Ms. Monica is a director elected by small shareholders of PLQ Ltd. She has approached you for advice on the following: (i) Whether a director elected by small shareholders is eligible to be appointed as independent direc

The provisions in respect of appointment of director elected by small shareholders (the small shareholder' director) are contained in Section 151 of the Companies Act, 2013 and Rule 7 of the Companies (Appointment and Qualification of Directors) Rules, 2014. In view of the provisions of Section 151 of the Act and Rule 7 of the Rules, Ms. Monika will be advised as under: (i) Whether a director elected by small shareholders is eligible to be appointed as independent director? As provided in Rule 7(4) of the Companies (Appointment and Qualification of Directors) Rules, 2014, the small shareholder' director shall be considered as an independent director subject to his being eligible under Section 149 (6) of the Companies Act 2013, and his giving a declaration of his independence of his independence as per Section 149 (7) of the Companies Act, 2013. Thus the small shareholder' director can be considered as independent director only if he is eligible under Section 149 (6) of the Companies Act, 2013 and gives his declaration under Section 149 (7) Companies Act, 2013. (ii) What is the tenure of a director elected by small shareholders? As provided in Rule 7(5) of the Companies (Appointment and Qualification of Directors) Rules, 2014, the appointment of small shareholders' director shall be subject to the provisions of Section 152 of the Act except that: such director shall not be liable to retire by rotation such director's tenure as small shareholders' director shall not exceed a period of 3 consecutive years and on the expiry of the tenure, such director shall not be eligible for re-appointment. Thus the tenure of the small shareholders' director shall not be more than 3 consecutive years and cannot be reappointed. (iii) Can a director elected by small shareholders be associated with the company after completion of the tenure of his/her office? As per Rule 7 (9) of the Companies (Appointment and Qualification of Directors) Rules, 2014, a small shareholders' director shall not, for a period of three years from the date on which he ceases to hold office as a small shareholders' director in a company, be appointed or be associated with such company in any other capacity, directly or indirectly. Thus, after ceasing as the small shareholders' director he cannot, be appointed or be associated with such company in any other capacity, directly or indirectly for 3 years. (iv) Can a director elected by small shareholders be appointed in similar capacity in three or more companies? As per Rule 7 (8) of the Companies (Appointment and Qualification of Directors) Rules, 2014, no person shall hold the position of small shareholders' director in more than two companies at a time. It is also provided that the second company in which he has been appointed shall not be in a business which is competing or is in conflict with the business of the first company. Thus, a person cannot be small shareholders' director in 3 companies. Ms. Monica will be advised accordingly on queries as above.