Small Shareholders Director

This query is : Resolved

mayank (Querist)
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21 April 2008 Sir
Can a small shareholders director be removed in a general meeting without the permission of small shareholders?

If permission of small shareholders is necessary, how many small shareholders should agree for removal?

R.V.RAO

R.V.RAO (Expert)
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22 April 2008
YES, NO SPL. APPROVAL OF SMALL SHAREHOLDERS IS REQUIRED FOR REMOVAL OF SMALL SHAREHOLDER DIRECTOR. BUT YOU NEED TO FOLLOW PROCEDURE IN SEC 284 OF COS. ACT.
THE RULES ARE GIVEN BELOW.

COMPANIES (APPOINTMENT OF SMALL
SHAREHOLDERS' DIRECTOR) RULES, 2001
[See section 252 of the Companies Act, 1956]
[Notification No. G.S.R. 168(E) issued by the Ministry of Law, Justice and Company
Affairs (Department of Company Affairs) vide F.No. 1/19/2000-CL. V; Published in
the Gazette of India Extraordinary Part-II, Section 3, Sub-section (i) dated 9th. March,
2001]
In exercise of the powers conferred by section 642 read with section 252 of the
Companies Act, 1956 (1 of 1956), the Central Government hereby makes the
following rules, namely: -
1. Short title and Commencement
(1) These rules may be called the Companies (Appointment of the Small
Shareholders' Director) Rules, 2001.
(2) They shall come into force on the date of their publication in the Official
Gazette.
2. Definitions
(a) "Act" means the Companies Act, 1956 (1 of 1956);
(b) "Small Shareholder" means a shareholder holding shares of nominal value of
twenty thousand rupees or less in a public company to which section 252 of the Act
applies.
3. Applications
These rules shall apply to public companies having-
(a) paid-up capital of five crore rupees or more;
(b) one thousand or more small shareholders.
4. Manner of election of small shareholders' director
(1) A company may act suo-moto to elect a small shareholders' director from
amongst small shareholders or upon the notice of small shareholders, who are not less
than 1/10th of total small shareholders and have proposed name of a person who shall
also be a small shareholder of the company
(2) Small shareholders intending to propose a person shall leave a notice of their
intention with the company at least 14 days before the meeting under the signature of
at least 100 small shareholders specifying name, address, shares held and folio
number and particulars of share with differential rights as to dividend and voting, if
any, of the person whose name is being proposed for the post of director and of other
small shareholders proposing such person as a candidate for the post of director or
small shareholders.
(3) A person whose name has been proposed for the post of small shareholders'
director shall sign, and file with the company, his consent in writing to act as a
director.
(4) The listed public company shall elect small shareholders' nominee subject to
sub-rules (1), (2) and (3) above through the postal ballot.
(5) The unlisted company may appoint such small shareholders' nominee subject to
above conditions if majority of small shareholders recommend his candidature for the
post of director in their meeting.
(6) Tenure of such small shareholder' director shall be for a maximum period of 3
years subject to meeting the requirement of provisions of Companies Act except that
he need not have to retire by rotation.
(7) On expiry of his tenure, the same person if so desired by small shareholders,
may be elected for an another period of 3 years.
(8) Such director shall be treated as director for all other purposes except for
appointment as whole time director or managing director.
5. Disqualification
A person shall not be capable of being appointed as small shareholders' director of a
company, if-
(i) he has been found to be of unsound mind by a Court of competent jurisdiction
and the finding is in force:
(ii) he is an undischarged insolvent;
(iii) he has applied to be adjudicated as an insolvent and his application is pending;
(iv) he has been convicted by a Court of any offence involving moral turpitude and
sentenced in respect thereof to imprisonment for not less than six months, and a
period of five years has not elapsed from the date of expiry of the sentence;
(v) he has not paid any call in respect of shares of the company held by him,
whether alone or jointly with others, and six months have elapsed from the last fixed
for the payment of the call; or
(vi) an order disqualifying him for appointment as director has been passed by a
Court in pursuance of section 203 and is in force, unless the leave of the Court has
been obtained for his appointment in pursuance of that section.
6. Vacation of office
A person appointed as small shareholders' director shall have to vacate the office if -
(i) such person so elected, as director of small shareholders ceases to be a small
shareholders' director on and from such date on which he ceased to be a small
shareholder;
(ii) he has been rendered disqualified by virtue of sub-rule (1) of rule (5).
(iii) he fails to pay any call in respect of shares of the company held by him,
whether alone or jointly with others, within six months from the last date fixed for the
payment of the call;
(iv) he absents himself from three consecutive meetings of the Board of directors,
or from all meetings of the Board for a continuous period of three months, whichever
is longer, without obtaining leave of absence from the Board:
(v) he is partner of any private company of which he is a director, accepts a loan,
or any guarantee or security for a loan, from the company in contravention of section
295;
(vi) he acts in contravention of section 299;
(vii) he becomes disqualified by an order of Court under section 203;
(viii) he is removed in pursuance of section 284.
7. Restriction on number of directorship
No person shall hold office at the same time as small shareholders' director in more
than two companies.
Source: www.mahalibrary.com
R.V.RAO