Disclosure to members of directors’ interest in contract appointing

chief executive or secretary Sec 213

o Every director of a company who is in any way, whether directly or indirectly, concerned
or interested, in any appointment or contract for the appointment of a
a) chief executive,
b) whole-time director or
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c) Secretary

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of the company shall disclose the nature of his interest or concern at a meeting of the board
in which such appointment or contract is to be approved

o The interested director shall not participate or vote in the proceedings of the board.

o All contracts entered into by a company for the appointment of a chief executive, whole-
time director or secretary shall be kept at the registered office of the company.

o Every contract required to be kept must be open to inspection by any member of the
company without charge.

o Any member of the company is entitled, on request and on payment of such fee as may be
fixed by the company, to be provided with a copy within 7 days of any such contract.
 Disclosure of interest by director Sec 205
o Every director of a company who is ,whether directly or indirectly, concerned or
interested in any contract or arrangement entered into, or to be entered into, by or on
behalf of the company shall disclose the nature of his concern or interest at a meeting of
the board..

o A director shall be deemed also to be interested or concerned if any of his relatives, is so

interested or concerned.
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o Director’s relatives are

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(a) the director‘s spouse;

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(b) the director‘s children, including the step children; and

(c) the director‘s parents;

➢ The disclosure required to be made by a director shall be made

o in the case of a contract or arrangement to be entered into, at the meeting of the board at
which the question of entering into the contract or arrangement is first taken into
consideration or,
o if the director was not, on the date of that meeting, concerned or interested in the
contract or arrangement, at the first meeting of the board held after he becomes so
concerned or interested
o in the case of any other contract or arrangement, at the first meeting of the board held
after the director becomes concerned or interested in the contract or arrangement.
 o A general notice given to the board to the effect that a director is a director or a member
of a specified body corporate or a partner of a specified firm and is to be regarded as
concerned or interested in any contract or arrangement which may, after the date of the
notice, be entered into with that body corporate or firm, shall be deemed to be a
sufficient disclosure of concern or interest in relation to any contract or arrangement so
made.

o Any such general notice shall expire at the end of the financial year in which it is given,
but may be renewed for further period of one financial year at a time, by a fresh notice
given in the last month of the financial year in which it would otherwise expire.
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o No such general notice, and no renewal thereof, shall be of effect unless either it is given
at a meeting of the board, or the director concerned takes reasonable steps to ensure that
it is brought up and read at the first meeting of the board after it is given.

o Any contravention or default in complying with requirements of sub-sections (1) or (2),

shall be an offence liable to a penalty of level 1 on the standard scale.
 Interested director not to participate or vote in proceedings of board
Sec 207
A director of a company who is concerned or interested in the contract or arrangement shall
not take any part in the discussion of, or vote on, any such contract or arrangement entered
into, or to be entered into.

His presence shall not count for the purpose of forming a quorum at the time of any such
discussion or vote; and if he does vote, his vote shall be void.
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considered at a board meeting shall not be present while that matter is being considered.

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If majority of the directors are interested in, any contract or arrangement entered into, or to
be entered into, by or on behalf of the company, the matter shall be laid before the general
meeting for approval.

This sec shall not apply to

(a) a private company which is neither a subsidiary nor a holding company of a public
company;
(b) any contract of indemnity or insurance coverage executed by the company in favour of
interested director against any loss which he may suffer or incur by reason of becoming
or being a surety for the company or while undertaking any transaction on behalf of the
company:
 Appointment of first chief executive. Sec 186
➢ The name of first chief executive shall be determined by the subscribers of the
memorandum and his particulars shall be submitted along with the documents for
the incorporation of the company
➢ The first chief executive shall, unless he earlier resigns or otherwise ceases to
hold office,
a) up to the first annual general meeting of the company or,
b) if a shorter period is fixed by the subscribers at the time of his appointment, for
such period.

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➢ The Government shall have the power to nominate chief executive of a public

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company in such manner as may be specified.

Appointment of subsequent chief executive. Sec 187,188,189
➢ Within fourteen days from the date of election of directors the office of the chief
executive falling vacant. On the expiry of term of office a chief executive shall be
eligible for reappointment.
➢ The board shall appoint any person, including an elected director, to be the
chief executive.
➢ Such appointment shall not be for a period exceeding three years from the date
of appointment.
➢ The chief executive appointed against a casual vacancy shall hold office till the
directors elected in the next election appoint a chief executive.
 ➢ The chief executive retiring shall continue to perform his functions until his
successor is appointed.
➢ The Government shall have the power to nominate chief executive of a
company where majority of directors is nominated by the Government, in such
manner as may be specified.
➢ The terms and conditions of appointment of a chief executive shall be
determined by the board or the company in general meeting in accordance with
the provisions in the company's articles.
➢ The chief executive shall if he is not already a director of the company, be

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deemed to be its director and be entitled to all the rights and privileges, and

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subject to all the liabilities, of that office.

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➢ A person who is ineligible to become a director of a company under section 153

or disqualified under sections 171 or 172 shall not be appointed or continue as
the chief executive of any company.
 Removal of chief executive.-Sec 190
➢ The
a) board by resolution passed by not less than three-fourths of the total number
of directors
for the time being, or
b) company by a special resolution,
may remove a chief executive before the expiration of his term of office.

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➢ Where more than seventy-five percent of the voting rights are held by the

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a) The Government or
b) an authority or
c) a person authorized by it
shall have the power to remove chief executive of a company.
 Chief executive not to engage in business competing with
company's business.- Sec 191
➢ A chief executive of a public company shall not directly or indirectly engage in
any business which is of the same nature as and directly competes with the
business carried on by the company of which he is the chief executive or by a
subsidiary of such company.
➢ A business shall be deemed to be carried on indirectly by the chief executive if
the same is carried on by his spouse or any of his minor children.

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➢ Every person who is appointed as chief executive of a public company shall on

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such appointment disclose to the company in writing the nature of such

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business and his interest therein.

Chairman in a listed company. Sec 192
➢ The board of a listed company shall within fourteen days from the date of
election of directors, appoint a chairman from among the non-executive
directors who shall hold office for a period of three years unless
a) he earlier resigns,
b) becomes ineligible or
c) disqualified under any provision of this Act or
d) removed by the directors.
 The board shall clearly define the respective roles and responsibilities of the
chairman and chief executive.
The chairman shall be responsible for leadership of the board and ensure that
the board plays an effective role in fulfilling its responsibilities.

Every financial statements circulated under section 223 of this Act shall contain
a review report by the chairman on
a) the overall performance of the board and
b) effectiveness of the role played by the board in achieving the company‘s

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Penalty Sec 193

Any contravention or default in complying with requirements of sections 186 to
192 shall be an offence liable to a penalty of level 2 on the standard scale and
may also be debarred by the authority which imposes the penalty from becoming
a director or chief executive of a company for a period not exceeding five years