Companies Act Section 162

Companies Act, Section 162: Appointment of Directors to Be Voted Individually

Section 162 of the Companies Act establishes a crucial principle in corporate governance regarding the appointment of directors in a general meeting. It mandates that each director must be voted on separately, ensuring that shareholders have the opportunity to evaluate and vote on each candidate individually, rather than approving multiple directors through a single resolution.

This provision is designed to:

Enhance transparency in the appointment process.
Ensure fair and democratic decision-making by shareholders.
Prevent forced group approvals, which may include unqualified or undesirable candidates.
1. Individual Voting for Directors

(a) Requirement for Separate Resolutions

According to Section 162(1), at any general meeting of a company, a motion to appoint two or more persons as directors in a single resolution cannot be moved, unless:

A separate proposal to allow such a motion has been agreed upon at the meeting.
The proposal has been approved without any votes cast against it.
(b) Objective of This Provision

This rule ensures that shareholders can assess and approve each director’s qualifications, experience, and suitability for the role separately.
It prevents situations where an undesirable or unqualified candidate is appointed simply because they are included in a group resolution with other qualified candidates.
(c) Exception to the Rule

The only way multiple directors can be appointed through a single resolution is if the shareholders first agree to such a motion without any opposition.
If even a single vote is cast against the proposal, individual resolutions for each director must be passed separately.
2. Invalidity of Resolutions in Contravention of Section 162

(a) Nullification of Resolutions Passed in Violation

Under Section 162(2), if a company fails to comply with the requirement for separate resolutions and passes a motion appointing multiple directors in a single resolution without prior approval, then:

The resolution is automatically void.
This applies regardless of whether any shareholders raised objections at the time the resolution was passed.
(b) Implications of an Invalid Resolution

If a company improperly appoints directors under a single resolution, those appointments will not be legally recognized.
This could lead to governance issues, legal disputes, and potential non-compliance with regulatory authorities.
Companies must be diligent in ensuring compliance with this provision to avoid legal consequences.
3. Interpretation of Motions for Director Appointments

(a) Definition of Appointment and Nomination Motions

According to Section 162(3), any motion that seeks to:

Approve a person for appointment as a director OR
Nominate a person for appointment as a director
Shall be treated as a motion for the actual appointment of that individual as a director.

(b) Purpose of This Clarification

This provision ensures that companies do not attempt to bypass the requirement for separate voting by disguising director appointments as nominations or preliminary approvals.
It prevents companies from misleading shareholders by presenting a vote as a mere nomination when, in effect, it results in an appointment.