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Directors retire by rotation

Shilpa (CS Management Trainee) (48 Points)

13 August 2013

Our Company is public limited Company having 6 directors. Out of 6 directors 1 is MD and 2 are WTD. Our AOA provides that MD and WTD are not liable to retire by rotation. So please guide me as per Company Law, How many directors I need to retire this year?

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17 Replies

Ankit (CA, CS) (3064 Points)
Replied 13 August 2013

Since 3 are WTD, the balance is 3 directors of which, atleast 2/3 should retire. So, in your case, Shilpa, all the non ED will have to retire and be reappointed in the AGM

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Shilpa (CS Management Trainee) (48 Points)
Replied 13 August 2013

As per S. 255 provides that unless article provide for the retirement of all directors at every AGM, not less than 2/3rd of total number of directors are liable to retire by rotation and as per S. 256 - 1/3rd of the rotational directors (2/3rd of total no of directors) will get retire every year.

MD and WTD are not included in rotational directors.

So my question is whether for calculating 2/3rd rotational directors I should consider all 6 directors or only 3 directors (6-3 MD and WTD)?

CA Bhavin Venugopal (CHARTERED ACCOUNTANT) (681 Points)
Replied 13 August 2013

See this /forum/difference-between-section-255-and-256-of-the-companies-act-163913.asp

Ankit (CA, CS) (3064 Points)
Replied 13 August 2013

See this /forum/difference-between-section-255-and-256-of-the-companies-act-163913.asp

Read more at: /forum/details.asp?mod_id=261191&offset=1

Since the WTD are not liable to retire by rotation, in your case, as I said all the directors will be liable to retire by rotation.

As far as the ensuing AGM goes, 1/3 should retire. That is 1 director of the 3 rotational should retire.

Since the WTD are not liable to retire by rotation, in your case, as I said all the directors will be liable to retire by rotation.

As far as the ensuing AGM goes, 1/3 should retire. That is 1 director of the 3 rotational should retire.

Shilpa (CS Management Trainee) (48 Points)
Replied 13 August 2013

Thank you Ankit and Bhavin. I have one more query. As Act provides that not less than 2/3rd of the total number of directors are subject to retirement by rotation. It means not more than 1/3rd directors should be non-retirable. But in our case 1/2 of total no. of directors are non-retirable. is it proper?

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Ankit (CA, CS) (3064 Points)
Replied 13 August 2013

Yes Shilpa,

I was about to point out that only. you are violating the provisions of section 255 of the Act. since, atleast 2/3 should be liable to retire by rotation, which is not satisfied in your case.

hence, you will have to wither make one of the WTD as a non executive director and make him liable to retire by rotation or add more directors to satisfy the condition.

*RENU SINGH * (✩ §m!ℓ!ñġ €ม€§ fℓม!ñġ ђ♪gђ✩ ) (21627 Points)
Replied 13 August 2013

Originally posted by : Ankit

Yes Shilpa,

I was about to point out that only. you are violating the provisions of section 255 of the Act. since, atleast 2/3 should be liable to retire by rotation, which is not satisfied in your case.

hence, you will have to wither make one of the WTD as a non executive director and make him liable to retire by rotation or add more directors to satisfy the condition.

Rightly said ... Fully concur with him.

Lokesh (CS professional) (493 Points)
Replied 14 August 2013

Dear Shilpa,

2/3rd are rotational directors and of which 1/3rd are to retire in every AGM and may be reappointed in that AGM.

Since, your Articles provide not to count MD and WTD for the purpose of retirement and hence only the balance directors shall be counted for the purpose of retirement.

Pratical Solution:

Total No of Directors: 6

WTD & MD: 2+1

Balance Directors: 6-3 =3

Rotational Directors: 2/3rd of the Balance i.e 3*2/3=2

Director to retire in this AGM: 1/3rd of rotational director i.e 2*1/3= 0.66 i.e 1

Note: In case the number is not 3 or in the multiple of 3 the number nearest to the one-third shall retire from office.

Now, I hope Your query is resolved.

Sneha (Company Secretary) (1594 Points)
Replied 14 August 2013

Kindly go through this link the provision will become crystal clear..

/forum/retire-by-rotation-205200.asp

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Shilpa (CS Management Trainee) (48 Points)
Replied 14 August 2013

After readig /forum/retire-by-rotation-205200.asp

As per my understanding

total directors = 6

2/3rd of 6= 4

1/3rd of 4 = 1.33

nearest to 1.33 is 1

So 1 director should retire.

Thanks to everyone

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Ankit (CA, CS) (3064 Points)
Replied 14 August 2013

Yes Shilpa...

but then, you need to have the right combination of ED and Non ED as well.

since the ED cannot be rotational, your calculation is not correct and violates the provisions of sec 255.

Shilpa (CS Management Trainee) (48 Points)
Replied 14 August 2013

Dear Ankit,

In S.255 there is nothing about ED and NED.

In our case Our Article provides that MD and WTD are not liable to be retire by rotation.

But Act prevails over AOA and hence 4 directors should be liable to be retire by rotation. and 1 director should be retire at this AGM

And 2nd We have to correct our composition of Board as soon as possible.

Am I right?

Ankit (CA, CS) (3064 Points)
Replied 14 August 2013

Shilpa,

An Executive Director, Being an employee of the company is not liable to retire by rotation. Infact, the terms of his appointment as ED specifies the period of appointment.

Hence, it is only the Non WTD, that have to retire by rotation. Now, since 255 would come into play, your composition of the board may be violative of the provisions.

Shilpa (CS Management Trainee) (48 Points)
Replied 14 August 2013

Ankit,

Composition of the Board as per clause 49 :-

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.

So we have 50% ED and 50% NED.

As per your say ED are not liable to be retire by rotation.

However as per S. 255, 2/3rd are liable to be retire by rotation.

So Composition of the Board as per S.255 must be 2(NED):1(ED)

Am I right?