SEBI has released a Consultation Paper on introduction of provisions relating to appointment / re-appointment of persons who fail to get elected as Whole-time directors / Managing Directors at the general meeting of a listed entity. Public comments to the same are invited by 12 February 2021.
The Paper notes that under the extant provisions of the Companies act 2013 (CA 2013), companies appoint persons as Managing Directors / Whole-Time directors, by seeking approval from shareholders through two different resolutions – one for appointment of such persons as a director (under section 152) and the second for appointment of such directors as Managing Director (MD) or Whole-time Director (WTD) along with terms and conditions for their appointment (under sections 196, 197 and 198). In such a situation, there is a possibility of the ordinary resolution for appointment as director being approved by the shareholders and the second resolution, which could be a special resolution, for designating such appointed directors as WTD / MD being rejected by the shareholders.
Although as per Section 161(1) of the CA 2013, the board cannot appoint a person who fails to get elected as a director at a general meeting as an additional director, the Act does not explicitly prohibit the board from re-appointing a person as a MD or WTD whose appointment to such posts was rejected by the shareholders at the general meeting. The board of a listed entity can continue to appoint such persons as WTD / MD even after subsequent rejections by the shareholders. This possibility cannot be ruled out.
Such appointments by the boards would be against the will of the shareholders and also against the spirit of Corporate Governance as envisaged under the LODR Regulations. In light of increased shareholder awareness, a need has been felt to amend the LODR Regulations to include specific provisions to deal with such circumstances, as below:
“A person whose appointment or re-appointment as a Managing Director or Whole-time Director has been rejected by the shareholders of a listed entity shall not be appointed again as Managing Director or Whole-time Director, unless the following conditions are satisfied:
The listed entity shall take the following steps after appointment of such directors to the board:
In case the shareholders reject the candidature of the persons again, such persons cannot be considered for appointment as director, or continue as a director of that particular listed entity, for a period of two years from the date of rejection by the shareholders”.
To refer to the Consultation Paper, click here.
The Bar Council of India does not permit solicitation of work and advertising by legal practitioners and advocates. By accessing the Shardul Amarchand Mangaldas & Co. website (our website), the user acknowledges that: