APPOINTMENT OF DIRECTOR WHO ATTAINS 75 YEARS OF AGE

[Mr. M. GOVINDARAJAN]

In 20 MICRONS LIMITED VERSUS BSE LIMITED, SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI AND NATIONAL STOCK EXCHANGE OF INDIA LIMITED, MUMBAI - 2023 (12) TMI 38 - SECURITIES APPELLATE TRIBUNAL, MUMBAI, the appellant company in this case is a public limited company.  Its shares are listed in National Stock Exchange and Bombay Stock Exchange.  The appellant company has a Board of Directors which comprises of Chairman-cum-Managing Director, Managing Director, a Director and four independent directors. 

The company has more than six directors and four independent directors.  Thus the company complied with the provisions Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘LODR’ for short).  The tenure of two independent directors is to be expired on 12.08.2024.

The Nomination and Remuneration Committee of the Company made a recommendation to the Board of Directors for the appointment of one Shri Swaminathan Sivaram as an additional director in the category of non executive independent director.  The appointment of independent director is subject to the approval of the shareholders by special resolution in the 36^th Annual General Meeting of the company.  Based on the recommendations of the Committee, the Board of Directors appointed Shri Swaminathan Sivaram as an additional director in the category of non executive independent director.  Since the said Director attained the age of 75 years his appointment is subject to the approval of shareholders by a special resolution.   The Annual General Meeting was held on 10.08.2023.  The shareholders passed a special resolution approving the appointment of Shri Swaminathan Sivaram as an additional director in the category of non executive independent director.

The Bombay Stock Exchange, vide its order dated 21.08.2023, imposed a penalty of Rs.1,08,560/- on the company for non compliance with Regulation 17(1A).  National Stock Exchange also imposed Rs.1,08,560/- on the company. 

Against the orders of both the exchanges the company filed two appeals before the Securities Appellate Tribunal (‘SAT’ for short).  The SAT on analyzing the impugned order was of the opinion that no reason has been given in the impugned order as to why and how the company has violated the provisions of Regulation 17(1A).  The impugned order cannot be sustained on this ground itself.

The stock exchanges contended that fine was imposed on account of non-compliance of Regulation 17(1A) which provides that an additional director can only be appointed only after approval is given by the members of the Company through a special resolution and that an appointment cannot be made prior to taking the approval through a special resolution from the members of the Company.

The SAT framed the core issue to be decided in the present appeal as to whether approval is required to be taken from the shareholders of the Company through a special resolution before a person who has attained the age of 75 years can be appointed.  The SAT analyzed the provisions of Section 149, Section 152(2) and Section 161(1) of the Companies Act, 2013.  The SAT observed that according to the above said provisions the Board of Directors can appoint any person as an additional director who shall hold office up to the date of next Annual General Meeting.   A director can only be appointed by the shareholders of the Company in an Annual General Meeting.  However, the board of directors can appoint any person as an additional director who will hold office up to the date of the next Annual General Meeting.

The SAT observed that in the present case Shri Swaminathan Sivaram was appointed as an additional director in the category of non executive independent director till the date of next Annual General Meeting in which the shareholders are to give approval for the appointment of the said person by the Board of Directors, by passing a special resolution.

Further the SAT analyzed the provisions of Regulation 17(1A) and 17(1C).  Regulation 17(1A) provides that no listed company shall appoint a person as a non-executive director who has attained the age of 75 years unless a special resolution is passed by the members of the Company. Regulation 17(1C) provides that the listed entity shall ensure that approval of shareholders for appointment of a person on the board of directors is taken at the next general meeting or within a period of 3 months from the date of appointment whichever is earlier.

The SAT observed that in the present case the appointment of Shri Swaminathan Sivaram was appointed on 16.05.2023 by the Board of Directors.  The said appointment was approved by the shareholders in the next Annual General Meeting through a special resolution on 10.08.2023 i.e., within three months from the date of appointment.

The SAT relied on its own judgment in NECTAR LIFE SCIENCES LTD. VERSUS SECURITIES AND EXCHANGE BOARD OF INDIA, NATIONAL STOCK EXCHANGE OF INDIA LTD. - 2023 (5) TMI 447 - SECURITIES APPELLATE TRIBUNAL, MUMBAI.  IN this case the SAT considered the provisions of Regulations  with other provisions and held that the word ‘unless’ as depicted in Regulation 17(1A) does not mean ‘prior approval’ nor the requirement of passing a special resolution was a qualificatory condition for appointment as a director.  Therefore SAT held that the contention of the respondent that no person can be appointed as a non-executive independent director unless prior approval of the shareholders was made by a special resolution is erroneous.

The SAT, in its order, indicated that Regulation 17(1A) and 17(1C) has to be readharmoniously with the provisions of Section 152(2) and 161(1) of the Companies Act which will make it clear that a person above the age of 75 years can be appointed by the board of directors.  Such appointment is required to be approved subsequently within the prescribed period by a special resolution in the next general meeting by the members of the Company which in the instant case was done within the prescribed period.

The SAT held that no penalty could have been imposed by the BSE and NSE for violation of Regulation 17(1A) of the LODR Regulations.  The SAT set aside the impugned orders.