Section 149 of the Companies Act, 2013

Section 149 of the Companies Act, 2013 brings out the following changes regarding Board of Directors of a company. 

WOMEN DIRECTORS

1) Every listed  company and every public company having a paid up share capital of Rs.100 crores or more OR turnover of Rs.300 crores or more shall mandatorily appoint one Woman Director. 

Rule 3 of Companies (Appointment & Qualification of Directors) Rules, 2014 states as follows:

Provided that a company, which has been incorporated under the Act and is covered under provisions of second proviso to sub-section (1) of section 149 shall comply with such provisions within a period of six months from the date of its incorporation:

Second proviso to sub-section (1) of section 149 covers appointment of women directors in specified class of companies. The wording of this proviso to Rule 3 is wrong as it should be “within a period of six months from the date of the commencement of the Act”, not date of incorporation. 

There is no uniformity regarding giving time limits for compliances. Sub-section (5) gives a time of one year for compliance of sub-section (4) which is regarding appointment of independent directors, whereas woman directors have to be appointed within six months of the notification. 

Any intermittent vacancy in the Woman Directors should be filled up immediately but not latter than three months from the date of such vacancy or the next Board meeting whichever is latter. 

All listed companies are required to mandatorily appoint woman directors on their Board. Whether the woman directors have to be carved out of the independent directors quota is not clear as also whether the woman director can be part of the promoters. If the latter is true then we will see a lot of wives, daughters, etc. entering into Board positions. 

There is also no provision regarding a registry of woman directors just like the case of independent directors. 

RESIDENT DIRECTOR

Section 149 (3) provides that there should be at least one Director who should have stayed in India for a period of not less than 182 days during the previous calendar year. 

This provision will hit select companies who have entirely non resident Board of Directors all of whom are stationed abroad. The provision regarding requiring at least one Director to be resident in India is salutary but time limit for compliance should have been given for this sub-section just like sub-section (2) gives one year for compliance of sub-section (1) and sub-section (5) similarly gives one year for compliance of sub-section (4).

 INDEPENDENT DIRECTORS

1) Every listed company shall have at least one third of the total number of directors as independent directors. This is at variance with the listing agreement which specifies different levels of independent directors (i.e. either one third or half) depending upon whether the Chairman is an Executive Director or Non-Executive Director and whether the Non-executive Chairman is a promoter or not. Would it not have been better to have specified that “every listed company shall have independent directors as are specified in listing agreement’ 

2) Every public company having paid up share capital of Rs.10 crores or more OR turnover of Rs.100 crores or more OR aggregate outstanding loans, debentures and deposits exceeding Rs.50 crores are required to appoint TWO independent directors on their Board. 

Existing companies hit by the aforesaid provision have a one year period within which they should comply with the requirement to appoint independent directors on their Board. (Section 149(5))

The intermittent vacancy of independent directors should be filled up within a period of three months from the date of such vacancy or immediate next Board meeting, whichever is latter.

The third proviso to Rule 4(iii) of  Companies (Appointment & Qualification of Directors) Rules, 2014 states that 

where the company ceases to fulfill any of the three conditions i.e. paid up share capital, turnover or outstanding debts, FOR THREE CONSECUTIVE YEARS, then it shall not be required to appoint the independent directors. 

This provision and Rule regarding appointment of independent directors in public companies above certain limits is Huge. 

The detailed criteria for being an independent director is given in sub-section (6), Every independent director shall at the first Board meeting after his appointment and in the first meeting of every financial year or any change in his status as an independent director give a declaration that he meets the criteria of independence as per the sub-section. 

The format of this declaration is unfortunately not given in the Rules. 

The company and the independent directors are required to comply with and abide with the Code of Conduct as enumerated in Schedule IV. 

An independent director cannot be remunerated by way of stock option, but can receive sitting fees and profit related commission, which is required to be approved by the members. 

An independent director can be appointed for a term of 5 consecutive years but can be re-appointed for another term of 5 consecutive years upon approval by members by way of special resolution. After two terms of 5 years each, he has to vacate office but can be considered for appointment as an independent director after a three year hiatus during which period, he should not be associated with the company in any manner. 

The liability of an independent director and also a Non Executive Director not being a promoter or key managerial personnel shall be restricted only to acts which had occurred with his knowledge, attributable to Board processes and with his consent or connivance or where he has not acted diligently. 

Independent directors are not liable to retire by rotation.