Revision as of 16:52, 23 February 2016

Incumbent directors above 70 need 75% shareholders' nod to stay: HC

The Times of India, Feb 19 2016

Reeba Zachariah & Boby Kurian  India Inc's septuage narian leaders have to clear another hurdle to continue in corporate boardrooms. The Bombay high court, in a recent order, has ruled that incumben directors who are 70 years old and above will face automatic disqualification if they are no elected by a special resolution and supported by three-fourths of the shareholders. The order, by justices V M Kanade and Shalini Phansal kar-Joshi, with regard to Srid har Sundarajan vs Ultramari ne & Pigments, stated that a person who was appointed MD before April 1, 2014, when he was below 70, can continue to be on the board after turning 70 only if the company passes a special resolution to that effect. The ruling has created a flutter in corporate boardrooms with companies examining its implications.

About 100 directors, aged 70 to 73, will now be forced to seek reappointment through a special resolution. Moreover, in an era of growing shareholder activism, it may not be easy to secure an approval for directors of companies where promoter holdings are low .

The court order follows the new Companies Act that prescribes that board members, including chairman and directors, who have attained 70 years, will have to be elected by a special resolution and with 75% shareholder approval. The rule, which came into force on April 1, 2014, lacked clarity whether it impacted the tenures of those already elected.

“The order makes it clear that the rule is applicable prospectively ,“ said Viral Shukla, lawyer at Shukla & Associates.

Some of the well-known senior executives who will be im pacted include N Srinivasan (71), VC & MD, India Cements; Pracheta Majumdar (71), director, Birla Corp; Jawahar Lal Oswal (72), CMD, Monte Carlo; and Suneel Advani, CMD, Blue Star Infotech.

“We are examining the or der. We are in the process of obtaining legal opinion,“ said an India Cements spokesperson.

The rationale behind the approval through special resolutions is to have younger board members, but at the same time have experienced heads provided a majority of the shareholders feel that such people can add value to the company .

“The regulators -MCA and Sebi -should immediately put out a clarification on the Companies Act, and hold companies responsible for noncompliance. Companies have chosen to ignore this nuance of directors' age limit. Minority shareholders' interest and rights cannot be taken for granted,“ said Shriram Subramanian, MD, InGovern Research, a proxy advisory firm.