2023 (12) TMI 38 - AT - SEBI

Board can appoint independent director above 75 without prior shareholder approval under Regulation 17(1A)

20 Microns Limited Versus BSE Limited, Securities and Exchange Board of India, Mumbai and National Stock Exchange of India Limited, Mumbai

The Securities Appellate Tribunal, Mumbai held that a board of directors can appoint a person above 75 years as additional non-executive independent ... Default of appointment of additional director in the category of non-executive independent director by way of a board resolution - person above the age of 75 years as appointed by the board of directors - non-compliance of Regulation 17(1A) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘LODR Regulations’ for short) - whether approval is required to be taken from the shareholders of the Company through a special resolution before a person who has attained the age of 75 years can be appointed? - HELD THAT:- The board of directors can appoint any person as an additional director who shall hold office up to the date of the next Annual General Meeting. A 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. In the instant case, the board of directors appointed Mr. Swaminathan Sivaram as an additional director till the date of the next Annual General Meeting and subject to the approval given by the members of the Company through a special resolution. 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. In the instant case, the appointment was made on May 16, 2023 by the board of directors which was approved in the next annual general meeting by the member of the Company through a special resolution and that this special resolution was passed on August 10, 2023 within three months from the date of appointment. Thus, from a conjoint reading of Regulation 17(1A) and 17(1C) of the LODR Regulations appointment of an additional director can be made by the board of directors which is required to be approved by the members of the Company through a special resolution and such approval is required to be made within three months. In Nectar Life Sciences Ltd. vs. SEBI & Ors [2023 (5) TMI 447 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] Tribunal considered the provisions of Regulations 17(1A) with other provisions and held that the word “unless” as depicted in Regulation 17(1A) does not mean “prior approval” nor the requirement of passing a special resolution was a qualificatory condition for appointment as a director. Thus the contention of the respondent 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. Thus Regulation 17(1A) and 17(1C) has to be read harmoniously with the provisions of Section 152(2) and 161(1) of the Companies Act which will make it clear that a person above the age of 75 years can be appointed by the board of directors. Such appointment is required to be approved subsequently within the prescribed period by a special resolution in the next general meeting by the members of the Company which in the instant case was done within the prescribed period. No penalty could have been imposed by the BSE and NSE for violation of Regulation 17(1A) of the LODR Regulations. Issues Involved:- Compliance with Regulation 17(1A) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 regarding the appointment of an additional director.Summary:The appeal was filed against fines imposed by BSE and NSE for alleged non-compliance with Regulation 17(1A) of the LODR Regulations due to the appointment of Mr. Swaminathan Sivaram as an additional director without prior approval. The appellant company, a public limited company listed on BSE and NSE, had a board composition in accordance with the LODR Regulations, including independent directors. The Nomination and Remuneration Committee recommended Mr. Sivaram's appointment, which was approved by a special resolution at the 36th Annual General Meeting. The core issue was whether approval was required before appointing a person over 75 years old as a director.The tribunal analyzed relevant provisions of the Companies Act and LODR Regulations. While directors must be appointed by shareholders in the Annual General Meeting, the board can appoint an additional director until the next AGM. Regulation 17(1A) mandates a special resolution for appointing a director over 75 years old, to be approved within three months. The tribunal noted that the appointment of Mr. Sivaram was made by the board and subsequently approved by members within the specified timeframe, aligning with the regulations.Referring to a previous case, the tribunal clarified that prior shareholder approval through a special resolution was not a prerequisite for appointing a non-executive independent director. Harmonizing Regulation 17(1A) and 17(1C) with relevant sections of the Companies Act, the tribunal concluded that the appointments were made in compliance with the regulations. Consequently, the fines imposed by BSE and NSE were deemed unjustified, and the impugned orders were quashed. The appeals were allowed with no costs awarded.