Court has been obtained for his appointment in pursuance of that

The above grounds are similar to those provided under section 274 of the Act for disqualification of directors except the ground contained in clause (g) of

sub-section (1) of Section 274. Omission of this ground in above Rule appears to be a drafting lapse and therefore, needs correction.

(x) Vacation of office. Rule 6 provides that a person appointed as small shareholders’ director shall have to vacate the office if

(a) such person ceases to be a small shareholder, on and from such date on which he ceased to be a small shareholder;

(b) he has been rendered disqualified by virtue of sub-rule (1) of Rule (5);” (c) he fails to pay any call in respect of shares of the company held by him,

whether alone or jointly with others, within six months from the last date

fixed for the payment of the call;

(d) he absents himself from three consecutive meetings of the Board of directors, or from all meetings of the Board for a continuous period of three months, whichever is longer, without obtaining leave of absence from the Board;

(e) he, or any firm of which he is partner or any private company of which he is a director, accepts a loan, or any guarantee or security for a loan, from the

company in contravention of Section 295;

(fJ he acts in contravention of section 299;

(g) he becomes disqualified by an order of Court under Section 203; and (11) he is removed in pursuance of Section 284.

Certain practical difficulties with respect to appointment of small shareholders’ director

1. As per the Companies (Appointment of Small Shareholders’ Director) Rules, 2001, the appointment of small shareholders’ director has to be supported

by 1 /10^th of the total number of small shareholders, which is an onerous requirement. Only investors who are part of a strong investor association will

be able to mobilize such support and apply for directorship. However, there are only a few investor associations with a membership of a few hundreds.

The notice seeking such an appointment requires at least 100 signatories support. To find one hundred amongst their numbers who own shares of a

particular company would be even more difficult. In many cases signatures of more than 100 shareholders may be required, as at least l/lOth of the total

number of small shareholders have to support the move for appointment of small shareholders’ director. In case of a company which has 10,000 small

shareholders, at least 1 / 10^th, Le., 1,000 shareholders have to support his move, a number which would be very difficult to mobilize. Due to spread of the

equity cult, there are many companies in which the number of small

. shareholders may be in lakhs; for them this provision may be unworkable. Again, though Section 252 and aforesaid rules are also applicable to unlisted

public companies, in reality only a few unlisted companies are likely to have 1,000 or more small shareholders.