2023 (5) TMI 447 - AT - SEBI

Shareholder approval not needed for appointing directors over 75. Penalty quashed, appeal allowed.

Nectar Life Sciences Ltd. Versus Securities and Exchange Board of India, National Stock Exchange of India Ltd.

The Tribunal held that prior approval from shareholders is not required before appointing a person over 75 years as a Non-Executive Director to fill a ... Filling of a casual vacancy - requirement of approval through a special resolution from the shareholders of the Company, before such appointment - appointment of a person who has attained the age of 75 years - Rejection of waiver application - application was filed for waiver of the fine on account of non-compliance of Regulation 17(1A) of the Securities and Exchange Board of India (Listing Obligation and Disclosure Requirements) Regulations, 2015 - HELD THAT:- A reading of Section 152(2) and Section 161(4) makes it clear that a Director can only be appointed by the shareholders of the Company in the general meeting. However, in case where the office of a Director is vacated before his term of office expires which results in a casual vacancy then such casual vacancy can be filled by the Board of Directors which shall subsequently be approved by the members in the immediate next general meeting - from a reading of Section 161(4) of the Companies Act read with the proviso to Rule 4(1) of the Rules it is clear that a casual vacancy which occurs in the office of the Director is required to be filled up by the Board of Directors within three months from the date of such vacancy and such appointment is required to be approved by the members in the next general meeting. Regulation 25 of the LODR Regulations, 2015 relates to obligations with respect to Independent Director - The said provision provides that where an Independent Director resigns or is removed from the Board of Directors. Such Independent Director is required to be replaced by a new Independent Director within three months from the date of such vacancy - Regulation 17(1A) provides that no person shall be appointed or continue the directorship as a Non- Executive Director who has attained the age of 75 years unless a special resolution is passed to that effect by the members in the general meeting - A perusal of the Regulation 17(1C) indicates that the listed entity shall ensure that the appointment of a person on the Board of Directors is approved by the shareholders at the next general meeting or within a period of three months from the date of appointment whichever is earlier. Thus, upon the death of Dr. Chauhan on 22nd November, 2020, a casual vacancy in the office of Independent Director came into existence which could be filled up by the Board of Directors under Section 161(4) of the Companies Act read with Regulation 17(1C) of the LODR Regulations and proviso to Rule 4 of the Rules. Such appointment was required to be subsequently approved by the shareholders of the Committee in the next general meeting - the finding of the respondent that no persons can be appointed or continued to be appointed as a Non-Executive Director unless prior approval of the shareholders is made is erroneous. The impugned order cannot be sustained. No penalty could have been imposed for violation of Regulation 17(1A) of the LODR Regulations. Nothing has been brought on record to indicate violation of any provision of the Companies Act or Regulation 17(1C) of the LODR Regulations. Appeal allowed. Issues Involved:1. Whether prior approval from shareholders is required before appointing a person over 75 years as a Non-Executive Independent Director to fill a casual vacancy.2. Applicability and interpretation of Regulation 17(1A) of the LODR Regulations in the context of filling casual vacancies.Summary:Issue 1: Prior Approval Requirement for Appointment of Director Over 75 YearsThe core issue is whether prior approval is required from the shareholders of the Company through a special resolution before a person who has attained the age of 75 years can be appointed to fill up a casual vacancy. The Tribunal examined relevant provisions of the Companies Act, 2013, including Sections 149, 152(2), and 161(4), which provide that directors can only be appointed by the company in a general meeting, but casual vacancies can be filled by the Board of Directors, subject to subsequent approval by the shareholders in the next general meeting.Issue 2: Applicability and Interpretation of Regulation 17(1A)The Tribunal analyzed Regulation 17(1A) and 17(1C) of the LODR Regulations, which state that no person shall be appointed or continue as a Non-Executive Director who is over 75 years unless a special resolution is passed. It was observed that Regulation 17(1A) should not be read in isolation but harmoniously with Sections 152, 161(4) of the Companies Act, Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, and Regulation 17(1C) of the LODR Regulations. The Tribunal held that even if a person above the age of 75 years is appointed by the Board to fill a casual vacancy, such appointment must be approved subsequently by a special resolution in the next general meeting.Conclusion:The Tribunal concluded that the finding of the respondent that no person can be appointed or continued as a Non-Executive Director without prior approval of the shareholders is erroneous. The impugned order imposing a penalty for violation of Regulation 17(1A) was quashed, and the appeal was allowed. The Tribunal emphasized that no penalty could be imposed for the alleged violation as there was no evidence of any breach of the Companies Act or Regulation 17(1C) of the LODR Regulations.