"Notwithstanding anything contained in
this Act, the articles of a company may provide for the appointment of not less
than two-thirds of the total number of the directors of a company in accordance
with the principle of proportional representation, whether by the single
transferable vote or by a system of cumulative voting or otherwise and such
appointments may be made once in every three years and casual vacancies of such
directors shall be filled as provided in sub-section (4) of section 161."
According to the Companies Act, 2013, generally the appointment of directors in a company is
usually done through simple majority by passing a resolution in the meeting of
the board of directors or the shareholders, as the case may be. As such, a
simple majority is in a position to elect all the directors, and a significant
minority as large as 49 percent may not succeed in appointing even a single
director. This may neglect the interests of minority shareholders in a company.
To mitigate this disadvantage of the minority shareholders, section 163 of the
Companies Act, 2013 had provided an opportunity to the minority shareholders of
placing their representatives on the Board of Directors where the concerned
company adopted the system of proportional representation by providing in
its ‘Articles of Association’.
Section 163 provides an overriding power over
all other sections in the Companies Act, 2013.
- The
articles of association of a company may provide for the appointment of
not less than two-third of the total number of the directors of a company;
however there is no compulsion on companies to have such provisions in
their articles. But, if such provision is made, the minimum number of
directors to be appointed through this system shall be two third which can
even go beyond two third of the total number of the directors.
- However,
it is not made clear that whether such total number of directors would be
the maximum permissible directors as mentioned in the articles or the
actual total number of directors working in the company at a particular
point of time.
- The
appointment shall be done in accordance with the principle of proportional
representation, whether by the single transferable vote or by a system of
cumulative voting or otherwise. The term “otherwise” indicates
that this section can be invoked even by any other process, other than by
single transferable vote or cumulative voting.
- This
section is applicable only for appointment of directors and not for any
other matter.
- The
appointments may be made once in every three years. The term "may”
denote non-mandatory interpretation.
- In
case of casual vacancies of such directors, such vacancies shall be filled
as provided in sub-section (4) of section 161 of Companies Act, 2013,
which states that "in default of and subject to the regulations
in the articles, the vacancies be filled by the Board of Directors at its
meeting of the Board", not by circulation; and the person
so appointed shall hold office only up to the date up to which the
original director would have held office if it had not been vacated.
- The
Directors appointed as per the principle of proportional representation
cannot be removed u/s 169 of the Companies Act 2013, which deals with
regard to the removal of directors.
Meaning of Single Transferable vote and system
of Cumulative voting
In Single Transferable Vote all
the names of the candidates for election as directors are entered in the ballot
paper. Each voter has only one vote. The voter indicates his preference of vote
for the respective candidates in a sequential order in the ballot paper. These
preferences will be considered equal to the number of candidates to be
elected. The voter's vote can be transferred to a second
or further competing candidate (according to the order of preference given by
the voter) if the candidate of first choice is eliminated during a succession
of counts.
Cumulative Voting is a system of voting in an election where each voter is allowed a number of votes, and may give them all to one candidate or divide the votes among a part of the vacancies to be filled instead of straight voting or casting votes according to the number of shares held, for all the vacancies. This method allows a shareholder to accumulate votes for their preferred candidate on the nomination list and strengthens the ability of minority shareholders to elect a director.
Exceptions:
Section 163 does not apply to the Government
Companies (Notification dated 5th June, 2015);
(a) A Government Company in which the entire paid up share
capital is held by the Central Government, or by any State Government or
Governments or by the Central Government and one or more State Governments;
(b) A subsidiary of a Government company,
referred to in (a) above, in which the entire paid up share capital is held by
that Government company.
References:
Companies Act, 2013
Contact:
CS Divyanshu Bansal
Email: divyanshubansal401@gmail.com
Contact:
CS Divyanshu Bansal
Email: divyanshubansal401@gmail.com
Very nice and detailed information about section 163 of Companies Act,2013. It also covers all the relevent provisions relating to section.
ReplyDeleteVery informative article.
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