DIRECTORS AND BOARD MEETINGS

RAMESH VENKAT

April 27, 2014

APPOINTMENT OF DIRECTORS……1

Maximum number of Directors in a public Company increased from 12 to 15

Limit of 15 Directors applies to private companies also; previously no limit for private companies

Increase beyond 15 Directors by passing Special Resolution; no Central Government appoval

COMPANIES ACT, 2013

APPOINTMENT OF DIRECTORS……2

Maximum number of Directorships of an individual limited to 20 companies

Of which not more than 10 can be public companies or private companies that are holding or subsidiary company of a public company

Previous limit was 15 companies, but excluding private companies and Alternate Directorships

New provision for specified companies to have atleast one Woman Director

Every listed Company and all public companies with a paid up capital of Rs. 100 crores or more or turnover of Rs. 300 crores or more, to have atleast one Woman Director

COMPANIES ACT, 2013

APPOINTMENT OF DIRECTORS……3

Specific provision for Nominee Directors – subject to the Articles, the Board empowered to appoint Nominee Directors; previously no specific provision except for Government nominees

Alternate Director appointment only if a Director leaves India for more than 3 months; previously if Director absent from the state in which Board meetings held for more than 3 months

Additional Director to hold office till next AGM or the last date for the AGM as per law

New provision prohibiting a person who fails to get appointed as Director in a general meeting, from being appointed Additional Director

COMPANIES ACT, 2013

APPOINTMENT OF DIRECTORS……4

Listed companies may have one Director elected by small shareholders; previously public companies with share capital exceeding Rs. 5 crores or 1000 or more small shareholders

Appointment of such Director upon notice from atleast 1000 small shareholders or 1/10 of the total number of small shareholders or suo motu

Small shareholders’ Director could be considered as an Independent Director also

Small shareholders’ Director not liable to retire by rotation; tenure of upto 3 consecutive years; not eligible for reappointment

No person to be small shareholders’ Director in more than 2 companies simultaneously; or in competing companies

COMPANIES ACT, 2013

INDEPENDENT DIRECTORS……….1

Independent Director defined comprehensively

In the opinion of the Board, a person of integrity and possesses relevant expertise and experience

Not a promoter or related to promoters or directors of the Company No pecuniary relationship of the Director and relatives with

company*, promoters or directors in 2 preceding financial years Director or relatives not to be or have been key managerial person or

employee of company * in 3 preceding financial years Director or relatives not to be a employee, partner etc. of auditors,

Company Secretary, Cost auditors or specified legal or consulting firms of the Company * in 3 preceding financial years

Director and / or relatives to not hold 2% or more of the voting power of the Company

Not the CEO or Director of any non-profit organisation that receives more than 25% of its receipts from the Company *, promoters, directors, or holds 2% or more voting power

COMPANIES ACT, 2013

INDEPENDENT DIRECTORS……….2

Listed public companies to have atleast 1/3 of total number of Directors as Independent Directors

Minimum of 2 Independent Directors in public companies with paid up capital of Rs. 10 crores or more; or turnover of Rs. 100 crores or more; or outstanding loans, debentures and deposits exceeding Rs. 50 crores

Independent Directors not entitled to stock options; remuneration by way of sitting fees for Board and Committee meetings and profit related commission as approved by members

COMPANIES ACT, 2013

INDEPENDENT DIRECTORS……….3

Term of 5 years; no more than 2 consecutive terms; cooling period of 3 years thereafter

May be selected from a data bank of directors; Central Government may authorise any appropriate agency to create and maintain such data bank

Data bank to list names, qualification, experience and expertise, legal proceedings, other directorships or partnerships

Appointment of Independent Director to be approved by Company in a general meeting; Explanatory statement to include justification for appointment

COMPANIES ACT, 2013

INDEPENDENT DIRECTORS……….4

Inability of Independent and Non-executive directors restricted to acts of omission or commission

Occurred with his knowledge

Attributable through Board processes

With his consent or connivance

Where not acted diligently

COMPANIES ACT, 2013

CODE FOR INDEPENDENT DIRECTORS

Specified in Schedule IV to the Act and includes the following

Guidelines of professional conduct; Role and Functions

Duties listed out comprehensively

Manner of appointment and reappointment, including performance evaluation

Independent Directors to hold atleast 1 meeting each year without other Directors and management for

Review performance of the Chairperson Assess quality, quantity, timeliness of information flow to Board

COMPANIES ACT, 2013

DISQUALIFICATION OF DIRECTORS

New disqualifications added in Sec. 164

Any person convicted of any offence and sentenced to imprisonment for 7 years or more permanently debarred from Directorship

Convicted of any offence dealing with related party transactions during the preceding 5 years

Not obtained Directors Identification Number

Not filed financial statements or Annual return for 3 consecutive years or defaulted in payment of debentures – also for private companies

COMPANIES ACT, 2013

DUTIES OF DIRECTOR

Specifically spelt out in Sec. 166 and includes the following

Act in accordance with the articles Act in good faith to promote company’s objects for benefit of

members, company, employees, shareholders, community and protection of environment

Exercise duties with due and reasonable care, skill, diligence and independent judgement

Avoid conflicts with interest of the Company Shall not achieve any undue gain or advantage for self, relatives,

partners, associates Not assign his office

COMPANIES ACT, 2013

RESIGNATION OF DIRECTORS

Specific provisions on resignation in Sec. 168

Notice in writing to the Company and Board

Forward the notice with reasons to the Registrar of Companies within 30 days

COMPANIES ACT, 2013

VACATION OF OFFICE OF DIRECTOR

Fails to attend all Board meetings for 12 months even if leave of absence granted; previously absence from 3 consecutive meetings or all meetings in 3 months without leave of absence

Convicted of any offence and sentenced to imprisonment for not less than 6 months even if appeal pending

Disqualified by an order of a Court or Tribunal under the Companies Act or any other Act

Ceases to hold office pursuant to which appointed as Director in Company of holding, subsidiary or associate Company

Any company where he is a director has not filed financial statements or Annual returns for 3 years or not paid interest or principal on debentures for 1 year or more; no such provision previously

COMPANIES ACT, 2013

REMUNERATION OF DIRECTORS

COMPANIES ACT, 2014

Independent

Executive Any Others

Salary

Profit based Commissions

Stock Options

Sitting fees

Maximum sitting fees for Board or Committee meetings increased to Rs. 1 lakhs

MEETINGS OF THE BOARD OF DIRECTORS

Atleast 4 meetings a year for public and private companies with a 90 day gap but 1 meeting in each half of the year for one Person company, small company and dormant company

Gap between two meetings to not exceed 120 days (previously one meeting every 3 months) for public and private companies

Minimum 7 days notice; shorter notice acceptable if atleast 1 independent director present; notices and draft resolutions by electronic means permitted

If independent directors absent from above meeting; ratification required from atleast 1 independent director

Resolutions passed by circulation to be noted in a subsequent Board meeting and incorporated in the minutes

COMPANIES ACT, 2013

MEETINGS OF THE BOARD OF DIRECTORS......2

Participation of a director by audio visual means or by video conferencing will count for quorum

Rules prescribe detailed procedure for conduct of meetings by video conferencing or other audio visual means

Responsibility of the Chairperson and the Company Secretary to ensure

Security and identification procedures Record proceedings and prepare minutes Storage and safe keeping of electronic media Restricting participation in the proceedings to Directors and other persons

required by the Board Restricting access to the data of proceedings

Some key business not to be dealt with through video conferencing or audio-visual means including

Approval of financial statements Approval of Board report

COMPANIES ACT, 2013

MEETINGS OF THE BOARD OF DIRECTORS......3

All companies to observe secretarial standards with respect to General meetings and Board meetings

Secretarial standards to be specified by the ICSI and approved by the Central Government

Rules provide for maintenance and inspection of documents in electronic form including minutes, etc. for every listed company and companies with not less than 1000 shareholders

Existing companies to convert data to electronic form within 120 days of notification of Sec. 120

Managing Director, Company Secretary or any other Director or Officer as decided by the Board responsible for maintenance and security of electronic records

COMPANIES ACT, 2013

AUDIT COMMITTEE

Mandatory for all listed companies; and other public companies with a paid up capital of Rs. 10 crores or turnover of Rs. 100 crores or borrowings of Rs. 50 crores or more

Minimum 3 Directors with independent directors in majority

Majority of members and Chairperson to have ability to read and understand financial statements

Role and function of the Audit Committee spelt out in detail including Appointment of auditors and their performance review Approval of related party transactions Scrutiny of inter corporate loans and investments Evaluation of internal controls and risk management

COMPANIES ACT, 2013

NOMINATION AND REMUNERATION COMMITTEE

Mandatory for all listed companies; and other public companies with a paid up capital of Rs. 10 crores or turnover of Rs. 100 crores or borrowings of Rs. 50 crores or more

Not less than 3 non-executive directors of which not less than ½ shall be independent directors

Chairperson (executive or non-executive) of the company can be a member but not the Chairman of the Committee

Responsible for identifying Directors and senior management positions, performance evaluation, criteria and policy for remuneration

COMPANIES ACT, 2013

STAKEHOLDERS RELATIONSHIP COMMITTEE

Required for every company with more than 1000 shareholders, debenture holders, deposit holders or any other security holders at any time during the financial year

Chairperson of the committee to be a non-executive director, other members as decided by the Board

Responsible for considering and resolving grievances of security holders

COMPANIES ACT, 2013

VIGIL MECHANISM

To be set up by all listed companies and companies which accept public deposits or with bank/ FI borrowings exceeding Rs. 50 crores

Mechanism for directors and employees to report genuine concerns

Mechanism to provide for adequate safeguards against victimisation of persons using it

To provide for direct access to the Chairperson of the Audit Committee in appropriate or exceptional cases

COMPANIES ACT, 2013

RESTRICTIONS ON BOARD’S POWERS

Powers exercisable by the Board with approval of general meeting applicable to all companies (previously only public companies)

Special resolution required in the general meeting in above case (previously ordinary resolution)

Certain powers exercisable only by a resolution at a Board meeting (per Act and additionally per Rules)

To grant loans, guarantees or provide security To approve financial statements and Board’s report To diversify company’s business To approve mergers or reconstruction To takeover a company or acquire a substantial stake To make political contributions To appoint or remove key managerial persons To appoint internal and secretarial auditors To buy or sell investments greater than 5% of capital + free reserves To invite or renew public deposits

COMPANIES ACT, 2013

SPECIAL RESTRICTIONS ON DIRECTORS – LOANS TO DIRECTORS

No loan, security or guarantee for a loan to a Director or interested person (previously possible with Central Government approval)

Person in whom Director is interested include relatives, partners, related firm, related private company, any company where 25% of voting power controlled, etc.

Loans to Managing or Whole Time Directors permitted with shareholder approval if such loan is a condition of service for all employees; or by a special resolution of shareholders

Loan by a holding company to a wholly owned subsidiary exempted

COMPANIES ACT, 2013

SPECIAL RESTRICTIONS ON DIRECTORS – RELATED PARTY TRANSACTIONS

Related party transactions require approval by the Board and in some cases an ordinary or special resolution of the company

Definition of Related Party greatly expanded

Related Party also includes any “”Shadow Director” ie. any person on whose advice, direction or instructions a director is accustomed to act

Scope of Related Party transactions also expanded significantly, including

Sale and purchase of goods Sale and purchase of property Leasing of property Appointment of agents for purchase or sale of goods or property Appointment to a office or place of project Underwriting subscription of securities or derivatives

Rules prescribe monetary limits for the above

COMPANIES ACT, 2013

SPECIAL RESTRICTIONS ON DIRECTORS – OTHERS

Directors cannot acquire assets from or sell assets to the company for consideration other than cash without approval of company in a general meeting

Prohibition on forward dealings in securities of the company

Provisions for prohibiting insider trading in the securities of the company

COMPANIES ACT, 2013