20 Microns Limited vs BSE & Ors
Appeal no 845 & 846 of 2023
Facts:
1.Appellant Company is a public limited company and its shares are listed on the BSE and NSE. The composition of the board of directors of the Company was that it had chairman cum-managing director, a managing director, a director and four independent directors. The composition of the board of directors was in accordance with the LODR Regulations as it had consisted more than six directors and was in compliance with Regulation 17(1C) of the LODR Regulations. Under the LODR Regulations the Company was required to appoint three independent directors which was already existing and therefore the Company was in compliance with the LODR Regulations.
2.Considering the good corporate governance practice that was being conducted by the Company the Nomination and Remuneration Committee of the Company made a recommendation to the board of directors for appointment of Mr. Swaminathan Sivaram as an additional director in the category of non-executive independent director subject to the approval of the members by way of special resolution in the 36th Annual General Meeting of the Company.
3.The 36th Annual General Meeting of the Company was held on August 10, 2023 in which the resolution of the board of directors was approved by way of a special resolution by the Company. By the impugned order dated August 21, 2023 the respondent BSE communicated to the appellant that they were not in compliance with Regulation 17(1A) of the LODR Regulations and accordingly imposed a fine of Rs. 1,08,560/-. Similar fine was also imposed by NSE.
4.Appeal is filed challenging the order.
Issue: Whether the fine levied is correct ?
Decision: SAT set aside the order of the SEBI imposing fine.
Rationale:
1.SAT noted that reading of Section 152(2) and 161(1) of the Companies Act makes it clear that a director can only be appointed by the shareholders of the Company in an Annual General Meeting. However, the board of directors can appoint any person as an additional director who will hold office up to the date of the next Annual General Meeting.
2.It held that from a conjoint reading of Section 149, 152(2), 161(1) of the Companies Act 2013 read with Regulation 17(1A) and 17(1C) of the LODR Regulations makes it apparently clear that the director is required to be appointed by the members of the Company. If a person is appointed as an additional director by the board of directors then his appointment is till the next annual general meeting. Regulation 17(1A) provides that if a person who has attained the age of 75 years then his appointment has to be made by a special resolution passed by the members and Regulation 17(1C) provides that appointment must be approved in the next general meeting or within three months from the date of the appointment whichever is earlier.
3.It held that the contention that no person can be appointed as a non-executive independent director unless prior approval of the shareholders was made by a special resolution is erroneous.
Order Copy:
