This article seeks to highlight the common points and uncommon points on appointment of woman director as per Companies Act, 2013 and SEBI (LODR) Regulations

Women Director comparison as per Companies Act and SEBI (LODR) Regulations 2015

Reg. or Section LODR Regulations 17 (1) :-

The composition of board of directors of the listed entity shall be as follows:

(a) Board of directors shall have an optimum combination of executive and non-executive directors with at least one woman director and not less than fifty per cent. of the board of directors shall comprise of non-executive directors;

[Provided that the Board of directors of the top 500 listed entities shall have at least one independent woman director by April 1, 2019 and the Board of directors of the top 1000 listed entities shall have at least one independent woman director by April 1, 2020;

1st proviso to Section 149(1) read with Rule 3 of The Companies (Appointment and Qualification of Directors ) Rules, 2014.:

The following class of companies shall appoint at least one woman director-

(i) every listed company;

(ii) every other public company having –

(a) paid–up share capital of one hundred crore rupees or more; or

(b) turnover of three hundred crore rupees or more:

Provided that a company, which has been incorporated under the Act and is covered under provisions of second proviso to sub-section (1) of section 149 shall comply with such provisions within a period of six months from the date of its incorporation:

Provided further that any intermittent vacancy of a woman director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy whichever is later. 

Explanation.– For the purposes of this rule, it is hereby clarified that the paid up share capital or turnover, as the case may be, as on the last date of latest audited financial statements shall be taken into account.

Who will appoint The top 500 and 1000 entities shall appoint an independent Women director. The top 500 and 1000 listed entities shall be determined on the basis of market capitalization as at the end of immediate previous financial year.

So if a company is a part of top 500 or 1000 on 31st March 2018 it will have to appoint an Independent Women Director by 1st April 2019.

Top 500 listed entities have to appoint independent women director by 1st April 2019. If we take market capitalization of 31st March 2019 then the company would not be able to comply with the regulations.

Also the words used are “immediate previous financial year” and not “preceding financial year”.

There is a difference between these words. “previous” means occurring anytime before and “preceding” means occurring immediately before.

If the word “preceding” was used then it would imply market capitalization as on 31st March 2019.

The top 1000 listed entities shall appoint Independent Women Director by 1st April 2020. So these listed entities have to take market capitalization as on 31st March 2019.

All listed entities shall appoint irrespective of their turnover or share capital.

But for unlisted public companies the turnover or paid up share capital shall be as per latest audited financial statement.

“latest audited financial statement” would mean half yearly financial statements if they are audited or year ended financial statement.

Financial statement includes “Balance sheet, balances sheet, profit and loss account, statement of changes in equity and any explanatory note.

So this requirement can be met anytime during the year when audited financial statements are prepared.

But for listed entities to comply with this they need to wait for the entire year to understand or ascertain whether they are within top 500 or 1000.

Still all entities have to appoint women director but only top 500 and 1000 have to ensure that they are independent director There is no criteria of independence for women director

If the above mentioned companies have to appoint an Independent woman director then all the provisions as are applicable to Independent Directors will have to be complied with by woman director.

So now an Independent Woman director will be subject to remuneration limits, she will not be subject to retirement by rotation, she shall be appointed for a term of 5 years at a time, she shall not be entitled to stock option etc…

With respect to 17A(1) an Independent Director cannot serve in more than seven listed entities. Also if she is a WTD/MD of any company then it shall be three listed entities.

Under Regulation 18 now she can become Chairman of Audit Committee, if she if an financial expert. Now this is a feature which is rarely seen in Corporate world. Also she can become Chairman of Nomination and Remuneration committee.  There are many other compliances which the company will have to ensure.

This move by the government to first bring a women director and now an independent women director makes it a welcome step in women empowerment. Also the provisions of Prevention of Sexual Harassment

Critical questions

There are some questions that needs to be answered. Government is very much clear on who shall appoint an independent director.

What if a company falls out of top 500 or top 1000 listed entities as on last date of financial year then what shall a company do?

What if the company again regains its top 500 or top 1000 companies position in the next financial year?

What if companies now appoint an Independent Woman director by way of additional director on the Board and then confirm her appointment at the ensuing general meeting? or is it necessary that companies shall pass a resolution by postal ballot or call an EGM.

Where a company is a mere listed entity then it can appoint a woman director but she need not be independent. But as soon as company enters top 500 or top 1000 listed entities then the woman director will have to comply with criteria of independence.

Casual Vacancy

There might be instances where independent woman director might resign. Fortunately there is no difference between the provisions of company law and SEBI(LODR) Regulations 2015. Resignation of Woman Director will lead to casual vacancy in the office of Independent Director. The provisions relating to filing up of casual vacancy in both regulations is same.

Now companies who are already in top 500 entities by market capitalization shall appoint an independent woman director by passing a postal ballot resolution or calling an EGM. This would be in compliance of Section 150(2) read with 152(2) Companies cannot wait till next general meeting as the compliance has to be done by 1st April 2019.

The move by the regulator to mandate the appointment of independent woman director is a welcome step. An Independent Woman director will definitely be a boon to India Inc.

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January 2021