Companies Act Section 160

Companies Act, Section 160: Right of Persons Other Than Retiring Directors to Stand for Directorship

Section 160 of the Companies Act outlines the process by which individuals who are not retiring directors may stand for election as directors of a company. This provision ensures that individuals, other than those who are already directors retiring by rotation, have the opportunity to be considered for directorship in a company’s general meeting.

The section establishes eligibility criteria, procedural requirements, financial deposit obligations, and exemptions, thereby promoting fairness and transparency in the appointment of directors. It also mandates that companies inform their members about such candidatures to facilitate an informed voting process.

1. Eligibility for Appointment as Director

Under Section 160(1), an individual who is not a retiring director meaning they are not seeking reappointment after completing their tenure under Section 152 may still be eligible for election as a director at any general meeting, subject to compliance with the conditions laid down in this section.

There are two ways a person can be proposed for appointment:

The candidate themselves can submit their nomination.
A member of the company can propose the candidate for the position of director.
To ensure a structured and fair election process, the following conditions must be met:

The candidate or proposing member must submit a written notice to the registered office of the company at least fourteen days before the general meeting where the appointment is to be considered.
The notice must be signed by the candidate or the proposing member, clearly indicating the intention to contest for directorship.
The notice must be accompanied by a monetary deposit as prescribed by law.
2. Deposit Requirement for Candidature

To prevent frivolous applications and ensure that only serious candidates apply, Section 160(1) requires the submission of a deposit amounting to ?1,00,000 (one lakh rupees) or a higher amount as prescribed by regulatory authorities.

(a) Refund of Deposit

The deposit is refunded to the candidate or the proposing member if:

The candidate is successfully elected as a director.
The candidate receives at least 25% of the total valid votes cast, whether through show of hands or a poll on the resolution for their appointment.
If the candidate fails to secure at least 25% of the votes, the deposit is forfeited. This provision serves as a deterrent against non-serious nominations and ensures that only genuine candidates contest for directorship.

3. Exemptions from the Deposit Requirement

The proviso to Section 160(1) grants specific exemptions from the deposit requirement in certain cases. The requirement to deposit ?1,00,000 does not apply if the candidate is:

1. An independent director being appointed under the Companies Act.
2. A director recommended by the Nomination and Remuneration Committee (NRC) if such a committee has been constituted under Section 178(1) of the Act.
3. A director recommended by the Board of Directors of a company that is not required to constitute a Nomination and Remuneration Committee.
These exemptions facilitate the appointment of directors based on merit and corporate governance principles, especially when the selection is made through a structured nomination process rather than external candidature.

4. Obligation of the Company to Inform Its Members

Under Section 160(2), a company is legally required to notify its members about the candidature of any person standing for election as a director under this section.

The company must provide this information in the prescribed manner, as set by regulatory authorities.
The objective is to ensure transparency in the election process by allowing members to make informed decisions when voting on director appointments.
This requirement ensures that shareholders are aware of all candidates contesting for directorship, thereby promoting democratic decision-making in corporate governance.

5. Purpose and Rationale of Section 160

The provisions of Section 160 serve multiple important purposes:

(a) Promoting Fair and Open Elections

This section ensures that external candidates or individuals outside the existing board have a fair opportunity to contest for directorship.
It prevents the monopolization of board positions by existing directors.
(b) Preventing Non-Serious Nominations

The monetary deposit requirement discourages non-serious candidates from applying for directorship.
By requiring a minimum of 25% of votes for a refund, the provision ensures that only viable candidates stand for election.
(c) Strengthening Corporate Governance

The exemption for independent directors ensures that companies can bring in qualified individuals without financial barriers.
Requiring companies to inform members about candidates enhances transparency and shareholder participation.