Retirement of nominee director

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

02 August 2012 Sir,

pursuant to section 255 of rhe companies act, 1956 1/3 rd of the directors are not liable to retire by rotation.One of our client public company has 7 directors one among them is nominee director nominated by private equity firm.two of our Managing Directors are not liable to retire by rotation.

1/3rd of 7 directors comes around 2.1 so rounded to 2 directors.

Investors wants their nominee to be non retiring director but we dont have space to fit in 1/3rd of total directors.

My query is:

Whether nominee director will be considered for calculating 1/3 rd as per 255 of the companies act?

Whether nominee director be appointed as non retiring director even though there is no space to fit him in 1/3rd of director

Investor not ready to increase the number of directors they want at any cost the total director be 7 directors in the company and their nominee be non retiring director.

Kindly suggest me whether nominee director be appointed as non retiring director even though already there are two managing directors not liable to retire by rotation.

Pls reply at the earliest.

Ajay Mishra

Ajay Mishra (Expert)
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02 August 2012 Hi

The provisions of the Companies Act, 1956 regarding appointment and removal of directors, share qualifications etc. do not apply to such nominee directors. Therefore, nominee directors of IDBI, LIC, UTI and SFCs are not liable to retirement by rotation in a public company and a private company which is a subsidiary of a public company.

Ascertainment of directors liable to retire by rotation
Let us assume that in a public company:—
Total strength of directors is 12
Nominee directors of LIC and UTI are 2
Total strength of directors for the purpose of section 255 10
2/3rd of total strength will be 7
1/3rd of Directors due to retirement will be 3 in the 1st year
2 in the 2nd year, and
2 in the 3rd year

If the Articles so provide, the remaining 3 directors will be non-retiring comprising of Managing Directors, Joint Managing Director, and Nominee Director, if applicable, in the above example.

If presuming, nominee is from IFCI instead of UTI and is not against non-retiring portion, the total strength for the purpose of section 255 will be 11 and the directors subject to retirement will be 8 directors instead of 7 as illustrated above.

Regards

Querist : Anonymous

Querist : Anonymous (Querist)

03 August 2012 thanks ajay mishra ji but in our public company there is invetsment of private equity fund and they have nominated nominee director so as explained you the proviso of companies act not applicable whether even nominee director appointed by foriegn venture capital fund investor.

If any case laws or article on this would help in great aspect to relie

Ajay Mishra

Ajay Mishra (Expert)
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03 August 2012 Hi

Please check what your article says.

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