By C. S. Kelkar Partner C. S. Kelkar & Associates, Company Secretaries

1. Master Class on Company Law By C. S. Kelkar Partner C. S. Kelkar & Associates, Company Secretaries

2. Points covered in the Presentation Part I Roles, responsibilities and powers of Directors • Directors: Types, tenure, rotation, appointment, composition • Duties, liabilities and accountability • Independent directors: appointment, databank, code of conduct(schedule IV), rotation, immunity • Board Committees: types, compositions, terms of reference

3. Part II Meetings of Board • Board meetings: participation by video conferencing, secretarial standards, records • Board meetings and other relaxations for small companies and OPCs

5. Independent Director-Sec 149 Applicable to Public Co.

6. Resident Director Sec 149(3) • Mandatory for ALL Companies • Every company must have a Director who has stayed in India for a total period of 182 days or more in previous calendar year. • Existing Companies, not fulfilling this condition, to appoint Resident Director at earliest. • MCA has clarified that period to be taken into consideration will be calendar year 14. Hence, on proportionate basis, number of days Director should be resident in India shall exceed 136 days.

7. Woman director – Public Co. Only (Sec. 149)

8. Additional Directors Sec. 161 • The Board of Directors can appoint any person as additional director by passing a resolution. • A person who fails to get appointed as a director in a general meeting cannot be appointed as an additional Director by the Board of Directors.

9. Alternate Director Sec. 161 • The Board of Directors may appoint an alternate for a director during his absence from India for a period of not less than three months • An alternate director vacates office when the original director returns to India • A person shall not be appointed as alternate director for more than one person in a company

10. Nominee Director Sec. 161 • the Board may appoint any person as a director nominated by any institution. • Such appointed nominee director shall not be treated as an independent director. • The institution instead of appointing director on the board can appoint observer on the board. • Companies law has not defined the role and liabilities of observer.

11. Pointers for CS

12. Tenure • Managing Director/Whole Time Director or Manager can be appointed for a term of five years at a time. Sec 196(2) • Additional Director appointed by Board of Directors shall be appointed till the conclusion of next AGM. The appointment of Additional Director should be approved by members in general meeting. Sec 162

13. Rotation of Directors • Unless the articles provide for the retirement of all directors at every annual general meeting, not less than two-thirds 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; and • save as otherwise expressly provided in this Act, be appointed by the company in general meeting.

14. Rotation of Directors • At the first annual general meeting of a public company held next after the date of the general meeting at which the first directors are appointed and at every subsequent annual general meeting, one-third of the directors for the time being as are liable to retire by rotation. • The directors to retire by rotation at every annual general meeting shall be those who have been longest in office.

15. Pointers for CS

16. Appointment of the directors (Sec. 152) • Applicable to both Private and Public Companies: • Declaration by the Appointee that he/she is not disqualified mandatory [Sec 152(4)] • Consent to act as director to be filed with the Company • Company to file the consent with ROC.

17. Number of Directorships Sec. 165

18. Composition of Board of Director Private Company

19. Composition of Board of Director Public limited

20. Composition of Board of Director Listed Company

21. Duties/responsibilities of directors • For the first time, duties of directors have been specified in the Act. • A director shall: • (i) Act in accordance with the company’s Articles • (ii) Act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company • (iii) Exercise his duties with due and reasonable care, skill & diligence.

22. Duties/responsibilities of directors • A director shall not: • (i) Involve in a situation where he may have direct or indirect interest • (ii) Achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives • (iii) Shall not assign his office

23. Liabilities of Director • Companies Act, 2013 cast a criminal liability and civil liability on “officer who is in default” which includes Executive Director and KMP. • Definition of Officer in default is as follows: • “officer who is in default”, for the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any penalty or punishment by way of imprisonment, fine or otherwise, means any of the following officers of a company, namely:— • (i) whole-time director; • (ii) key managerial personnel;

24. (iii) where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified; • iv) any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorises, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default;

25. (v) any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in a professional capacity; • (vi) every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance; • (vii) in respect of the issue or transfer of any shares of a company, the share transfer agents, registrars and merchant bankers to the issue or transfer;

26. Independent Director (Sec. 149)

28. Independent Director (Sec. 149)

29. Independent Director (Sec. 149)

30. Appointment • The appointment of independent director shall be approved by the company in general meeting. • an independent director shall hold office for a term up to five consecutive years on the Board of a company, but shall be eligible for reappointment on passing of a special resolution by the company. • no independent director shall hold office for more than two consecutive terms, but such independent director shall be eligible for appointment after the expiration of three years of ceasing.

31. Appointment • No remuneration other than sitting fees , commission on profit and reimbursement of expenses shall be payable. • Alternate Director of the independent director should also be an independent Director .

32. Databank • Independent director may be selected from a data bank containing names, addresses and qualifications of persons who are eligible and willing to act as independent Director maintained by any body, institute or association. • It is optional to appoint independent director from databank .

33. Code of Conduct (Schedule IV) • uphold ethical standards of integrity and probity • act objectively and constructively while exercising his duties • exercise his responsibilities in a bona fide manner in the interest of the company • devote sufficient time and attention to his professional obligations for informed and balanced decision making

34. Code of Conduct (Schedule IV) • not allow any extraneous considerations that will vitiate his exercise of objective independent judgment in the paramount interest of the company as a whole, while concurring in or dissenting from the Collective judgment of the Board in its decision making . • not abuse his position to the detriment of the company or its shareholders or for the purpose of gaining direct or indirect personal advantage or advantage for any associated person;

35. Code of Conduct (Schedule IV) • refrain from any action that would lead to loss of his independence; • where circumstances arise which make an independent director lose his independence, the independent director must immediately inform the Board accordingly ; • assist the company in implementing the best corporate governance practices.

36. Rotation • Independent Director is not liable to retire by rotation

37. Immunity • An independent director shall be held liable only in respect of such acts of omission or commission by a company which had occurred with his knowledge or connivance or for failure to exercise due diligence in such acts {Section149(12)}

38. Committees of the Board

39. Committees of the Board

40. Committees of the Board

41. Composition of CSR Committee • Consisting of three or more directors out of which one shall be an independent director. • Unlisted public company and a private company which are not required to appoint independent Directors, can constitute CRS committee without independent Director. • Board’s Report must contain specified details in respect to CSR like composition of CSR committee, CSR policy, expenditure made on CSR etc.

42. Composition of Audit Committee • Minimum three directors with majority of independent directors • Audit Committee members and Chairman of Audit Committee shall have ability to read and understand financial statements

43. Composition of Nomination & Remuneration Committee • Three or more non-executive directors with majority of independent directors • Chairperson of the company can act as committee member but not as the Chairman of the nomination and remuneration committee

44. Pointers for CS • Whether it is mandatory for Private Company to appoint an independent directors as member of CSR Committee? • As per Companies (Corporate Social Responsibility Policy) Rule, 2014 no requirement to appoint Independent Director for Private company who have CSR committee.

45. Meetings

46. Board Meeting (Sec. 173) and the Companies (meetings of Board and its Powers) Rule 2014. Minimum 4 meetings in a year. Maximum gap between two meetings – 120 days. Minimum Notice of 7 days for a meeting. No shorter notice permitted unless independent director is present, if any [Sec 173] Small Companies – At least One meeting in each half of calendar year. Minimum gap between two meetings – 90 days [Sec 173]

47. Board Meeting • BM Notice may be given by hand delivery/electronic means. • Meetings through Video Conferencing permitted. But proper recording of video conferencing to be kept. • Minimum quorum shall be one third of its total strength or two directors, whichever is higher

48. Participation by video conferencing • The participation of directors in a meeting of the Board may be either in person or through video conferencing or other audio visual means. • Procedure as per Companies (Meetings of Board and its Powers) Rules, 2014.

49. Matter not to be dealt with at meeting through video conferencing • the approval of the annual financial statements; • the approval of the Board’s report; • the approval of the prospectus; • the Audit Committee Meetings for consideration of accounts; and • the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover

50. Pointers for CS • Whether presence of directors through Video conference shall be considered for quorum? • If the procedure of video conferencing is duly complied by the Company, then the presence of Director can be considered for quorum. • What if the Directors attend the meeting through video conference, however the procedure is not complied with? - Directors presence will not be considered for quorum and also he would not be entitled to vote on any matter of Board meeting.