ELECTION/APPOINTMENT OF DIRECTORS OF A COMPANY

Section 154 fixes minimum number of directors of companies and does not prescribe the maximum
number. According to clause (d) of the sub-section (1), a listed company must have not less than seven
directors. However, it can be inferred that the maximum should be a reasonable number. The law is
specific in saying that a director has to be a natural person i.e. a single individual. As regards “proviso” to
sub-section (1), it says that every ‘public interest company’ a listed company includes public interests, shall
have at least one female representative on the board. At the outset, the representative must be one of the
members of the company. The mode of appointment of female representative is yet to be specified by the
Commission, but companies are appointing female directors through the process of election like
independent directors. CCG Regulations also provide that it is mandatory for each listed company to have
at least two or one third members of the Board whichever is higher as independent directors.

A ‘public interest company’ has been defined in clause (53) of sub-section (1) of section 2.
According to it, the public interest company, in terms of Third Schedule to the Act, shall be classified as a
large sized company, which would be either a listed company or other than that, and is a public sector
company. It would also include other non-listed companies which fulfil other conditions, as specified in the
Third Schedule.

Sec.155. Number of directorships.

A person may be a director of more than one company but there has to be a limit which in the case
of a listed company has been specified not more than seven under the CCG regulations. As there used to
be no limit of directorships in the previous company law, a provision has been made in the existing law that
where a person holding the position of director in more than seven companies on the commencement of
the Act, he shall have to bring down the limit within one year in compliance with the existing provision of
law.

Sec.158. Retirement of first and subsequent directors.

The ‘directors’ and ‘general meetings’ have been very important subjects of company law and
section 158 indicates the intention of law more vividly. It has been emphasized that despite the fact, that
term of the directors has been fixed and they have to retire on completion of their term but they shall not
leave their positions till their successors are appointed and takeover. At the same time, there is a strong
message that if for some genuine reason it is not possible to conduct the election in time, the directors shall
inform the registrar forty-five days before the due date of election about any impediment in holding the
election on due date. Further that immediate steps have to be taken by the existing directors to overcome
any such difficulties and to conduct the election, without any further delay.

As regards the general meetings, there is a close linkage of such meetings with the election of
directors. The scheme of law as noted below is that the general meetings shall have to be conducted under
all circumstances, as it involves the interest of shareholders and business of the company:-
 (i) Practical difficulties may be there, immediate steps have to be taken to hold the general
meeting in which election is to be held, even after the due date. There shall not be
considered any default on the part of directors, if the difficulties are genuine.
(ii) In the case of delay, a period of ninety days has been given within which the meeting has
to be held.
(iii) The above period of ninety days can be further extended for a reasonable limit(the
extension period not restricted) by the registrar, under exceptional circumstances.
(iv) If directors fail to hold the meetings for election of directors, the directors cannot call
meeting thereafter except on the direction of registrar as per sub-section (3).

The directors are required to report to the registrar, if the prescribed period for holding the election
has elapsed. There shall be no penal action against the directors if ultimately the meeting is held in
accordance with the directions of the registrar. The latitude given in the section seems to be for reason that
any possible vacuum in holding the general meetings and in the process of election of directors be avoided.

Sec.159. Procedure for election of directors.

It has been observed that the procedure for election of directors as provided in the repealed
Companies Ordinance, 1984 (Section 178 thereof) has been maintained as such, and no attempt for its
improvement seems to have been made. The only change which might have been considered a value
addition is in sub-section (1). At the end of that sub-section, the phrase “in which election is to be held” has
been added. This apparent little change conveys the message that if the number of directors to be elected
for the next term as fixed by the existing directors needs to be changed subsequently, the members of the
company may grant approval in the general meeting in which election of directors is scheduled to be held.
The said change might have been necessitated to ease the company from calling a separate general
meeting to change number of directors to be elected as fixed by the board, before the date of the meeting
in which election is to be held. The fact is that after the aforesaid change, the minority shareholders will not
be able to send their representative on the board, through combined voting, as the majority shareholders
will close the door of its entry, through a change in the number of directors, with no notice. Unfortunately,
the consequential legal implications were also ignored i.e.─

(i) The number of directors fixed by the existing directors to be notified through the notice of
the meeting as per sub-section (2), would be falsified, if the members, subsequently
change such number in their meeting prior to holding the election for the next term.
(ii) How the members seeking to contest the election, will genuinely be able to give notice of
their intention by a notice under sub-section (3), not later than fifteen days before the date
of election, if the number as notified through the notice of the meeting is subsequently
changed?
(i) How the statutory requirement of transmitting the names of candidates for the election
shall be possible in terms of sub-section (4)?
(ii) will the prior notice to consider the change in the number of directors to be elected, in the
general meeting, not necessary and how this compulsory requirement will be fulfilled?
(iii) will the process of election not be jeopardized , if the number of directors to be elected is
also decided in the same meeting?
 In view of above, I am of the firm opinion that the change in question must be withdrawn through
its deletion, as early as possible; and till that, its application may be held in abeyance, by issuing a
notification in terms of section 515 of the Act.

The above observations apart, it may be stated that, the section contains the procedure for election
of directors and weightage of votes of members for the procedure. The procedure laid down is logical and
needs no explanation. However, the time frame given, is significant, which can be counted as under:-

(i) Fixation of number of directors to be elected by : 35 days before convening the date
the existing directors of meeting for election
(ii) Filing of notice of intention with the company, : 14 days before the date of meeting
by the persons interested to contest election for election
(iii) Transmission to the members the names of : 7 days before the date of meeting for
persons contesting the election election.
(iv) Withdrawal : At any time before the election

Weightage of shareholding of a (i) Number of shares: A member may have

member: total numbers of votes worked out as number
of shares held by a member multiplied by the
number of directors to be elected.
(ii) A member may cast all of the votes in favour
of a single candidate or may distribute to
more than one in the ratio, as he may like.
The directors of a company not having share
capital, shall be elected by members in a
manner provided in the articles of the
company.

Sec.160. Powers of the Court to declare election of directors invalid.

According to section 160, the Court does not take suo-motu action to declare an election of
directors invalid. The law provides that the Court may, on the application of members holding not less than
ten percent (It was twenty percent in the previous company Law) of the voting power in the company, made
within thirty days of the date of election, declare the election invalid.

The following points are significant:-

(i) It is the discretionary power of the Court to determine as to certain weakness in the
election is a material irregularity. However, the following irregularities could be considered
as material irregularity in the eyes of law:

a. Procedure for holding election as per section 159, has not been followed.
b. A person otherwise ineligible for holding the post of director has been elected.
c. Proper notice was not issued to all the members individually.
d. The meeting was not called and held in accordance with the provisions of the Act.
 e. Certain persons were declared successful illegally, in disregard of the voting
powers
of the members.
f. The election was conducted much before the completion of the term of existing
directors etc.

The Court may declare election of all the directors or any one or more of the directors’ invalid,
according to its satisfaction.

Sec.161. Term of office of directors.

The term of office of directors of companies is fixed for three years. Any of the directors shall have
to vacate the office of directorship before the expiry of term of three years due to following reasons:-

(i) He resigns and gives notice thereof to the board. He will cease to be director from the date
of notice of resignation and will not be subject to acceptance; or
(ii) the company has to conduct fresh election of directors in terms of section 162. The term of
existing directors shall expire on the date of such fresh election; or
(iii) the person becomes disqualified from being a director for any reason including the
applicability of any of ineligibility conditions enshrined in section 153. Such person will
cease to be director from the date, he is disqualified; or
(iv) if a person ceases to be director on his death or by order of the Court or for any other
reason. His term shall expire by such relevant date.

The vacancies created due to any of the reasons as at S.No. i to iv above, are called casual
vacancies. The person appointed against casual vacancies shall hold the position of director for the
remaining term of the other elected directors. The casual vacancies are filled up by directors.
Sec.167. Consent of directors and CEO to be filed with the Registrar on Form 20 within fifteen days.

Section 187 (2). Appointment of Chief Executive.

Within fourteen days from the date of election of directors u/s 159, the Board is required to appoint
any person, including an elected director, to be the Chief Executive for a period of three years from the date
of appointment . A chief Executive shall continue to perform his functions, with his successor is appointed.

SECTION 197 Filing of Form 24.

With a period of fifteen days from the date of appointment of directors Chief Executive and
Chairman shall file their particulars within the Registrar on Form 29.

As regard the requirements of PSX,

 The Board shall inform the GM PSX about the date and place of meeting of the Board on Form
1(b) specified by the Exchange.
 Minutes of the AGM or extra ordinary general meeting to be submitted to PSX within sixty days of
the date of meeting.
 Notice of EOGM on Form 17.
 Appointment of Chairman/CEO and Directors to the PSX on Form 19.

(Abdul Rehmah Qureshi)

Advocate