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When can a small shareholder appoint a director on the board?

Alembic's board room has witnessed a drama with small shareholders pushing for a seat on the board

Sudipto Dey  |  New Delhi 

When can a small shareholder appoint a director on the board?

Legal experts say there is no provision under law that gives an “automatic” right to any to appoint a on the board, based on certain threshold shareholdings. However, Section 151 of the Act allows a listed company to have one elected by small shareholders. Such a is appointed by an ordinary resolution at a general meeting, for a single term of three years. 

Under the Act, a small refers to “someone holding shares of nominal value of not more than Rs 20,000”. To elect a director, small shareholders need the support of at least 1,000 such shareholders or 10 per cent of the total number of small shareholders, whichever is lower. 

However, a listed company — without the need to meet any prescribed requirement — can on its own have a small shareholders’ on the board, said Lalit Kumar, partner, J Sagar Associates. 

Section 151, read with the relevant rules, provides for such appointment through postal ballot, said Bhavin Gada, partner, Economic Laws Practice.

A small shareholders’ can be considered as an independent director, provided the person satisfies the conditions of independence listed in Section 149 (6) of the Act, said Sai Venkateshwaran, partner and head, accounting advisory services at KPMG in India. 

It may not be possible for an existing to be considered as a small shareholders’ if the person was not appointed as one. “However, every is required under the Act to safeguard the interests of all stakeholders, particularly the minority shareholders,” said Venkateshwaran. 

Gada is of the view that the statute does not clearly provide for re-designation of a present as a minority shareholders’

Legal experts point out that it is common for minority shareholders, in cases such as a joint venture investor or a private equity investor, to appoint directors on a board.  “These would be by way of a contractual agreement — generally through a agreement — but no such right is conferred by law,” noted Kumar.

First Published: Tue, July 25 2017. 01:25 IST
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