DIRECTORS, KMP’S & BOARD GOVERNANCE

Rashida AdenwalaFounder Partner R & A Associates

Hyderabad, Gurgaon, Chennai

Coverage under the Act

CHAPTER XI Appointment And Qualification Of

Directors

CHAPTER XII Meetings Of Board And Its Powers

CHAPTER XIIIAppointment & Remuneration Of

Managerial Personnel

Max. 15 Directors

(previously 12)

Co. may appoint > 15 directors

by passing a SR

Min. 2 Directors in case of Pvt. Co.

Min. 3 Directors in case of Public Co.

No of DirectorshipsSec 149

Within 1yr from date of commencement of Act (i.e., 01/04/2014)

Time Frame to appoint

Intermittent vacancy

At the earliest but not later than immediate next Board meeting or 3 months from such vacancy.

Woman DirectorsSection 149(3)

Applicability

Every listed Company and Every other Public Co. having

Paid-up capital of Rs. 100 crs or more or Turnover of Rs. 300 crs or more.

Time Limit to Complywith immediate effect

Resident Director [Sec

149(2)]

At least 1 director to be a person who has stayed in India for at least 182 days in the previous

calendar year.

Class or classes of

Co.s to have at least 2

directors as

Independent

Directors

Public Co. having paid up Sh. Cap. Of Rs. 10 cr or more

Public Co. having Turnover of Rs. 100 cr or more

Public Co. which have, in aggregate, o/s loans, debentures and deposits, exceeding Rs. 50 crs

Independent DirectorSection149 (5)

Every Co. within 1yr from such commencement or from the date of notification of the rules, comply with the requirements of the above

provisions.

Independent Director DefinitionSection149 (5)

Independent director means a director other than a Managing Director or a Whole time director or a nominee director and…..

Promoter

Company Holding Subsidiary Associate

Not Related

Promoter

Holding

Director

Subsidiary

Associate

Not having any Pecuniary Relationship*

Company Holding Subsidiary Associate

Not a Relative of Promoter or Director

Company Holding Subsidiary Associate

*During the 2 preceding Financial year or Current Financial Year.

^Amounting 2% or more of its gross total turnover^ or Rs. 50 Lakh which ever is lower^such amount as may be prescribed

Himself or his Relative

KMP

Employee

Company

Associate

Subsidiary

Holding

Immediately for 3 preceding Financial year

Himself or his Relative

Partner

Employee

Proprietor

Company Secretary

Auditor

Legal and Consulting

Cost Auditor

Immediately for 3 preceding Financial year

Appointment has to be

approved by the Co.

in a general meeting

by Ordinary

Resolution

as a Special

Business

Independent DirectorSection149 (6) & 150

To be selected from Data Banks maintained by any body..

Detailed Explanatory Statement.

No requirement to retire by Rotation.

Two terms of 5 yrs each.

Cool off period of 3 yrs.

Nominee Director/ Representative Director not to be considered as ID’s

Letter of appointment sent to ID should give complete details of Terms and conditions as given in schedule VI.

Any intermittent vacancy of an ID shall be filled-up not later than immediate next Meeting or 3 months from the date of such vacancy, whichever is later.

where a Co. ceases to fulfill any of 3 conditions for 3 consecutive years, it shall not be required to comply with these provisions until such time as it meets any of such conditions.

Declaration by Independent DirectorSection149 (7)

Independent director to give declaration at

The first board meeting as an Independent Director

At every first board meeting of financial year.

RemunerationSection149(8)

Reimbursement of expenses incurred for attending meeting

Sitting fees

Commission on profit not exceeding the limits prescribed

Not eligible for ESOP’s

Professional conduct, Duties and Roles

Schedule IV (1) (2) (3)

Guidelines for Professional conduct

Roles and function defined

Duties to be performed by Independent Directors

Separate MeetingsSchedule IV (7)

To conduct one meeting at least per year.

Only Independent directors to be present

The meeting shall discuss the performance evaluation of other Directors.

Evaluation MechanismSchedule IV (8)

Performance evaluation of Independent Directors

Extension of term of appointment.

LiabilitySection149 (11)

Liable for omissions or commissions held with

His knowledge

Attributable to whole Board

With his consent and convenience

Appointment of DirectorSection151

Act in accordance with the Articles of the company

Act in good faith in order to

promote the objects of the Co.

To exercise duties with due &

reasonable care, skill and diligence

Not to achieve any undue

gain/advantage

Penalty for contravention of the provisions of the Co.: Min Rs. 1L which may

extend to Rs. 5L

Rights & Duties of DirectorSection152

Right of persons other than retiring Directors to stand for directorship

Section 160

• Notice in writing > 14 days before the meeting • deposit of Rs. 1 L or such higher amount as may be prescribed

This deposit amount shall be refunded

to such person/memb

er, as the case may be,

if-

The proposed person gets elected as a Director

Gets more than 25% of total valid votes cast either on show of hands or on poll on such

resolution

or

Alternative DirectorSection 161

In his absence of a Directors from India for a period not less than 3 months.

Shall vacate the office on return of the director to India.

Disqualifications U/S 164

Becomes disqualified by a

order by a Court or Tribunal.

Convicted by a court, whether involving moral turpitude and sentenced to imprisonment for > 6months

Absent for BMs for a period of 12 months, with or without Leave

of absence.

Contravention of provisions of Sec.

184

Ceases to hold any office or other

employment in the holding, subsidiary or associate by virtue of

which he was appointed.

Vacation of DirectorSection167

Committees of BoardCommittees

Audit

Nomination &

remuneration

CSR

Stakeholders

Committee

Audit CommitteeSection 177

Applicability

Listed Companies Public CompaniesPaid up

Capital of Rs. 10 Cr.

Turnover

of Rs. 100 Cr.

Outstanding loans of Rs. 50 Cr.

Audit CommitteeSection 177

Transition period of 1 year provided.

Composition with minimum 3 directors with majority of Independent Directors

The meeting shall discuss the performance evaluation of other Directors.

To establish Vigil Mechanism and protect interest of Whistle Blowers

To Investigate into the affairs of the Company.

Audit Committee DutiesSection 177 (4)

Terms of appointment of Statutory Auditors.

Review of Statutory Auditors Performance.

Examination of Financials and Auditors Report.

Examination of Related Party Transactions.

Scrutiny of Inter Corporate Loans

Evaluation of Internal Financial control

Monitoring the use of Funds raised from Public Offers.

Nomination & remuneration CommitteeSection 178

Applicability

Listed Companies Public CompaniesPaid up

Capital of Rs. 10 Cr.

Turnover

of Rs. 100 Cr.

Outstanding loans of Rs. 50 Cr.

Transition period of 1 year provided.

Composition with minimum 3 directors with majority of Independent Directors

Identification of Qualified persons for Directorship

Formulate policy for appointment & remuneration of Directors

Policy to be disclosed in Board’s Report

Nomination & remuneration CommitteeSection 178

Stakeholders Relationship CommitteeSection 178

Any Company having more than 1000

Share holder

Debenture

Holders

Deposit Holders

Any other

Securities

To consider and resolve the grievances of Securities Holders.

Company:Minimum fine - Rs. 1.00 LacMaximum fine – Rs.5.00 Lacs

Officer in Default:Minimum fine Rs. 25,000; Maximum fine

Rs.1.00 Lac orImprisonment – Maximum 1 year orboth fine and imprisonment.

Penalty

CSR CommitteeSection 135

Company shall form CSR Committee

Net worth > 500 Cr.

Net Profit > 5Cr.

Turnover > 1000Cr.

Minimum of 3 Directors or more

At least 1 Independent director to be present.

Appointment of Independent Director not required if Company doesn’t have to appoint such Director.

A private Company with 2 directors can form committee with such directors.

CSR CommitteeSection 135

Duties of Committeeformulate and recommend a CSR policy to the board recommend the amount of expenditure to be incurredmonitor CSR policy from time to time.

Duties of Boardconsider & approve CSR policy recommended by committee.Ensure that activities included in CSR policy are undertaken.Ensure that company spends, in every financial year, at least 2% of the average net profits

CSR DutiesSection 135

The Board shall spend 2% of the average net profits for last 3 financial years.

CSR Activities shall be conducted as per Schedule VII.

Disclosures as per the CSR rules should be given in Board’s Report and Website of Company.

Procedure to conduct activities are detailed in rules.

CSR CommitteeSection 135

Meetings of the BoardSection 173 & 174

First Board Meeting - 30 days after incorporation of the Company. At least four board meetings every year with the gap time of 120 days between two board meetings. At least Four Board Meetings every year.

Notice : 7 days prior notice in writing to every director by hand or by post or by courier or by email or by any other electronic.

Shorter Notice - allowed if at least one Independent director is present and if no independent director is present, decisions taken be circulated to all the directors and be finalized only on ratification thereof by at least one independent director.

Quorum 1/3rd of the total strength of the board or two directors, whichever is higher. Participation through video conferencing counted for the purpose of quorum

Penalty for contravention: Every officer fine of Rs 25000

Restrictions On Powers of The Board

Sec.180 Applicable to all classes of companies.

Special Resolution of shareholder required for:

• Sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of company

• To Invest otherwise in trust securities amount of compensation received on merger or amalgamation

• To borrow money

• To remit or give time for the repayment of, any debt due from a director

• Contribution to Charitable funds as donation-shifted to new section –Sec.181

Restrictions On Powers of The BoardSec.180

“Undertaking” shall mean in which the investment of the company exceeds 20 % of its net worth or which generates 20 % of the total income of the company during the previous financial year.

“Substantially the whole of the undertaking” in any financial year shall mean 20% or more of the value of undertaking as per the audited balance sheet of the preceding financial year.

General Penalty under section 450 • Company and Every officer of the company who is in default or

such other person shall be punishable with fine upto Rs.10,000 and

• Contravention is continuing one, further fine upto Rs.1,000 for every day after the first during which the contravention continues

Key Managerial Person (KMP) Section 203

• Who is KMP?•  • the Chief Executive Officer or the managing director or the manager;• the Company Secretary;• the Whole-Time Director;• the Chief Financial Officer. Applicability

• Every Listed company.• Public companies having paid-up share capital of Rs. 10 Crore or more.

Restriction• Whole-time key managerial personnel not to hold office in more than

one company except in its subsidiary company

Obligations of KMP

• Interest of the KMP to be disclosed in the explanatory statement to be annexed to the notice calling the general meeting (Section 102)

• Prohibition on forward dealings in securities of the company by KMP (Section 194)

• Prohibition on insider trading of securities by a KMP (Section 195):

• Officer in default

Duties and liabilities of Chief Financial Officer (CFO):

•  

• Safe keeping and maintenance of books of accounts

• Ensure the financial statement gives true and fair view of the affairs of the company

• Effective compliance of accounting standards.

• Manitain the financial statement in the form as provided under schedule III and to specify deviations if any

• Financial statement is laid before the members at AGM.

• Preparation of consolidated financial statements in case of subsidiaries.

 • In case of contravention: Imprisonment which may extend to 1 year or

fine of minimum Rs. 50,000/- and maximum Rs. 5,00,000/- or with both

Duties and liabilities of Chief Financial Officer (CFO)

• Sign the financial statement including the consolidated financial statement, if • signed copy of every financial statement is issued circulated or published along

with the auditor’s report, boards report and any notes forming part thereof (In case of contravention: penalty of Rs. 5,000/-).

• Copy of every financial statement along with all the documents to be attached is filed with the registrar within 30 days of the AGM

• In case the AGM is not been held, financial statement are filed along with statement of facts and reasons for not holding AGM within 30 days of due date for holding AGM

(In case of contravention: Imprisonment which may extend to 6 months or with fine of minimum Rs. 1,00,000/- and maximum of Rs. 5,00,000/- or with both). • Certification as to the financial statements of the company pursuant to clause

49 of the listing agreement.

Functions of Company Secretary Section 205

• Report to the board about the compliance with the provisions of the Companies Act, 2013 and rules made there under and other laws applicable to the company.

• Complies with the applicable secretarial standards. • Provide to the directors guidance with regard to their duties, responsibilities and powers  • Facilitate the convening of meetings and attend Board, committee and general meetings

and maintain the minutes of these meetings. • Obtain approvals from the Board, general meeting, the government and such other  • Represent before various regulators, and other authorities in connection with discharge of

various duties

• To assist the Board in the conduct of the affairs of the company.  • To assist and advise the Board in ensuring good corporate and best practices.

AGM shall be held

During business hours i.e., between 9 A.M. And 6 P.M.

The day should not be a National Holiday

Annual General MeetingSection 96

QuorumSection 103

For Private Companies – 2 members.

For Public Companies –

5 Members where total members < 1000.

15 Members where total members are between 1000 - 5000.

30 Members where the total members are > 5000.

ProxiesSection 105

A Section 8 Co. can’t appoint a Proxy other than its members.

Proxy Form should be in Form MGT. 11 & be deposited with Company 48 hours before meeting.

Proxy forms can be inspected by member before 24 hours of General Meeting by providing 3 days prior notice to the Company.

A proxy can’t act as proxy for more than 50 members & holding more than 10% of total Share Capital.

THANK YOU