1/8/2014

Frequently asked questions on Section 160 of

Companies Act 2013

Q.1 What is the text of the Section 160 of Companies Act 2013 and rule framed
thereunder?
Ans.: Section 160 of Companies Act 2013 which has come into force from 1.4.2014 reads as
under:
Right of persons other than retiring directors to stand for directorship.
160. (1) A person who is not a retiring director in terms of section 152 shall, subject to the provisions of
this Act, be eligible for appointment to the office of a director at any general meeting, if he, or some
member intending to propose him as a director, has, not less than fourteen days before the meeting, left
at the registered office of the company, a notice in writing under his hand signifying his candidature as
a director or, as the case may be, the intention of such member to propose him as a candidate for that
office, along with the deposit of one lah rupees or such higher amount as may be prescribed which
shall be refunded to such person or, as the case may be, to the member, if the person proposed gets
elected as a director or gets more than twenty!five per cent of total valid votes cast either on show of
hands or on poll on such resolution.
(2) "he company shall inform its members of the candidature of a person for the office of director under
sub!section (1) in such manner as may be prescribed.#
Rule 13 of Companies (Appointment !ualification of "irectors# Rules 2014 reads as under:
Notice of candidature of a person for directorship
13. "he company shall, at least seven days before the general meeting, inform its members of the
candidature of a person for the office of a director or the intention of a member to propose such person
as a candidate for that office!
(1) by serving individual notices, on the members through electronic mode to such members who have
provided their e!mail addresses to the company for communication purposes, and in writing to all other
members$ and
(2) by placing notice of such candidature or intention on the website of the company, if any%
Provided that it shall not be necessary for the company to serve individual notices upon the members as
aforesaid, if the company advertises such candidature or intention, not less than seven days before the
meeting at least once in a vernacular newspaper in the principal vernacular language of the district in
FAQs on Section 160 of Companies Act 2013 Page 1 of 7
By P C Agrawal
B.Com., .B., CA!!B, FCS
cs.pcagrawal"gmail.com
A#ranga$a%
&'a(aras(tra)
which the registered office of the company is situated, and circulating in that district, and at least once
in &nglish language in an &nglish newspaper circulating in that district.#
!2 "#at $as correspondin% Section of Companies Act 1&'6(
Ans!) Section 257 of Companies Act 1956 which corresponds to Section 160
of Companies Act 2013 read as under:
Right of persons other than retiring directors to stand for directorship.
257. &1) A person w(o is not a retiring %irector s(all, s#$*ect to t(e pro+isions of
t(is Act, $e eligi$le for appointment to t(e o,ce of %irector at any general meeting,
if (e or some mem$er inten%ing to propose (im (as, not less t(an fo#rteen %ays
$efore t(e meeting, left at t(e o,ce of t(e company a notice in writing #n%er (is
(an% signifying (is can%i%at#re for t(e o,ce of %irector or t(e intention of s#c(
mem$er to propose (im as a can%i%ate for t(at o,ce, as t(e case may $e along
wit( a %eposit of -+e (#n%re% r#pees w(ic( s(all $e ref#n%e% to s#c( person or, as
t(e case may $e, to s#c( mem$er, if t(e person s#ccee%s in getting electe% as a
%irector.
&1A) .(e company s(all inform its mem$ers of t(e can%i%at#re of a person for t(e
o,ce of %irector or t(e intention of a mem$er to propose s#c( person as a
can%i%ate for t(at o,ce, $y ser+ing in%i+i%#al notices on t(e mem$ers not less
t(an se+en %ays $efore t(e meeting /
Provided t(at it s(all not $e necessary for t(e company to ser+e in%i+i%#al notices
#pon t(e mem$ers as aforesai% if t(e company a%+ertises s#c( can%i%at#re or
intention not less t(an se+en %ays $efore t(e meeting in at least two newspapers
circ#lating in t(e place w(ere t(e registere% o,ce of t(e company is locate%, of
w(ic( one is p#$lis(e% in t(e 0nglis( lang#age an% t(e ot(er in t(e regional
lang#age of t(at place.
&2) S#$1section &1) s(all not apply to a pri+ate company, #nless it is a s#$si%iary of
a p#$lic company.2
!3) "#at is t#e intention *e#ind suc# pro+ision in t#e Act(
Ans!) As a general rule directors are appointed !" mem!ers at a general
meeting# As an e$ception %oard can also appoint directors in some
speci&ed cases# Section 160 pro'ides for right of an" person to stand for
the position of a director in a compan" in a general meeting in a democratic
wa"# (owe'er pro'ision for deposit has also !een made to a'oid a!use of
this right !" some persons with !ad moti'e# )he amount of deposit which
was merel" *s#5000+, under 1956 Act has !een drasticall" increased to *s#1
lac under 2013 Act#
FAQs on Section 160 of Companies Act 2013 Page 2 of 7
!4) "#et#er t#ere is any e,emption from application of t#is
Section to some class of companies(
Ans!) -ri+ate companies) Section 257 of 1956 Act was not applica!le to a
pri'ate compan" unless it was a su!sidiar" of a pu!lic compan"# -n the
other hand Section 160 of 2013 Act is applica!le to a pri'ate compan" also#
.CA intends to e$empt pri'ate companies from this Section !" a noti&cation
under Section /62 of the Act# 0raft of noti&cation has alread" !een laid
!efore the 1arliament# 2inal noti&cation in this regard is e$pected to !e
issued in this month 3August 201/4# (owe'er till such time pri'ate
companies will ha'e to compl" with this pro'ision#
.o+ernment companies) 5nder 1956 Act wholl" owned 6o'ernment
companies were e$empted from Section 257 'ide 7oti&cation 7o#6S* 906
dated 30#7#1981# (owe'er e$emption noti&cation under 2013 Act is still
awaited#
Section 8 companies) 5nder 1956 Act Section 25 companies whose
articles pro'ided for election of directors !" !allot were e$empted from
Section 257 'ide S#-# 7o#1578 dated 1#7#1961# (owe'er e$emption
noti&cation under 2013 Act is still awaited#
!') /n $#ic# cases Section 160 $ill apply(
Ans!) As per wordings used in Section 160 it will !e applica!le in cases of
appointment of directors other than retiring directors# *etiring director
means a director retiring !" rotation at the meeting# )hus it seems to !e
applica!le in following cases:
, Appointment of additional director as director at A6.
, Appointment of a director to &ll casual 'acanc"
, An" other person see9ing appointment as director at general meeting
3including alternate director nominee director etc#4
)he erstwhile 0CA 3now .CA4 had clari&ed as under:
3!n t(e +iew of t(e 4epartment, a%%itional %irector appointe% #n%er Section
260 an% %irectors appointe% to -ll cas#al +acancies #n%er section 262 are
not retiring %irectors wit(in t(e meaning of t(e 05planation $elow s#$1
section &6) of section 266. Accor%ingly, in t(eir case, t(e pro+isions of
section 267&1) will $e attracte% an% will (a+e to $e complie% wit(. !n +iew of
t(e clari-cation gi+en a$o+e, t(e aforesai% %irectors s(o#l% comply wit( t(e
pro+isions of section 26891) an% &2) also.2 &Company :ews ; :otes %ate%
<#ly 1, 1963).
FAQs on Section 160 of Companies Act 2013 Page 3 of 7
:eeping in 'iew a!o'e .CA could ta9e a 'iew that this Section will appl"
e'en to appointment of independent directors under Companies Act 2013#
Hence, in practice companies are still following Section 160 in such cases to avoid risk of penal
provisions, even though not necessary looking to the intention behind the law.
(owe'er as mentioned a!o'e intention !ehind this pro'ision is to permit a
common person to stand for directorship of a compan" and at the same time
deter fri'olous proposals and misuse the pro'ision# (ence this pro'ision
should not applica!le to a person who is proposed to !e appointed as a
director !" the %oard of 0irectors of the compan" directl"# )hus additional
directors !eing appointed as director at A6. and independent directors to !e
proposed !" the %oard should !e out of pur'iew of Section 160# M! should
reconsider this and issue a fresh clarification in this regard or amend the !ct if re"uired.
!6) .i+e a draft of notice to *e %i+en under Section 160!
Ans!) 0raft of notice under Section 160 is gi'en !elow:
3.(e Boar% of 4irectors,
=>? t%
4ear Sirs,
Re: Notice under Section 160 of o!panies "ct 2013
#
!, 'r @@@@, mem$er of t(e company, (ere$y propose t(e can%i%at#re of 'r @@@ SAo
S(ri @@@@ resi%ing at @@@@@@@@@@@@@@@for appointment as a %irector of t(e company at
t(e fort(coming Ann#al Beneral 'eeting of t(e company.
Please -n% enclose% (erewit( c(eC#e :o.@@@@@@@ %ate% @@@@@@ %rawn on @@@@@@@@ for
Ds.1,00,000A1 $eing t(e %eposit for proposing t(e can%i%at#re of 'r @@@@@ as a
%irector of t(e company.
.(anEing yo#,
>o#rs fait(f#lly,
&@@@@@@@@@@)2
!0) "#o can %i+e t#e notice $it# deposit(
FAQs on Section 160 of Companies Act 2013 Page $ of 7
Ans!) )he notice alongwith deposit can !e gi'en !" the candidate himself or
an" mem!er of the compan"# )here is no re;uirement that such mem!er
should !e an indi'idual onl"# (ence e'en a corporate mem!er can also gi'e
such notice with deposit# 2urther there is no re;uirement of minimum
shareholding for this purpose# (ence e'en a mem!er holding one e;uit"
share can gi'e such notice# Section 160 pro'ides for gi'ing notice !" a
<mem!er= which term includes preference shareholders also# (owe'er since
preference shareholders cannot 'ote on the resolution the" cannot gi'e
notice under the Section#
!8) "#at s#ould *e t#e mode of payment of deposit amount(
Ans!) )he Act has not pro'ided for an" speci&c mode of pa"ment of the
deposit amount# (owe'er with a 'iew to ensure transparenc" and !ring the
facts on record it would !e ad'isa!le to ma9e pa"ment through !an9ing
channel onl" i#e# che;ue+00+*)6S etc# and not in cash#
!&) "#en t#e notice and deposit is to *e %i+en(
Ans!) As per Section 160 notice is re;uired to !e gi'en at least 1/ da"s
!efore the general meeting# (owe'er in practice such notice is gi'en
!efore issue of notice of general meeting 3which is re;uired to !e issued at
least 21 da"s !efore the meeting4 so that it could !e incorporated in the
same notice of general meeting and additional formalit" is a'oided# )he
notice of general meeting can state the fact that the compan" has recei'ed
notice under Section 160 of the Act or candidature of someone as a director#
(ence it will !e ad'isa!le to gi'e notice under Section 160 alongwith deposit
of *s#1 lac on or !efore the date of the %oard meeting when draft of notice of
general meeting is appro'ed#
!10) 1o$ t#e intimation a*out t#e notice is to *e %i+en to t#e
mem*ers(
Ans!) *ule 13 of Companies 3Appointment > ?uali&cation of 0irectors4 *ules
201/ prescri!es method of intimating the mem!ers a!out the notice
recei'ed under Section 160# As per the *ule at least 7 da"s !efore the
meeting indi'idual notice has to !e ser'ed to the mem!ers and such notice
has also to !e placed on compan"=s we!site if an"# @t implies that if the
compan" does not ha'e an" we!site the re;uirement of placing the notice
on we!site will not !e applica!le# @t ma" !e noted that re;uirement of
placing such notice on compan"=s we!site was not there in 1956 Act# Such
notice ma" !e remo'ed from the we!site after the general meeting since it
FAQs on Section 160 of Companies Act 2013 Page 5 of 7
will loose its rele'ance# @ndi'idual notice to mem!ers can !e dispensed with
if notice is issued in newspaper as per the *ule#
!11) "#et#er t#e company can refuse to %i+e intimation of t#e
notice to t#e mem*ers(
Ans!) 7o the compan" cannot refuse to gi'e intimation of the notice to the
mem!ers# )he word <shall= used in su!,section 324 indicates that it is
mandator"# FBopal Gyas +. Sinclair Hotels ; .ransportation t%., A!D 1990
Cal 86, 89 / &1990) 6I Com Cases 616 &CalJ4B).
!12) "#en t#e deposit is to *e refunded(
Ans!) @n case the candidate is appointed as director at the general meeting
or he gets more than 25A of 'alid 'otes cast the deposit amount has to !e
refunded !" the compan" to the concerned person# -therwise the deposit is
to !e forfeited !" the compan"# BCircular 7o#5 dated 15#9#1989C#
!13) "#at $ill *e accountin% treatment of t#e deposit(
Ans!) )he compan" should 9eep the deposit under an" appropriate head
under Current Dia!iities# @n case the deposit is forfeited it should !e
transferred to -ther @ncome#
%.1$. &hat is the pena't( prescri)ed in case of contravention of
provisions of the Section*
Ans!) Section 172 of the Act pro'ides that if a compan" contra'enes an" of the
pro'isions of this Chapter and for which no speci&c punishment is pro'ided therein
the compan" and e'er" oEcer of the compan" who is in default shall !e punisha!le
with &ne which shall not !e less than *s#50000+, !ut which ma" e$tend to *s#5
lacs#
%.15. &hether o+ence under the Section can )e co!pounded*
Ans./ Section //1 of the Act pro'ides for compounding of oFences punisha!le with:
a4 2ine onl"
!4 2ine or imprisonment
c4 2ine or imprisonment or !oth#
-Fences punisha!le with imprisonment onl" or imprisonment and &ne !oth are not
compounda!le#
(owe'er Section //1 has not "et come into force and hence presentl" oFences
under the Act are not compounda!le#
GGG
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