Women Directors: only in letter and not in spirit?

The Companies Act 2013 provides, by virtue of the second proviso to sub-section (1) of section 149, that specified companies shall have at least one woman director. The corresponding rules specify the type of companies to which this law applies to, i.e., listed companies (who are also bound by Clause 49 of the listing agreement), and public companies that have a minimum paid-up share capital of INR 100 crore or a minimum turnover of INR 300 crore. This requirement of having a female director on the board of a company is mandatory for such companies and the stock exchanges have been penalising listed companies for not complying with the said provision on a periodic basis.

But it appears that the law has been interpreted otherwise. Let us consider what BASF India did in August this year at its annual general meeting. After appointing Andrea Frenzel as the woman director on its board, BASF India appointed N.J.Baliga as an alternate director in her place the same day. A domestic proxy firm held such action to be non-compliant with the law as the requirement of one woman director on the company’s board was held mandatory, as per a subsequent news report.

A young lawyer of one of the top law firms in India (not the one that I am associated with) I met with, offered her view in justification of BASF India. According to her, a male director could be appointed as an alternate director to a woman director on the board. Similarly, the converse, i.e., appointing a woman director as an alternate director to satisfy the condition, would also qualify as per the law.

She rationalises in the following manner: Does any provision in the Companies Act, 2013 provide a gender-based qualification (or disqualification) for the appointment of an alternate director? Does Section 149(1) of the Companies Act, 2013, specify whether the woman director be appointed an executive /non-executive director on the board? Strictly speaking, the answers to both these questions could be in the negative. Therefore, her opinion was on the basis of such missing provisions. She even added that she has been advising clients based on this line of thought.

Strictly speaking, her myopic alternate interpretation does not justify the legislative intent behind the provision that seeks to place a woman director on board. In fact, some lawyers argue that such actions, (as observed in the BASF India example above and quite possibly unnoticed in firms to whom my young lawyer friend has been offering her advise), only render lip service to what is a cherished constitutional precept – substantive gender equality. The intent behind the provision has always been clear since the time of its introduction in the Companies Bill wherein it states that this provision should be ‘encouraging more and more women participation in decision making at various levels’.

As on date of this article, there have been no clarifications from the Ministry of Corporate Affairs (MCA) relating to this provision while my lawyer friend continues to maintain her line of advice for some of her clients. To avoid further diffusion of the legislative intent, it is perhaps time for the MCA to issue a clarification.

This story first appeared on yourstory.com

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One comment

  1. Puneet Shah

    In the given context, it may be helpful to carefully analyze section 149 of 2013 Act, the underlying company rules and recently made effective SEBI listing and disclosure regulations which collectively mandates appointment of a woman director for listed and prescribed class or classes of companies. Following arguments can be given in support of a male director’s appointment as alternate to a woman director:
    (a) Unlike the qualification criteria prescribed for an alternate independent director, none of the enacted provisions of 2013 Act or SEBI listing and disclosure regulations suggest that an alternate director to a woman director should be a woman;
    (b) there are no express restrictions under the extant law which prohibits appointment of an executive director as alternate to a non-executive director. In fact, the erstwhile department of company affairs (now, MCA) has clarified in past that a person initially appointed as alternate director could continue as managing or whole-time director as long as he qualifies to be a director of the company;
    (c) historical interpretation to the concept of “alternate director” makes it clear that appointment of alternate director is not an assignment of office of the original director as appointment of an alternate director does not make the office of original director ipso facto vacate;
    (d) alternate director is not a proxy of the original director and he acts on his own. A proxy is created by the concept of agency, whereby the proxy is conferred authority to act by the principal himself. In case of an alternate director, the appointment is made by the company board, at its discretion and not by the original director.
    (e) absence of original director does not tantamount of “intermittent vacancy” which is typically caused by resignation, removal or death of a director. Absence of a woman director from the country for a period exceeding three months and consequent appointment of a male alternate director, does not amount to vacancy of office of woman director. Even after appointment of male alternate director, the office of the original woman director subsists.

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