INTRODUCTION

A company is an artificial person, having a separate legal entity, perpetual succession, and a common seal. Individuals through whom the company acts and does its business are called ‘directors. Directors partake in a significant spot in the company and are utilized by the company so their ability and experience could be utilized to the advantage of the company. To an exceptionally enormous degree, the achievement of a company relies on the skill and uprightness of its directors. It is, consequently, fundamental that the administration of organizations ought to be inappropriate hands.

Sec. 2(13) of Companies Act, 2013 characterizes a ‘director’ as any person possessing the situation of director, by whatever name called. The significant factor to decide if a person is or alternately isn’t a director is to allude to the idea of the office (for example the position he possesses) and its obligations. A person who is properly selected by the company to control its business and approved by the articles to contract in the company’s name for its sake, capacities as a director. In the event that a person plays out the elements of a director, he would be named a director according to the law despite the fact that he might be named in an unexpected way. Along these lines, minute books and Registrar are significant proof as opposed to the way that person was accepted working as a director. The Board of directors will be qualified to practice every such force, and to do every single such demonstration and things, as the company is approved to practice and to do. Given that the Board will not practice any force which is coordinated to be practiced or done by the company in general meetings. Provided further that in practicing any force or doing any such demonstration or thing the Board will be dependent upon the arrangements contained for that benefit in this or some other Act or in the memorandum or articles of the company, or in any guidelines not conflicting therewith and appropriately made thereunder, including guidelines made by the company in general meetings. The forces of the company are to be practiced by the Board of Directors gave that there is no opposite arrangement elsewhere. A director as an individual has no ability to follow up for the company except if the force has been appointed to him by the Board. A Board of Directors can practice all forces of the company and can do every such demonstration and exercise all forces of the company. The directors have practically absolute command over the tasks of the company. The item is that the company should have the advantage of the aggregate shrewdness of directors going about as Board.

RETIREMENT OF DIRECTORS

The directors can be retired either by rotation or by fixed term. While finalizing the board of directors it is mandatory for the Company to make provision of the mode of retirement in the documents of the company and directors must be well informed about their procedure of retirement. Violation of such provision is punishable under Section 172 of Companies Act, 2013.

No retirement of directors in case of Government company or subsidiary of Government company – Provisions relating to the retirement of directors and filling up vacancy shall not apply to (a) a Government company (other than a listed company) where not less than 50% of paid-up share capital is held by Central Government or by any State Government/s or both entire paid-up capital is held by Central or State Government or both, or its subsidiary company (b) a subsidiary of Government company referred to in clause (a) above [amendment to MCA notification No. 463(E) on 13-6-2017]

No retirement of directors in a private company or one-person company– In the case of a private company or OPC, the directors need not retire by rotation or otherwise, as Section 152(6) of Companies Act, 2013 applies only to public companies.

DIRECTORS NOT ENTITLED TO RETIREMENT BY ROTATION

• INDEPENDENT DIRECTORS- The concept of ID has been defined under the 2013 Act: “independent director” means an independent director referred to in sub-sec. (6) of Sec. 149 [Sec. 2(47)]. Sec. 149(6) defines an independent director as a director other than a managing director or a whole-time director or a nominee director, who is a person of integrity and possesses relevant experience. According to the Companies Act, 2013 all listed public companies should have at least one-third of the Board as independent directors. Such other classes or classes of public companies as may be prescribed by the Central Government shall also be required to appoint independent directors. The 2013 Act brings the constitution of the Board of Directors in India at par with other international capital markets. Independent Directors are empowered to evaluate the performance of other directors. According to Section 152(6), the retirement of an independent director can’t be done through rotation.
• DIRECTOR DESIGNATED BY IFCI ACT- According to Section 25 of the Industrial Finance Corporation of India Act, A director designated by a Financial Institution isn’t obligated to resign by rotation. He can be taken out exclusively by the Financial Institution which has delegated him. He isn’t answerable for his acts as a director whenever done in accordance with some basic honesty. He isn’t meant motivation behind various directors responsible for retirement. Their arrangement is legitimate regardless of whether it is in opposition to arrangements of Companies Act or some other law, or any arrangement in Memorandum in regards to a maximum number of directors, their age, and so forth.

PROCESS OF RETIREMENT BY ROTATION

According to Section 152(6) of the Companies Act- In a Public company, out of retiring directors, 1/3 of directors must retire every year. If the number of directors is not in multiples of three, the number nearest to 1/3 shall retire.

Illustrations

1. If a board of public company consists of 12 directors, out of which 3 are independent directors then-
   The number of Rotation of Directors will be 2/3rd of (Total Directors- Independent Directors).
   And Retirement of directors will be 1/3rd of Rotational Directors.

Calculation

TOTAL DIRECTORS- 12
INDEPENDENT DIRECTORS- 3
NUMBER OF ROTATIONAL DIRECTORS = 2/3 x (12-3) i.e. 6
RETIREMENT OF DIRECTORS = 1/3 x (6) i.e. 2
It means that 2 directors must be retired according to Section 152(6) of the Companies Act, 2013.

2. If a board of public company consists of 8 directors, out of which 3 are independent directors then-
The number of Rotations of Directors will be 2/3rd of (Total Directors- Independent Directors).
And Retirement of directors will be 1/3rd of Rotational Directors.

Calculation

TOTAL DIRECTORS- 8
INDEPENDENT DIRECTORS- 3
NUMBER OF ROTATIONAL DIRECTORS = 2/3 x (8-3) i.e. 3.33 [upper rounding of] = 4
RETIREMENT OF DIRECTORS = 1/3 x (4) i.e. 1.33 [normal rounding of] = 1
It means that 1 director must be retired according to Section 152(6) of the Companies Act, 2013.

According to Section 152(6) of the Companies Act, 2013, the Company has the authority to reappoint the retired partner in the same annual general meeting in .which seat becomes vacant (section 152(6)(a)(ii)). Company depending upon the performance of the retired director can also appoint a new director at an annual general meeting. (Section 152(6)(e) of Companies Act, 2013).

The directors to resign by rotation at each Annual General Meeting will be the individual or who have been longest in office since their last arrangement. Nonetheless, as between persons who became directors around the same time, the individuals who are to resign will be determined by lot, except if those directors concur among themselves, who will resign first – section 152(6)(d) of Companies Act, 2013.

Illustration- In illustration 1, if two directors who are retiring joined at the same dates, the company wants one director to retire and wants to reappoint another, then such decision can be taken either by both directors mutually or by the lot [voting by remaining directors]