DIRECTORS, MEETINGS AND KPMl

• Prohibition of fancy designations: In case of foreign subsidiaries or SPVs it is common to find designations like director India operations or director Asia etc. However with advent of the 2013 Act any designation with the nomenclature of director will have to be used with caution. Section 2(34) defines a “director” to mean a director appointed to the Board of a company. Therefore any person using the nomenclature of director even as an adjective must ensure that:
• On or before the appointment he has furnished to the company a consent in writing to act as such in Form No. 11.2 ;
• the company has within thirty days of the appointment filed such consent with the Registrar in Form No. 11.8 along with the fee; and
• he is duly appointed to the Board under an appropriate resolution.
• Shadow directors: Section 386 (b) of the 2013 Act, specifies that the expression “director”, in relation to a foreign company, includes any person in accordance with whose directions or instructions the Board of Directors of the company is accustomed to act. This implies that the register of directors and key managerial as required by section 170 will need a disclosure being made about any person in accordance with whose directions or instructions the Board of Directors of the Indian subsidiarycompany is accustomed to act; irrespective of his being an Indian national or being a part of the management of the foreign holding company.
• • Restriction on payment of managerial remuneration to a foreign director: It is a common practice to pay a handsome package to any foreign director on the board of an Indian subsidiary which may not be regulated by any limit under the Companies Act 1956, in case of private companies. This is because the Companies Act, 1956 vide section 309(9) provided that the provisions with respect to remuneration of directors will not apply to private companies. This also extended to private companies that were subsidiaries of foreign holding companies by virtue of section 4(7) of the 1956 Act.

However with no similar provisions akin to section 4(7), in Companies Act, 2013 the subsidiary of a foreign public company will be treated as a public company in India and provisions as specified in section 197 of the 2013 Act, pertaining to overall maximum remuneration will apply to such subsidiary too.

Further to make things though the leeway given in proviso to subsection (1) of section 197 for payment of remuneration exceeding 11% of net profits of the company , is no respite as it mandates compliance to Schedule V. Schedule V on the on the other hand enumerates conditions to be fulfilled for appointment of Managing /Whole time director etc.

Now the point of concern is clause (e) of part I of the schedule which requires that such a director should be resident in India and goes on to state that he should have been staying in India for not less than 12 months (365 days) immediately preceding his appointment. Further the only exception is made in case of companies located in Special Economic Zones.

This means that even though one can become a Managing /Whole time director he will be paid within the limits of eleven percent of net profits of the company and if he wants a higher sum then he must:

• be staying in India for 12 months previous to his appointment; or
• if he does not stay for 12 months then, the Company should go for Central government approval, as any payment or conditions which do not fall in the ambit of Schedule V will need Central Government approval for being regularised.
• Convening of board meeting at shorter notice: Proviso to section 173(3) states that a meeting of the Board may be called at shorter notice to transact urgent business by giving less than 7 days notice subject to the condition that :
• at least one independent director, if any, being present at the meeting;
• in case of his absence, decisions taken at such a meeting shall be circulated to all the directors and shall be final only on ratification thereof by at least one independent director, if any

It may be construed that in case of companies with independent directors it is clear how things will proceed, but the issue arises in case of companies not mandated to have independent directors by virtue of section 149(4) read with draft rule 11.2 or section 135(1). This is because no threshold / percentage of board members have been mentioned for approving a shorter notice. Strictly speaking, companies not having an independent director cannot have a board meeting at shorter notice.

• Appointment of Key Managerial personnel: Section 203(1) mandates the appointment of key managerial personnel (KMP).However on a close reading it is evident that a company having paid up capital of 5 crore or more (draft rule 13.6) must appoint :
• Managing director, or Chief Executive Officer or manager and in their absence, a whole-time director;
• Company Secretary & Chief Financial Officer.