Markets regulator Sebi on Friday extended to February 26 the last date for submission of public comments on a proposal regarding appointment of managing directors and whole time directors.
The regulator had on January 27 floated a consultation paper on introduction of provisions relating to appointment / re-appointment of persons who fail to get elected as whole-time directors/managing directors at the general meeting of a listed entity.
It had sought comments by February 12, 2021. However, “it has been decided to extend the timeline for submission of comments to February 26, 2021,” Sebi said on Friday.
The proposal is aimed at ensuring shareholder supremacy on the appointment of such positions. The regulator, through the consultation paper, had proposed that a person rejected by a listed company’s shareholders as a managing director or whole-time director can be appointed or re-appointed to the post only after the company fulfils various conditions, including providing detailed justifications.
In case the company’s shareholders reject the candidature of the persons again, such persons cannot be considered for appointment as director or continue as a director for two years. Under the proposal, if a person whose appointment or re-appointment as a managing director (MD) or whole-time director (WTD) has been rejected by the shareholders of a listed firm, they should not be appointed again on such post unless certain conditions are satisfied, Sebi had said in the consultation paper.
The conditions include the company’s nomination and remuneration committee recommending such appointment with detailed justification despite rejection by shareholders and the board approving the appointment after recording reasons. After the appointment of such directors, a listed company should disclose reasons for naming such persons to the board to stock exchanges within 24 hours, along with the recommendations of the nomination and remuneration committee.
Among other conditions, a listed entity should obtain shareholders’ approval for such appointments in the immediate next general meeting or within three months, whichever is earlier. In case, the shareholders reject the candidature of the persons again, such persons cannot be considered for appointment as director, or continue as a director of that particular listed entity for a period of two years from the date of rejection by the shareholders, Sebi had said.
As per the Companies Act, the board cannot appoint a person who fails to get elected as a director at a general meeting as an additional director. However, this does not explicitly prohibit the board from re-appointing a person as an MD or WTD, whose appointment to such posts was rejected by the shareholders at the general meeting.