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Composition of Board of Directors

CA Suraj Prasad Shaw (Chartered Accountant) (504 Points)

01 July 2011

Expert please help.

A listed company was having 5 directors, 2 out of 5 were promoters and also relatives, now of the independent directors dies, do the company should appoint an independent directors as per the listing agreement. Please suggest whether the present composition of Board of Directors is Ok and is compying with Listing Agreement.

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5 Replies

Nidhi Jain (CS ) (987 Points)
Replied 01 July 2011

As per Clause 49 of Listing greement

Composition of Board

i. The Board of directors of the company shall have an optimum combination of executive and non-executive directors with not less than fifty percent of the board of directors comprising of non-executive directors.

ii. Where the Chairman of the Board is a non-executive director, at least one-third of the Board should comprise of independent directors and in case he is an executive director, at least half of the Board should comprise of independent directors.

Provided that where the non-executive Chairman is a promoter of the company or is related to any promoter or person occupying management positions at the Board level or at one level below the Board, at least one-half of the Board of the company shall consist of independent directors.

Explanation-For the purpose of the expression “related to any promoter” referred to in sub-clause (ii):

a. If the promoter is a listed entity, its directors other than the independent directors, its employees or its nominees shall be deemed to be related to it;

b. If the promoter is an unlisted entity, its directors, its employees or its nominees shall be deemed to be related to it.”

iii. For the purpose of the sub-clause (ii), the expression ‘independent director’ shall mean a non-executive director of the company who:

a. apart from receiving director’s remuneration, does not have any material pecuniary relationships or transactions with the company, its promoters, its directors, its senior management or its holding company, its subsidiaries and associates which may affect independence of the director;

b. is not related to promoters or persons occupying management positions at the board level or at one level below the board;

c. has not been an executive of the company in the immediately preceding three financial years;

d. is not a partner or an executive or was not partner or an executive during the preceding three years, of any of the following:

i. the statutory audit firm or the internal audit firm that is associated with the company, and

ii. the legal firm(s) and consulting firm(s) that have a material association with the company.

e. is not a material supplier, service provider or customer or a lessor or lessee of the company, which may affect independence of the director;

f. is not a substantial shareholder of the company i.e. owning two percent or more of the block of voting shares.

g. is not less than 21 years of age

Explanation

For the purposes of the sub-clause (iii):

a. Associate shall mean a company which is an “associate” as defined in Accounting Standard (AS) 23, “Accounting for Investments in Associates in Consolidated Financial Statements”, issued by the Institute of Chartered Accountants of India.

b. “Senior management” shall mean personnel of the company who are members of its core management team excluding Board of Directors. Normally, this would comprise all members of management one level below the executive directors, including all functional heads.

c. “Relative” shall mean “relative” as defined in section 2(41) and section 6 read with Schedule IA of the Companies Act, 1956.

d. Nominee directors appointed by an institution which has invested in or lent to the company shall be deemed to be independent directors.

Explanation:

“Institution’ for this purpose means a public financial institution as defined in Section 4A of the Companies Act, 1956 or a “corresponding new bank” as defined in section 2(d) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 or the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 [both Acts].”

If promoter is also executive chairman of the co. that in ur case there should be 3 (1/2*5=3 Independent Directors) so now composition is not right now u have to appoint new one in ur place

I think now ur query is solved

1 Like

CA Suraj Prasad Shaw (Chartered Accountant) (504 Points)
Replied 01 July 2011

Dear Nidhi,

Out of 5 directors one of the director dies, and there are 4 director and out of these 4, 2 are promoters, so now also the company need to appoint to an independent director, please clarify.

Pravin Gupta CS (trainee) (789 Points)
Replied 01 July 2011

Yes you need to appoiny independent director in place of previous independent director ( Not other).. and for this purpose you have 180 days time to appoint another Independent director

2 Like

Nidhi Jain (CS ) (987 Points)
Replied 02 July 2011

U have not need to appoint new one . Because minimum director for public Co. - Director but u have 4 directors.

I m assuming that u have executive Chairman than as per Clause 49 No. of independent Director shaoul be half of the Toatl board of Director i.e. 4*1/2=2 (this requirement is also fullfiled.

Now u have to do the following 1. File form 32 2. Intimate stock exchange under clause 30 immediately ( here it may be noted that if u have to appoint new one u have 180 days for this purpose instead of 30 days in general 3. Simple noting of this fact in Board Minutes

Drishti Vesasi (apprenticeship trainee) (22 Points)
Replied 24 December 2011

hello guyz

A listed company was having 4 directors, 2 out of them were promoters, and with non executive chairman, The non executive chairman has died, right now the company has 1 managing director and 2 independent director.does the company need to appoint one more director or the current board composition is correct?

PLEASE HELP