ram in X Ltd. is invalid as he ceases to hold office in ABC Ltd. and he is liable to vacate. If, he functions as a director in X Ltd. knowing that the office of director held by him has become vacant, he shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than ₹ 1,00,000 but which may extend to ₹ 5,00,000, or with both.

(ii) joining of HXL Ltd. on 13.02.2021 is not valid as his resignation in ABC Ltd. shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later, i.e., 15.02.2021.

Question 96.
Examine the validity of the following appointments with reference to the provisions of the Companies Act, 2013:

(i) Mr. Person together with one of his relatives holds 3% of the total voting power of XYZ Ltd. The Board of Directors of the company appointed him as an independent director.
(ii) ABC Ltd., a listed company having 5,000 small shareholders, upon receiving notice from 400 of such small shareholders has refused to appoint a small shareholders’ director under section 151 of the Companies Act, 2013.
(iii) Mr. D, who fails to get appointed as a director in the general meeting of AJD Limited, subsequently was appointed as an additional director by the Board of Directors of the company.
Answer:
Validity of Director’s Appointments:
(i) Sec. 149(6)(e) of Companies Act, 2013 provides that a person who holds together with his relatives 2% or more of the total voting power of the company is not eligible to be appointed as independent director of the company. As Mr. Person together with one of his relatives holds 3% of the total voting power of XYZ Ltd, he cannot be appointed as independent directors Appointment is invalid.

(ii) As per section 151 of Companies Act, 2013 read with Rule 7 of Companies (Appointment and Qualification of Directors) Rules, 2014, a listed company, may upon notice of not less than 1000 small shareholders or l/10th of the total number of such shareholders, whichever is lower, have a small shareholders’ director elected by the small shareholders. In the case application is received by 400 small shareholders only. Hence Refusal of company to appoint small shareholder is in order. However, it may opt to have a director representing small shareholders suo motu.

(iii) Sec. 161(1) of the Companies Act, 2013 provides that the articles of a company may confer on its Board of Directors the power to appoint any person, other than a person who fails to get appointed as a director in a general meeting, as an additional director at any time who shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier. Appointment of D as additional director is not valid as he fails to get appointed as a director in the general meeting of the company.

Question 97.
The Promoters of M/s Frontline Limited a listed public company propose to have the strength of the Board of Directors as 11. They also propose to make the Managing Director and whole-time directors as directors not liable to retire by rotation. Advise on the following matters as per the provisions of the Companies Act, 2013:

(i) Maximum number of persons, who can be appointed as directors not liable to retire by rotation.
(ii) How many of the remaining directors will have to retire by rotation every year at the Annual General Meeting (AGM)?
(iii) For the purpose of increasing the strength, certain nominations were received to nominate candidates for contesting elections. One of the nominations was rejected by the directors as it was received after sending the notice of AGM and that too after the working hours of the last day on which nomination should have been received.
(iv) Can the Board of Directors increase the strength of companies’ directors to 18 from 11 by appointing additional directors through passing single resolution? [May 18 – Old Syllabus (4 Marks), RTP – Nov. 18]

Answer:
Provisions as to appointment, rotation etc. of directors:

(i) As per sec. 152(6) of Companies Act, 2013, unless the articles provide for the retirement of all directors at every AGM, not less than 2/3rd of the total number of directors of a public company shall be persons whose period of office is liable to determination by retirement of directors by rotation. Accordingly, out of 11 directors, 8 directors should be directors whose period is liable to determination by rotation. Hence, remaining 3 directors can be appointed as directors not liable to retire by rotation.

(ii) It is provided that 1/3rd of such of the directors for the time being as are liable to retire by rotation, or if their number is neither 3 nor a multiple of 3, then, the number nearest to 1/3rd, shall retire from office. Accordingly, 1/3rd of 8 directors, i.e. 2.67 considered as 3 shall be liable to retire by rotation.

(iii) As per section 160, any member of company or person proposing himself for candidature of director should give notice of 14 days to company before general meeting. It shall be signed and deposited at registered office.
Section 160 does not prescribe any hour as time limit on a particular date. Therefore, directors of company cannot reject nomination received for reason that it is received after office hours of company.

Note: Answer as given in suggested answers issued by ICAI is different, stating that director’s contention is valid.

(iv) Company shall alter its Articles of Association as per sec. 14 and increase maximum number of directors in Articles to 18. As per section 149, company can appoint more than 15 directors by passing special resolution. Accordingly, company shall call general meeting and pass special resolution. More than one directors may be appointed by single resolution provided the requirement as stated in sec. 162 is complied with.

Question 98.
VGP Ltd. is a listed public company with a paid up capital of ₹ 100 crores as on 31st March, 2021. Mrs. Jasmine, who was one of the promoters of PDS Ltd. (a Joint Venture Company of VGP Ltd.), was appointed as Woman Director on the Board of VGP Ltd. VGP Ltd. has the following proposals:

(1) To remove Mr. Z, an Independent Director who was re-appointed for a second term.
(2) To appoint Mr. N, a nominee Director in the Board as an independent director.
(3) To appoint Mrs. Jasmine as an Independent-cum-Woman Director.

With reference to the relevant provisions of the Companies Act, 2013, examine:
(i) The validity the above proposals and appointment of woman director already made.
(ii) Whether Mr. N, can be appointed as an Independent Director of PDS Ltd.?
(iii) Is an Independent Director entitled for stock option? [Nov. 18-New Syllabus (8 Maries)]
Answer:

Provisions as to Independent Directors:

Proviso to Sec. 169(1) of the Companies Act, 2013 provides that an independent director reappointed for second term u/s 149(10) shall be removed by the company only by passing a special resolution and after giving him a reasonable opportunity of being heard.

As per Sec. 149(6), a managing director or a whole-time director or a nominee director cannot be appointed as independent director.
Sec. 149(6) also provides that a director who is or was a promoter of the company or its holding, subsidiary or associate company cannot be appointed as independent director.
As per Sec. 2(6), the term “associate company” includes a joint venture company.
Conclusions: Based on the provisions as stated above following conclusions may be drawn:

(i) Proposal to remove Mr. Z an independent director is valid if removal is by Special resolution and a reasonable opportunity of being heard is provided.
Proposal to appoint Mr. N, a nominee Director in the Board as an independent director is not valid as a nominee director cannot be appointed as independent director.

Proposal to appoint Mrs. Jasmine as an Independent-cum-Woman Director is not valid as Mrs. Jasmine was promoter of PDS Ltd., which is a joint venture company of VGP Ltd.
Appointment of Mrs. Jasmine as woman director in the company is valid.

(ii) There is no specific restriction imposed under the provisions of Company Law which restricts the appointment of nominee director of a company as independent director in joint venture company of first mentioned company. Hence Mr. N, can be appointed as an Independent Director of PDS Ltd.

This situation appears to be against the intention of the law. Hence, alternative answer is possible so as to maintain integrity of independent director.
Note: Answer as given in suggested answers issued by ICAI is different stating that Mr. N. cannot be appointed as director.

(iii) As per Sec. 149(9) of Companies Act, 2013 an independent director shall not be entitled to any stock option.

Question 99.
State the legal positions as to the valid appointment of the directors in the given situations in the light of the Companies Act, 2013-

(i) Shiksham Ltd. was formed for prompting the girls education with 15 directors in its Board. Due to expansion of its objective at large scale, the company increased the strength of its directors to 20 without passing SR.
(ii) Mr. Kabir was appointed as an alternate director on behalf of Mr. Robert, as Mr. Robert goes abroad and conies back to India temporarily and leaves country again.
(iii) PQR Ltd., who failed to filea financial statement in previous financial year 2019-2020, appointed Mr. Khurana as a director in July 2020. [MTP-March 19]
Answer:
Determination of validity of director’s appointment:

(i) 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.
Shiksham Ltd. can appoint 20 directors without passing Special resolution as it is a Sec. 8 company

(ii) As per Sec. 161(2) of the Companies Act, 2013, the alternate director is required to vacate his office as soon as the foreign director comes to India. But in this case; Mr. Robert goes abroad and comes back to India temporarily and leaves country again, thus, becoming unable to transact business. Hence, alternate director (Mr. Kabir) would continue for such temporary period.

(iii) As per section 164(2) of Companies Act, 2013, if a company commits default in filing its financial statements, any person appointed as director, will not be disqualified for first six months from date of his appointment. Hence the appointment of Mr. Khurana as a director is valid until January 2021.
Note: It is presumed that PQR Ltd. also fails to file financial statements for previous years 2017-18 and 2018-19.

Appointment and Qualifications of Directors – CA Final Law Study Material

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