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Proportional Representation for Appointment of Directors

Reference

Section 163 of the Companies Act 2013

Applicability

The provisions of section 163 are applicable to both public and private companies.

Appointment of Directors by Proportional Representation

The articles of association of a company may provide for the appointment of not less than two-thirds of the total number of directors of a company in accordance with the principle of proportional representation.

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

1) Single transferable vote: In this method, suppose there are 6 candidates and out of which 3 are to be elected. Then a shareholder is eligible to cast a total of 3 votes, which he can cast in favour of candidates in accordance with his preference.

2) Cumulative voting: In this method, suppose there are 6 candidates. Then a shareholder is eligible to cast a total of 6 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 general meeting and provisioned in the articles of association of the company accordingly.

Time Limit

Such appointments by principle of proportional representation may be made once in every three years.

Casual Vacancies

The casual vacancies of such directors appointed by principle of proportional representation shall be filled as per the provisions given in section 161(4).

Optional in Nature

The provisions of section 163 are optional in nature, i.e. only if the articles of a company provides for such appointment, it becomes applicable.

Secretarial Compliances

1) File form DIR-12 with ROC within 30 days of the appointment;
2) Make necessary entries in the Register of Directors and key Managerial Personnel and their Shareholding.

Intention of Law

This system of election of directors in a company ensures a fair representation of the minority interest of shareholders group.

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