Woman Director and Independent Director under Company Law Regime

Every company needs to have minimum directors as specified by the Companies Act, 2013 (‘Act’). The directors play a crucial role in the management of the company. The Act introduced the concept of the appointment of two new directors, i.e. women directors and independent directors, to the Board of Directors (‘Board’) of a certain class of companies. 

Section 149 of the Companies Act, 2013 and the Companies (Appointment and Qualifications of Directors) Rules, 2014 (‘Rules’) deal with the provisions relating to women and independent directors of a company.

Applicability of Woman Director 

The second provision of Section 149(1) of the Act provides that a certain class of companies (as specified in the Rules) should at least have one woman director on its board. Rule 3 of Rules provides that the following certain class of companies must appoint at least one woman director on its board:

• Every listed company.
• Every other public company having: 
  • Paid-up share capital of Rs.100 crore or more, or 
  • Turnover of Rs.300 crore or more.

When a company fulfils the above two conditions, it must appoint a woman director to its board within six months of the condition fulfilment date. The paid-up share capital or turnover shall be considered as of the last date of the latest audited financial statements.

Appointment of Woman Director

The process to appoint a woman director is as follows: 

• The proposed woman director has to submit her consent to act as a director in the company in the prescribed Form DIR-2 and file intimation about her disqualification in Form DIR-8 to the company.
• The company should conduct a general meeting and obtain the shareholders’ approval for the appointment of the woman director through a resolution.
• In the case of listed companies, it must disclose the general meeting proceedings to the stock exchange before 24 hours from the general meeting conclusion and also post it on its website within two working days. 
• After the appointment of the woman director by passing a resolution in the general meeting, the company should file the following forms with the ROC:
  • Form MGT-14 within 30 days of passing the resolution of appointment in the general meeting.
  • Form DIR-12 regarding the particulars of the appointment of a woman director within 30 days of such appointment.
  • The company should make the required entries in the director and key managerial personnel register and the register of contracts in which the woman director is interested in the Form MBP-4.

The company board should fill up any intermittent vacancy of a woman director before three months from the date of vacancy or the next board meeting, whichever is earlier. A woman director can be a non-executive director or an executive director.

Tenure of Woman Directors

The tenure of the appointment of a woman director is till the next Annual General Meeting (AGM) from the date of appointment. She is entitled to a re-appointment at the general meeting. However, the tenure of a woman director is liable to retirement by rotation as per Section 152(6) of the Act as applicable to other directors. She can also resign at any time by giving notice to the company.

Penalty for Non-Compliance of Appointment of Woman Director

No specific penalty is prescribed under the Act for the non-appointment of a woman director. Thus, the penalty under Section 172 of the Act applies in case of non-compliance regarding the appointment of a woman director. Section 172 of the Act lays down that the company and every officer in default will be punished with a fine that shall not be less than Rs.50,000 but may extend up to Rs.5,00,000. 

Applicability of Independent Directors

Section 149(6) of the Act introduces the concept of independent directors. Rule 4(1) of the Rules states that the following companies should have at least two directors as independent directors:

• Every public company having:
  • Turnover of more than Rs.100 crore, or
  • Paid-up share capital of more than Rs.10 crore, or
  • In aggregate, outstanding borrowings, loans, debentures or deposits exceed Rs.50 crore or more.

When a company is required to appoint a higher number of independent directors because of the composition of its audit committee, then such a higher number of independent directors will be applicable. The turnover, paid-up share capital, or outstanding debentures, loans and deposits shall be considered as of the last date of the latest audited financial statements.

Appointment of Independent Directors

The procedure of appointment of the independent directors are as follows:

• The company must issue a notice of the general meeting to all shareholders with an explanatory statement annexed to the general meeting notice to consider the appointment and indicate the justification for choosing the person to be appointed as an independent director.
• The company must conduct a general meeting and pass a resolution for the appointment of independent directors.
• In the case of listed companies, it must disclose the general meeting proceedings to the stock exchange before 24 hours from the general meeting conclusion and also post it on its website within two working days. 
• After the appointment of the independent directors by passing a resolution in the general meeting, the company should file the following forms with the ROC:
  • Form MGT-14 within 30 days of passing the resolution of appointment in the general meeting.
  • Form DIR-12 regarding the particulars of the appointment of an independent director within 30 days of such appointment.

The board should fill any intermittent vacancy of an independent director before three months from the date of vacancy or the next board meeting, whichever is earlier. 

Exemption For Appointment of Independent Directors

Rule 4(2) of the Rules exempts certain unlisted public companies from appointing an independent director that has fulfilled the criteria mentioned in Rule 4(1) of the Rules. The following classes of unlisted public companies need not appoint independent directors:

• A joint venture.
• A wholly-owned subsidiary.
• Dormant company defined under Section 455 of the Act. 

Tenure of Independent Directors

As per Section 149(10) and 149(11) of the Act, an independent director can be appointed for a term of five years. An independent director can also be re-appointed for another five-year term after passing a special resolution in the general meeting. However, such re-appointment can happen only after the entire board does the performance evaluation.

An independent director cannot hold the director’s office for more than two consecutive terms. However, an independent director can be re-appointed in the same company after three years of completing two consecutive terms. An independent director can also be appointed for a term of less than five years. But, any appointment of five or less than five years will be regarded as one term. 

Penalty for Non–Compliance of Appointment of Independent Directors

No specific penalty is prescribed under the Act for the non-appointment of an independent director. Thus, the penalty under Section 172 of the Act applies in case of non-compliance regarding the appointment of an independent director. Section 172 of the Act lays down that the company and every officer in default will be punished with a fine that shall not be less than Rs.50,000 but may extend up to Rs.5,00,000. 

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