January 22, 2011

Govt. Can Nominate Directors in Public Interest

There is a provision under the the Companies Act whereby Government of India can include as many Directors in a Company under public interest as it deems fit .

We are , now , very optimistic that , now , the common investors of India have become very  alert and it would no longer be possible to take them for granted .

We feel real socialism is not in having Government control over large industries but a large number of Indians owning shares in big companies . A public limited company with very widely held share holdings  is the  finest example of socialism .We are very happy to note , that these days  ,  small share holders  are becoming pro active about their Rights and would be able to influence company's policies in a positive way .

( Around 30 years back when your Blog writer was close to " Powers That Be " in New Delhi , there was a case of Govt. appointing Directors in a publicly held company ostensibly to protect " public interest " and common share holders. These Directors had hoped to recover the money paid by them by selling the product of the company in " premium  " . Well , we are sure that such things are not possible now.

In old  days of " Licence - Quota and Inspector Raj " , we remember shares of companies rising merely because the company had received an Industrial Licence   ) Originally  Apollo 's licence for tyre manufacturing was given to Bharat Steel Tubes ( BST Limited ) . Similarly ' Modi Rubber 's to either Modi Spinning or Modi Induatries

1 comment:

Satyakam Mishra said...

Dear Mr. Agarwal,

I wish we had law which could make the shareholder rights more strong. Here is something which I hope the reader will like.


The Central Government (CG) may appoint such number of persons as directors as the CLB may by order in writing specify as being necessary to effectively safeguard the interests of:
1. the company, or
2. its shareholders or
3. the public interests.
to hold office for a period not exceeding 3 years on any one occasion.
CLB issues such orders after making such inquiry as it deems fit and:
- On the reference made to it by the Central Government, or
- On the application made to it by
• Not less than 100 members of the Company, or
• Members holding not less than 1/10th of total voting power.
Alternatively, the CLB may, if company itself has not availed the option given u/s 265 (i.e. appointment of directors by proportional representation), give direction to the Company to alter its AOA in the manner provided in section 265 and make appointment in pursuance of amended AOA with in specified period.
Within that period, if CLB thinks fit, can appoint Additional Directors to hold office to effectively safeguard the interest of the Company and members
The power of the CG under section 408 of the Act is not absolute, but is circumscribed by the limitations mentioned in the section.


A Public company having:
- A paid-up share capital of Rs. 5 crores or more and
- One thousand or more small shareholders,
may have a director elected by such small shareholders.
Small Shareholders: a shareholder holding nominal value of shares of Rs. 20,000 or less in a public Company.
The Government has prescribed the Companies (Appointment of Small Shareholder’s Director) Rules, 2001.
Rule 4: Manner of election of small shareholder director
- A Company may act suo-moto (on its own) to elect a small shareholders’ director from amongst small shareholders or upon notice of small shareholders, who are not less than 1/10th of total small shareholders and have proposed the name of a person who shall be the director.

- Small shareholders intending to propose a person shall give notice of their intention to the Company at least 14 days in advance of the meeting under the signature of at least 100 small shareholders specifying:
• Name
• address,
• shares held and folio number
• particulars of shares with differential rights as to voting and dividend,
of the person whose name has been proposed and of other small shareholders proposing such person.
- The proposed candidates has to file his consent with the Company in writing to act as a director
- In case of listed Company the small shareholders’ director shall be appointed through the postal ballot.
- In case of unlisted Company such director shall be appointed if majority of the small shareholders recommended his candidature.
- Tenure of such director shall be for maximum period of 3 years and same person can be re-appointed after 3 years if desired by the small shareholders.
- Such director need not to be retired by rotation
- Such director shall be treated as director for all purposes except for appointment as MD or WTD.