Article published as on Friday, 1st MAY, 2020
at 1:00 a.m.
Sec.151 of
The Indian Companies Act 2013
The section itself is very small but the terms and
conditions and other details are given in the:
Rule (7) of the companies (appointment and
qualification of directors) rules, 2014.
(“151. Appointment of director
elected by small shareholders.— A listed company may have one director elected
by such small shareholders in such manner and with such terms and conditions as
may be prescribed.
Explanation.—For the purposes of
this section ―small shareholders‖ means a shareholder holding shares of
nominal value of not more than twenty thousand rupees or such other sum as may
be prescribed.” ~ Source: MCA
website)
An interesting thing to know is that every terms
and conditions related to Small Shareholder Director are given in rule (7).
As changes to Rules can be done by the ruling party
overnight (stated under sec.469 of The Indian Companies Act 2013), whereas changes to sections of the Act is a comparatively lengthy
process which requires acceptance from both the houses and sign from the
president.
This allows the ruling party to make overnight
changes in the rules.
Coming back to the Rule (7), It States process for
appointment of small shareholder director (SSD).
It states that a listed company MAY appoint small
shareholder director upon notice of 1000 such shareholders or 10% of small
shareholders nomination whichever is less, notice to be sent at least 14 days
prior to AGM with name, folio no, address, sign and no. of shares holding
by small shareholders
Director may or may not be a shareholder.
It states that small shareholder are those who hold
nominal value of less than INR 20,000.
Small shareholder director is a not a rotational
director.
Maximum tenure
for such director is 3 years. And s/he can’t be reappointed.
Director should also not be appointed for a period
of 3 years after completing his tenure in the company or its associates in any
capacities directly or indirectly
(This means a cool off period of 3 years shall be
maintained)
A person may become director in maximum 2
companies, provided that 2nd company is not a rival company of the first
company.
Note: if s/he fulfils the criteria of 149(6), then
he will be counted as an independent director if s/he gives declaration for
being considered as an independent director in the first board meeting after
his appointment.
Proposal is out forward to the board
Board approves it,
If not, we can take action against the board under
sec 241 of companies act 2013.
(Oppression of minority shareholders, mismanagement
by board of director)
After approval a normal resolution is passed (50%
majority required) voting to be done only by small shareholders, (no promoter,
HNI's and institutions)
It has to be done through a postal ballot or by
e-voting as a special business and not at AGM.
Sec.160 provides for the right for any person to stand as
a director in a democratic way for this a security deposit of 1 lac rupees is needed.
(Previously it was INR 500 as per 1956 law.)
This is done to avoid abuse of right by the person
with bad motive.
As in our case by small shareholders we are
nominating the director so we are not required to keep a deposit of rupees 1
lac with the company
In the case of unify capital and alembic ltd, they
gave security cheque of 1 lac rupees just to be on a safer side.
(In reality use of these provisions and sections
are limited, so there are limited case studies to understand practically.)
Sec.241 of
The Indian Companies Act.
This comes under chapter XVI – prevention of oppression and mismanagement
(sec.241 to sec.246)
This sec.241 is a merged section from the old sec.397
and sec.398 from the 1956 act.
This section has to be studied along with other
sections up to sec.245 which is class action suits.
Any member eligible under sec.244.
Can file application under this section whenever a
person feels that the operations are prejudicial to company, public or the
member or oppressive to any of its member.
Who can
file?
Member of the company and following are
conditions
100 members needed.
1/10th if total members needed.
1/10 of total share capital needed, whichever is
lower.
In these days for every major listed company we
would need only 100 members to come together to file application.
Now what judgement can court provide as relief to the
applicants?
Under sec.242
(2)
Court can regulate the affairs of the company.
(This means the court can provide a direction to
the company.
This means over ruling the decision of the board of
rejecting the proposal for small shareholder director and thus giving a fair
opportunity to us for electing our representative.)
Sec.243 discusses clause (e) and (f) with
respect to sec.242 (2), which is not relevant for us right now, so we
move onto:
Sec.245 - class
action suits
It can be filled by members and depositors provided
they are eligible to do so, against the wrongdoings of the company.
Here both members and depositors can come together
to file the case, this is why it is called class action suit, as all class
comes together to file the case
Why is it filed?
To restrain:
·
From committing
any act that is ultra vires from the Memorandum Of Association and Article Of Association.
·
Committing any
breach of the Memorandum Of Association and Article Of Association.
·
From committing
any act which is contrary to the Act (The Indian Companies Act 2013.)
·
From committing
any action which is contrary to the resolution of the member.
·
Company from
Action on any resolution if passed by misstatement to members or depositors.
In addition
the application can be made for the action against:
·
Company or
director for any fraudulent or unlawful act.
·
Auditor for
the improper or misleading statement.
·
Expert/advisor
for any incorrect or misleading statement.
Who can file?
100 members/depositors needed.
1/10th if total members/depositors needed.
1/10 of total share capital/value of deposits needed,
whichever is lower.
As depositors are included in this again getting
100 members or depositors would be the least number required in most public
listed firms.
Points to be
considered while applying under tribunal:
·
Whether application
are made under good faith.
·
Any evidence
for the involvement of the person.
·
Possibility of
the ratification by the company.
If any application
filed before the tribunal is found to be frivolous or vexatious, then the
tribunal shall reject the application and make applicant pay the opposite party
costs not exceeding one lakh rupees.
These were some important basic laws shareholder
should be educated and made aware of to protect their rights and fight against the
wrongdoings of companies.
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