In the ever-evolving corporate governance landscape, the appointment of women directors and independent directors has become integral to ensuring transparency and accountability in Indian companies. The Companies Act 2013 ushered in a new era by introducing these concepts to the Board of Directors, emphasizing their significant roles in the management of businesses. This article delves into the provisions, applicability, appointment procedures, tenures, and penalties for women directors and independent directors in India.
Applicability of Women Directors
Section 149(1) of the Companies Act 2013 mandates certain companies to appoint at least one woman director to their Board. The Companies (Appointment and Qualifications of Directors) Rules, 2014, provide a clear framework for this provision.
Who Needs to Appoint a Woman Director?
As per Rule 3 of the Rules, the following companies must appoint a woman director:
- Every listed company.
- Every other public company has either:
- A paid-up share capital of Rs. 100 crore or more.
- A turnover of Rs. 300 crore or more.
Once a company meets these conditions, it must appoint a woman director within six months from the fulfilment date, based on the last audited financial statements.
Appointment of Women Directors
The process of appointing a woman director involves several steps:
- The proposed woman director must submit her consent to act as a director using the prescribed Form DIR-2 and disclose any disqualifications in Form DIR-8 to the company.
- The company should conduct a general meeting and obtain shareholders’ approval for the appointment through a resolution.
- Listed companies must disclose the general meeting proceedings to the stock exchange within 24 hours and post them on their website within two working days.
- Following the appointment, the company must file Form MGT-14 and Form DIR-12 with the Registrar of Companies (ROC) within 30 days.
- Necessary entries must be made in the director and key managerial personnel register and the register of contracts in which the woman director has an interest (Form MBP-4).
A woman director can serve as either a non-executive or executive director. If there’s an intermittent vacancy, it should be filled within three months or by the next board meeting, whichever comes first.
Tenure of Women Directors
The tenure of a woman director lasts until the next Annual General Meeting (AGM) from the appointment date, with an option for reappointment. However, like other directors, a woman director’s tenure is subject to retirement by rotation, as specified in Section 152(6) of the Act. She can also resign by providing notice to the company.
Penalty for Non-Compliance of Appointment of Woman Director
The Companies Act 2013 does not specify a particular penalty for the non-appointment of a woman director. Non-compliance is penalized under Section 172 of the Act, resulting in a fine of not less than Rs. 50,000 but potentially extending up to Rs. 5,00,000 for the company and every officer in default.
Applicability of Independent Directors
Section 149(6) of the Companies Act 2013 introduced the concept of independent directors, and Rule 4(1) of the Rules outlines which companies must have at least two independent directors.
Who Needs to Appoint Independent Directors?
Companies that must appoint independent directors include:
- Every public company with a turnover exceeding Rs. 100 crore.
- Every public company with a paid-up share capital exceeding Rs. 10 crore.
- Every public company with outstanding borrowings, loans, debentures, or deposits exceeding Rs. 50 crore.
In cases where a company needs to appoint a higher number of independent directors due to its audit committee composition, these additional directors should be appointed.
Appointment of Independent Directors
The procedure for appointing independent directors involves the following steps:
- The company must issue a notice for a general meeting to all shareholders, with an explanatory statement justifying the choice of the candidate for the position.
- The company conducts a general meeting, and a resolution is passed to appoint independent directors.
- For listed companies, the general meeting proceedings must be disclosed to the stock exchange within 24 hours and posted on the company’s website within two working days.
- Following the appointment, the company must file Form MGT-14 and Form DIR-12 with the ROC within 30 days.
- Any intermittent vacancy of an independent director should be filled within three months or by the next board meeting.
Exemptions for Appointment of Independent Directors
Rule 4(2) of the Rules exempts certain unlisted public companies from appointing independent directors, including joint ventures, wholly-owned subsidiaries, and dormant companies as defined under Section 455 of the Act.
Tenure of Independent Directors
Independent directors can be appointed for five years and reappointed for another five-year term following a special resolution at a general meeting. Reappointment is contingent upon a board-wide performance evaluation.
An independent director cannot serve over two consecutive terms, but reappointment can occur in the same company after a three-year hiatus. A term of five or fewer years is considered one term.
Penalty for Non-Compliance of Appointment of Independent Directors
Similar to the non-appointment of women directors, the Companies Act 2013 does not specify a distinct penalty for non-compliance with the appointment of independent directors. Non-compliance is penalized under Section 172, resulting in a fine of not less than Rs. 50,000 but potentially extending up to Rs. 5,00,000 for the company and every officer in default.
Including women directors and independent directors in the governance structure of companies is a significant step towards enhancing corporate transparency and accountability in India. The provisions in the Companies Act 2013 and the accompanying Rules provide a clear roadmap for companies to follow in appointing and managing these vital roles. Compliance with these regulations is crucial, as failure may lead to substantial financial penalties. Companies should understand and adhere to these requirements to maintain good corporate governance practices and promote diversity and objectivity in boardrooms.