Transcript functioning of board and role of directors under the companies act

Ramaswami Kalidas
VP &Company
secretary
Reliance Power Ltd.
The definition of Board of Directors is given in Section 2(10) of
Companies Act, 2013 corresponding to Section 2(6) of Companies Act,
1956.
As per the new definition it refers to “ a collective body of the Board”
Chief Executive Officer (CEO) refers to an officer of a company
who has been designated as such by it.
As per Clause 49 ,CEO is MD or Manager appointed under the
Act.
Whether CEO is part of the Board unless he is appointed to the
Board?
 Definition of Director as given in Section 2(34) of
Companies Act, 2013 corresponds to section 2(13) of Indian
Companies Act, 1956:
“Director refers to one who has been appointed as such by
the Board”
“Means “ Definition and hence restrictive .
 Definition in old Act being inclusive and hence illustrative.
Could refer to anyone occupying the position of director by
whatever name called. Shadow directors/pseudo Directors
on whose behest Board accustomed to act included.
As per the new definition given in Section 2(51) Key Managerial
Personnel
includes Chief Executive Officer (CEO), Managing
Director (MD), Manager, Company Secretary (CS), Chief Financial
Officer (CFO), Whole Time Director (WTD) and any other officer as
may be prescribed.
Per Section 203 (not yet notified)full time KMP a must in every
Company with paid up capital of Rs 5 Crore or more.(Draft Rules
for appointment and remuneration of Managerial personnel)
The definition of Managing Director as given in Section 2(54) of
Indian Companies Act 2013 corresponds to Section 2(26) of
Indian Companies Act, 1956.
Major shift in Role-MD does not have to function under
supervision, control and direction of Board
The definition of Whole-Time Director is given in Section
2(94) of Companies Act 2013 corresponds to explanation
under Section 269.
“Whole Time Director includes the Director who is in whole
time employment of the Company”
Even one not so called would come within definition
Section 162 of Companies Act, 2013 corresponds to Section 263 of
Companies Act,1956.
 This Section deals with “Appointment of Directors to be voted
individually”
Section 164 to 175 of Companies Act 2013 dealing with :
Disqualifications of Directors
Number of Directorships
Duties of Directors
Vacation of office
Resignation of Directors
Removal of Directors etc
(Section 164)
(Section 165)
(Section 166)
(Section 167)
(Section 168)
(Section 169)
All these Sections have not yet been notified.
Loan to Directors or to any other person in whom director is interested as
in Section 185 corresponding to Section 295 of Indian Companies Act,
1956 has been notified. Also covers provision of guarantee or security.
Except for loans given as part of condition of service for Managing
Director/Whole Time Director or as per any scheme approved by Members
by Special Resolution no loans can be given to directors even if Central
Government approves.
Loan to Directors shall also include “a loan represented by a book debt”
Notified provision.
Restricts non-cash transactions involving directors by which any
acquisition of Assets by company from director of Holding,
Subsidiary or Associate company or any person connected with him
and vice versa for consideration other than cash shall not be allowed
until approved by shareholders.
This Section applies to both Public and Private Companies.
Arrangement in violation voidable at option of company unless
restitution impossible and Company has been indemnified by others.
 This section prohibits forward contracts in securities by Director or
any Key Managerial personnel in Holding, Subsidiary or Associate
Company. Includes Right to call for delivery or to make delivery at
specified price/time.
 Does not cover transactions done indirectly.
 Relevant securities refer to shares and debentures of Company and
its subsidiaries.
Penalty - Rs five lacs or imprisonment for two years or both
This section has been notified.
Any Director or Key Managerial Personnel is prohibited from doing
Insider Trading. Refers to direct involvement not through relatives.
 Definition of “Price Sensitive Information” doesn’t correspond to
definition in SEBI [Insider Trading] Regulations.
Explanation under definition in Regulations which amplifies
definition deleted.
Penalty includes disgorgement to the extent of three times the
profit made.
Section 196 to Section 201 dealing with :
Appointment of MD, Whole Time Director or Manager ,Remuneration
of Managerial Personnel, Limits on Remuneration etc has not yet
been notified.
Draft Rules in place for debate.
Section 149 of Indian Companies Act, 2013 provides for at least
one woman Director. Per Draft Rules- For listed Companieswithin one year of Notification. Other public Companies with paid
up capital of 100 Crore or turnover of 300 Crore within 3 years.
Section 149(4) - one-third of total number of Directors should be
Independent Directors. provision in Listing Agreement provides
for half of the board to be Independent Directors in certain
situations.
SEBI in consultative paper have stated that this composition in
Clause 49 will not be disturbed. Draft Rules suggest that listing
agreement shall prevail.
Section 149- Cont. :
Definition of Independent Director – Not in sync with Listing Agreement.
SEBI have confirmed that there will be congruence.
Nominee Director – Nominee Director not an independent director.
Section 150 -Selection of Independent Directors . Data
Bank to
be maintained by Central Government thru
Institute/Association authorized.
Section 150(2) –Appointment of Independent Directors in
General Meeting and Explanatory Statement to provide
justification for choice. Question-Whether he can be
appointed as Additional Director/to fill casual vacancy. To be
read conjointly with Section 161
Section 151 – Listed Company to have one director
appointed by small shareholders .Notice from 500 or 1/10th
of Members lower. Not liable to retire by rotation.term-3
years
This section states that if the Director is absent from all meetings
held in 12 months with or without leave of absence.
Draft rules on Board Meetings provide that Director shall attend at
least one meeting in person.
To act as per Articles of the company.
Act in good faith to promote objects of the company for benefit of its members
as a whole and in the best interest of company, employees, stakeholders,
community and environment.
Exercise his duties with due & reasonable care, skill and diligence and
independent judgement.
He must not have any conflict of interest.
No attempt to seek undue advantage or gain either to himself or his relatives.
No assignment of office.
Punishment for contravention of above will be fine not less than one lac which
may extend to five lacs.
Section 179 corresponds to section 292 of Indian Companies Act, 1956.
The following cannot be exercised unless approved at board meeting :
• Power to issue securities including in and outside India (previously only
debentures)
• To grant loans, give guarantees, security for loans;
• Approve financial statement and Board’s Report;
• Diversify business;
• Approve amalgamation/merger/reconstruction;
• To take over company or acquire controlling or substantial stake in another
company.
As per Draft rules :
 To make political contributions;
 To fill casual vacancy in Board;
 Enter into Joint Venture, Technical or financial collaboration;
 Commence new business;
 Shifting of plant/factory or Registered office;
 Appointment/Removal of Key Managerial Personnel and
below level of KMPs;
one level
 Acceptance of Public Deposits;
 Sell Investment (other than trade) beyond 5% of paid up capital and free
reserves of Investee . Will include subsidiary investments as well
 Appointment of Internal Auditors;
Approval of quarterly / half yearly /annual results.
Powers Exercisable with Shareholder Approval: [Section 180
corresponding to Section 293 of Indian Companies Act, 2013]
 Approval by Special Resolution;
 Does not speak about previous approval of Members;
 Sale/disposal of undertaking
Undertaking is defined as – Investment exceeds 20% of Net Worth
or 20% of Total Income;
 Invest other than in trust securities compensation arising from
Merger/Amalgamation;
Borrowings in excess of paid up capital and free reserves other
than temporary borrowings
Temporary borrowings includes cash credit, bill discounting and
other short term loans excluding loans for capital expenditure.
 Contribution to charitable funds given in section 181 of Companies
Act, 2013 corresponds to 293(1)(e) of Companies Act, 1956.
 Prior permission of members where contribution exceeds 5% of net
profit of last three years.
 Type of resolution whether special/ ordinary not stated. Needs
clarity
 Facility of attending Meeting through Audio/Video;
 Chairman with Company Secretary to arrange for video facilities,
safekeeping of tape recordings and other electronic recording
mechanism. Why responsibility with Chairman?
 Notice for meeting;
 Chairman to take roll call before transacting every item;
 From commencement till conclusion of meeting no person other
than chairman, directors, secretary and other person legally
required to be present to have access to meeting/video facility.
Draft minutes to be drawn up and circulated within 7 days of
meeting;
 Director to provide comments within 3 days.
 Facility now available of seeking approval through E-mail
transmission.
 If 1/3rd of Board desire that the resolution shall be only passed at
Board Meeting, approval by circulation not possible.
 Resolution so passed to be noted at next Meeting and made part
of Minutes of the Meeting.
Additional disclosures :
 Extract of the Annual Return;
 Number of Meetings of Board (part of CG Report)
 Declaration of Independent directors and policy on director’s remuneration,
qualifications, positive attributes;
 Explanations/comments of Board on any qualifications made by the
Company Secretary in practice his Audit Report;
 Particulars of loans, guarantees or investments;
 Particulars of contracts with Related parties;
 Statement regarding development and implementation of risk management
policy;
 Policy developed and implemented on CSR;
 For listed companies and others as prescribed manner of annual evaluation
of Board’s/committee performance.
THANK YOU