Composition of the Board:Appointment of Directors The 1956 Act provided that the limit for maximum number of directors be based on its articles or twelve (12) whichever is lower. The 2013 Act provides that the company shall have a maximum of fifteen (15) directors on the Board of Directors (‘Board’) and appointing more than fifteen directors would require approval of shareholders through a special resolution. The 1956 Act did not prescribe any academic or professional qualifications for directors. The 2013 Act provides that majority of members of Audit Committee including its Chairperson shall be persons with ability to read and understand the financial statements. The 2013 Act provides for appointment of at least one woman director on the Board for such class or classes of companies i.e., Company having paid–up share capital of one hundred crore rupees or more or a turnover of three hundred crore rupees or more as on the last date of latest audited financial statements. A transitional period of one year has been prescribed to companies for the compliance with this provision. The 2013 Act provides that a company should have at least one director who has stayed in India for a total period of not less than hundred and eighty two days in the previous calendar year. The 2013 Act introduces a new category of a company, One Person Company (“OPC”), which should have at least one director. For the first time, duties of the directors are defined under the 2013 Act. Following are some of the duties:
- To act in accordance with co.’s AOA
- Act in good faith
- Exercise his duties with due care and diligence.
- Involve in any conflicting interest with the co.
- Achieve or attempt to achieve any undue advantage.
- Assign his office.
Functioning of the BoardNotice of Board meeting The 1956 Act provided that notice of every Board meeting should be given in writing. However, it did not specify the period of notice. The 2013 Act provides that a minimum of seven days notice to the Board is required to call a Board meeting. The company may give a shorter notice to transact urgent businesses, provided at least one ID is present at the meeting. In case of absence of ID from such a meeting, decisions taken at the meeting to be circulated to all the directors and to be made final only on ratification by at least one ID. Frequency of Board meetings The 1956 Act required atleast one Board meeting to be conducted in every three calendar months and four such meetings in a financial year. Further, Listing Agreement requires at least four meetings in a year with a maximum time gap of four months between two meetings. The 2013 Act, consistent with the Listing Agreement requirement, provides that the company should have at least four meetings in a year with a maximum time gap of one hundred and twenty days between two meetings. The 2013 Act also requires that the first Board meeting of the company be held within thirty days of incorporation of the company. Conduct of the Board meeting Participation in the Board meeting through prescribed video conferencing or other audio visual means is recognised, provided such participation is recorded and recognised.
Constitution of CommitteesAudit committee The Board of Directors of every public company having paid up capital of ten crore rupees or more [or] turnover of hundred crore rupees or more [or] which have, in aggregate, outstanding loans or borrowings or debentures or deposits exceeding fifty crore rupees shall constitute an Audit Committee. The Audit Committee shall consist of a minimum of three directors with independent directors forming a majority: Provided that majority of members of Audit Committee including its Chairperson shall be persons with ability to read and understand, the financial statement. Establishment of vigil mechanism The vigil mechanism shall provide for adequate safeguards against victimisation of employees and directors who avail of the vigil mechanism and also provide for direct access to the Chairperson of the Audit Committee. An audit committee shall oversee the vigil mechanism through the committee. Nomination and Remuneration Committee Every Public company having paid up capital of ten crore rupees or more [or] turnover of hundred crore rupees or more [or] which have, in aggregate, outstanding loans or borrowings or debentures or deposits exceeding fiftycrore rupees shall constitute a Nomination and Remuneration Committee. The Committee shall consist of three or more non-executive directors out of which not less than one-half shall be independent directors. Main Activity is to lay the criteria for recommending to the Board for the appointment of directors in senior management and their removal. Also formulate the criteria for determining the remuneration of directors, key managerial personnel and other employees and recommending to the board.
Appointment & rotation of AuditorsAppointment Every company shall appoint at its first AGM an individual or a firm as an auditor who shall hold office from the conclusion of that AGM till the conclusion of its 6th AGM, and thereafter till the conclusion of every 6th meeting. The duty to inform the auditor about his appointment and to file a notice with the Registrar within 15 days of the meeting in which the auditor is appointed is that of the Company. Rotation of Auditors An individual auditor having completed his more than 1 term (5 years) shall not be eligible for re-appointment. An audit firm having completed its term as auditor for more than 2 terms (10 years) shall not be eligible for reappointment as auditor in the same company for the next 5 years. A transition period of 3 years from the commencement of this Act has been provided for companies in existence to comply with the provision of rotation of auditor. In case the company has an audit committee, then all appointments of auditors including filling of casual vacancies shall be made after taking into account the recommendation of such committee. Appointment of Internal Auditor Every public company having paid up share capital of Rupees fifty crores or more during the preceding F.Y [or] turnover of two hundred crore rupees or more in the preceding F.Y [or] outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year [or] outstanding deposits of twenty five crore rupees or more at any point of time during the preceding financial yearis required to appoint an internal auditor, who shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company. Appointment of CFO Section 2 (19) of the Companies Act 2013, defines a Chief Financial Officer as follows: “Chief Financial Officer” means a person appointed as the Chief Financial Officer of a Company. CFO in 2013 Act For the purposes of sub-section (1) of section 203 every listed company and every other public company having a paid-up share capital of ten crore rupees or more shall have whole-time key managerial personnel. Every KMP should be appointed by passing a Board resolution. The terms and conditions including the remuneration should be mentioned in the Board resolution for such appointment. A whole-time KMP of a Company shall not hold office in more than one company except in its subsidiary company at the same time. Appointment of Key Managerial Personnel[KMP] [New section has been introduced and KMP is covered in officer in default definition] Every listed company and every other public company having a paid-up share capital of ten crore rupees [or] more shall have the following whole-time key managerial personnel:
- Managing Director or Chief Executive Officer or Manager and in their absence, a Whole-time Director;
- Company Secretary; and
- Chief Financial Officer
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