SECTION 162 OF THE COMPANIES ACT, 2013

Appointment of Directors to be voted individually

In General, the appointment of directors is done in the General meeting of the Company by passing Ordinary Resolution. If a company wants to appoint 5 directors in the general meeting, it has to pass 5 ordinary resolutions for their appointment i.e. one resolution for the appointment of one director. Let us discuss a scenario:

ABC Ltd. wants to appoint Mr. Rahul, Mrs. Priya, Mr. Samar, Mr. Ajay & Mr. Amit in the General Meeting of the Company. Notice for the same has been sent to all the 10 members of the Company. Now, out of the 10 members, 7 members come to attend the general meeting of the company.

Case: 1

Name of Members Mr. Rahul Mrs, Priya Mr. Samar Mr. Ajay Mr. Amit
A Yes Yes Yes Yes Yes
B Yes Yes Yes Yes No
C Yes Yes No No No
D No No Yes Yes Yes
E Yes Yes Yes No No
F No Yes Yes Yes Yes
G No No No No No
Total 4 in favor

Resolution passed

5 in favor

Resolution passed

5 in favor

Resolution passed

4 in favor

Resolution passed

3 in favor

Resolution failed

In the above case, Mr. A (in favor) & Mr. G (against) has the same decision for all the candidates to be appointed as directors. However, the rest of the members has mix-up decisions.

Case: 2

Name of Members Mr. Rahul Mrs. Priya Mr. Samar Mr. Ajay Mr. Amit
A Yes Yes Yes Yes Yes
B No No No No No
C No No No No No
D Yes Yes Yes Yes Yes
E Yes Yes Yes Yes Yes
F Yes Yes Yes Yes Yes
G No No No No No
Total 4 in favor

Resolution passed

4 in favor

Resolution passed

4 in favor

Resolution passed

4 in favor

Resolution passed

4 in favor

Resolution passed

In the above case, all the members have the same decisions for all the five candidates i.e. either they are in favor of all the resolution or against it.

Now, what will happen if a single resolution is passed for all the proposed directors for:

Case:1- If we passed a single resolution:

Name of members Single Resolution for all the 5 directors
A Yes
B If he says yes, Mr. Amit will also be appointed
C If says No, Mr. Rahul & Mrs. Priya will not be appointed
D Will be in a dilemma
E Will be in a dilemma
F Will be in a dilemma
G No

In this case, Mr. C, Mr. D, Mr. E & Mr. F will not be satisfied if a single resolution is passed as they have to decide without their discretion.

Case:2- If we passed a single resolution:

Name of members Single Resolution for all the 5 directors
A Yes
B No
C No
D Yes
E Yes
F Yes
G No

In this case, all the members will be satisfied even if a single resolution is passed as their decision will not be impacted.

To avoid this, the Act says that before moving such a single resolution, a motion (proposed resolution) should be passed for the appointment of two or more directors by a single resolution and no vote has been cast against such motion.

So, it can be concluded that to appoint directors by Single resolution we need to:

  • Pass a motion for the appointment of directors by a single resolution.
  • We need to make sure that each of the shareholders present in the general meeting cast vote in favor of the motion. Even if 1 out of 7 members presents cast vote against the motion. The appointment by a single resolution will not be done.
  • If a motion is moved, then the appointment of directors by a single resolution can be passed if it gets the majority votes.

Let us understand this by one more example:

No. of members present in the General Meeting Motion in favor

(Step: 1)

Single Resolution

(Step: 2)

Whether the resolution will be passed or not???
7 7 5 Since the motion was passed and the single resolution gets majority votes. So, the resolution was passed.
7 7 3 Since the motion was passed but the single resolution didn’t get majority votes. So, the resolution was not passed.
7 3 – in favor

4 – did not answer

6 Here, we can assume the votes in favor of the motion for those members who didn’t vote at all i.e. neither cast in favor nor against. and the single resolution gets majority votes. So, the resolution was passed.
7 5 4 The motion was not moved as 2 members cast against it but the single resolution gets the majority but it will be void as the motion was not moved by 2 members.
7 4 Void as the motion is moved
7 7 Void as the motion is moved

Conclusion: So, to pass the single resolution for the appointment of multiple directors, we need to first move a motion with 100% votes cast in favor of the motion. Once the motion is passed, the company can go ahead with the Single Resolution process.

Important points:

  • Single Resolution is only for the appointment of directors at the General Meeting.
  • Single Resolution cannot be done in the Board Meeting as Section 162 is only for the Appointment of directors in the General Meeting.
  • The Resolution moved in contravention of the above shall be void whether any objection was raised in the meeting or not.
  • Motion i.e. proposed resolution should have been moved by all the members present in the general meeting.
  • This Section is not applicable for:

1. Private Company

2. Government Company:

    • in which entire paid-up share capital is held by the Central Government or by any State Governments or by the Central Government and one or more State Governments.
    • A subsidiary of the above-mentioned Government Company.

3. IFSC Public Company

CS Pooja Jain – Email: sclghyy@gmail.com

Disclaimer: The entire contents of this article have been prepared based on relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not professional advice and is subject to change without notice. We assume no responsibility for the consequences of use of such information. This is only a knowledge sharing initiative and the author does not intend to solicit any business or profession.

 

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