Much is being made about the chairman of a company. As it stands, the company law does not recognise the post of chairman.
The Securities and Exchange Board of India (SEBI) has issued a consultation paper proposing to amend the extant Clause 49 of the Listing Agreement and sought comments from the public. Rather than make the amendments more corporate friendly, SEBI seems to have complicated matters as, for example, in the case of proposals relating to chairman.
If the non-executive chairman is a promoter or related to the promoter or persons occupying management position at the board level or at one level below that, he would not be treated as an independent director and the company, in such a case, would be required to have 50 per cent independent directors on its board.
Companies shall disclose the relationship between independent director inter se as well as other directors of the company not holding management position.
Any independent director who may resign or is removed from the board shall be replaced by an independent director within a time gap of not more than 90 days from first such resignation or removal.
Minimum age of 21 years is proposed to be stipulated for an independent director.
Nominee director would not be considered as an independent director.
Much is being made about the chairman of a company. As it stands, the company law does not recognise the post of chairman. There are no mandatory provisions for such an office. The term company chairman is an anachronism. The legal provisions reveal that at best such a person can only be regarded as a ceremonial head.
Predictably, sans legal sanction, the powers of the chairman who presides over general meetings are shaky, as such office is devoid of executive powers, unless of course, such chairman holds an executive post in the company.
The legal position is as follows: There is no statutory provision in the Companies Act, 1956 for every company to have a chairman. Under Section 269 of the Act, companies having a paid-up capital of such sum as may be prescribed (which is Rs 5 crore at present) must have a managing director, whole-time director or manager. Section 252 mandates that every public company shall have at least three directors. Section 383A mandates the appointment of a company secretary in certain cases. Section 224 obligates every company to appoint an auditor. There is no such provision with regard to the appointment of a chairman.
Table A of the Act under regulation 76 (1) says that the board may elect a chairman of its meetings and determine the period for which he is to hold office and if no such chairman is elected, or if at any meeting the chairman is not present within five minutes after the time appointed for holding the meetings, the directors present may chose one of the members to chair the meeting.
Some of the companies appoint such chairman on rotational basis or until otherwise resolved. Regulation 56 of Table A provides that the chairman, if any, of the board shall preside as chairman at every general meeting of the company Regulation 51 of Section 175 of the Act empowers the members present at a general meeting to elect a chairman, and this has application only if there is no chairman to the board or no director is willing to chair the meeting or if no director is present or if shareholders have no confidence in such a chairman and want someone else to preside over the meeting.
There is no such mandate that every company should appoint a chairman. As per Section 175 of the Companies Act, the board can appoint a chairman amongst themselves. Such chairman can be appointed for each meeting of the board or for a specified period. Some companies Articles of Association (AoA) provide that a chairman shall be appointed by the board to hold office from one annual general meeting (AGM) to another. Nowhere in the Companies Act have the powers, duties and responsibilities of the chairman been defined. The Act only delegates the following powers:
In the event of equality of the board, the chairman can exercise a casting vote if so provided in the AoA of the company.
Duties and responsibilities
The chairman should make efforts to preserve order during the meeting.
He should ensure that all shades of opinion are given a firm and fair hearing so far as practicable.
It is his duty to ensure that the sense of the meeting is accurately ascertained and recorded.
He should ensure that meeting starts and finishes on time.
He should see that the rules of standing orders are followed by the speaker and ensure that all speeches are addressed to the chair and receive a fair hearing.
He must disallow points of order which attempts to bring up points of substance in disguise.
He should be impartial in the meeting and should see that the minority is not stifled or oppressed in any way.
He has the responsibility of ascertaining the quorum and number of members prescribed as competent to transact business.
Powers of the Chairman
The power of closure of meeting.
To bring the discussion on any question to close.
To decide upon points of order and any incidental questions which are to be taken as prima facie correct
To adjourn the meeting.
To put an ordinary (when he is a member of the company) as well as casting vote.
His decision as to validity of proxies is final
To expel a member from the meeting if he seriously interferes with the conduct of the meeting after warning the member.
In the event of equality of the board, the chairman can exercise a casting vote if so provided in the AoA of the company. Though authorised to exercise a casting vote, this power is pointless as directors (one who is a chairman) need not hold qualification shares so much so he is not a member a paradox as he presides as a chairman of the meeting.
NO EXECUTIVE POWER
From the foregoing it is apparent that the chairman has no executive powers. The composition of the board cannot therefore be structured on the basis of the person being executive chairman or non-executive chairman. Any chairman who does not have executive powers cannot be treated as executive chairman. It is illogical and untenable in law. Will SEBI look in to this?
Coming to residuary amendments that deal with disclosure of inter se relationship between the directors, there is already a mandatory requirement for the directors to disclose the list of relatives as per Schedule IA to Section 6(c ). The purpose sought to be served by the disclosure is not clear.
The other amendment talks of minimum, but not the maximum, age of an independent director. The question of filling the vacancy within 90 days of the resignation or removal of an independent director may not always be necessary. Setting a time limit is quite easy but finding a candidate is not.
The pendulum of the status of nominee director has been swinging right from the beginning and will continue until the clock stops.
In sum, the chairman of the board who has been elected by the directors can be removed or replaced by the board. He holds office only at the behest of the directors unless the AoA provide otherwise or specifically provide for the post of a chairman.
The existing Clause 49 needs to be revamped with alternative proposals that are pragmatic.
N. R. Moorthy (The author is a Pune-based company secretary.)