Every company needs to have minimum directors as specified by the Companies Act, 2013 (‘Act’). The directors play a crucial role in the management of the company. The Act introduced the concept of the appointment of two new directors, i.e. women directors and independent directors, to the Board of Directors (‘Board’) of a certain class of companies.
Section 149 of the Companies Act, 2013 and the Companies (Appointment and Qualifications of Directors) Rules, 2014 (‘Rules’) deal with the provisions relating to women and independent directors of a company.
Appointment of women directors
According to Section 149(1) of the Companies Act, 2013, “Every company shall have a Board of Directors consisting of individuals as directors and shall have—
- A minimum number of three directors in the case of a public company, two directors in the case of a private company, and one director in the case of a One Person Company; and
- A maximum of fifteen directors: Provided that a company may appoint more than fifteen directors after passing a special resolution:
Provided further that such class or classes of companies as may be prescribed, shall have at least one woman director”
The Act further states that under Section 149(2), “Every company existing on or before the date of commencement of this Act shall within one year from such commencement comply with the requirements of the provisions of sub-section (1).”
Therefore, it is mandatory for the companies incorporated under the 2013 Act to appoint at least one women director within 6 months from incorporation and all those companies incorporated under the Companies Act, 1956 to appoint at least one woman director within 1 year from the commencement of the 2013 Act.
Any company incorporated under the Act which
- Is a listed company whose securities are listed in the stock exchange or
- Has a paid up capital of more than 100 crore rupees or more, has to mandatorily appoint at least one woman director.
This comes as fresh change and empowerment for women in the companies
Applicability of Woman Director
The second provision of Section 149(1) of the Act provides that a certain class of companies (as specified in the Rules) should at least have one woman director on its board. Rule 3 of Rules provides that the following certain class of companies must appoint at least one woman director on its board:
- Every listed company.
- Every other public company having:
- Paid-up share capital of Rs.100 crore or more, or
- Turnover of Rs.300 crore or more.
When a company fulfils the above two conditions, it must appoint a woman director to its board within six months of the condition fulfilment date. The paid-up share capital or turnover shall be considered as of the last date of the latest audited financial statements.
Procedure for appointment of woman director
The procedure for appointment of women director is same as any other directors appointed under the Act of 2013.
Director identification number: Under section 153 of the Act, “Every individual intending to be appointed as director of a company shall make an application for allotment of Director Identification Number to the Central Government in such form and manner and along with such fees as may be prescribed.”
The woman should file an application under section 153 of the Act for the allotment of Director Identification Number or Director Identification Number to the Central Government. The Central Government then within one month of the application allot Director Identification Number to the individual (section154). The woman director shall inform the company or companies where she is a director about the Director Identification Number within one month of the allotment of Director Identification Number (section 156). The company shall furnish such Director Identification Number of that director to the registrar or any such person or authority as specified by the Central Government within 15 days of receipt of intimation of the Director Identification Number (section 157). If a company fails to do so within prescribed time, shall be punishable with not less than 25000/- rupees which may extend to one lakh.
- Consent as to director: women directors have to give consent in the Form DIR-2 to the registrar within 30 days of her appointment.
- Not disqualified under section 164(2) of the Act: a woman director has to fill Form DIR-8 to intimate that she is not disqualified under section 164(2) of the Companies Act 2013.
Tenure of Woman Directors
The tenure of the appointment of a woman director is till the next Annual General Meeting (AGM) from the date of appointment. She is entitled to a re-appointment at the general meeting. However, the tenure of a woman director is liable to retirement by rotation as per Section 152(6) of the Act as applicable to other directors. She can also resign at any time by giving notice to the company.
Vacancy of women director position.
A woman director can leave the company by
- Resignation
- Removal
- Retirement
- Automatic vacancy.
The board of directors must fill this vacancy of position with 3 months.
Penalty for Non-Compliance of Appointment of Woman Director
No specific penalty is prescribed under the Act for the non-appointment of a woman director. Thus, the penalty under Section 172 of the Act applies in case of non-compliance regarding the appointment of a woman director. Section 172 of the Act lays down that the company and every officer in default will be punished with a fine that shall not be less than Rs.50,000 but may extend up to Rs.5,00,000.
Responsibilities of women directors
The responsibilities of women directors are same as other directors. A woman director can go about as an independent director who is answerable for working on corporate validity of the organization and furthermore to further develop administration guidelines of the company. Additionally, women directors can be appointed as a Nominee director who basically takes care of and addresses the interests of the appointee.
Applicability of Independent Directors
Section 149(6) of the Act introduces the concept of independent directors. Rule 4(1) of the Rules states that the following companies should have at least two directors as independent directors:
- Every public company having:
- Turnover of more than Rs.100 crore, or
- Paid-up share capital of more than Rs.10 crore, or
- In aggregate, outstanding borrowings, loans, debentures or deposits exceed Rs.50 crore or more.
When a company is required to appoint a higher number of independent directors because of the composition of its audit committee, then such a higher number of independent directors will be applicable. The turnover, paid-up share capital, or outstanding debentures, loans and deposits shall be considered as of the last date of the latest audited financial statements.
Appointment of Independent Directors
The procedure of appointment of the independent directors are as follows:
- The company must issue a notice of the general meeting to all shareholders with an explanatory statement annexed to the general meeting notice to consider the appointment and indicate the justification for choosing the person to be appointed as an independent director.
- The company must conduct a general meeting and pass a resolution for the appointment of independent directors.
- In the case of listed companies, it must disclose the general meeting proceedings to the stock exchange before 24 hours from the general meeting conclusion and also post it on its website within two working days.
- After the appointment of the independent directors by passing a resolution in the general meeting, the company should file the following forms with the ROC:
- Form MGT-14 within 30 days of passing the resolution of appointment in the general meeting.
- Form DIR-12 regarding the particulars of the appointment of an independent director within 30 days of such appointment.
The board should fill any intermittent vacancy of an independent director before three months from the date of vacancy or the next board meeting, whichever is earlier.
Exemption For Appointment of Independent Directors
Rule 4(2) of the Rules exempts certain unlisted public companies from appointing an independent director that has fulfilled the criteria mentioned in Rule 4(1) of the Rules. The following classes of unlisted public companies need not appoint independent directors:
- A joint venture.
- A wholly-owned subsidiary.
- Dormant company defined under Section 455 of the Act.
Tenure of Independent Directors
As per Section 149(10) and 149(11) of the Act, an independent director can be appointed for a term of five years. An independent director can also be re-appointed for another five-year term after passing a special resolution in the general meeting. However, such re-appointment can happen only after the entire board does the performance evaluation.
An independent director cannot hold the director’s office for more than two consecutive terms. However, an independent director can be re-appointed in the same company after three years of completing two consecutive terms. An independent director can also be appointed for a term of less than five years. But, any appointment of five or less than five years will be regarded as one term.
Penalty for Non–Compliance of Appointment of Independent Directors
No specific penalty is prescribed under the Act for the non-appointment of an independent director. Thus, the penalty under Section 172 of the Act applies in case of non-compliance regarding the appointment of an independent director. Section 172 of the Act lays down that the company and every officer in default will be punished with a fine that shall not be less than Rs.50,000 but may extend up to Rs.5,00,000.
FAQs
Is it mandatory for a company to have women directors?
Yes, as per Section 149(1) of the Companies Act, 2013, certain classes of companies are required to have at least one woman director on their board.
Can a company be exempted from appointing a woman director?
In certain circumstances, a company may apply for exemption from appointing a woman director. The Board of Directors can make a request to the Registrar of Companies (RoC) explaining the reasons for non-compliance.
Which companies are required to appoint women directors?
Every listed company and every other public company having a paid-up share capital of INR 100 crores or more, or turnover of INR 300 crores or more, is required to appoint at least one woman director.
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