Ministry of Corporate Affairs recently amended the Companies (Appointment and Qualification of Directors) Rules, 2014 by notification of the Companies (Appointment and Qualification of Directors) Amendment Rules, 2017 on 5th July 2017. A related amendment in the Companies (meetings of Board and its Powers) Rules, 2014 was also made by notification of the Companies (meetings of Board and its Powers) Second Amendment Rules, 2017 for which published notification copy is yet not available.
Independent Director
According to Rule 4 companies (Appointment and Qualification of Directors) Rules 2014, the following class or classes of companies shall have at least two directors as independent directors –
(i) The public companies having paid up share capital of ten crore or more; or
(ii) The public companies having turnover of one hundred crore or more; or
(iii) The public companies which have in aggregate outstanding loans, debentures and deposits exceeding fifty crore rupees.
Rule 4 was discussed in detail earlier here. Now Rule 4 was renumbered as sub – rule (1) of Rule 4 of these rules. Newly inserted sub – rule (2) read as under –
“The following classes of unlisted public company shall not be covered under sub-rule (1), namely –
(a) a joint venture;
(b) a wholly owned subsidiary; and
(c) a dormant company as defined under section 455 of the Act.”
This is an interesting amendment. Dormant companies are companies which are not presently actively doing business. Certainly, there is no actual role for independent directors in these companies.
Why joint venture companies and wholly owned subsidiary companies are under exemption? First argument, a joint venture company is highly glorified partnership with corporate partners. Second argument, a wholly owned subsidiary is just a corporate proprietorship. I have nothing to counter but pointing their choice to be a public company ignoring option to be a private company. Once a company chooses to be a public company it should comply all regulations and no such privacy inside board should be granted. Anyway, it will “help” foreign and multinational companies.
This exemption effect rule 6 of the Companies (meetings of Board and its Powers) Rules, 2014. Government waited for a good period of __ days to amend said rule 6.
Committee of the Board – Exemption
Presently, rule 6 of the Companies (meetings of Board and its Powers) Rules, 2014 has main rule, an explanation, and two provisos {both provisos were inserted by the Companies (Meetings and Powers of Board) Amendment Rules, 2014}. Present amendment replace all at once. Original rule 6 and its earlier amendment were discussed earlier here. Substituted rule 6 read as under –
“The Board of directors of every listed company and a company covered under rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014 shall constitute an ‘Audit Committee’ and a ‘Nomination and Remuneration Committee’ of the Board.”-
This amendment result in an exemption from requirement of these committees to (a) a joint venture; (b) a wholly owned subsidiary; and (c) a dormant company as defined under section 455 of the Act.
Amendment related to attaining a meeting with audio – visual means
Presently clause (e) of sub – rule (3) of rule 3, discussed earlier here, read as under –
“The director, who desire, to participate may intimate his intention of participation through the electronic mode at the beginning of the calendar year and such declaration shall be valid for one calendar year”
This clause is being substituted with following clause –
“Any director who intends to participate in the meeting through electronic mode may intimate about such participation at the beginning of the calendar year and such declaration shall be valid for one year:
Provided that such declaration shall not debar him from participation in the meeting in person in which case he shall intimate the company sufficiently in advance of his intention to participate in person.”
This is a welcome amendment but with an uncertain interpretation of term “sufficiently in advance”.
Noting of dissent
Present clause (a) of sub – rule (11) of rule 3 is being amended as under –
At the end of discussion on each agenda item, the Chairperson of the meeting shall announce the summary of the decision taken on such item along with names of the directors, if any, who dissented from the decision taken by majority and the draft minutes so recorded shall be preserved by the company till the confirmation of the draft minutes in accordance with sub-rule (12).
Here words in bold letters are inserted with this amendment. This will be a good secretarial practice.
AishMGhrana 