| _ PREVIOUS EXAMS SOLVED PAPERS CORPORATE, & ECONOMIC LAWS akaj Garg 6th Edition and For updates, Quick revision notes and revision videos visit @ wwwaltclasse: Join author telegram channel https://t.me/altclassesContents Chapter-wise marks distribution of Past Exams Chapter 1 Appointment and Qualifications of Directors Chapter 2 Meetings of the Board and its Powers Chapter 3 Appointment and Remuneration of Managerial Personnel Chapter 4 Inspection, Inquiry and Investigation { Chapter 5 |____Compromises, Arrangements and Amalgamations Chapter 6 Prevention of Oppression & Mismanagement Chapter 7 Winding Up Chapter 8 : Companies incorporated Outside India Chapter 9 Miscellaneous Provisions | Chapter 10 |___ Adjudication and Special Courts Chapter 11. National Company Law Tribunal and Appellate Tribunal Chapter 12 Corporate Secretarial Practice - Drafting of Notices, Resolutions, Minutes & Reports Chapter 13 Securities Contracts (Regulation) Act, 1956 and SCR Rules, 1957 Chapter 14 Securities and Exchange Board of India Act, 1992 & SEBI (LODR) Regulations, 2015 5 PAGE LM li 24 31 41 51 61 7a a1 9a 101 ua wa BA 4a+6 CONTENTS Chapter 15 Foreign Exchange Management Act, 1999 Chapter 16 Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act, 2002) Chapter 17 Prevention of Money Laundering Act, 2002 Chapter 18 Foreign Contribution (Regulation) Act, 2010 Chapter 19 Arbitration and Coneiliation Act, 1996 Chapter 20 Insolvency and Bankruptcy Code, 2016 Suggested Answers - May 2019 Exam Suggested Answers - Nov. 2019 Exam Suggested Answers - Nov. 2020 Exam PAGE 151 161 7d 181 19.1 201 PI P7 p12Chapter-wise marks distribution of Past Exams CORPORATE AND SECURITIES LAW es 1 [Appointment and Qualifications of Directors a | 2 | 16 | 16 | 10 2___ [Meetings of Board and its Powers zo | 1 | 6 6 “Appointment & Remuneration ofManagerialPersonnel| 2 : : 10 Inspection, Inquiry and Investigation 7 12 : 4 5 (compromises, Arrangements and Amalgamations | 8 5 4 4 3 | Prevention of Oppression and Mismanagement : 3 4 : : Winding up 6 : 8 4 |_4 ~ [Producer Companies (Excluded from syllabus from] - 6 : : - Nov. 19 Exam) 8 _ [Companies Incorporated outside India 2 | 0 [| - 8 : ‘9 _ [Miscellaneous Provisions a | - 8 4 8 10 |Gompounding of Offences, Adjudication and Special] 2 2 [_- - 4 courts _ | 11 [National Company Law Tribunal & Appellate Tribunal] & ~ |” 8 : : : 12__ | Corporate Secretarial Practice pe [- : : | 13 _ [Securities Contracts (Regulation) Act, 1956 is | 9 4 4 4 14 _ |SEBI Act, 1992 and SEBI (LODR) Regulations - 6 4 4 | PART Il : ECONOMIC LAWS. 15 _ [Foreign Exchange Management Act, 1999 6 6 : - 3 16 __|SARFAESI Act, 2002 5 5 6 6 3 17 _ [Prevention of Money Laundering Act, 2002 6 6 9 9 9 18 _ [Foreign Contribution (Regulation) Act, 2010 6 | 6 6 6 3 19 _ [Arbitration and Conciliation Act, 1996 [3 3 - : 3 20__ [Insolvency and Bankruptcy Code, 2016 wo | to | 9 9 a Total Marks 124 | 124 | as | 84 | 88" “Brom May 19 Exam, marks are covered only for descriptive part of paper as MCQ paper was not issued in public domain. 7Appointment and Qualifications of Directors | __ Depa Anya Pas Sean Clee lions New Syllabus ae Attempt |Q.No. | Topic | Suggested Answer | Marks May 18 [1(a) _| Practical Iustration on Sees. 149(4), 149(6) & 197(5)| __ Refer Q No.17 8 6f@) Practical Illustration on Sec. 162 Refer Q. No. 66 4 Nov.18 | 4(a) Practical Illustration on Sec. 151 & Rule 7 Refer Q. No. 28 8 5(a) Practical Illustration on Secs. 2(6), 149(6) & 164, Refer Q. No. 98, 8 6a) Practical Illustration on Sec. 149(4) and Rule 4... |. Refer Q.No.20 4 May19* | 1(@) Practical Illustration on Sec. 152(7) Refer Q.No. 39 8 6(@) Practical Illustration on Sec. 161(4) Refer Q.No. 61 4 6(0) Practical Illustration on Sec. 164(2) Refer Q.No. 72 4 Nov. 19* | 1(@) Practical Illustration on Sec. 161(2) Refer Q. No. 62 8 6(@) Practical Illustration on Sec. 164(2)/Sec. 165 Refer Q.No.73/81 4 6(6) Process of Surrendering DIN Refer Q. No. 45 4 obtained inadvertently May 20% Exams Cancelled due to Covid-19 Nov. 20" | 6(a) Practical Illustration on Sec. 165(1) Refer Q. No. 76 2 6(@) Practical Illustration on Rule 3 and Sec. 161(1) ReferQ.Nos.9&63 | 4 6(b) Practical Illustration on Sec. 151 and Rule 7 Refer Q.No. 30 4 *From May 19 Exam, marks are covered only for descriptive part of the paper as MCQ paper was not issued in public domain by ICAL a1 as “oNANN —— Tax 1.2 APPOINTMENT AND QUALIFICATIONS OF DIRECTORS “Gompanies Wo have Board of Directors (ec. 149 & Rule: Qa [As per the Articles of Association, the maximum number of Directors of each of the following companies is 9: (@ Good heart Company Limited. (i) Frontline Trading Private Limited. (iif) 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 lean dager ‘Ans: Increase in number of Directors: © Section 149(1) of the Companies Act, 2013 provides that every company shall have a Board of rectors consisting of ndividualsas directorsand shali havea minimum number of 3 directors in the case of a public company, 2 directors in the case of a private company, and one director 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) Inthe case of the first two companies, ie. 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. (0) Incase 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. Q2 | InXYZ.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. ‘Ans : Filling of casual vacancy in case of Woman Director: @ Rule3 of Companies (Appointmentand Qualification of Directors) Rules, 2014 provides thatany 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. ‘@ Inthe 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: (@) Ifafter 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. (®) Iafter 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.APPOINTMENT AND QUALIFICATIONS OF DIRECTORS 13 Q3 [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: (@ Explaining the provisions of the Companies Act, 2013, state whether it is mandatory for the ‘company to appoint such directors in its Board. (ii) What would be your answer in case the company is a non-listed company and the Board of Directors decided not to have the Women Director in the company’s Board? (iii) Whatshall beyour answerin case the company in question isnot listed at any ofthe 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. ‘Ans: 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; (i) Every other public company having; (a) paid-up share capital of € 100 Cr. or more; or (0) turnover of @ 300 Cr. or more. ‘The paid-up share capital or turnoveras on the last date of latest audited FS. 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 providesthateverycompany shallhaveatleastonedirector 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 compiiiy the requirement u/s 149(3) shall apply proportionately at the end of the financial yearin 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)] (i) Itcase ofunlisted company,appointmentof women directorsisnotmandatory providedcompany is not covered under Rule 3. (iif) Appointmentof woman director is not mandatory as company does not fall under the categories prescribed in Rule 3, 04 | 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 ofthe 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)) gNNVWXYL:TAXMANN®- 14 Qs Q6 APPOINTMENT AND QUALIFICATIONS OF DIRECTORS ins: 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. ‘@ Inthe present case, the number of directors is proposed to be increased to 16, company will be required to comply with the followings: | (0 Alter the Articles of Association u/s 14, so as to increase the number of directors in the Articles from 10 to 16; and (i 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) | Examine the validity of the following appointments with reference to the provisions of the Comme panies 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 ifthe Board Meeting of the company was held on 8th November, | 20207 2 i [May 15 (4 Marks)] Ans: Filling of casual vacancy in case of Woman Director: Rule3 of Companies (Appointmentand Qualification of Directors) Rules, 2014 providesthatany intermittent vacancy ofa 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, @ Inthe 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, Le, 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 ie. after the resignation of Ms. Sheela, Examine the validity of the following appointments with reference to the provisions of the Com- panies 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)} Ans: Requirement of Resident Director: @ | Sec.149(3)of Companies Act, 2013 providesthateverycompanyshallhaveatleastonedirector 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 itis incorporated. ec. 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,Q7 Qs APPOINTMENT AND QUALIFICATIONS OF DIRECTORS 15 ‘@ 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, @ Inthe Present case, LKG Ltd, was incorporated on Sth 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 tobe the firstdirectors 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) Sky Limited, a listed company has been incorporated under the Companies Act, 2013. An inter- mittent vacancy of a woman director has arisen on 15th June, 2020. Advise the company tofill the vacancy as per the provisions of the Companies Act, 2013. The Board meeting was held on 14th August, 2020. £ ___INov. 16 (4Marks)] ‘Ans : Filling of casual vacancy in case of Woman Director: Rule3 of Companies (Appointmentand Qualification of Directors) Rules, 2014providesthatany intermittent vacancy ofa 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 islater Inthe 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 Rule 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 ca it shall be filled up by 14th Sep, 2020. 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: (0 Whether the Board of Directors can do so? = (W), Will your answer differ ifthe said Company would have been a Government Company? [May 19 - Old syllabus (4Marks)] Answer: Increase in number of Directoy @ 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. @ Inthe present case, the number of directors is proposed to be increased to 16, company will be required to comply with the followings: (9 Alter the Articles of Association u/s 14, so as to increase the number of directors in the Articles from 15 to 18; (1) Aspecial resolution is to be passed at a duly convened general meeting of the company to increase the number of directors to 18. XN: “NNR1.6 APPOINTMENT AND QUALIFICATIONS OF DIRECTORS Conclusion: Applying the provisions of Sec. 149(1) and exemptions available, following conclusions may be drawn: (0. BOD can increase the number of directors after altering AOA u/s 14 and by passing a Special resolution u/s 149(1). (i) Incase of Govt. companies limit of maximum directors notapplicable, hence, BOD can increase the number. Q9 Ms. Nisha was appointed as director of LMN Limited on 40th 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? a _ [Noy, 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; © Inthe 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. Q10 PAXMANN®— e Tas 1454) - 149043), See. 4 z : Explaining the regulatory provisions of the Companies ‘Act, 2013 and the rules thereof ee the appointment of independent directors ona company’s Board, state whether BCD company Ltd. is required to appoint Independent directors in the following situation: | (a) The company has 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. (©) Whether a person who hold the position of a Key Managerial Personnel can be appointed as an Independent Director? _ Appointment of Independent Director: @ Asper sec. 149(4) of Companies Act, 2013, every listed public company shall have atleast one- third ofthe 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: (1) the Public Companies having paid up share capital of 10 crore rupees or more; or | (2) the Public Companies having turnover of 100 crore rupees or more; or (3) the Public Companies which have,inaggregate, outstandingloans, debenturesand 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 ofthe 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) Asthe company has paid up share capital of & 10 Crores, 2 independent directors are mandatory as per requirement of Rule 4. (b) Incasepaid up sharecapital ofthe company is 2 Crores, independentdirectorsarenotmandatory, (c)_As provided by sec. 149(6), KMP cannot be appointed as Independent Director.APPOINTMENT AND QUALIFICATIONS OF DIRECTORS 47 Q.11 | Me 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, there- fore 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, ‘Ans: Tenure of Independent Auditor @ Sec.149(10) of Companies Act,2013 provides that an independent director shall hold office fora term upto 5 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. ® Section 149(11) of Companies Act, 2013 provides thatno independent director shalll hold office formorethan 2consecutiveterms, butsuch independentdirector shall be eligiblefor 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. @ Itis 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. @ Inthepresentcase, Mr. Azad, an independent director, has completed two tenuresin thecompany, 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 tenures is less than 10 years. Q.12 | Mita. isan unlisted company engaged in FMCG sector having 11 directorsonitsBoard, 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 wig (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. Ans : 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; (if) Every other public company having: (a) paid-up share capital of € 100 Cr. or more; (b) turnover of & 300 Cr. or more, The paid-up share capital or turnover as on the last date of latest audited FS. shall be considered for this purpose, NNVIVKYE: oN18 | gus WANN TAxM Qa4 APPOINTMENT AND QUALIFICATIONS OF DIRECTORS ‘@ Incaseofnewiy incorporated companies covered underprescribederiteriaofRule3,appointment shall be made within six months from the date of incorporation. | Appointment of Independent Director: @ Asper 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. @ Asper Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, the following class or classes of companies shall have atleast 2 directors as independent directors (1) the Public Companies having paid up share capital of 10 crore rupees or more; or (2) the Public Companies having turnover of 100 crore rupees or more; or (3) the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding 50 crore rupees. Conclusion: Considering therequirements 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 XYZ Limited isan unlisted public company havinga paid-up capital of€ 20 crores ason 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: (9 Minimum number of directors appointed as Independent Director in XYZ Limited, (4 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? (ii If suppose XYZ Ltd. (Unlisted public company) is a dormant company, what shall be the law __Felated to the appointment of Independent director? a ___IMTP-March 18] ‘Ans: Requirement of Independent Directors: ® Asper 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: (1) the Public Companies having paid up share capital of 10 crore rupees or more; or (2) the Public Companies having turnover of 100 crore rupees or more; or (3) the Public Companies which have, inaggregate, outstandingloans, debentures and deposits, exceeding 50 crore rupees. Wherea company ceases to fulfilany ofthe above3 conditions for 3 consecutive years, itshall not be required to comply with these provisions until such time as it meets any of such conditions. @ _ Followingclassesofunlisted publiccompaniesshall notbe required tohhaveminimumindependent director: (a) AJoint venture (b) Awholly owned subsidiary, and (©) A dormant company. Conclusion: Applying the provisions of Sec. 149(4) and Rule 4, following conclusions may be drawn: (9 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. (lid) In case of dormant company, requirement of minimum number of independent director does not apply. XYZ Limited is an unlisted public company havinga 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, sa dormant company. IMTP-April 18]APPOINTMENT AND QUALIFICATIONS OF DIRECTORS 19 ‘Ans: Requirement of Independent Directors: Refer answer of Q. No. 13. Conclusion: Company must appoint 2 independent directors. In case of dormant company, Qas 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: (State the minimum number of independent directors that the company should appoint. (i) How many independent directors are to be appointed in case XYZLimited is listed company? lL [May 16 (4Marks)] Ans: Requirement of Independent Directors: (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 (6) the PublicCompanies which have, in aggregate, outstandingloans, debenturesand 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 FS, 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. (if) Section 149(4) ofthe Companies Act, 2013 provides thatevery 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, Incase, XYZ Limited isalisted company, 1/3rdoftotal number ofdirectors shallbe theindependent directors. Conclusion: Company must have atleast 5 directors (1/3rd of 13.= 4.33 rounded as 5) as, independent directors. Qu6 “The Composition of the Board of Directors of a listed company as on 31-03-2021 comprised of ( Mr. A, Director, (i) Mr:B, Director (iif) Mr. C, Director, (iv) M& 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? i i [May 17 (4 Marks), RTP-May 18] ‘Ans: Requirement as to woman director and independent directo: @ 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; (i) 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 latestaudited FS. shall be considered for this purpose, ONXWLTAKMANN® Qa7| ‘@ Any intermittent vacancy of a women director shall be filled-up by the Board at the earliest but APPOINTMENT AND QUALIFICATIONS OF DIRECTORS 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 ofthe 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: (9 One women director shall be appointed by the Board atthe earliestbut notlater than immediate next Board meeting or 3 months from the date of such vacancy whichever is later. (W Section 149(4) is already compiled with as 1/3rd of the total number of remaining directors (Le. 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 | ETC Limited is an unlisted public company having a paid-up capital of € 100 crores as on 1st | 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 permeet- ing, The board of directors is comprised of Independent Directors and woman directors also. ‘The company is having 7 directors in its Audit Committee, Shri PKY, 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 Shri PKV as Independent Director of the company. The board of director Propose to ix sitting fee of 50,000 permeeting to Independent director and? 30,000 per meeting to Woman Director taking into consideration their experience and qualification, In the light of the provisions of the companies Act, 2013, advise the board of directors in the following matters: 1. Appointment of Mr, PKV as independent director. 2. Fixing sitting fee of € 50,000 to independent director and ¢ 30,000 to Woman Director, 3. Minimum number of independent directors. 4, Maximum sitting fee to a director, Assuming CTCLtd. isa Government Company, what willbe your advise in the matter ofappointment _of Mr, PRV as independent director, [May 18- New Syllabus (8 Marks)] Ans: Appointment of Independent Directors and Sitting Fees: (0 Appointment of Mr, PKV as Independent Director: © 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. ‘® Inthe present case, Mt: 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, (i) Fixing Sitting Fees of 50,000 to independent director and % 30,000 to woman director: ® Aspersection 197(5) read with Rule 4 of the Companies (Appointmentand Remuneration of Managerial Personnel) Rules, 2014, a company may pay a sitting fee to a director forQus APPOINTMENT AND QUALIFICATIONS OF DIRECTORS 141 attending board or committee meetings, such sum as may be decided by Board which shall notexceed® 1 Lacper meeting Itis also provided that for independent director and woman director the sitting fees shall not be less than the sitting fees payable to other directors. @ Inthe present case, Board is willing to fix sitting fees of ® 50,000 to independent director and 30,000 to woman director: I is being allowed subject to condition that it shall not be Jess than the sitting fees payable to other directors and altering the Articles of Association by Special Resolution (i) Minimum number of independent director: @ sper sec. 149(4) of Companies Act, 2013, every listed public company shalll 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 () 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 ofa 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 diréctot will be 8 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: @ 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. @ 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. _ M/s. Bosch and Lawrence Limited, an unlisted company has a paid up equity share capital of € 11 crores as on 31st March, 2016. Mr, Robert was appointed as an Independent Director at the AGM of the company held on 29-9-2018 for a period of one year. Again, he was appointed in the subse- quent 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? IRTP-Nov. 18], | |“Q19 XxMANN®. APPOINTMENT AND QUALIFICATIONS OF DIRECTORS ‘Ans: Tenure of Independent Auditor © Sec.149(10) of Companies Act, 2013 provides that an independent director shall hold office fora term up to 5 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. @ Itis 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 in 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 fora 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. 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 is less than 10 years, Considering the regulatory provisions of the Companies Act, 2013 and the rules thereofregarding the appointmentdirectors 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: | @ The public company has a paid-up share capital of % 10 crores | G® What shall be your answer in case the company’s paid up share capital is only ® 2 crores. (if) Whethera person who holds the position ofa Key managerial personnel in the same company | canbe appointed as an Independent Director? (iv) Inrelation to mandatory women directors as required under the Companies Act, 2013 should such directors also be Independent Directors? [Nov. 18-Old Syllabus (6 Marks)] ‘Ans: Requirement of Independent Director: ® AsperSec. 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; o b. the Public Companies having turnover of 100 crore rupees or more; or ¢ thePublic Companies which have, in aggregate, outstandingloans, 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: ( Assumingthatcompany isan unlisted company, it shall haveatleast \dependentdirectors as per requirements of Rule 4s discussed above.APPOINTMENT AND QUALIFI ICATIONS OF DIRECTORS 1.13 ~~ (if) Assuming that company is an unlisted company, it does not require to have independent director as paid up capital is less than & 10 Cr. (iii) As per provisions of Sec. 149(6) of Companies Act, 2013, a person who holds the position ofa Key managerial personnel in the same company, cannot be appointed as independent director. (iv) Itis not mandatory that women directors should be Independent Directors. Q.20 ABC Limited is an unlisted public company havinga paid up equity share capital of & 20 Crores and aturnover off 150 Crores as on 31stMarch, 2021. The total number of directors on the Board is 13. Referring to the provisions of the Companies Act, 2013 answer the following: (The minimum number of Independent Directors that the company should appoint. (i) How many Independent Directors are to be appointed in case ABC Ltd. is alisted company? [Nov. 18-New Syllabus (4 Marks)] | Ans: Requirement of Independent Directors: (9 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: (@) the Public Companies having paid up share capital of € 10 crore or more; or (8) the Public Companies having turnover of & 100 crore or more; ot {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 RS. 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 isuch'4 /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. Qazi Rudraksh Ltd, a public company, was incorporated for supply of solar panels for the emerging project of government for construction of highways. However, the said project did not turn up for two years due to some legal implications, During the said period, no any significant accounting transaction was made and so the company did not file financial statements and annual returns during the last two financial years. In the meantime, the Board proposed for Mr. Ram & Mr. Rahim to be appointed as an Independent Directors for their independent and expertise knowledge and ‘experience for better working and improvement of financial position of the company. Evaluate in the light of the given facts, nature of the proposal for an appointment of Mr, Ram & Mr, Rahim in the Rudraksh Ltd. for improvement of the company. IRTP-May 19]114 AXMANN®~ Q22 “Q23 ‘Appointment of Directors elected by. ‘Sinall shareholders (See. 454 & Rule 7 APPOINTMENT AND QUALIFICATIONS OF DIRECTORS ‘Ans : 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. @ Asper Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, the following class or classes of companies shall have atleast 2 directors as independent directors: (1) the Public Companies having paid up share capital of 10 crore rupees or more; or (2) the Public Companies having turnover of 100 crore rupees or mor or j (3) the Public Companies which have, in aggregate, outstandingloans, 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: (@) Ajoint venture (b) Awholly owned subsidiary, and (0 Adormant 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 ‘The Board of directors of M/s ABC Limited, an unlisted company having a paid-up peapicl Ofte ‘erores 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: “Isitnecessary for the Company to appoint a Directorto represent the ‘Small Shareholders explaining the relevant provisions of the Companies Act, 2013 and the Rules. ‘Ans: Requirement of Small Shareholder’s Director: "advise 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. @ Inthe 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. Conclusio : 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. ‘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APPOINTMENT AND QUALIFICATIONS OF DIRECTORS 1.15 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, Lif Mr. 4 is already holding a position of small shareholders director in more than two companies, s: Appointment of director elected by small sharehold @ 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 1/10th of the total number of such shareholders, whichever is lower; have a small shareholders’ director elected by the small shareholders. @ Inthe 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. Ais already holding a position of small shareholders director in more than 2 companies, then he cannot be appointed. Q.24 M/s. Neemuch Pharma Limited is a company listed with Malhargarh Stock Exchange. Some small shareholders of the said company want to appoint Mr, Avadhesh as a Director as their represen- tative 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. 14 (8Marks)]_ Appointment of director elected by small shareholder 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 1/10th of the total number of such shareholders, whichever is lower, havea small shareholders’ director elected by the small shareholders. @ _Inthepresentcase, 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 smalll shareholder director Conclusion: Assuming that the notice is being served by minimum prescribed number of small shareholders (1000 small shareholders or 1/10th oftotal number, whichever islower), Mr.Avadhesh can be appointed as director.| ¢ % 4 5 Q26 APPOINTMENT AND QUALIFICATIONS OF DIRECTORS | DD Lta. holders’ 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? | (© 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)] ‘Ans: Requirement as to appointment of small shareholder director: Section 151 of Companies, Act, 2013 provides thata 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: Ashareholder 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 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 itis possible to appointa person who does not hold any share in the company, assmall shareholders’ director, (c) Tenure of Smail 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. __ ‘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)} ‘Ans; 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. ‘s a listed company and it has been served with notice for appointment of small share-Q27 APPOINTMENT AND QUALIFICATIONS OF DIRECTORS 1417 ‘@ Inthe given case, 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 | 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 sharcholder’s director to safeguard their interest and to get 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) Whatprocedure should be followed by group of shareholders to have Mr.X,asmalll 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 adirector?_ [MTP-Aug. 18]_ ‘Ans: Procedure for appointment of director elected by small shareholders: © Sec, 151 of Companies Act, 2013 provides thata 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 listed company, may upon notice of not less than 1,000 small shareholders or 1/LOth of the total number of such shareholders, whichever is lower, have a small shareholders’ director elected by the small shareholders. @ Smallshareholdersintendingto proposeapersonasacandidate for the postofsmallshareholders 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 ofthe 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 Ifthe 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. thathe is not disqualified to become a director under the Act; and c__ his consent to act as a director of the company. © Aperson 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 subjectto, his being eligible u/s 149(6) and his giving a declaration of his independence in accordance with Sec. 149(7)———raxa 118 APPOINTMENT AND QUALIFICATIONS OF DIRECTORS Exceptions subject to which small shareholder directors are appointed: The appointment of sinall 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 tenureas 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. ‘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 followin, (@ Is it mandatory for the company to appoint a Director to represent Small Shareholders? (i) Ifthe company decidestoappointsuch a Director, the procedure to be followed bythe company for such appointment and the tenure for which such appointment can be made. (ii) Whether such a Director be considered as an Independent Director? (iv) When doesa 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 | thereund [Nov. 18 - New Syllabus (8 Marks)} Ans: Provisions as to appointment of directors elected by Small Shareholder: (@) Mandatory Requirement to appoint a Director to represent Small Shareholde: @ 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? ofthe Companies (Appointmentand Qualification of Directors) Rules, 2014 provides thata 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. 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. (5) 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 share- holders 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 nameis being proposed for the post of small shareholders’ director stating (@) his Director Identification Number; | (8) that he is not disqualified to become a director under the Act; and (©) his consent to act asa 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 notexceed a period of 3 consecu! years and on the expiry of the tenure, such director shall not be eligible for re-appointment:APPOINTMENT AND QUALIFICATIONS. DIRECTORS. 119 (Q Status ofSmall Shareholder Director: Rule7 ofthe Companies (Appointmentand Qualification of Directors) Rules, 2014 provides that such director shall be considered as an independent director subject to, hisbeing eligible u/s 149(6) and hisgivinga declaration ofhis independence in accordance with Sec. 149(7). (@) Vacation of Office by Small Shareholder Director: director shall vacate the office if- person appointed assmall shareholders’ (0) he incurs any of the disqualifications specified in Sec. 164; (i) the office of the director becomes vacant in pursuance of section 167; (iii)_he ceases to meet the criteria of independence as provided in Sec. 149(6) Q29 | Ans: (#) Tenure of Small Shareholder Director B Ltd. is a listed Company and it has been served with a notice for appointment of a small share- holders’ director: Referring to the provisions of the Companies Act, 2013, examine the following; () The tenure of small shareholders’ director and whether he can be re-appointed as such, after expiry of his tenure? (i) 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)] © 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. © Rule7 ofthe 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, (if) 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. Q30 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 Boards 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)] ‘Ans: Appointment of director elected by small shareholders: @ Sec. 151 of Companies Act, 2013 provides that 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 thata 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, havea small shareholders’ director elected by the small shareholders. @ Smallshareholdersintendingto proposeapersonasacandidate forthe postofsmall 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 ofthe 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:{ | TAXMAD 1.20 Appointment of Directors (ee. 152) APPOINTMENT AND QUALIFICATIONS OF DIRECTORS ‘© 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: Asthe proposalismade by more than requisitenumber (10% of total smallshareholders) of small shareholders, Mr, Babulal can be appointed as a director subject to compliance of other requirements of Rule 7. Q31 ‘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, Ans Number of directors liable to retire by rotatio ‘@ Section 152(6) of Companies Act, 2013 provides that unless the articles provide for the retire- ment 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. ‘@ Atthe first AGM ofa 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 1/3rd, 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. @ Inthe present case, there are 5 directors. Not less than 2/3rd of § 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, je. 1.33 or nearest, Le. 1. Conclusion: One director who has been longest in the office shall retire. Q32 ‘ABC company Limited in its first general meeting appointed 6 directors whose period of office is liable tobe determined by rotation. Briefly explain the procedure andrulesregardingretirementof | these directors. Will it ake any difference If ABC company does not carry on business for profit? Ans: Number of directors liable to retire by rotation: @ Section 152(6) ofCompanies Act, 2013 provides thatunless the articlesprovide for theretirement 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. © Atthe first AGM ofa public company held nextafter the date ofthe 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 1/3rd, 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, 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, ie. 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. —“933 Q.34 not expressly resolved not to fill the vacan APPOINTMENT AND QUALIFICATIONS OF DIRECTORS 1.21 ‘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) Maximumnumber of persons who canbeappointedas directors notliabletoretire byrotation. (b) How many of the remaining directors will have to retire by rotation every year at the annual general meeting ‘Ans ; Number of directors liable to retire by rotation: Section 152(6) of Companies Act, 2013 provides thatunless the articles provide or theretirement 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. © Atthe first AGM ofa public company held next after the date of the general meetingat 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 mul of 3, then, the number nearest to 1/3rd, shall retire from office. © 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, ie. 3 can be directors not liable to retire by rotation. © No, of directors to retire at AGM will be 1/3rd of 8, i. 2.67 or nearest, ie. 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, le, 3 directors, will have to retire by rotation at the AGM, but eligible for re-appolntment. 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. Ans : 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 hie vacancy, the meeting shall stand adjourned till the same day in the next week, at the same time and place, or ifthat day isa national holiday, til the next succeeding day which is not a holiday, at the same time and place. @ Itfurther provides that ifat 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; (ii) 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; (iti) he is not qualified or is disqualified for appointment; (iv) aresolution, whetherspecial or ordinary, is required for his appointmentor re-appointment by virtue of any provisions of this Act; or (v) 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 ifthe vacancy of the retiring director is not filled up and that meeting also has ubject to conditions as specified. WML:1.22 APPOINTMENT AND QUALIFICATIONS OF DIRECTORS (a) (35 | A company has 11 directors on the Board consisting of the following: List out in order, who shall be vacating the office at the 4th AGM of the company Mr, Active, Mr. Archive as nominees from two Public Financial Institutions, ‘Mr; First, Mr. Second, Mr. Third appointed at the 2nd AGM. ‘Mr. Fourth, Mr. Fifth appointed at the 3rd AGM, Mr, Addition was appointed as additional director subsequent to 3rd AGM. ‘Mr, Casual was appointed as director in place of Mr. Soul who died and was earlier appointed during the 3rd AGM. ‘Mr. Excellent was appointed as Managing Director for 5 years wef, 2nd AGM. Mr. One more was appointed as additional Director soon after Mr. Addition was appointed as Additional Director. 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 ofall the directors atevery general meeting notless than 2/3rd ofthe total number of directors ofa public company, shall be persons whose period of office is liable to determination by retirement of directors by rotation, ‘@ Atthe first AGM ofa 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 1/3rd, shall retire from office. @ Thedirectors to retire by rotation at every annual general meetingshall 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 (0. Provisionsregardingappointmentandremovalof directors, does notapplyover the nominee directors. Hence, Mr: Activeand Mr. Archive, whoare nominees of Public Financial Institutions respectively, will not be considered for total number of directors for the purpose of Sec. 152(6). (i 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) (lif) 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. (i) 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, (v) Mr-Bxcellent, the Managingdirector may bearotational ornon-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, Le. 6 should be rotational director and 1/3rd of 6, ie. 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 —APPOINTMENT AND QUALIFICATIONS OF DIRECTORS 1.23 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. Q.36 | The Articles of Association of XBL Limited provided of maximum number of Directors 12, Presently, Q37 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 board, 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 toa later date. At this adjourned meeting also, the place of retiring directors could not befilled up, and the meeting has also not expressly resolved ‘not to fill the vacancy’. Referring to the provisions of the Companies Act, 2013, decide: () Whether the Board of Directors can increase the number of directors to 16 though specified maximum to 12, in the Article of Association. @) Whatwill 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’ (ii) Whatif, 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. IMTP-April 18) ‘Ans: (i) Increase in Number of Directors - Refer Answer of Q. No. 4. (i) Fitting of vacancy in case of retiring directors: Refer Answer of Q. No. 39. (9 Fitting of vacancy in case of retiring directors: Refer Answer of Q. No.39 Conclusions: (Number can be increased to 15, For above 15, special resolution wil be required (1 Retiring director deemed to be re-appointed at adjourned meeting (Ui Retiring director shall not be deemed to have been re-appointed atadjourned meeting ‘AGM of Hero Ltd. has been scheduled in compliance with the requirements of the Companies Act, 2013.1n this connection, ithas 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 | (@ Which of the directors shall be retiring by rotation and be eligible for re-election? |W Incase two directors were appointed on the same day, how would you decide their retirement | byrotation? (iif) Incase the meeting could not decide how the vacancies caused by retirement to be dealt with, what shall be consequences? (Gv) Whatwill be your answer, assuming that the matter could notbe decided evenat theadjourned meeting? Ans: Rotational Directors and Retirement of Directors: (D Section 152(6) of the Companies Act, 2013 provides that unless the Articles provide for retirementofall the directorsat every general meeting, notlessthan 2/3rd ofthe totalnumber of directors of a public company, shall be persons whose period of office is liable to determination by retirement of directors by rotation. _ | | |