{"id":30135,"date":"2020-04-01T11:11:22","date_gmt":"2020-04-01T05:41:22","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=30135"},"modified":"2022-09-13T13:56:08","modified_gmt":"2022-09-13T08:26:08","slug":"principle-of-proportional-representation-for-appointment-of-directors","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/principle-of-proportional-representation-for-appointment-of-directors\/","title":{"rendered":"Principle of Proportional Representation for Appointment of Directors"},"content":{"rendered":"

A Director is defined as an individual who directs, manages or controls the affairs of the company. A director is someone who is appointed to perform the functions and the duties of a company according to the provisions of the Companies Act, 2013<\/strong>.<\/p>\n\n\n\n

Directors play an important role in managing the affairs of a company. Hence, their appointment is very critical for the growth and development of a company. In this article, we shall discuss the principle of proportional representation for the appointment of directors<\/a><\/strong>.<\/p>\n\n\n\n

Overview<\/h2>\n\n\n\n

The company’s law provides for the appointment of directors through simple majority passing of a resolution in the general meeting of the shareholders. Therefore, the simple majority has the power to elect all directors and a considerable minority may not succeed in appointing even a single director. This may endanger the interests of the minority shareholders. In order to alleviate this disadvantage, section 265 of the erstwhile Companies Act 1956<\/strong> had provided that the minority shareholders shall have the opportunity to place their representative on the board of directors where the company adopted the system of proportional representation for appointment of directors by providing in its articles of association.<\/p>\n\n\n\n

Section 163 of the Companies Act, 2013<\/h2>\n\n\n\n

The provisions related to the principle of proportional representation for appointment of directors have been included in the Companies Act, 2013. Section 163 of the Companies Act says that the articles of a company shall provide for the appointment of not less than two- thirds of the total number of directors in a company according to the principle of proportional representation, whether by single transferable vote or through the system of cumulative voting or otherwise. Such appointments shall be made once in every three years, and the casual vacancies of the directors may be filled as contained in sub section (4) of section 161 of the Companies Act, 2013<\/strong>.<\/p>\n\n\n\n

Analysing the meaning of Section 163 of Companies Act <\/h2>\n\n\n\n

Section 163 replaces section 265 of the erstwhile Companies Act 1956<\/strong>. The latter section applied to the public or private company, which is subsidiary of a public company whereas the former section applies to all companies.<\/p>\n\n\n\n

If\nwe break down this section, we understand that the articles of association\nprovide for the appointment of not less than two-thirds of the total number of\ndirectors which means that the need of provisions in the article is essential\nfor invoking the section. It is important to note here that it is not necessary\nfor companies to have such provisions in their articles.<\/p>\n\n\n\n

The\nprinciple of proportional representation allows the minority shareholders to\nappoint their directors, thereby ensuring that the interests of the minority\nshareholders are not affected. Use of the term “otherwise” in this\nsection tells us that this section can be implemented by any other process than\nby single transferable vote or cumulative voting. <\/p>\n\n\n\n

Also, Read:<\/b> Appointment and Resignation of Directors: Easy Procedure<\/a><\/mark>.<\/p><\/div>\n\n\n\n

Main features of the Principle of Proportional\nRepresentation for the Appointment of Directors<\/h3>\n\n\n\n