You are a company secretary of Bunny Ltd. a listed company and Bunny Ltd. has proposed in November, 2023 to make an investment of ₹80 lakhs in the equity shares of Hunny Investment (Pvt.) Ltd. the face value of which is

CS Executive · Company Law and Practice · PYQS · June 2024
You are a company secretary of Bunny Ltd. a listed company and Bunny Ltd. has proposed in November, 2023 to make an investment of ₹80 lakhs in the equity shares of Hunny Investment (Pvt.) Ltd. the face value of which is ₹40 lakh. The financial data related to Bunny Ltd. and Hunny Investment (Pvt.) Ltd. as on 31st March, 2023 is furnished below: Particulars Bunny Ltd. (Rs. in Lakh) Hunny Investment Pvt. Ltd. (Rs. in Lakh) I. Authorized Capital 800 400 II. Subscribed and paid-up capital (a) Equity shares 240 300 (b) Preference shares 20 — III. Capital Reserves 20 30 IV. Free Reserves 20 — V. Borrowings from Public Financial Institution 40 — Bunny Ltd. (the company) furnished the following information related to it as on the date of proposed acquisition: (1) No other body corporate has invested any money in its share capital. (2) The company has granted guarantee to the tune of ₹100 lakh to a nationalized bank in connection with the loan granted to Richa Ltd. (3) It has granted housing loan of ₹20 lakh to its employees, other than its managing director or whole-time director. Hunny Investment (Pvt.) Ltd. furnished the following other information related to it: (1) The total assets as on 31st March, 2023 were ₹330 lakh including investment in shares & debentures of body corporate ₹200 lakh. (2) The income derived from investment in shares and debentures was ₹30 Lakh out of the gross income of ₹100 Lakh. Of the total shareholders of the company there are 20,000 shareholders who are holding shares of nominal value of not more than ₹20,000 each. A total number of 1500 such small shareholders have proposed Mr. X as their candidate to be the small shareholders' director. Based on the above information and referring to the provisions of the Companies Act, 2013 and relevant notifications/circulars issued by the Ministry of Corporate Affairs (MCA) answer the following: Whether the group of 1500 small shareholders are entitled to propose the appointment of small shareholders' director? Is it mandatory for the company to appoint such director, if a valid notice is received from the small shareholders ? Decide, the tenure of the small shareholders' director.

Answer & Explanation:

Terms & Conditions for Small Shareholders' Director Section 151 read with Rule 7 of the Companies (Appointment and Qualification of Directors) Rules, 2014 laid down the following terms and conditions for appointment of Small Shareholders Director (SSD), which include inter alia the following: Election of small shareholders director: A listed company, may upon notice of not less than: One thousand small shareholders; or one-tenth of the total number of such shareholders, whichever is lower; have a small shareholder director elected by the small shareholder. 1/10 th of the small shareholders (SS) would come to 2000. However, the notice has been given by more than 1000 small shareholders. Hence, they are entitled to make such requisition. Whether mandatory: A listed company may upon notice appoint Small Shareholder Director (SSD). A Small Shareholders' Director may be elected voluntarily by any listed company. Thus, a listed company may on its own, act to appoint a Small Shareholder's Director. In such a case, no notice from small shareholder(s) is required. The word used is "may" in Section 151 read with Rule 7 of the Companies (Appointment and Qualification of Directors) Rules, 2014. Hence, it is not mandatory for the company to appoint SSD, even if the notice is received from the eligible SS. Tenure of office and no retirement by rotation: The tenure of small shareholder director shall not exceed a period of 3 consecutive years and he shall not be liable to retire by rotation. Further he shall not be eligible for re-appointment after the expiry of his tenure.

Topics: Appointment and Qualification of Directors

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