The Appointment of Directors by the Principle of Proportional Representation
The provisions relating to Proportional Representation for Appointment of Directors are governed by the Section 163 of the Companies Act 2013 (earlier Section 265 of the Companies Act 1956).
Applicability of the provisions: The Provisions of Section 163 are applicable to both Public & Private Companies.
Meaning of Proportional Representation:
A system of Election, wherein parties standing for a Post, gets voted in proportion to the number of votes cast for them. In the context, we are discussing herein, it means Election of Directors by the Shareholder by different methods, mainly two methods, whereby the Shareholder gets a chance to vote for their choice of Director in proportion to his holdings.
Method of Appointment through Proportional Representation:
(1) Single transferable vote: In this method, suppose there are six candidates and out of which 3 are to be elected. Then a Shareholder is eligible to cast a total of Three votes, which he can cast in favour of candidates in accordance with his preferance.
(2) Cumulative voting: In this method, suppose there are six candidates. Then a Shareholder is eligible to cast a total of Six votes, which he can cast in favour of one candidate or distribute his six votes among different candidates.
(3) Other methods: The Company may adopt methods other than the above two as approved by the Members of the Company in the General Meeting and provisioned in the Articles of Association of the Company.
Time Limits: The appointments being made once in every three years.
Casual Vacancies: The interim casual vacancies arising out, may be filled-in in accordance with the provisions, mutatis mutandis, of Section 161(4) of the Cos. Act.
Optional in Nature: The Provisions of Section 163 are of Optional in nature, only if the Articles of a Company provides for such appointment provision, it will apply.
(1) File form DIR 12 with ROC within 30days of the Appointment;
(2) Make Necessary Entries in the Register of Directors & Register of Directors' Shareholding.
Intention of Law: This system of Election of Directors, in a Company, ensures a fair representation of the minority interest of Shareholders group.