Sebi case law

SEBI vide its order dated August 19, 2015 imposed a penalty of Rs. 10 lakhs on the Director of Manappuram Finance Limited for breach of SEBI (Prohibition of Insider Trading) Regulations. The brief facts of the case are as follows :

1. The wife of the Directors sold shares of the Company without seeking pre-clearance from the Compliance Officer.

2. The Director submitted that 

(i) his wife was financially independent 

(ii) trading without pre-clearance was only a technically slip that would not warrant any penalty - an opinion from reputed law firm was also submitted to support these views.

 (iii) he had discussed at the board meeting of the Company about the intention of his wife to sell the shares of the Company.

3. SEBI observed and ruled that 

(i) financial independence is immaterial in case of spouse 

(ii) trading without pre-clearance is a violation of regulation and hence penalty would follow 

(iii) the discussion of the wife proposed trade at the board meeting is not substantiated with agenda or minutes of the meeting and 

(iv) penalized the Director for violation of Regulations and Internal code of conduct.

Key Take away : Personal Transaction Policy and SEBI Insider Trading norms need to be followed in letter and spirit. SEBI does not take into account any technicalities or intention of the parties. You may note that the Director in this case was about 90 years old retired civil servant without any blemish but still had been penalized for the unintentional error.

Types of directors

Types of directors

1. Definition:- As per Section 2(34) of Companies Act 2013 Director means a director appointed to the Board of a Company.2. Responsibility:- The board of directors of a company is primarily responsible for:

i. determining the company’s strategic objectives and policies;
ii. monitoring progress towards achieving the objectives and policies;
iii. appointing senior management;
iv. accounting for the company’s activities to relevant parties, e.g. shareholders.

3. Minimum Directors Required in Company:-

i. One Person Company:- One Director.
ii. Private Limited Company:- Two Directors.
iii.Public Limited Company:- Three Directors.

Maximum 15 directors can be appointed in any format of Company (OPC, Public, Private). Bypassing Special Resolution Company can increase the number of Directors beyond 15. Out of appointed directors one director should be resident in India for more than 182 days in previous calendar year.

iv. Types of Directors:-

1. Residential Director:- As per Section 149(3) of Companies Act,2013 every company shall at one director who has stayed in India for a total Period of not less than 182 days in the Previous calendar year.

2. Independent Director:- As per section 149(6) an independent director in relation to a company, means a director other than a Managing Director, Whole Time Director Or Nominee Director. Companies which have to appoint Independent Director:- As per Rule 4 of Companies (Appointment and Qualification of Directors) Rules,2013 the following class of companies have to appoint atleast two independent directors:-

A} Public Companies having Paidup Share Capital-Rs.10 Crores or More;

B} Public Compnies having Turnover- Rs.100 Crores or More;

C} Public Companies have total outstanding loans, debenture and deposits of Rs. 50 Crores or More.

Person Qualified for Independent Directorship:-

A) Who, in the opinion of the Board , is a person of integrity and possesses relevant experties & experience;

B) i) Who is or was not a promoter of the Company or its Holding, Subsidiary or Associate Company(HSA Companies);

ii) Who is not related to Promoters or directors in the company, its HSA companies;

C) Who has or had no Pecuniary (relating to Money) relationship with Company and its HSA company or their promoters, directors during the 2 immediately preceding financial years or during the current financial year;

D) none of whose relatives has or had pecuniary relationship with company, its HSA company or their Promoters, directors -amounting to 2% or more of its gross turnover or total income; -or fifty lakhs or such higher amount as may be prescibed, whichever is lower. During the 2 immediately preceding financial years or during current financial year.

E) Who neither himself nor any of his relative-

1. holds or has held the position of KMP or has been employee of the Company or its HSA companies in any of the 3 financial years;

2.he or his relative  has an employee or proprietor or a partner in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed- as a auditor firm, Company Secretary in practice, Cost Auditor, Legal Consultant of the company or its HSA companies;

3. Holds with relaives 2% or more of the total voting power of the Company;

4. he or his has not be Chief Executive or Director of any Non Profit Organization that receive 25% of its receipt from the Company or HSA Companies or its Promoters or directors or that NGO holds 2% or more of the total voting power of the Company.

F) Who possesses such other qualification as may be prescribed. Tenure of Director:- an independent director hold office for a term up to 5 consecutive years, -Also eligible for reappointment by passing Special Resolution and also require its reappointment in Boards Report. -He shall not hold office for more than 2 Consecutive terms, but shall not be eligible to appoint after expiration of 3 Years of ceasing to become an independent director. Remuneration to Independent Director:- An independent director shall not be eligible for any stock option as per section 149(9) of Act. But they may receive remuneration by way of fee provided under section 197(5) of the Act. Sitting fees for Board meeting and other committee meeting shall not be exceed Rs. 1,00,000 per meeting.

3. Small Shareholders Directors:- A listed Company may have one director elected by small shareholders. May appoint upon notice of not less than 1000 Shareholders or 1/10th of the total shareholders, whichever is lower have a small shareholder director which elected form small shareholder.  

4. Women Director:- As per Section 149 (1) (a) second proviso requires certain categories of companies to have At Least One Woman director on the board. Such companies are any listed company, and any public company having-

i. Paid Up Capital of Rs. 100 crore or more, or

ii. Turnover of Rs. 300 crore or more.

5. Additional Directors: Any Individual can be appointed as Additional Directors by a company under section 161(1) of the New Act.

6. Alternate Directors:- As per Section 161(2) A company May appoint, if the articles confer such power on company or a resolution is passed (if an Director is absentfrom India for atleast three months).

a. An alternate Director cannot hold the office longer than the term of the Director in whose place he has been appointed.

b. Additionally, he will have to vacate the office, if and when the original Director returns to India.

c. Any alteration in the term of office made during the absence of the original Director will apply to the original Director and not to the Alternate Director.

7. Shadow Director:- A person, who is not appointed to the Board, but on whose directions the Board is accustomed to act, is liable as a Director of the company, unless he or she is giving advice in his or her professional capacity.

8. Nominee Directors:- They can be appointed by certain shareholders, third parties through contracts, lending public financial institutions or banks, or by the Central Government in case of oppression or mismanagement.

9. Difference Between Executive and Non-Executive Director:- An Executive Director can be either a Whole-time Director of the company (i.e., one who devotes his whole time of working hours to the company and has a significant personal interest in the company as his source of income), or a Managing Director (i.e., one who is employed by the company as such and has substantial powers of management over the affairs of the company subject to the superintendence, direction and control of the Board). In contrast, a non-executive Director is a Director who is neither a Whole-time Director nor a Managing Director.

Proportional representation for appointment of directors

This is one of the method of electing a director in a company.. Previously it was oly for public cos. As per new Act, its applicable for all cos but still remains as non mandatory provision..
The rationale behind this section is to instill the democracy in corporates as well
Its genesis is from UK parliament and of course in our parliament.. And thereby they have incorporated the same in CA 1956 vide sec. 265..
Let me give eg to understand this..
As the section states there are 2 methods mainly- Single transferable voting and Cumulative voting.. U can also employ any other method but everything sld b authorised in articles..
Suppose if u hold 300 shares in a company and there are 4 directors to b elected.. Then you are eligible to put 300*4 = 1200 votes .. U can use all these votes for single candidate or u can divide ur votes among the candidates.. This is as per cumulative voting
So there is reduced scope for promoters or majority shareholders' clout to nominate their persons as directors..
As per single transferable voting u r eligible for 1 vote per person irrespective of shareholding..
: These methods can b done only once in 3 years and pls note that the respective director cannot b removed during his tenure..
So under single voting system , as stated earlier if there are 4 directors to be elected.. And there are 2 shareholders A and B in that company means A is eligible to appoint 2 directors and B is eligible to appoint 2 directors.. Under cumulative means if A holds 76% and B holds 24% means- A can appoint 3 directors and B can appoint 1 director..
: Thereby under both the methods the minority interests are protected n democracy is upheld..
Also pls note that the election sld b for minimum of 2-3 rds of directors..
Section 163 of the Companies Act, 2013.

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The above article is written by Mr.Annirudh, ACS, LLB, Corporate law expert from Chennai.

Maximum Number of directorships under Companies Act, 2013

As per section 165 of Companies Act, 2013

After notifying this section, a person  can hold office as a director in 20 companies maximum.

1. In the aforesaid limit he/she can hold office maximum in 10 public ltd companies.

2. For counting public ltd companies, even pvt ltd companies also taken for count if it is subsidiary or holding of public ltd company.

3. For calculating maximum limit alternative directorships also be counted.

4. Any person is in director if any person is already a director more than the above specified limit, then he/she has to regularise his directorship within one year from the commencement of this Act.

Purchase / Acquisition of foreign securities by a person resident India

A person being an resident individual in India, can acquire foreign securities through automatic route. Reg 22 of Transfer or issue of any Foreign Security Regulations, 2004.

An individual may acquire  foreign securities
- by way of gift from a person resident outside India.
- issued by Foreign company under cashless Employee Stock Exchange Option Scheme(ESOS).

A person resident in India, being an individual , who is an

- Employee or Director of Indian office or
- Employee of branch office of foreign company or
- Employee or Director of a subsidiary in India of foreign company or
- Employee or Director of Indian company in which foreign company holds note less than 51 percent of equity shares

may accept the shares offered by such foreign company under Employee Stock Option Plan (ESOP).

provided Shares issued under ESOP by the foreign company globally on uniform basis and remittance for acquire the should be through normal banking channels i.e through AD bank.

ALTERNATE DIRECTOR

The Board of Directors of a company may, if so authorized by its articles or by a resolution passed by the Company in general meeting,appoint an alternate director, in accordance with Section 313 of the Companies Act,1956 to act for a director during his absence for  a period of not less than three months from the state in which meetings of the Board are ordinarily held.

An alternate Director occupies the position of director and even though he is called an alternate director, he is a director and performs same duties and is subject to the same liabilities as of any director.However, in calculating for the purposes of number of companies in which he is a director, a company in which he is an alternate director shall not be included as per section 278(1)(d).An Alternate Director may be appointed as a Managing Director or Whole -Time Director.

An alternate Director shall not hold office as such for a period longer than that 'permissible' to the original director in whose place he has been appointed and shall vacate office as and when the original director returns to the state in which meetings of the Board are ordinarily held as per Section 313(2) of the Companies Act,1956.

If an alternate Director  appointed as Managing or Whole Time Director of the Company, he has to be  regularized  as Director by the shareholders in the General Meeting and then only his appointment of Managing or Whole-Time Director will be valid and otherwise his appointment  will be void.

Additional Director

As per section 260 of the Companies Act, 1956, Additional director can be appointed by passing Board Resolution. He will be vacate his directorship in forthcoming Annual General Meeting.