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Eligible Persons u/s 160 to be appointed as Company Director

Notice format, requisite deposit amount, procedure & right of persons to stand for directorship of company under section 160 except retiring directors.

In accordance with the provisions of sub-section (2) of section 152, otherwise expressly provided in the Companies Act, 2013, every director shall be appointed by the company in general meeting. Whereas section 160 of the Companies Act, 2013 deals with the right of persons other than retiring directors to stand for directorship in a company. Note that section 160 of the Companies Act, 2013 corresponds to section 257 of the Companies Act, 1956.

In exercise of the powers conferred by section 1(3) of the Companies Act, 2013, the Central Government (CG) vide notification number S.O. 902(E) issued dated 27-03-2014 appoints 01-04-2014 as the date on which the provisions section 160 shall come into force. Thus, the provisions of section 160 are effective from the first day of April 2014 vide Notification No. S.O. 902(E) issued dated 27.03.2014.

Main Provisions of section 160 of the Companies Act, 2013

(1) A person who is not a retiring director in terms of section 152 shall, subject to the provisions of this Act, be eligible for appointment to the office of a director at any general meeting, if he, or some member intending to propose him as a director, has, not less than fourteen days before the meeting, left at the registered office of the company, a notice in writing under his hand signifying his candidature as a director or, as the case may be, the intention of such member to propose him as a candidate for that office, along with the deposit of one lakh rupees or such higher amount as may be prescribed which shall be refunded to such person or, as the case may be, to the member, if the person proposed gets elected as a director or gets more than twenty-five per cent. of total valid votes cast either on show of hands or on poll on such resolution.

(2) The company shall inform its members of the candidature of a person for the office of director under sub-section (1) in such manner as may be prescribed.

Who is eligible person u/s 160 for appointment as Director?

As per sub-section (1) of section 160 a person who is not a retiring director shall be eligible for appointment to the office of a director at any General Meeting (GM) of the company. In this regard, you should keep your eyes on mainly two keywords viz. general meeting and retiring director.

Appointment in General Meeting:

This section will apply if any directors are appointed in general meeting that may be either AGM (Annual General Meeting) or EGM (Extraordinary General Meeting) of the company. In other words, if any directors are appointed by Board of Directors then the provisions of section 160 would not apply.

Appointment of Directors other than retiring by Rotation:

In accordance with the explanation given under section 152, the expression “retiring director” means a director retiring by rotation. Thus, the person who is not a director retiring by rotation shall use this right to stand for directorship in a company. In other words, you may say that for the appointment of the following persons for which candidature has been received, the provisions of section 160 would apply:

a) Appointment of Independent Directors;

b) Appointment of Alternate Director and Nominee Directors;

c) Appointment of a Director to fill casual vacancy;

d) Appointment of Director in GM who was appointed as an Additional Director by BOD under Section 161(1) of the Companies Act, 2013; and

e) Any other person seeking appointment as Director at general meeting of the company.

Who will give the Notice of proposal as director?

A Person can use the right under section 160 to stand for directorship only if he or some member intending to propose him as a director has left at the registered office of the company a notice in writing signifying his candidature as a director or, as the case may be, the intention of such member to propose him as a candidate for that office.

Thus, the notice u/s 160 can be given either by the candidate himself or any member of the company. You should note that in section 160 the term “member” has been used and therefore even a corporate member can give such notice proposing candidature of a person for the office of Director.

However, a preference shareholder can’t give such notice because of the fact that they have no voting rights in general meeting of a company. For more clarity you may refer the provisions of section 47 of the companies Act, 2013 regarding voting rights.

Further, you should also note that there is no requirement of minimum shareholding i.e. the member can give such notice irrespective of shareholding. In other words, if you have only one Equity Share of a company you may at the registered office of the company give notice signifying your intention to propose such person as a candidate for the office of director.

As per section 102(2) the appointment of directors other than retiring directors shall be deemed special business and therefore a statement shall be annexed to the notice calling GM for such appointment.

Increased Deposit Amount Required along with Notice u/s 160

The notice proposing candidature of a person as director of the company shall be given along with the deposit of ₹ 1,00,000/- or such higher amount as may be prescribed.

However, the deposited amount shall be refunded to such person/member if the person proposed gets elected as a director or gets more than 25% of total valid votes cast either on show of hands or on poll on such resolution.

That means in the following two cases the deposited amount shall be refunded:

a) If the proposed person has been elected as director of the company; or

b) If such proposed person gets more than 25% of total valid votes.

In other words, if the proposed person has not been elected as director and gets only 25% or less votes in favour then the deposited amount shall be forfeited by the company. In the earlier corresponding provision of section 257 of the Companies Act, 1956 the deposit amount was only ₹ 500 which has now been increased to ₹ 1 lakh under CA 2013. In my opinion such increment in deposit amount may be due to avoid the abuse of this right to stand for directorship in a company by someone with bad motive or intension.

On the other hand, the requisite deposited amount shall be refunded even in case the proposed person gets 25% or more votes. In earlier provisions (Section 257 of CA 1956) the deposited amount was refundable only in case the proposed person gets elected as director.

Which companies are exempted from application of section 160?

Following class of companies are exempted from complying the provisions of section 160 of the Companies Act, 2013:

1) Section 8 (Non-Profit) Companies:

The Central Government vide G.S.R. 466(E) dated 05.06.2015 exempts companies registered u/s 8 (Non-Profit) of the Companies Act, 2013 for complying section 160 if article of such company provide for election of directors by ballot.

There was a similar provisions under CA 1956 for section 25 companies to exempt them from section 257 vide S.O. 1578 (E) dated 1.7.1961.

2) Private Companies:

The provisions of section 160 relating to right of persons other than retiring directors to stand for directorship shall not be applicable for private companies vide G.S.R. 464(E) dated 05.06.2015.

3) Nidhi Companies:

The Central Government vide G.S.R. 465(E) dated 05.06.2015 has reduced the requisite deposit amount to ₹ 10000 from ₹ 100000 for a Nidhi Company. Therefore, the notice proposing candidature of a person as director of Nidhi Company shall be given along with the deposit of ten thousand rupees instead of one lakh rupees.

4) Government Companies:

A wholly owned Government company as well as the subsidiary of that Govt. Company shall be exempted from section 160 vide G.S.R. 463(E) dated 05.06.2015.

There was a similar provisions under CA 1956 Act for wholly owned Government companies which were exempted from section 257 vide G.S.R. 906 dated 30.7.1981.

Which Rule is framed for Section 160 of the Companies Act 2013?

In sub-section (2) of section 160 you may notice wordings “as may be prescribed” that means the manner for informing members for such appointments shall be prescribed by Rules. Accordingly, the Central Government makes the Companies (Appointment and Qualification of Directors) Rules, 2014 by exercising the powers conferred by section 160 of the Companies Act, 2013.

Format of Notice under Section 160 of Companies Act, 2013

You may see some sample format of notice to be given under section 160 of the Companies Act, 2013 for proposing the candidature of a person as director of the company.

Case-I: If a person proposing the candidature of him/herself for getting appointed as Director of a Company.

Date: ________

To
The Board of Directors / Company Secretary,
(Name of Company)
(Address of Company)

Dear Sir,

Sub: Notice u/s 160 of Companies Act, 2013

I, Mr./Ms. _________, do hereby give notice under section 160 of the Companies Act, 2013, signifying my intention to propose my candidature for the office of Director of (Company’s name), in the ensuing Annual General Meeting of the Company or any adjournment thereof.

I also remit hereby an amount of ₹ 100,000/- (Rupees One Lakh Only) being the deposit along with this Notice pursuant to the aforesaid provisions.

Thanking You,

Yours sincerely,

(Signature)
(Name of the Person)

Encl. Demand Draft / Cheque bearing No. __________ dated ______________ for ₹ 100,000/- drawn in favour of ‘(Company Name)’.

Case-II: If a corporate member proposing the candidature of a person for getting appointed as an Independent Director of company.

Date: ________

To
The Board of Directors / Company Secretary,
(Name of Company)
(Address of Company)

Sub: Notice u/s 160 of Companies Act, 2013

Dear Sir,

we, (Corporate Member Name), member of the (Company Name), hereby give notice under section 160 of the Companies Act, 2013 signifying the candidature of (Name and Address of person to be appointed as director), for appointment as an Independent Director of (Company Name), in the ensuing Annual General Meeting of the Company.

In this regard enclosed please find cheque no. XXXXX dated XXXXX for ₹ 100,000/- (Rupees One Lakh Only) drawn on (Bank Name with Address of branch) towards the deposit as required u/s 160 of the companies Act, 2013.

Thank you,

Yours faithfully,

for (Name of Corporate Member)
(Designation)

Encl.: Cheque no. XXXXX dated XXXXX for ₹ 100,000/-

Case-III: If a member of the Company proposes the candidature a Person for his /her appointment as Director of the Company

Date: ________

To
The Board of Directors/ Company Secretary,
(Name of Company)
(Address of Company)

Sub: Notice under section 160 of Companies Act 2013

Dear Sir,

I, Mr. / Ms. _____________(DIN 000XXXXX), holder of ____ Equity Shares of ₹ __/- each fully paid-up, in the company, do hereby give notice signifying my intention to propose the candidature of Mr. / Ms. __________ for the office of Director of your company for the approval of members at the ensuing Annual General Meeting or any adjournment thereof.

A sum of ₹ 100,000/- (Rupees One Lakh Only), being the amount stipulated to be deposited in terms of the provisions of section 160 of the Companies Act, 2013 is remitted herewith, vide my Check No. XXXXXXX dated 15 September 2015 drawn on (Bank Name and Branch Address).

Thanking You,

Yours sincerely,

(Signature)
(Name of the Member)

Folio No. ____ / DP ID ______________ Client ID ______________
No. of shares held: ____

Encl. Demand Draft / Cheque bearing No. __________ dated ______________ for ₹ 100,000/- drawn in favour of ‘(Company name)’.

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