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Monday, January 7, 2008

Restrictions on the number of directorships

(i)Restrictions on the number of directorships to be held by an individual and
whether he can accept the new appointment in view thereof.
(ii)What are the companies to be excluded for the purpose of calculating the
ceiling on the appointment of directors? . According to Section 275 of the Companjes Act, 1956, a person cannot hold office at the same time as director in more than 20 companies, excluding: (a) a private company which is not subsidiary or holding company of a public company, (b) an unlimited company, (c) an association not for profit, and (d) a company in which such person is only an alternate director (Sections 275 and 278). In making the calculation as aforesaid, any company referred to in clauses (a), (b) and (c) of sub-section (1) of Section 278, shall be excluded for a period of three months from the date on which the company ceases to fall within the purview of those clauses.
As per the Companies (Amendment) Act 2000, the number is now reduced to 15.
Thus, applying the above provisions, 0 who is a director already in 19 public limited companies and accepts the directorships of the companies stated in the question can accept the directorships as follows:
(i) He can accept directorship in BC Private Ltd. provided the number has not reached 20’. Directorship in BC Private Ltd. will be counted within 20’ as the company in question is the holding company of a public limited company.
(ii) Since RM Company is an unlimited company, 0 can accept the directorship in the company, as directorship of an unlimited company is not counted in the said 20 .
(iii) Alternate directorship is also not counted in the 20’. Therefore, D can accept
the directorship in this company (MJ & Co.) also.
Thus, he can accept the directorships in all these cases.
(a) Mr. Ram was appointed as Managing Director of Prudential Company Limited in accordance with Schedule XIII for a period of 5 years with effect from 1 st January, 1996 on a monthly remuneration of Rs. 30,000. The Board of Directors of the company propose to increase the remuneration of the Managing Directorto Rs. 40,000 per month with effect from 1 st January, 1998. Advise the Board of Directors about the legal requirements under the Companies Act, 1956 to give effect to the proposal. State whether the increased remuneration can be paid as minimum remuneration in the event of
os or inadequacy of profit. .
(b Mr. X is named as a director for life in the Articles of Association of Mis XYZ
Pn e Limited which was incorporated on 1 st April, 1977. The Articles of Association of the company also provide that he cannot be removed by the members in general meeting. Some of the members want to remove ‘X’ by passing an ordinary resolution in general meeting. State with reference to the relevant provisions of the Companies
Act, 1956 whether the proposed action is valid
(a)
Increasing the Remuneration of a Managing Director. It is proposed to increase the remuneration of the managing director from Rs. 30,000 p.m. to Rs. 40,000 p.m. w.eJ. 1.1.1998. Though effective capital of the company is not known, as the companies having effective capital of le.:;s than l CLore can pay up to Rs. 40,000 p.m:’ to their managing directors, the proposed increase is within limits laid down in Part II of Schedule XIII to the Companies Act. So the company is competent to increase the remuneration of the managing director and approval of the Central Government is not required under Section 310. Government has also issued a clarification to that effect.
The Board of Directors may pass a resolution increasing the remuneration subject to the approval of the company in general meeting as required under para 1 of Part III of Schedule XIII.
As the resolution has got the effect of varying the terms of appointment of the managing director, the company shall send an abstract of the terms of the variation to every member of the company within 21 days of passing of the Board resolution [Section 302(2)]. If any other director of the company is
The ceiling has been further raised to Rs. 75,000 (w.e.f. 2.3.2000).
As per the Companies (Amendment) Act, 2000, the number is now reduced to 15.

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