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COMPANIES ACT, 2013 Sections relevant to Board of Directors

SectionHeading 149Company to Have Board of Directors 150Manner of selection of Independent director and maintenance of databank of Independent directors OUTLINE

INTRODUCTION 1.The Companies Act 2013 got assent of the President of India on 29 th August, 2013 and was published in the Official Gazette on 30 th August, The Act comprises of 29 chapters, 470 Sections with 7 Schedules as against 658 sections and 14 Schedules in the Companies Act, Substantively a law based on Rules (as may be prescribed). Rules have been exposed by MCA for public comments in 6 different phases.

CHAPTER XI – SECTION 149 COMPANY TO HAVE BOARD OF DIRECTORS 149(1)  Minimum and Maximum number of directors.  At least one woman director in the Company. 149(2)  Comply with the provisions of 149(1) within 1 year from the date of commencement of this act. 149(3)  At least one director who has stayed in India for a period of not less than 182 days. 149(4)  Listed companies shall have at least One-Third of total directors as independent directors.  CG may prescribe minimum number of Independent directors in case of any class or classes of companies. 149(5)  Comply with the provisions of Sub-section 5 within 1 year from the date of commencement of this act or from the date of notification of the rules as may be applicable.

CHAPTER XI – SECTION 149 COMPANY TO HAVE BOARD OF DIRECTORS 149(6)  An independent Director means a director other than MD, WTD and ND and one who satisfies all the conditions laid down in this sub- section. 149(7)  Every independent director in his first meeting as a director and thereafter in first board meeting of Every FY shall give a declaration that he meets the criteria as laid down in 149(6). 149(8)  The company and independent directors shall abide by the provisions specified in schedule IV. 149(9)  Notwithstanding anything contained in the Act, subject to the provisions of Section 197 and 198, an Independent Director shall not be entitled to Stock Options, he may receive remuneration as per 197(5), reimbursement of Expenses and profit related commission as may be approved by the members. 149(10)  An Independent Director shall hold the office for a term of 5 consecutive years. He is eligible for reappointment on passing a special resolution by the company and on disclosure of such appointment in the boards report

CHAPTER XI – SECTION 149 COMPANY TO HAVE BOARD OF DIRECTORS 149(11)  Notwithstanding anything contained in section 149(10), Independent director shall not hold office for more than Two consecutive Terms.  He shall be eligible for appointment after expiration of 3 years of ceasing to become as an independent director, provided during the said three years he is not appointed in any of its holding, subsidiary or associate company in any other capacity. 149(12)  Notwithstanding anything contained in this act, Independent Director; a Non-executive director not being promoter or Key Managerial Personnel shall be liable only in respect of such acts of omission or Commission by a company which had occurred with his knowledge, attributable through board processes and with his consent or connivance or where he had not acted diligently. 149(13)  The provisions of Sections 152(6) and 152(7) in respect of retirement of directors by rotation shall not be applicable to Independent directors.

SECTION 149(1)  Every company shall have a Board of Directors consisting of individuals as directors and shall have—  A company may appoint more than 15 directors after passing a special resolution  Provided further that such class or classes of companies as may be prescribed shall have at least one woman director. CompanyMin No. of directorsMax No. of Directors Public Company315 Private company215 One person Company115 As per Section 149(2), Every company existing on or before the date of commencement of this Act shall within one year from such commencement comply with the requirements of the provisions of sub-section (1).

SECTION 149(3)  Every company shall have  at least one director  Who has stayed in India  For a total period of not less than one hundred and eighty- two days  In the previous calendar year.

SECTION 149(4)  Every listed public company shall have  at least one-third of the total number of directors as independent directors and  The Central Government may prescribe the minimum number of independent directors in case of any class or classes of public companies. As per Section 149(5 ), Every company existing on or before the date of commencement of this Act shall, within one year from such commencement or from the date of notification of the rules in this regard as may be applicable, comply with the requirements of the provisions of sub-section (4)

 An independent director in relation to a company, means a director other than a managing director or a whole-time director or a nominee director,—  who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience;  who is or was not a promoter of the company or its holding, subsidiary or associate company;  who is not related to promoters or directors in the company, its holding, subsidiary or associate company SECTION 149(6)

 Who has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year.  None of whose relatives has or had pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors, amounting to  2 % or more of its gross turnover or total income  fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year;

SECTION 149(6)  Who, neither himself nor any of his relatives  holds or has held the position of a key managerial personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed  Is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of  a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or  any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent. or more of the gross turnover of such firm;

SECTION 149(6)  holds together with his relatives two per cent. or more of the total voting power of the company; or  is a Chief Executive or director, by whatever name called, of any nonprofit organisation that receives twenty-five per cent. or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds two per cent. or more of the total voting power of the company; or  who possesses such other qualifications as may be prescribed.

SECTION 149(7)  Every independent director shall at the first meeting of the Board in which he participates as a director and thereafter at the first meeting of the Board in every financial year or whenever there is any change in the circumstances which may affect his status as an independent director, give a declaration that he meets the criteria of independence as provided in sub-section (6). For the purposes of this section, “nominee director” means a director nominated by any financial institution in pursuance of the provisions of any law for the time being in force, or of any agreement, or appointed by any Government, or any other person to represent its interests.

SECTION 149(8)  The company and independent directors shall abide by the provisions specified in Schedule IV.

SECTION 149(9)  Notwithstanding anything contained in any other provision of this Act, but subject to the provisions of sections 197 and 198, an independent director shall not be entitled to any stock option and may receive remuneration by way of fee provided under sub-section (5) of section 197, reimbursement of expenses for participation in the Board and other meetings and profit related commission as may be approved by the members.

SECTION 149(10)  Subject to the provisions of section 152, an independent director shall hold office for a term up to five consecutive years on the Board of a company, but shall be eligible for reappointment on passing of a special resolution by the company and disclosure of such appointment in the Board's report.

SECTION 149(11)  Notwithstanding anything contained in sub-section (10), no independent director shall hold office for more than two consecutive terms, but such independent director shall be eligible for appointment after the expiration of three years of ceasing to become an independent director: Provided that an independent director shall not, during the said period of three years, be appointed in or be associated with the company in any other capacity, either directly or indirectly. For the purposes of sub-sections (10) and (11), any tenure of an independent director on the date of commencement of this Act shall not be counted as a term under those sub-sections.

SECTION 149(12)  Notwithstanding anything contained in this Act,—  an independent director;  a non-executive director not being promoter or key managerial personnel, shall be held liable, only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently.

SECTION 149(13)  The provisions of sub-sections (6) and (7) of section 152 in respect of retirement of directors by rotation shall not be applicable to appointment of independent directors

SECTION 150 – MANNER OF SELECTION OF INDEPENDENT DIRECTORS AND MAINTAINANCE OF DATABANK OF INDEPENDENT DIRECTORS  Subject to the provisions contained in sub-section (5) of section 149, an independent director may be selected from a data bank containing names, addresses and qualifications of persons who are eligible and willing to act as independent directors, maintained by any body, institute or association, as may by notified by the Central Government, having expertise in creation and maintenance of such data bank and put on their website for the use by the company making the appointment of such directors: Provided that responsibility of exercising due diligence before selecting a person from the data bank referred to above, as an independent director shall lie with the company making such appointment.

Section 150(2)  The appointment of independent director shall be approved by the company in general meeting as provided in sub- section (2) of section 152 and the explanatory statement annexed to the notice of the general meeting called to consider the said appointment shall indicate the justification for choosing the appointee for appointment as independent director.

SECTION 150(3)  The data bank referred to in sub-section (1), shall create and maintain data of persons willing to act as independent director in accordance with such rules as may be prescribed.

SECTION 150(4)  The Central Government may prescribe the manner and procedure of selection of independent directors who fulfil the qualifications and requirements specified under section 149.

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