Appointment of Directors elected by Small shareholders (Section 151 of the Companies Act, 2013)

Appointment of Directors elected by Small shareholders (Section 151 of the Companies Act, 2013) :

According to section 151 of the Companies Act, 2013:

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

Here, “Small Shareholders” means a shareholder holding shares of nominal value of not more than Rs. 20,000 or such other sum as may be prescribed.

The Companies (Appointment and Qualification of directors) Rules, 2014 provides for the procedure for appointment of Small shareholders‘ director according to which:

(i) A listed company, may upon notice of not less than

(a) one thousand small shareholders; or

(b) one- tenth of the total number of such shareholders,

whichever is lower,have a small shareholders‘ director elected by the small shareholders .

However, a listed company may opt to have a director representing small shareholders suomotu and in such a case the provisions of sub-rule (ii), given below, shall not apply for appointment of such director.

(ii) 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 signature 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.

However, 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.

(iii) 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

(iv) 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.

(v) 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

(vi) A person shall not be appointed as small shareholders‘ director of a company, if he is not eligible for appointment in terms of section 164 which specifies the disqualifications for appointment of a director.

(vii) A person appointed as small shareholders‘ director shall vacate the office if –

(a) the director incurs any of the disqualifications specified insection 164;

(b) the office of the director becomes vacant in pursuance ofsection 167;

(viii) No person shall hold the position of small shareholders‘ director in more than two companies at the same time.

However, the second company in which he has been so appointed shall not be in a business which is competing or is in conflict with the business of the first company.

(ix) 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.

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