Section 152(6) of the Companies Act, 2013 read with rules Companies (appointment and qualification of directors) Rules, 2014 as amended thereto, if any, deals with the provision related to Rotational and Non-Rotational Directors.
1. If company adopted the provision of section 163 of the Companies Act, 2013 i.e. Directors appointed by principle proportional Representation then the provision of section 152(6) of this Act, shall not apply on such companies;
2. For the purpose of this concept, total composition of Board of directors shall not include independent director(s) whether appointed under this act or any other laws for the time being in force;
3. Provision related to Rotational and non-Rotational director shall not apply on:
a) A private company except the Private company which is subsidiary of a public companies i.e. Deemed Public Company;
b) A Government Company in which the entire paid up share capital is held by the Central Government, or by any State Government(s) or by the Central Government and one or more State Government; (EXEMPTION)
C) A subsidiary of a Government company, referred to in clause (b) above, in which the entire paid up share capital is held by the Government company. (Exemption)
4. Please do not link the concept of rotational director and non rotational director with respect to executive and non executive director respectively, as it has no link at all.
5. Following directors shall neither be rotational nor non rotational:
a) Independent Director;
b) Nominee Director appointed by Special financial institution formed under special Act of Parliament/state laws u/s 161(3).
Meaning of Rotational and Non Rotational Director
Rotational directors are those directors whose period of office is liable to retire by rotation in every Annual General Meeting and eligible for reappointment accordance with the provision of section 152 of the Companies Act, 2013 Rotational directors are also known as retiring directors or temporary directors.
Non Rotational Director
Non Rotational directors are those directors whose period of office is not liable to retire by rotation. They are Generally appointed By Articles of Association of the company. they are generally appointed for a fixed term or permanent in nature or otherwise. that is why, they are also known non-retiring /permanent directors.
What Section 152(6) says: (analysis)
(a) Unless the AOA provide for the retirement of all directors at every annual general meeting, not less than two-thirds of the total number of directors of a public company shall—
- be persons whose period of office is liable to determination by retirement of directors by rotation; and
- save as otherwise expressly provided in this Act, be appointed by the company in general meeting.
(b) The remaining directors in the case of any such company shall, in default of, and subject to any regulations in the articles of the company, also be appointed by the company in general meeting.
(c) At the first annual general meeting of a public company held next after the date of the general meeting (AGM/EGM) at which the first directors are appointed in accordance with clauses (a) and (b) and at every subsequent annual general meeting, one-third of such of the directors for the time being as are liable to retire by rotation, or if their number is neither three nor a multiple of three, then, the number nearest to one-third, shall retire from office.
(d) The directors to retire by rotation at every annual general meeting shall be those who have been longest in office since their last appointment, but as between persons who became directors on the same day, those who are to retire shall, in default of and subject to any agreement among themselves, be determined by lot.
(e) At the annual general meeting at which a director retires as aforesaid, the company may fill up the vacancy by appointing the retiring director or some other person thereto.
Following director shall not be rotational director in any case:
- Small shareholders director appointed u/s 151;
- Director appointed u/s 242(1)k of this act by the NCLT;
- Director appointed By BIFR u/s 16(4) of SICA
Following Directors are generally non-rotational directors:
- Directors appointed u/s 161 of this act;
- Managing Director(s);
- Whole Time Director(s);
It may be noted that above mention director may be non-rotational director, however, It does not mean that they shall be non-rotational director.
Need of rotational Directors
Subject to provision of this ACT, MOA and AOA, the power of governing of the affairs of the company in the hand of Board of Directors, and relationship of the Board with the shareholders is more of federation than one of sub-ordinate and superior. some power are exclusively reserved for the Board and some power reserve for members to be exercise in the General Meeting.
(Section 179 of the Companies Act, 2013)
Shareholders even though they are the owners of the company, cannot interfere with the powers of the Board. Emphasizing this point While delivering the judgement in John Shaw & Sons (Salford) Ltd. v. Shaw (1935) 2 KB 113 Green L J said the only way in which the shareholders can control the exercise of the powers vested by the Articles in the directors is by altering the Articles or by refusing to re-elect the directors whose action they disapprove. They cannot usurp the powers vested in the directors nor the directors can usurp the powers vested in the shareholders.
Hence section 152(6) of this Act, provides an opportunity to the General Body of Shareholders or majority of them to Remove the directors in General Meeting whose action they do not approve or like. they get a chance every year to refuse to re-elect.
Tags :Corporate Law