CS Divesh Goyal

Let’s discuss the provisions under the Act:

1. Applicability of provision of Rotational Director:

This section is applicable on only

  • public company and
  • private limited Company which is subsidiary of a public Company (Deemed Public Company)

2. How much directors shall be rotational Director?

As stated in section 152(6)(a)

i. Unless the article provide for the retirement of all the directors at every annual general meeting.

ii. Not less than 2/3rd (two-third) of the total number of directors of a public company shall, be person whose period of office is liable to determination by retirement of directors by rotation.

It is clear that, a public company is free to incorporate in its Articles, that all the directors of the company would retire at every annual general meeting. If nothing mentioned in articles relating to rotation of director then Not less than 2/3rd (two-third) of the total number of directors of a public company shall, be person whose period of office is liable to determination by retirement of directors by rotation

3. How much directors shall retire annually?

At every subsequent annual general meeting after first AGM, one-third of rotational directors for the time being as are liable to retire by rotation.

if their number is neither three nor a multiple of three, then, the number nearest to one-third, shall retire from office.

4. How to determine the director retire by rotation from the entire rotational director?

The directors to retire by rotation at every annual general meeting shall be those who have been longest in office since their last appointment, but as between persons who became directors on the same day, those who are to retire shall, in default of and subject to any agreement among themselves, be determined by lot.

5. Directors which will not count in total director while calculating 2/3 Director?

All the directors shall be retire by rotation except;-

Nominees of certain Financial Institutions are not liable to retire

Some of the public financial institutions were established under special statutes of Parliament like LIC, UTI and SFCs. The respective Act gives the institution overriding power to nominate persons as directors on the Board of loanee companies and to withdraw them at any time. The provisions of the Companies Act, 1956 regarding appointment and removal of directors, share qualifications etc. do not apply to such nominee directors. Therefore, nominee directors of LIC, UTI and SFCs are not liable to retirement by rotation in a public company and a private company, which is a subsidiary of a public company.

Independent director:

For the purposes of section 152(6), “total number of directors” shall not include independent directors, whether appointed under this Act or any other law for the time being in force, on the Board of a company

a. Director appointed by any tribunal

b. Director appointed by proportional representation as per section 163

c. Small share holder director

d. Special Director: By section 16(4) of the Sick Industrial Companies (Special Provisions) Act, 1985 it is provided that where the Board constituted under the Act deems it necessary that an enquiry should be made into an industrial company, the Board shall appoint one or more persons as special directors ‘for safeguarding financial and other interests of the company’. It is further stated in sub-section (5) that the provisions relating to share qualification, age limit, number of directorships, removal from office etc. shall not apply to any director appointed by the Board.

6. Whether executive Directors are rotational director or non-rotational Director?

Executive directors include MD & WTD. As stated in section 196 ‘No company shall appoint or re-appoint any person as its managing director, wholetime director or manager for a term exceeding five years at a time’. Therefore, it is clear that term of MD/WTD is fixing at the time of appointment.

Therefore, it’s give impression that term of executive directors are fixed at the time of appointment so they should be consider as non rotational director. But rotation or non rotation of executive directors are depend upon the situation. Lets discuss by examples as given below:

S. No.Total No. of DirectorTotal No. of Executive DirectorsTotal No. of Non rotational DirectorTotal no. of Rotational DirectorNo. of retiring directorWhether executive will retire

1.

10

3

4

(10-4*2/3)= 4(4*1/3)=1

No

2.

12

3

3

(12-3*2/3)= 6(6*1/3)=2

No

3.

8

4

2

(8-2*2/3)=4(4*1/3)=1

No

4.

14

10

2

(14-2*2/3)=8(8*13/)= 3

Yes-1

5.

20

13

5

(20-5*2/3)=10(10*1/3)=3

Yes-1

6.

5

5

(5*2/3)=2(2*1/3)=1

Yes-1

There is one more situation:

Articles of association of some companies contain an express provision excluding managing and whole-time directors from the conditions for retirement by rotation and provide that a person shall not be liable to retirement by rotation so long as he continues to hold the office of the managing or whole-time director. Such a provision may read thus:

7. Whether additional director or director appoint on casual vacancy are rotational director or non-rotational Director?

A provision in the articles of a company requiring a certain proportion of the whole number of directors to retire annually would not cover those directors who are appointed as additional directors, e.g., on casual vacancies, till the next AGM and, therefore, they would not be, included in the whole number of directors’ for the purpose of computing the proportion of directors who should retire at the meeting. Eyre v. Milton Proprietary Ltd., (1935) All ER Rep 286: (1937) 7 Com Cases 25 (CA).

8. If a Company fails to hold the General Meeting whether rotational director will be retire or not?

A director who is to retire by rotation at an annual general meeting as also an additional director appointed by the Board of Directors under section 260, cannot continue in office after the last day on which the annual general meeting in each year should have been held, as required by section 96. The reason for this is that, as the calling of the annual general meeting is a duty and responsibility of the directors (vide section 291), the directors, by omitting to summon the annual general meeting, are not to take advantage of their own default and, by that means, extend their own continuance in office for any period they please and as long as the holding of the next annual general meeting does not take place. This position has been well established by the rulings of the Courts both in England and India. See In re, Consolidated Nickel Mines Ltd., (1914) 1 Ch 883; Kanssen . Rialto, (1945) 15 Com Cases 23 : (1944) 1 All ER 751 (CA) and Morris v. Kanssen,(1946) 16 Com Cases 186 : (1946) 1 All ER 586 (HL). The principles laid down in these cases have been followed by the High Courts in India in the following cases: Anantalakshmi Ammal v. Indian Trades and Investments Ltd., (1952) 22 Com Cases 324 : AIR 1953 Mad 467; B.N. Viswanathan v. Tiffin’s Barytes Asbestos & Paints Ltd., (1953) 23 Com Cases 29 : AIR 1953 Mad 520; Hindustan Co-operative Insurance Ltd., In re, (1961) 31 Com Cases 193 (Cal); Krishnaprasad Jwaladutt Pilani v. Colaba Land & Mill Co. Ltd., AIR 1960 Bom 312 : (1959) 29 Com Cases 273; Ramakrishna Prasad v. State of Madras, (1963) 33 Com Cases 548 (Mad) and Lalchand Mengraj v. Shreeram Mills Ltd., (1968) 38 Com Cases 606 (Bom); VP. Singh v. Chairman Metropolitan Council of Delhi, AIR 1969 Del 295; B.R. Kundra v. Motion Pictures Association, (1976) 46 Com Cases 339 (Delhi). The rule laid down In re, Consolidated Nickel Mines Ltd., has also been approved and quoted in all well-known Treatises on Company Law, viz., BUCKLEY’S COMPANIES ACTS 14th Edn., page 1014; GORE-BROWNE ON COMPANIES 44th Edn., 1986, Para 25-16 and PALMER’S COMPANY PRECEDENTS (17th Edn., page 598).  They will be treated as having vacated their office on the last day on which the meeting should have been held as per terms of section 166(1).

What will be situation in above case if articles of a company provide for retirement of all the directors?

Where under the articles of a company all the directors are to retire, and are to be re-appointed at the annual general meeting every year, the provisions of this section will equally apply, as in the case of one-third of the directors retiring. Since directors have to retire whether a meeting is held or not, a situation can arise that no director remains in office. In such cases general meeting of shareholders would get the power to make fresh appointments. Alexander Ward & Co. Ltd. v. Samyang Navigation Co. Ltd., (1973) SLT (Notes) 80 (Scottish). This aspect was approved on appeal by House of Lords, (1975) 1 WLR 673. See also Re, Consolidated Nickel Mines Ltd., (1914) 1 Ch 883 and Re, Zinotty Properties Ltd., (1984) 1 WLR 1249, 1259-1260 and B.N. Viswanathan v. Tiffin’s Barytes Asbestos & Paints Ltd., (1953) 23 Com Cases 29 : AIR 1953 Mad 520.

9. Whether it is compulsory for all the directors to retire at first AGM of the Public Company?

Department has issued a circular under Companies Act, 1956 on this issue: In the Department’s view, reading the sections 254, 255 and 256 together, it would appear that it is not always necessary for all the first directors to retire at the first annual general meeting held after the formation of a company. Except those persons named in the articles as first directors who, under a specific provision in the articles in accordance with section 255(2) need not retire at the first annual general meeting, all other first directors (including the subscribers of the memorandum of association) should retire at the first annual general meeting. (Company News & Notes, dated July 1, 1963).

10. Whether retiring director are eligible for Re-appointment of rotational directors

At an annual general meeting a director retiring by rotation is eligible for reappointment and may be re-appointed, but the company may appoint some other person in place of the retiring director.

11. Whether there is need to file any form for re-appointment of retiring director?

Registrar, the DCA (now MCA) has expressed the opinion that where all or some of the directors retire at the annual general meeting and are re-appointed at the same meeting to the same respective offices as before, such re-appointments will not be deemed to constitute a change and no return therefore needs to be filed.

12. Appointment of other than retiring directors as directors

Section 160 allows a person who is not a retiring director to be eligible for appointment to the office of director at any general meeting, if he or some member, intending to propose him has, not less than 14 days before the meeting, left at the office of the company a notice in writing under his hand signifying his candidature for the office of director or the intention of such member to propose him as a candidate for that office, along with a deposit of ` 1,00,000 or such higher amount as may be prescribed which shall be refunded to such person or, as the case may be, to such member, if the person succeeds in getting elected as a director or gets more than 25% of total valid votes cast either on show of hands or on poll on such resolution.

13. Situations in which Retiring director shall cease to be a director on the conclusion of the annual general meeting in certain cases

Except, in the circumstances mentioned in section 152 regarding the automatic re-appointment of a retiring director, he will cease to be a director at the annual general meeting at which his term is to expire at the adjourned meeting. The conditions on which the retiring director shall cease to be a director are as under:—

(i) if the retiring director is not re-appointed but in his place some other person is appointed as director; or

(ii) it is resolved not to fill the vacancy of the retiring director; or

(iii) if at the annual general meeting a resolution for the re-appointment of the retiring director has been lost; or

(iv) if the retiring director has informed the company about his unwillingness to be re-appointed as director.

14. What are the Provisions of rotational director for private limited Companies?

In case of a private company which is not a subsidiary of a public company, the section only provides that the directors have to be appointed in a general meeting. The section contains no provision for retirement of any director periodically. Retirement therefore depends entirely on the provisions contained in the Articles of Association of the company and in the absence of any such provision the directors are entitled to continue until removed under S. 284. S. Labh Singh v. Paneser Mech. Works P. Ltd., (1987) 61 Com Cases 618 : (1987) 2 Comp LJ 81 (P&H). However, the Madras High Court has held that where threre is no such provision in the Articles, the directors will have to retire at the end of each Annual General Meeting. Devi Talkies (P.) Ltd. v. VR. Parthasarathi Iyengar, (1982) 52 Com Cases 242 (Mad).

15. Secretarial Action Points for re-appointment of retiring director

i. Ascertain the directors retiring by rotation in the annual general meeting.

ii. Check with the director his willingness to be re-appointed. If so, consent of the director needs to be obtained in DIR-2.

iii. Call a Board Meeting to issue notice of Annual General Meeting.

iv. Include the re-appointment of director in the notice of the meeting as ordinary business.

v. Issue notice of the annual general meeting to the members, the trustees for debenture holders, the legal representatives of deceased and insolvent members and the auditors at least 21 days before the meeting.

vi. Propose the appointment of the director as an ordinary resolution in the general meeting and ordinary resolution passed by the simple majority.

(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)

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