APPOINTMENT OF DIRECTOR BY SMALL SHAREHOLDERS

Provisions related to Appointment of Directors by small shareholders are contained under Sections 151, 164 and 167 of the Companies Act, 2013. Further, the minute procedure is propounded under Rule 7 of Companies (Appointment and Qualification of Directors) Rules, 2014 and Rule 20 of Companies (Management and Administration) Rules, 2014.

Provisions says that, All listed companies is required to have a small shareholders directors if a notice therefor is received from not less than one thousand small shareholders or one-tenth of the total number of such shareholders, whichever is lower.

 A “Small shareholder” shall mean a shareholder holding shares of nominal value of not more than twenty thousand rupees or such other sum as may be prescribed.

Under these laws, a director is to be elected by the small shareholders of the Company and is appointed by the company in general meeting. The notice for the election has to be given to the company not less than 14 days before the date of the meeting and not earlier than 3 months from the date of the meeting. Bare perusal of the language of law says that Small shareholders shall have power only to elect and recommend it to the Company. However, it shall be power of all members, by way of a resolution passed in their General meeting, to appoint such elected Director.

Further, Such director shall be considered as an independent director in the Company.

Disqualification : A person shall not be appointed as small shareholders’ director of a company, if the person is not eligible for appointment in terms of section 164 of the Companies Act.

Vacation of office : A person appointed as small shareholders’ director shall vacate the office if –

(a) the director incurs any of the disqualifications specified in section 164;

(b) the office of the director becomes vacant in pursuance of section 167;

(c) the director ceases to meet the criteria of independence as provided in subsection (6) of section 149.

Limit on number of companiesNo person shall hold the position of small shareholders’ director in more than two companies at the same time. Provided that the second company in which he has been appointed shall not be in a business which is competing or is in conflict with the business of the first company.

Also read: Procedure to Establish a wholly owned subsidiary in India

Procedure of Appointment of Director by small shareholders

  1. The small shareholders who intend to propose a person as a candidate for the post of small shareholders’ director shall provide a notice of their intention with the company atleast 14 days before the meeting.
  2. When the notice is received, the Company shall examine that the same meets with the requirements of section 151read with Companies (Appointment and Qualification) Rule, 2014.

Examine whether the notice is accompanied by a statement signed by the person whose name is being proposed for the post of small shareholders’ director stating his Director Identification Number ; that he is not disqualified to become a director under the Act, and his consent to act as a director of the company.

  1. Circulate the notice amongst the members and if the same is not practicable advertise the same, one in the vernacular newspaper in vernacular language and other in English newspaper in English language having wide circulation in the District in which the registered office of the company is situated.
  2. Include the item in the Agenda of the Annual General Meeting.
  3. Hold the annual general meeting. Ensure that the proposal is moved by the person who has given the notice. If he is not present the same cannot be moved.
  4. Ensure poll is demanded in respect of the proposal suo motu by the Chairman of the meeting and ensure only small shareholders cast their vote.
  5. If the small shareholder director is elected inform him of the election.
  6. File Form MGT-14 with the Registrar, within 30 days of passing the Board resolution.
  7. File return in Form DIR 12 along with consent to act as director in Form DIR-2 with the Registrar of Companies within 30days of in respect of the appointment.
  8. Director to intimate in Form DIR-8 that he/she is not disqualified under section 164(2) of Companies Act, 2013.
  9. Disclosure of interest in Form MBP-1 is required to be made in accordance with section 184(1) read with Rule 9(1) of Companies (Meetings of Board and its Powers) Rules, 2014. {One thing should be noted MBP-1 should not be dated earlier than date of his/her appointment as Director)
  10. The appointment of small shareholders’ director shall be subject to the provisions of section 152except that –

(a) such director shall not be liable to retire by rotation;

(b) such director’s tenure as small shareholders’ director shall not exceed a period of three consecutive years; and

(c) on the expiry of the tenure, such director shall not be eligible for re appointment.