Alternate Director
Bharat Hegde
CS A Rengarajan
--
Find eNewsletters of ICSI Mysore at: http://www.icsi.edu/NewsEvents/enewsletters/tabid/1757/Default.aspx AND www.esnips.com/web/icsimysore
You received this message as you are subscriber. To unsubscribe email to: csmysore-u...@googlegroups.com
--
Company Secretary, Chennai
email csaren...@gmail.com
mobile 093810 11200
SHARING KNOWLEDGE SKY IS THE LIMIT
This mail and its attachments (if any) are confidential information intended for persons to whom the email is planned for delivery by the sender. If you have received this mail in error please notify the sender of the error by forwarding the email and its attachments (if any) and then deleting the mail received in error and the relevant email trail in this connection without making any copies or taking any prints.
Bharat Hegde
neha mittal
Vivek Hegde
CS Vivek Hegde,B.com, ACS, CWA
Company Secretary in Practice
No. 405, 4th Block, 7th Cross
Koramangala, Bangalore-560034
Mob: 09019756940/09900898223
Rudra Alok
Dear Bharat,
Thanks for giving me opportunity to explain about the position of “Alternate director” while replaying your query. As I promised Mr. Rengarajan, to come out with some articles for his idea – “One individual one section”, luckily I am in-process to write on this issue… and whole article is still incomplete, hence providing you my answers in brief … for supportings and case laws you may refer some books of repute and Companies Act – regular case law digest.
[1] For appointing an alternate director you require enabling provision in your AOA or authorization via ordinary resolution passed by General body of shareholders. If none of these supporting are available your Board cannot appoint an alternate director.
[2] the key sentence – “during his absence for a period of not less than 3 months from the State”. The word “State” has been defined in General Clause Act [Ref: Sec. 3(58)] and definition refers States specified in First Schedule to the Constitution. Part –I of First Schedules includes the States while Part- II includes the list of Union Territories. Hence the term State includes Union Territory.
[3] Key word – “Ordinarily held” significant words for analysis point of view --- since the Sub section clearly says “…….State in which meetings of the Board are ordinarily held”. Here the concerned State is where Board meetings of the Company are ordinarily held (Ref minutes of the Board meeting for this purpose) and not the State in which registered office is situated.
[4] Why Section 313 incorporated? – the basic purpose of Section 313 is to prohibit the assignment of office by a director. The basic right to appoint director is with shareholders and once appointed the same should not be assigned by the originally appointed director. Before Sec 313 provisions, Sec 86B of the Companies Act 1913 empowered the directors to assign their office.
[5] An alternate director can also be appointed by means of a circular resolution provided your AOA does not provide otherwise.
[6] Only one individual can be appointed as an alternate director for original director. You cannot appoint 2 individuals for same original director.
[7]What is important is to check whether the absence is for a period not less than 3 months from the State. It does not matter he is going outside State within India or outside India, What is material is his absence and periodicity of the absence.
Answer to your queries:
[1] No you cannot appoint an alternate director in such a situation.
[2] You second question is not correct; the correct question should be “if an employee appointed as an alternate director, whether that employee becomes a whole-time director”?
The answer for the same is no, DCA supports this view – provided you appoint an employee as an alternate director and such an employee does not have any managerial power, no remuneration as a director.
Additional food for thought process:
1. What would be the meaning of the term “State” when your board meetings are ordinarily held “Singapore” or any other foreign country of your choice and overall position of Section 313?
2. Can you appoint alternate director for a foreigner director (who is always out of India), as is true for maximum MNCs in India?
Regards,
Alok
Vivek Hegde
--
Find eNewsletters of ICSI Mysore at: http://www.icsi.edu/NewsEvents/enewsletters/tabid/1757/Default.aspx AND www.esnips.com/web/icsimysore
You received this message as you are subscriber. To unsubscribe email to: csmysore-u...@googlegroups.com
Vivek Hegde
Rudra Alok
Rudra Alok
Vivek Hegde
Bharat Hegde
(a) in case the office or place is held by a director, if the director holding it obtains from the company anything by way of remuneration over and above the remuneration to which he is entitled as such director, whether as salary, fees, commission, perquisites, the right to occupy free of rent any premises as a place of residence, or otherwise;
I believe here the expression "Director" will surely cover the Alternate Directors also. In that case, if an employee appointed as the alternate director, he should get the remuneration either as a Whole Time Director or under Section 314(1)(a). If he cannot be considered as a Whole Time Director, as explained by Mr.Alok, we need to comply with the provisions of 314(1)(a).
Further views are solicited.
Regards,
Bharat Hegde
CS A Rengarajan
Vivek Hegde
otherway round. Because when the act was enacted the concept of
foreign director was not popular... further the definition of state
has been clarified by the ministry as referred by Mr. Alok...
>>> Coming to your* additional food for thought process:*
>>> *
>>> *
>>> 1. I understand the word "State" used in the Section is inclusive and not
>>> exhaustive. When it is applied with references to India it includes
>>> different states (say, Karnataka, Tamilnadu, Rajastan.....) and
>>> Union Territory. When it is applied globally...Singapore is not an
>>> exception. "Out of Singapore" shall be constructed as out of State.
>>>
>>> 2. Answer is yes. As justified in point 1. above.
>>>
>>> *Some funny practices prevalent:*
>>> *
>>> *
>>> *1. The term "Alternative" will be taken literally in some MNC's and two
>>> directors will be attending the meeting alternatively. They are
>>> alternative
>>> directors as well as original directors. Nobody ceases to be the
>>> alternate
>>> directors once the original director comes to the state where meetings
>>> are
>>> ordinarily held.*
>>> *
>>> *
>>> *Other member's view are welcome.*
>>>
>>>
>>>
>>> On Thu, Apr 14, 2011 at 3:30 PM, Rudra Alok <rudr...@gmail.com> wrote:
>>>
>>>> Dear Bharat,
>>>>
>>>>
>>>> Thanks for giving me opportunity to explain about the position of
>>>> “Alternate director” while replaying your query. As I promised Mr.
>>>> Rengarajan, to come out with some articles for his idea – “One
>>>> individual
>>>> one section”, luckily I am in-process to write on this issue… and whole
>>>> article is still incomplete, hence providing you my answers in brief …
>>>> for
>>>> supportings and case laws you may refer some books of repute and
>>>> Companies
>>>> Act – regular case law digest.
>>>>
>>>>
>>>> [1] For appointing an alternate director you require enabling provision
>>>> in your AOA or authorization via ordinary resolution passed by General
>>>> body
>>>> of shareholders. If none of these supporting are available your Board
>>>> cannot
>>>> appoint an alternate director.
>>>>
>>>>
>>>> [2] the key sentence – “*during his absence for a period of not less
>>>> than 3 months from the State*”. The word “State” has been defined in
>>>> General Clause Act [*Ref: Sec. 3(58)*] and definition refers States
>>>> specified in First Schedule to the Constitution. Part –I of First
>>>> Schedules includes the States while Part- II includes the list of Union
>>>> Territories. Hence the term State includes Union Territory.
>>>>
>>>>
>>>> [3] Key word – “*Ordinarily held*” significant words for analysis
>>>> point of view --- since the Sub section clearly says “…….State in which
>>>> meetings of the Board are ordinarily held”. Here the concerned State is
>>>> where Board meetings of the Company are ordinarily held (Ref minutes of
>>>> the
>>>> Board meeting for this purpose) and not the State in which registered
>>>> office
>>>> is situated.
>>>>
>>>>
>>>> [4] *Why Section 313 incorporated?* – the basic purpose of Section 313
>>>> is to prohibit the assignment of office by a director. The basic right
>>>> to
>>>> appoint director is with shareholders and once appointed the same should
>>>> not
>>>> be assigned by the originally appointed director. Before Sec 313
>>>> provisions,
>>>> Sec 86B of the Companies Act 1913 empowered the directors to assign
>>>> their
>>>> office.
>>>>
>>>>
>>>> [5] An alternate director can also be appointed by means of a circular
>>>> resolution provided your AOA does not provide otherwise.
>>>>
>>>>
>>>> [6] Only one individual can be appointed as an alternate director for
>>>> original director. You cannot appoint 2 individuals for same original
>>>> director.
>>>>
>>>>
>>>> [7]What is important is to check whether the absence is for a period not
>>>> less than 3 months from the State. It does not matter he is going
>>>> outside
>>>> State within India or outside India, What is material is his absence and
>>>> periodicity of the absence.
>>>>
>>>>
>>>> *Answer to your queries:*
>>>>
>>>> *
>>>> *
>>>>
>>>> [1] No you cannot appoint an alternate director in such a situation.
>>>>
>>>>
>>>> [2] You second question is not correct; the correct question should be
>>>> “if an employee appointed as an alternate director, whether that
>>>> employee
>>>> becomes a whole-time director”?
>>>>
>>>>
>>>> The answer for the same is no, DCA supports this view – provided you
>>>> appoint an employee as an alternate director and such an employee does
>>>> not
>>>> have any managerial power, no remuneration as a director.
>>>>
>>>>
>>>> *Additional food for thought process:*
>>>>
>>>> *
>>>> *
>>>>
>>>> 1. What would be the meaning of the term “State” when your board
>>>> meetings
>>>> are ordinarily held “Singapore” or any other foreign country of your
>>>> choice
>>>> and overall position of Section 313?
>>>>
>>>>
>>>> 2. Can you appoint alternate director for a foreigner director (who is
>>>> always out of India), as is true for maximum MNCs in India?
>>>>
>>>>
>>>>
>>>>
>>>>
>>>>
>>>> Regards,
>>>>
>>>> Alok
>>>>
>>>> --
>>>> Find eNewsletters of ICSI Mysore at:
>>>> http://www.icsi.edu/NewsEvents/enewsletters/tabid/1757/Default.aspx AND
>>>> www.esnips.com/web/icsimysore
>>>>
>>>> You received this message as you are subscriber. To unsubscribe email
>>>> to:
>>>> csmysore-u...@googlegroups.com
>>>>
>>>
>>>
>>>
>>> --
>>> *Warm Regards
>>>
>>> CS Vivek Hegde,B.com, ACS, CWA
>>> Company Secretary in Practice
>>> No. 405, 4th Block, 7th Cross
>>> Koramangala, Bangalore-560034
>>> Mob: 09019756940/09900898223*
>>> *
>>> *
>>> *Note: Beware of one website by name www.myzamana.com which can hack your
>>> mail details (as mine) and send mail to all your contacts which
>>> is ridiculous and unacceptable. If any mail is sent from my ID please
>>> ignore
>>> that. I am trying to resolve the issue. Thanks ..!*
>>>
>>> *
>>> *
>>>
>>>
>>
>>
>> --
>> *Warm Regards
>>
>> CS Vivek Hegde,B.com, ACS, CWA
>> Company Secretary in Practice
>> No. 405, 4th Block, 7th Cross
>> Koramangala, Bangalore-560034
>> Mob: 09019756940/09900898223*
>> *
>> *
>> *Note: Beware of one website by name www.myzamana.com which can hack your
>> mail details (as mine) and send mail to all your contacts which
>> is ridiculous and unacceptable. If any mail is sent from my ID please
>> ignore
>> that. I am trying to resolve the issue. Thanks ..!*
>>
>> *
>> *
>>
>> --
>> Find eNewsletters of ICSI Mysore at:
>> http://www.icsi.edu/NewsEvents/enewsletters/tabid/1757/Default.aspx AND
>> www.esnips.com/web/icsimysore
>>
>> You received this message as you are subscriber. To unsubscribe email to:
>> csmysore-u...@googlegroups.com
>>
>
>
>
> --
> *ICSI MEMBERS - PLEASE REMEMBER TO BECOME ** MEMBER OF COMPANY SECRETARIES
> BENEVOLENT FUND IF NOT JOINED EARLIER*
>
> csarengarajan
> Company Secretary, Chennai
> email csaren...@gmail.com
> mobile 093810 11200
> SHARING KNOWLEDGE SKY IS THE LIMIT
>
> This mail and its attachments (if any) are confidential information intended
> for persons to whom the email is planned for delivery by the sender. If you
> have received this mail in error please notify the sender of the error by
> forwarding the email and its attachments (if any) and then deleting the mail
> received in error and the relevant email trail in this connection without
> making any copies or taking any prints.
>
> --
> Find eNewsletters of ICSI Mysore at:
> http://www.icsi.edu/NewsEvents/enewsletters/tabid/1757/Default.aspx AND
> www.esnips.com/web/icsimysore
>
> You received this message as you are subscriber. To unsubscribe email to:
> csmysore-u...@googlegroups.com
--
*Warm Regards
CS Vivek Hegde,B.com, ACS, CWA
Company Secretary in Practice
No. 405, 4th Block, 7th Cross
Koramangala, Bangalore-560034
Mob: 09019756940/09900898223*
*
*
*Note: Beware of one website by name www.myzamana.com which can hack your
mail details (as mine) and send mail to all your contacts which
is ridiculous and unacceptable. If any mail is sent from my ID please ignore
that. I am trying to resolve the issue. Thanks ..!*
*
*
CS A Rengarajan
I am also referring indian states and interpretation is that it should be worded country rather than state. I think there is no difference.
the key sentence – “during his absence for a period of not less than 3 months from the State”. The word “State” has been defined in General Clause Act [Ref: Sec. 3(58)] and definition refers States specified in First Schedule to the Constitution. Part –I of First Schedules includes the States while Part- II includes the list of Union Territories. Hence the term State includes Union Territory.
Bidu Bhusan Dash
Alternate Director:-
The provision of section 313 has been clarified in so many ways by our
esteemed members like Rengarajan sir, Vivek sir, Alok sir & Bharat
sir but still Im not clear.
Lets say for 2 sec: ABC Pvt. Ltd.(situated at Delhi) has 6 Directors
(named as a,b.c.d.e & f). The Directors a & b are Dubai based, c,d,e,f
are Delhi based. board meetings are useally conducted at Delhi.When
Boar meeting is conducted notice/agenda are send to all the directors
through emails, arrangements ahs been made, meeting conducted and
Foreign directors are coming to delhi to attend the meeting but as per
AOA quorum should be 2 directors must be present be present in the
meeting that is one from foreign director and one from the India
director, I mean they are coming to India and attend the meeting and
meeting has been sucessfully conducted.
Now, my query is, as the Directors are permanently Dubai based, can in
this situation, alternate director must be appointed ?
Please clarify ?
Regards
Bidu
On 4/15/11, CS A Rengarajan <csaren...@gmail.com> wrote:
> I am also referring indian states and interpretation is that it should be
> worded country rather than state. I think there is no difference.
>
>
>
>
--
Bidu Bhusan Dash
Company Secretary
Nafto Gaz India Pvt. Ltd.
Noida
Mobile:-9910618751
E-mail:-bidh...@naftogaz.co.in
Rudra Alok
CONSIDER the following case: A Japanese company with equity in an Indian joint venture company (JVC) has three Japanese nationals -- living in Japan -- as directors and as nominees on the JVC's board. They are not in a position to attend every meeting of the JVC's board. The JVC has three employees who, before their appointment in the JVC, were employees of the Japanese company.
It is proposed that these employees be appointed as alternate directors for the three Japanese directors, so that, when the Japanese directors are unable to attend a board meeting, these gentlemen can do so as alternates -- which is permitted under the C ompanies Act, 1956 and the JVC's articles of association. But the JVC fears that these employees, by virtue of their appointment as alternate directors, might be treated as whole-time directors and the host of restrictions on the appointment and remunera tion of whole-time director would become applicable to them.
Such a situation is invariably faced by many JVCs in India. So, what is the legal position under the Indian law? The Companies Act does not define the term `whole-time director'. Section 269 of the Companies Act merely provides that `whole-time director' includes a director in the whole-time employment of the company. Moreover, Sec. 309(3) speaks of ``a director who is... in the whole-time employment of the company''. The Explanation to Sec. 269 states that `whole-time director' includes a director in t he employment of the company. But this inclusive definition is applicable only to the provisions of the section, which is indicated by the words ``in this section'' in the Explanation.
Generally, a whole-time director has, like a managing director, dual capacity. And, besides being a director, he is to be regarded as an employee of the company. The principles enumerated earlier with regard to the relationship of a managing director wou ld equally, and perhaps with a greater force, apply to a whole-time director as his position is more akin to an employee vis-a-vis the company.
It has been held by the Bombay High Court that the expression ``whole-time director'' must refer to a director who spends all his time in the management of the company in the same sense as a managing director does (Ramaben A Thanawala vs Jyoti Ltd -- 195 7 27 Comp Cas 105 Bombay).
The views of the Department of Company Affairs (DCA) on this matter, discerned from circulars issued from time to time, are as follows:
A A whole-time director is one who renders services whole-time to the management of a company; and is, therefore, virtually a managing director, though not so designated;
A Where technical personnel are appointed to the board, it is necessary to consider whether in addition to the technical duties they are also vested with any power of management. In the absence of any data to indicate the dividing line between the remune ration payable to them for rendering technical services and for managerial services, the entire remuneration payable would be deemed to fall within the purview of Sec.s 309 and 310;
A When a branch manager, who is apparently a whole-time employee, is appointed director, he will be in the position of a `whole-time director' and the appointment would require the approval of the Central Government under Sec. 269;
A When a `whole-time' employee is also appointed as a director, he is in the position of a `whole-time' director. The view is equally applicable in the case of an alternate director. Accordingly, the appointment of an employee as an alternate director wi ll be governed by the provisions of Sec.s 314, 269, 309 and 198 of the Companies Act;
A The appointment of a whole-time company secretary as part-time director on the board of a company does not require approval of the Central Government under Sec. 269(1) so long as substantial powers of management of the affairs of the company are not ve sted in the incumbent;
A Appointment of a whole-time sales/works manager on the board would attract Sec. 269 as from the date of his appointment because, as a director, he will be in the position of a whole-time director. The provisions of Sec.s 309 and 198 of the Act would al so be attracted;
A Whether a director, who is a `whole-time employee' in a capacity other than a director -- such as a secretary, sales manager, and so on -- and who neither exercise any managerial power nor receives any remuneration as such a director, would come within the scope of the definition of ``whole-time director'' or ``director in whole-time employment'', depends on the nature of the duties and functions entrusted.
A Sec. 269 would be attracted if either substantial powers of management are entrusted, or if the person concerned has been appointed on a whole-time basis;
A Whether a director is to be regarded as a whole-time director or a managing director would depend on the nature and extent of the duties entrusted, and the designation under which the appointment is made would not make any difference in this regard. Th us, if a director is entrusted with managerial functions, he would be in the position of a managing director notwithstanding the fact that he may be designated as a technical adviser or a technical director.
It can be seen that the DCA's views are not consistent. In one circular it says a whole-time employee who is also appointed as a director, is in the position of a whole-time director and that this is equally applicable in the case of an alternate directo r. However, in another instance, it emphasises ``the nature of duties and functions'' and entrusting ``substantial powers of management'' as tests to determine whether a person could be regarded as whole-time director or not. A different circular regards a sales/works manager as a whole-time director.
One circular says that a whole-time employment of a director as contemplated in Sec. 309(3) is in his capacity as director and not in any other capacity. But the same circular states that a whole-time director is one who has some special functions to dis charge. The confusion is confounded by the view that a whole-time secretary appointed as part-time director does not attract Sec. 269 so long as substantial powers of management of the affairs of the company are not vested in him.
Thus, in the DCA's opinion, it is the ``substantial powers of management'' which is the determining factor as to whether an employee is to be deemed a whole-time director or not. If this is true, Sec. 314 would be attracted. But that goes contrary to the view expressed in some circulars -- that even any employee appointed as a director becomes a whole-time director. The yardstick of ``substantial powers of management'' is prescribed in Sec. 2(26), which defines the term `managing director'. The Explanat ion appended to Sec. 269 includes ``a director in whole-time employment'' in the ambit of whole-time director.
There are, in fact, cases where an employee holding the charge of a particular functional area has been treated as whole-time director when made a director or an alternate director; and, as such, he is brought within the purview of the provisions of the Act relating to appointment and remuneration of whole-time directors, including Schedule XIII but outside the purview of Sec. 314.
It is absurd to say that an alternate director who is appointed for limited purpose and period -- as a stop-gap arrangement, mainly and invariably to ensure that the requirement regarding quorum at a board meeting is fulfilled -- becomes a whole-time dir ector if the person appointed as an alternate director happens to be an employee of the company. The intention behind such appointment is not to vest in such person the powers of management. He continues to be an employee with limited powers -- as such e mployee and not of management.
The appointment is not basically -- or right from inception -- an appointment as whole-time director with powers of management; it is only incidental to the employment. Therefore, such a person cannot be said to have acquired the status of whole-time dir ector simply because of being appointed for a limited period as an alternate director.
Accordingly, the provisions of the Companies Act relating to the appointment and remuneration of directors, managing directors and whole-time directors need not be complied with in such a case.
This analogy should equally apply with regard to the provisions of sub-section (1)(a) of Sec. 314 in case the person who is an employee himself holds the office of alternate director or sub-section (1B) thereof if he happens to be a relative of a directo r of the company.
The crux of the issue in both these cases is that the person does not acquire any new or different office or place of profit by reason of his appointment as an alternate director. He continues to hold his original office as an employee of the company; th e nature of duties, functions and powers do not undergo any change. The intention is not to appoint him to hold any office or place of profit while being a director of the company or a relative of a director.
Accordingly, Sec. 314 would not apply in such a case, provided the intention is simply to appoint a person who is an employee as an alternate director without any change in his duties and powers as an employee; he is appointed as an alternate director me rely to facilitate representation at board meetings for the original director who is away from the place of the meetings.
Vivek Hegde
--
Find eNewsletters of ICSI Mysore at: http://www.icsi.edu/NewsEvents/enewsletters/tabid/1757/Default.aspx AND www.esnips.com/web/icsimysore
You received this message as you are subscriber. To unsubscribe email to: csmysore-u...@googlegroups.com
--
CS Vivek Hegde,B.com, ACS, CWA
Company Secretary in Practice
No. 405, 4th Block, 7th Cross
Koramangala, Bangalore-560034
Mob: 09019756940/09900898223