Appointment of Directors and Cessation of Directorship January 17, 2015

Board Composition Public cos – Min. 3 Directors; Pvt. cos – Min. 2 Directors; Max. – 15 Dirs (Can be increased by a Spl. Reso – No CG Approval) Every company shall have atleast 1 Director who stayed in India for 182 days in the previous calendar year. Independent Directors (“ID”): 1. Listed company - 1/3 (if Chairman is Non-Executive) ½ (if Chairman is Executive / Promoter / Non Regular Chairman); 2. Public cos with paid up sh cap of Rs. 10 crs or more / turnover of Rs. 100 crores or more / o/s loan / deb/ deposits of Rs. 50 crs or more - Min. 2 ID (Cos may be required to have higher number of ID depending upon the constitution of their Audit Committee) Woman Director – Listed company; Public co with paid up sh cap of Rs. 100 crs or more/ Turnover of Rs. 300 crores or more.

Appointment of Directors Nomination & Remuneration Comm. – To identify and recommend to the Board (Listed cos & public cos with paid up sh cap Rs. 10 crs / TO Rs. 100 crs / OS Loans and Borrowings Rs. 50 crs) DIN – Pre-requisite for appointment Limit on directorships Appointee not to attract disqualifications u/s Sec 164 Directors to give declaration about not being disqualified in Form DIR 8 Directors to give their consent in Form DIR 2. Disclosure of Interest in Form MBP 1 Disclosure of interest through relatives Disclosure under Transfer Pricing – List of relatives under IT Act List of cos/firms/AOP in which a Director / his relatives have 20% stake Disclosure under Insider Trading Code (SEBI and Co) Independent Directors to give an additional declaration on fulfillment of criteria of independence prescribed in S. 149 (6) The Explanatory statement for the appointment of independent Director to not only contain a declaration from the Board that the proposed candidate fulfills the criteria of independence but also contain the justification for choosing such a person as independent director.

Appointment of Directors (...cont.) Intimate Stock Exchanges Appointment Letter to be issued to the Directors Particulars of appointment to be filed in Form DIR 12 – 30 days For MD/WTD – Return of appointment in Form MR 1 – 60 days Resolution in Form MGT 14 – 30 days CG Approval for appointment of MD/WTD – Form MR 2 – 90 days [See Rule 7 of Cos (Appt and Rem of Managerial Personnel) Rules] Entries to be made in the Registers

Additional / Alternate / Nominee Director (by the BOD) Additional Director (S. 161): BOD to appoint – To hold office upto the next AGM Can a person who fails to be re-appointed at the AGM never be appointed as additional director ??? Curbing mischief possible under the old act – “other than the one who fails to get re-appointed at the AGM” Directors retiring by rotation not to include additional directors’ retirement. Alternate Director (S. 161) 3 months absence from “India” (in 2013 Act) as against 3 months absence from the “State in which the meetings of the Board are ordinarily held” (in 1956 Act) Does he have to be out of India for a continuous period of 3 months ??? A person cannot hold alternate directorships for 2 directors on the same board A person fulfilling the criteria of independence only can be appointed as Alternate Director to an independent director. Term of office To vacate as and when the original director returns to India Re-appointment to apply to the original director With the Act permitting the holding of Board Meetings by VC, are we seeing an end to the concept of alternate directorship ???

Additional / Alternate / Nominee Director (by the BOD) (…cont.) Nominee Director (S. 161) The Board may appoint a nominee director nominated by any institution in accordance with any law or an agreement or by CG/SG on account of the shareholding in a government company Nominee Director is not an Independent Director Casual Vacancy (S. 161) BOD have a right to fill the casual vacancy caused on account of death, resignation etc of a Director only at a Bd Meeting. Only applicable to public companies The Director appointed in casual vacancy to hold office only upto the date upto which the original director would have held the office

Appointment of Small Shareholders’ Director Applicable only to listed cos under the 2013 Act as against public cos with paid up sh cap of Rs. 5 crs or 1000 small shareholders under the 1956 Act (Small Shareholder: Holding nominal value not exceeding Rs. 20,000/-) A listed company may have 1 director elected by small shareholders A listed co can suo moto appoint a small shareholder director Atleast 14 days Notice from 1000 small shareholders or 1/10th of the total number of small shareholders (whichever is lower) A person can act as small shareholder director only in 2 cos (the other company should not be a competitor) Tenure - 3 years; No provision for re-appointment or cooling period as in case of independent directors; Small shareholder director could be considered independent if he fulfills the criteria of independence Intention of the legislature – To create another class of independent directors focusing on the interest of small shareholders Loophole: The small shareholder director can get appointed on a competitors board immediately upon the expiry of his tenure.

Cessation of Directorship Resignation by giving notice (S. 168) Notice to Company (to take effect from the date of receipt or a later date mentioned in the notice) Notice to ROC (with reason) Vacation of Office (S. 167) For reasons listed in S. 164 and S. 167 Additional ground under the 2013 Act – Director absenting himself from all Board Meetings held during a period of 12 months, with or without leave of absence From when is the period of 12 months to be reckoned??? Directorship in a co held by virtue of holding any office or employment in the holding/subsidiary/associate co would cease upon the termination of the said office or employment Private companies can prescribe additional grounds in its Articles