Thursday, January 3, 2008

. State the provisions of the Companies Act, 1956 relating to retirement of directors by rotation. In what manner does retirement of directors by

What is the maximum number of directors who can be appointed in a public company on non-rotational basis, i.e., not subject to retirement in an annual general meeting? How is the appointment of such directors regulated in a private company?

Ylns. A company may have two types of directors-retiring and non-retiring. According to the Companies Act, unless the Articles provide for the retirement

of all the directors at every annual general meeting, at least 2/3rds of the total number of directors must retire by rotation. The rest will be non-retiring

directors [Sec. 255]. Thus, the strength of non-rotational directors can in no case be more than 1/3rd of the total number of directors.

Regarding the manner in which the retirement of directors by rotation and filling up

of these vacancies will take place, Section 256 of the Companies Act provides as follows:

At the first annual general meeting of shareholders and at each subsequent annual general meeting, 1/3rd of the retiring directors or the number nearest to

1/3rd must retire by rotation. The retirement will take place in order of seniority, i.e., the longest in office shall retire first. In case of directors appointed on

the same date, the order of retirement will be determined by mutual agreement or by draw of lots. All retiring directors shall, however, be eligible for


To illustrate, if a company has a total strength of nine directors and Articles do not

provide for retirement of all of them, then 2/3rds, i.e., 6 of them must be retiring directors. The other 3 shall be non-retiring directors. At the first annual

general meeting (AGM) and at each subsequent AGM, 1/3rd of them or the number nearest to 1 /3rd, in this case 2 directors, shall retire by rotation and

the vacancies filled up by election.

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