Section 151 of the Companies Act, 2013

A listed company may have one director elected by such small shareholders in such manner and with such terms and conditions as may be prescribed.

Explanation.—For the purposes of this section “small shareholders” means a shareholder holding shares of nominal value of not more than twenty thousand rupees or such other sum as may be prescribed.

Rule 7 of Companies (Appointment and Qualification of Directors) Rules 2014

Small Shareholders’ Director

(1) A listed company, may upon notice of not less than one thousand small shareholders or one-tenth of the total number of such shareholders, whichever is lower, have a small shareholders’ director elected by the small shareholders:

Provided that nothing in this sub-rule shall prevent a listed company to opt to have a director representing small shareholders suo motu and in such a case the provisions of sub-rule (2) shall not apply for appointment of such director.

(2) The small shareholders intending to propose a person as a candidate for the post of small shareholders’ director shall leave a notice of their intention with the company at least fourteen days before the meeting under their signatures specifying the name, address, shares held and folio number of the person whose name is being proposed for the post of director and of the small shareholders who are proposing such person for the office of director:

Provided that if the person being proposed does not hold any shares in the company, the details of shares held and folio number need not be specified in the notice:

(3) The notice shall be accompanied by a statement signed by the person whose name is being proposed for the post of small shareholders’ director stating –

(a) his Director Identification Number;

(b) that he is not disqualified to become a director under the Act; and

(c) his consent to act as a director of the company

(4) Such director shall be considered as an independent director subject to , his being eligible under sub-section (6) of section 149 and his giving a declaration of his independence in accordance with sub-section (7) of section 149 of the Act.

(5) The appointment of small shareholders’ director shall be subject to the provisions of section 152 except 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.

(6) 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.

(7) 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 sub-section (6) of section 149.

(8) No 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.

(9) A small shareholders’ director shall not, for a period of three years from the date on which he ceases to hold office as a small shareholders’ director in a company, be appointed in or be associated with such company in any other capacity, either directly or indirectly.

COMMENTS ON SECTION 151 OF THE COMPANIES ACT, 2013

Originally in Companies Act, 1956 there was no provision for small shareholders’ director but Companies (Amendment) Act, 2000 brought the provision relating to SSD in the Companies Act, 1956. Companies (Second Amendment) Bill 1999, which ultimately led to Companies (Amendment) Act 2000, contained provision for SSD (as proviso to section 252(1) of the Companies Act, 1956 i.e clause 122 of the bill) for specified class of public companies on mandatory basis but while passing this bill this provision got converted from mandatory to optional basis.

Purpose of this section was to protect the minority shareholders by having their director on the board of specified public companies but to some extent lost its relevance because of optional nature of provision (section 128 of Companies (Amendment) Act, 2000 inserted proviso under section 252(1)).

Under Companies Act, 2013 scope of this SSD provision has been restricted even more than earlier, as now section 151 of the Companies Act, 2013 (corresponds to proviso of section 252(1) of the Companies Act, 1956) is applicable only on listed companies and unlisted public companies are out of this provision. Earlier under the Companies Act, 1956, SSD provision was applicable on public companies have paid up capital of five crore rupees or more and having one thousand or more small shareholders.

Although in the Companies Act, 2013 has made one welcome change with regard to number of small shareholders proposing candidature for SSD now 1000 small shareholders or 1/10th of total number of such shareholders whichever is lower can propose a person for the post of small shareholders’ director. Earlier in Companies Act, 1956 there was requirement of at least 1000 small shareholders who could have proposed candidature of SSD.

Definition of small shareholders is same in both the Acts.

Listed company may have SSD on suo motu basis. (Refer proviso to sub-rule 1 of rule 7 of Companies (Appointment and Qualification of Directors) Rules, 2014)

There is no requirement for the candidate to be small shareholder or even shareholder of the concerned listed company.

A person cannot become SSD in more than 2 companies and second company in which he has been appointed as SSD shall not be in a business which is competing or is in conflict with the business of the first company.

SSD‘s tenure shall not exceed period of three consecutive years and after expiry of the tenure such director shall not be eligible for re-appointment.

Candidate shall not be disqualified under section 164 of the Companies Act, 2013 and after appointment vacate office if incurs disqualification u/s 164, section 167 got attracted and not independent as per section 149(6) of the Companies Act, 2013.

Disclaimer – Author has exercised utmost care while writing this article, but still this article may contain some error or mistake and no part of this article/writing should be construed or considered as any advice or consultancy whether professional or otherwise.

Author may be reached at carahulkunwar@gmail.com

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7 Comments

  1. Sanjay Shiva R says:

    Is a resolution required at general meeting required before appointment of such SSD? If yes, does that mean majority shareholders can vote against such resolution and prevent appointment of SSD?

  2. Kishan Panchal says:

    Small shareholders Director(SSD) can be counted as independent director for the purpose of section 149( No of independent director)?

    Another, SSD can not be reappointed, so why there is cooling period ??

  3. vishesh says:

    Sir, Is it mandatory for listed co.’s on application of 1000 small Sh’s. or 10% because the word written in the section or rule is “may”.

  4. Priyanshu Shah says:

    Can Small Shareholder Director hold shares in the same company in which he is Small Share Holder Director ??? if yes then how he will complied with Section 149(6)???

    1. abrar khan says:

      An ID can be SSD, but an SSD can only be ID if he meets the criteria of independence(holding shares of 2% or less). And the relevant section has given “an SSD shall be considered as ID, Subject to his being eligible(Sec.151)

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