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FUNCTIONING OF BOARD AND ROLE OF DIRECTORS UNDER COMPANIES ACT,2013

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FUNCTIONING OF BOARD AND ROLE OF DIRECTORS UNDER COMPANIES ACT,2013. Ramaswami Kalidas Company Secretary Reliance Power Ltd. Board of Directors :.

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slide1

FUNCTIONING OF BOARD

AND ROLE OF DIRECTORS UNDER

COMPANIES ACT,2013

RamaswamiKalidas

Company Secretary

Reliance Power Ltd.

slide2

Board of Directors :

  • 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”
slide3

Chief Executive Officer (CEO) [Section 2(18)] :

  • Chief Executive Officer (CEO) refers to an officer of a company who has been designated as such by it.
  • Whether CEO is part of the Board?
slide4

Director [Section 2(34) ]

  • The definition of Director as given in Section 2(34) of Companies Act, 2013 corresponding to section 2(13) of Companies Act, 1956:
  • “Director refers to one who has been appointed as such by the Board”
  • This definition is restrictive .
  • The definition in Companies Act, 1956 was inclusive and could refer to anyone occupying the position of director by whatever name called. Shadow directors could also come in this definition.
slide5

Key Managerial Personnel (KMPs) [Section 2(51)]

  • 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.
slide6

Managing Director [Section 2(54)]

  • 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-MD does not have to function under supervision, control and direction of Board
slide7

Whole-Time Director [Section 2(94)] :

  • The definition of Whole-Time Director 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”
slide8

Section 162 :

  • 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”
slide9

Section 164 to Section 175 :

  • Section 164 to 175 of Companies Act 2013 dealing with :
  • Disqualifications of Directors (Section 164)
  • Number of Directorships (Section 165)
  • Duties of Directors (Section 166)
  • Vacation of office (Section 167)
  • Resignation of Directors (Section 168)
  • Removal of Directors etc (Section 169)
  • All these Sections have not yet been notified.
slide10

Loan to Directors [Section 185]

  • Loan to Directors as in Section 185 corresponding to Section 295 of Companies Act, 1956 has been notified.
  • 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”
slide11

Non Cash Transactions (Section 192) :

  • This section has been notified.
  • This Section restricts non-cash transactions involving directors by which any acquisition of Assets by company from a director for consideration other than cash shall not be allowed until approved by shareholders.
  • This Section applies to both Public and Private Companies.
slide12

No forward dealing in Securities [Section 194] :

  • This section prohibits forward contracts in securities by Director or any Key Managerial personnel in Holding, Subsidiary or Associate Company.
  • Penalty - Rs five lacs or imprisonment for two years or both
slide13

Prohibition on insider Trading [Section 195] :

  • 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.
slide14

Section 196 – Section 201 :

  • 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.
slide15

Section 149 :

  • Section 149 of Indian Companies Act, 2013 provides for atleast one woman Director.
  • Section 149(4) provides that 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.
  • Definition of Independent Director – Not in sync with Listing Agreement. SEBI have confirmed that there will be congruence.
  • Nominee Director – Nominee director is not an independent director.
slide16

Section 150 deals with selection of Independent Directors . Data Bank to be maintained by Central Government.

  • Section 150(2) – It deals with 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
  • Section 151 – Listed Company to have one director appointed by small shareholders (status and mode of appointment not yet notified)
slide17

Vacation of Office by Directors [Section 167]

  • 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.
slide18

Duties of Directors [Section 156] :

  • 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.
slide19

Exercise of Board Powers :

  • 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.
slide20

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 one level below level of KMPs;
  • 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.
slide21

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.
slide22

Contribution to bonafide and charitable funds [Section 181] :

  • 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
slide23

Conduct of Board Meeting [As per draft rules] :

  • 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.
slide24

Passing of Resolution by circulation:

  • Facility now available of seeking approval through E-mail transmission.
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