Appointment Of Director In The Place Of Director Retiring By Rotation Under Section 152(6)(e)

The Companies Act, 2013 regulates the appointment, retirement and re-appointment of directors in a company. Section 152(6)(e) is one such provision, which relates to the nomination of a director to replace a retiring director at a given Annual General Meeting (AGM).

This is a necessary provision that should be understood to ensure compliance and a balanced board structure in any given company. This blog outlines the understanding, procedure, and primary legal directives involved in the appointment of directors by rotation in India, as well as information for corporate professionals and company secretaries.

What Does This Mean by Director Retiring by Rotation?

Not every director serves on a permanent basis in a public company. Other directors are retired through rotation to make boards accountable and renewed on a regular basis.

Section 152 (6) (a) of the Companies Act indicates that at least two-thirds of the entire number of directors (but not including independent directors) of a general company shall be individuals whose term of office shall be subject to rotation.

Among these directors, one-third of the directors open their retiring director’s position at each Annual General Meeting (AGM). This rotation enables the shareholders to reappoint the same director or a new one on their behalf.

Legal Provision – Section 152(6) (e) of the Companies Act, 2013

Section 152(6) (e) of the Companies Act, 2013, expressly says:

“The company present at the meeting at which a director retires in the manner aforesaid can fill up the vacancy by appointment of the retiring director or any other person thereto.”

This implies that when a director retires by rotation, they have two options that can be made at the AGM:

1. Re-employ the same retiring director; or
2. Another person is appointed in his or her place.

In case no director is nominated or re-nominated, the meeting is adjourned and the procedure goes on as outlined in Section 152(7).

Applicability of Section 152(6) (e)

This is provided with regard to:

• Public companies incorporated under the Companies Act, 2013.
• Publicly-owned companies that are subsidiaries of privately-owned companies.
• The rotation system can be adopted by other private companies via their Articles of Association (AOA).
• Retirement by rotation does not affect independent directors and nominee directors.

Purpose of Rotation in Directorship

The rotation system of retirement has a number of purposes:

1. Provides transparency and corporate governance.
2. Avoids monopoly or stagnation in the management.
3. Provides the shareholders with the authority to check the board composition frequently.
4. Promotes the injection of new ideas and styles of leadership in the boardroom.
5. Encourages the directors to be accountable to the company and its members.

Procedure for Appointment of Director in Place of Director Retiring by Rotation

The appointment of a director to replace a retiring director under Section 152(6)(e) involves a set of procedural steps required by law.

Step 1: Determination of Directors who are Liable to retire

Prior to the Annual General Meeting (AGM), the company names a third of the directors (the longest serving) as being liable to retire by rotation.

Step 2: AGM Notice: Include the Agenda

The AGM notice should include a specific item on the agenda that mentions the name of the retiring director by rotation and the proposed reappointment.

Step 3: Secure Director Consent

If the retiring director is reappointed, written permission to serve as a director must be obtained in Form DIR-2.

Step 4: Conduct the AGM

In the AGM, the shareholders elect either:

1. Re-employ the retiring director, or
2. Have a new director replace the retiring director.

This is determined by an ordinary resolution.

Step 5: Submit the required ROC Forms

After obtaining permission for the appointment, the company must submit Form DIR-12 to the Registrar of Companies (ROC) within 30 days of the appointment’s approval or reappointment.

Step 6: Revise Statutory Registers

The information of the newly-appointed/reappointed director should be reported in:

1. Register of Directors and Key Managerial Personnel (as per Section 170).
2. Records of AGM and Board Meeting.

Reappointment of the Retiring Director

If the shareholders are willing to retain the same director, they can vote on a simple resolution of reappointment.

But in case no decision is made and the meeting itself does not state that it does not want the reappointment, then according to Section 152(7) there is automatic reappointment of the retiring director.

Automatic reappointment, nevertheless, is not applicable in cases:

1. The meeting has clearly decided not to fill the vacancy.
2. The reappointment resolution was lost or withdrawn.
3. The director does not want to carry on.
4. The company resolves to have another individual in that post.

Appointment of Retiring Director with a New Director

In case the same director is not reappointed by the shareholders, they can choose someone to replace the retiring director.

The following are the additional steps that are used in such situations:

2. The new director should agree to be active in the new Director Form DIR-2.
3. The new director shall be required to provide a valid Director Identification Number (DIN).
4. Appointment resolution is to be resolved by shareholders during AGM.
5. The Registrar of Companies must receive the necessary forms.

Example:

The number of directors on ABC Limited is nine, and six of them are liable to be retired by rotation. One-third of them, i.e. two directors, should retire during the AGM.

At the meeting, Mr A is a retiring director who has been proposed for reappointment. Nevertheless, Mr B is appointed by the shareholders instead.

Here, Mr B will replace the retiring director under rotation by virtue of Section 152(6)(e) and Form DIR-12 should be filed by the company within a period of 30 days.

Conclusion

Section 152(6)(e), which provides that the director should be appointed to replace a director retiring by rotation, provides that accountability and renewal in the company board should be regular. In this system, shareholders are entitled to access the company’s leadership on a regular basis, ensuring transparency and efficiency in management.

The company can successfully comply with the requirements of the statutes as provided by the Companies Act, 2013, by adhering to the appropriate appointment procedure, ensuring that ROC filings are maintained, and all resolutions and consents are properly executed.