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com ANURAG JAIN (09654859056) APPOINTMENT OF DIRECTORS APPOINTMENT OF DIRECTORS BY MEMBERS AT GENERAL MEETING SECTION 255 Unless articles provides for retirement of all directors at every AGM, not less then 2/3 of total number of directors of public Company shall be persons whose period of office is liable to be determined by retirement of directors by rotation. Rotational directors are to be appointed by company in general meeting and any fraction is to he rounded off to the next higher number. Remaining directors and all directors of a Private Company shall also be appointed by company in general meeting, subject to any regulation by articles.

In other words, mode of appointment, of non-rotational directors (directors of Private Company) may be contained in the AOA. SECTION 256 One-third of rotational directors must retire at every annual general meeting. It follows that all rotational directors must retire in the course of three years, one-third of them retire each year. Those directors who have been longest in office since their appointment shall retire first. In case of persons who became directors on the same day, retirement is to be determined by mutual consent (agreement b/w them) and where no such agreement exists, by lots. Where a director retires by rotation, the Company may appoint (i) (ii) the retiring director or some other person

in the vacancy as director in the same meeting. If at the same meeting the vacancy is not filled up and the meeting has not expressly resolved not to fill the vacancy, then the meeting shall stand adjourned till the same day in the next week at the same place and time. If the day on the next week is a public holiday, then the next succeeding day, which is not public holiday.

www.csclasses.in www.csclasses.com ANURAG JAIN (09654859056) If at the adjourned meeting the vacancy is not so filled then the retiring director shall be deemed to be re-appointed at the adjourned meeting except in the following cases At that meeting or at the previous meeting a resolution for his reappointment was put to vote but lost; The retiring director has expressed his unwillingness to be so reappointed Retiring director is not qualified or disqualified for appointment

A special or ordinary resolution is required for his appointment or reappointment It is resolved to fill two or more vacancies by a single resolution

The re-appointment shall be effective from the day of the adjourned meeting. If the annual general meeting is not held, then the directors due to retire by rotation shall vacate office at the latest on the last day on which the meeting was due or ought to have been held.

APPOINTMENT OF DIRECTOR OTHER THAN RETIRING DIRECTOR SECTION 257 A person who is not a retiring director shall, subject to the provisions of this Act, be eligible for appointment to the office of director at any general meeting He or some other member intending to propose him shall left at the office of the company a notice in writing under his hand signifying his candidature for the office of director or the intention of such member to propose him as a candidate for that office Such notice shall be given to company not less than fourteen days before the meeting, along with a deposit of Rs. 500 which shall be refunded to such person or, as the case may be, to such member, if the person succeeds in getting elected as a director.

The company shall inform its members of the candidature of a person for the office of director or the intention of a member to propose such person as a candidate for that office either

www.csclasses.in www.csclasses.com ANURAG JAIN (09654859056) o by serving individual notices on the members not less than seven days before the meeting, or by advertising such candidature or intention not less than seven days before the meeting in at least two newspapers circulating in the place where the registered office of the company is located, of which one is published in the English language and the other in the regional language of that place.

This section shall not apply to a private company, unless it is a subsidiary of a public company.

APPOINTMENT OF ADDITIONAL DIRECTORS SECTION 260 Board of directors may appoint additional directors if authorized by AOA Additional directors shall hold office only up to the date of the next annual general meeting of the company:

It should be noted that the number of the directors and additional directors together shall not exceed the maximum strength fixed for the Board by the articles.

TO FILL CASUAL VACANCY - SECTION 262 Applicable only in the case of a public company or a private company which is a subsidiary of a public company if the office of any director appointed by the company in general meeting is vacated before his term of office will expire in the normal course, the resulting casual vacancy may be filled by the Board of directors at a meeting of the Board. 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 as aforesaid.

ALTERNATE DIRECTOR SECTION 313 The Board of directors of a company may appoint an alternate director to act for a director (hereinafter in this section called "the original director") during his absence for a period of not less than three months from the State in which meetings of the Board are ordinarily held.

www.csclasses.in www.csclasses.com ANURAG JAIN (09654859056) BOD may appoint alternate director only if authorized by its articles or by a resolution passed by the company in general meeting, An alternate director shall not hold office as such for a period longer than that permissible to the original director in whose place he has been appointed. He shall vacate office if and when the original director returns to the State in which meetings of the Board are ordinarily held. An alternate director may be appointed as managing or whole time director Any provision for automatic re-appointment of alternate director shall apply to original director. Appointment of an alternate director is not to be considered as an increase in the strength of board of directors An alternate director need not hold any qualification shares Alternate directorship held by a person cannot be counted for maximum number of directorship If original director dies, then an alternate director shall automatically vacate office unless reappointed in casual vacancy.

APPOINTMENT OF DIRECTOR BY THIRD PARTY (NOMINEE DIRECTOR) There may be occasions when directors represent certain third parties on the Board. This usually happens when Government, Financial Institutions, Banks, Holding Company or other lenders nominate a director to represents their interest on the Board. The rights and terms of nominating directors on the Boards of Companies are usually contained in the agreement. Nominee directors can be appointed if there is a provision in AOA of the Company unless where a statute provides for such nomination. As per section 255 of the Act it should be ensured that the total number of non-rotational directors should not exceed 1/3 of the total strength of the Board after the appointment of nominee directors. Nominee directors may not be required to hold qualification shares The nominee directors must be paid tees and expenditure to which the other directors are entitled.

www.csclasses.in www.csclasses.com ANURAG JAIN (09654859056) APPOINTMENT BY CENTRAL GOVERNMENT - SECTION 408 The Central Government (CG) may appoint such number of persons as directors as the CLB may by order in writing specify as being necessary to effectively safeguard the interests of: 1. the company, or 2. its shareholders or 3. the public interests. to hold office for a period not exceeding 3 years on any one occasion. CLB issues such orders after making such inquiry as it deems fit and: On the reference made to it by the Central Government, or On the application made to it by Not less than 100 members of the Company, or Members holding not less than 1/10th of total voting power.

Alternatively, the CLB may, if company itself has not availed the option given u/s 265 (i.e. appointment of directors by proportional representation), give direction to the Company to alter its AOA in the manner provided in section 265 and make appointment in pursuance of amended AOA with in specified period. Within that period, if CLB thinks fit, can appoint Additional Directors to hold office to effectively safeguard the interest of the Company and members The power of the CG under section 408 of the Act is not absolute, but is circumscribed by the limitations mentioned in the section. CASE: South India Viscose Ltd. VS. Union of India DECISION: the power must be exercised only when the requisite conditions are fully complied with. This power cant be exercised in an arbitrary manner. Points to Note Directors appointed under section 408 may or may not be the members of the Company. Such directors will not be taken into account to calculate any proportion of the total number of directors. Such directors need not to hold qualification shares nor they are liable to determination by retirement of directors by rotation.

www.csclasses.in www.csclasses.com ANURAG JAIN (09654859056) But any such director or additional director may be removed by the Central Government from his office at any time and another person may be appointed by that Government in his place to hold office as a director or, as the case may be, an additional director. After appointment of additional director or director u/s 408, no change in the Board of Directors can be made without confirmation of CLB. Where government directors have been appointed, CG can issue other directions also in regards to their affairs, such directions may include directions to remove an auditor already appointed and to appoint another auditor in his place or to alter the articles of the company, and upon such directions being given, the appointment, removal or alteration, as the case may be, shall be deemed to have come into effect as if the provisions of this Act in this behalf have been complied with. Government director may be required to report to CG from time to time with respect to affairs of the company.

This section is not applicable to a private Company.

APPOINTMENT OF A DIRECTOR BY SMALL SHAREHOLDERS A Public company having: A paid-up share capital of Rs. 5 crores or more and One thousand or more small shareholders,

may have a director elected by such small shareholders. Small Shareholders: a shareholder holding nominal value of shares of Rs. 20,000 or less in a public Company. The Government has prescribed the Companies (Appointment of Small Shareholders Director) Rules, 2001. Rule 4: Manner of election of small shareholder director A Company may act suo-moto (on its own) to elect a small shareholders director from amongst small shareholders or upon notice of small shareholders, who are not less than 1/10th of total small shareholders and have proposed the name of a person who shall be the director.

www.csclasses.in www.csclasses.com ANURAG JAIN (09654859056) Small shareholders intending to propose a person shall give notice of their intention to the Company at least 14 days in advance of the meeting under the signature of at least 100 small shareholders specifying: Name address, shares held and folio number particulars of shares with differential rights as to voting and dividend,

of the person whose name has been proposed and of other small shareholders proposing such person. The proposed candidates has to file his consent with the Company in writing to act as a director In case of listed Company the small shareholders director shall be appointed through the postal ballot. In case of unlisted Company such director shall be appointed if majority of the small shareholders recommended his candidature. Tenure of such director shall be for maximum period of 3 years and same person can be re-appointed after 3 years if desired by the small shareholders. Such director need not to be retired by rotation Such director shall be treated as director for all purposes except for appointment as MD or WTD.

Rule 5: Disqualifications A person shall not be eligible of being appointed as small shareholders director if: he has been found by a Court to be of unsound mind he is an undischarged insolvent; he has applied to be adjudicated as an insolvent and his application is pending; he has been convicted by a Court of any offence involving moral turpitude and sentenced him to imprisonment for not less than six months, and a period of five years has not elapsed from the date of expiry of the sentence;

www.csclasses.in www.csclasses.com ANURAG JAIN (09654859056) he has not paid any call in respect of shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call; or he has been disqualified him by a Court in pursuance of section 203 which empowers the court to restrain fraudulent persons from managing the company

Rule 7: Restriction on number of directorship: Small Shareholders Directors shall not hold office at the same time in more than two Companies.