Royal Chemicals Limited (RCL), a company listed with National Stock Exchange (NSE) is having 60% market share in paint manufacture industry. It also deals in petrochemicals, which are used in numerous household products

CS Professional · Environmental, Social and Governance (ESG) Principles and Practice · PYQS · December 2024
Royal Chemicals Limited (RCL), a company listed with National Stock Exchange (NSE) is having 60% market share in paint manufacture industry. It also deals in petrochemicals, which are used in numerous household products like wax, detergents, dyes, carpeting, safety glasses, etc. RCL is one among the top 1000 companies listed on NSE. As per the latest audited financial statements as on March 31, 2024, its paid-up capital stood at ₹300 crore against its authorized Capital of ₹500 crore and it had a revenue of ₹2,250 crore. RCL has thirteen Directors on its Board, of which five were independent directors. The Articles of Association of the Company restricts the maximum number of Directors to fifteen. RCL remains ever-conscious to corporate governance and ensures compliance with the statutory and legal provisions in both letter and spirit. Roya, an executive director, is chairperson of the Company and Minu is the only woman Director. The Company has constituted requisite committees as per the requirements of Companies Act, 2013 and SEBI LODR. The Audit Committee consists of five Directors as members—Aman, Jatin, Rohan, Keyn and Jitu. Among the five independent directors, Rohan was reappointed on August 1, 2019 after completing his term of 5 years. His efficient performance was ranked first in the performance evaluation carried out as per SEBI guidelines. To recognise the outstanding results towards the Company's growth, the Board wanted to reappoint Rohan for the third term. The Board also sought Company Secretary's opinion in this regard. The Company had successfully concluded its Annual General Meeting (AGM) for the financial year ending March 31, 2024, on May 25, 2025, at its registered office at Pune. On the fateful day of AGM, while returning to Mumbai from Pune by road, after her re-appointment at AGM, a fatal accident claimed the life of Minu, thus snatching an efficient and trustworthy Director from the Company. Later on, a Board Meeting was held on August 9, 2024 and Neeru, a finance professional and daughter of deceased director Minu, was appointed as Director to fill the vacancy of woman director. RCL is a growing company which wants to diversify its business into the sphere of agrochemicals and therefore, desires to bring on its Board Ojas, who is a chemical engineer with hands-on experience of about twenty years post his qualification in the field of agrochemicals and other petroleum products. Besides production, he is well versed in marketing of agrochemicals, both in India and abroad. It is hoped that he shall prove to be a valuable asset to the Company. Accordingly, in the Board Meeting held on August 9, 2024, Ojas was appointed as an additional Director. Ojas already held directorships in one dormant company, two Section 8 companies, eight public limited companies and nine private limited companies. However, out of nine private limited companies, two are subsidiaries of public limited companies. Based on the above facts, answer the following questions: The Board of Directors are willing to appoint Rohan from August 1, 2024, for a term of another five years. Is such re-appointment valid? Outline the tenure of independent directors and minimum attendance requirements at Board and Committee Meetings for the re-appointment of Directors as per IIAS Proxy Advisors Guidelines.

Answer & Explanation:

Tenure of Independent Director Section 149(10) of the Companies Act, 2013 provides that subject to the provisions of section 152, an independent director shall hold office for a term up to five consecutive years on the Board of a company, but shall be eligible for reappointment on passing of a special resolution by the company and disclosure of such appointment in the Board's report. Section 149(11) of the Companies Act, 2013 states that notwithstanding anything contained in sub-section (10), no independent director shall hold office for more than two consecutive terms, but such independent director shall be eligible for appointment after the expiration of three years of ceasing to become an independent director. Provided that an independent director shall not, during the said period of three years, be appointed in or be associated with the company in any other capacity, either directly or indirectly. Explanation -For the purposes of sub-sections (10) and (11), any tenure of an independent director on the date of commencement of this Act shall not be counted as a term under those sub-sections. Regulation 25(2) of the SEBI (LODR) Regulations, 2015 provides that the maximum tenure of independent directors shall be in accordance with the Companies Act, 2013 and rules made thereunder, in this regard, from time to time. The decision of Board of directors is not valid. Rohan was originally appointed on 1 st August, 2014 and has completed two terms of five years each and he can be appointed only after a cooling period of three years. IIAS Proxy Advisory Guidelines will not treat the following directors as independent: For directors who have been on the Board for more than 10 consecutive years IIAS makes two important distinctions: Unlike the Act, which computes tenure beginning 1 April 2014, IIAS will compute tenure on a retrospective basis i.e., from date of first appointment. IIAS will apply the 'visa rule' and consider independent directors seeking reappointment as non-independent if they complete a 10-year tenure within six months of the date of their next reappointment. Directors who have been on the Board of the parent/holding/ subsidiary for more than 10 consecutive years. Former executive/non-executive directors who have not had a cooling-off period (complete detachment from the Board, company, and promoter group) for at least 3 years. Former executives who are on the Board along with their previous supervisors, independent of whether these executives have completed a 3-year cooling period. Directors who are simultaneously on the Board of a large number/percentage of group companies, with a prolonged tenure of more than 10 years in any of these companies. As per IIAS, the aggregate three-year attendance of directors should be at least 75%. They state that they make an exception and vote for in cases where they believe that the promoter, promoter representative or an executive director plays a critical role in the business or where their presence on the Board either signals the criticality of the business to the group or may result in the company getting critical support from within the group.

Topics: Corporate Governance

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