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Position of Women Directors under the Company Act

Position of Women Directors under the Company Act.

Abstract

In the aftermath of various Corporate frauds and scandals like Enron, Satyam and others, the need for better Corporate Governance for significant. There was a need to institute change at the top level of the organization. the same was coupled by a need for inclusion of female representation in the corporate sector. The patriarchal methods of doing business needed a change and thus when the parliament introduced the need for women director for certain companies, there was a sudden upsurge in the need for competent female professionals who could fill in those positions. Even though the legislation aimed at improving Corporate Governance by inclusion of females in the decision-making process, the same couldn’t be perfectly achieved as most of the corporate tycoons opted for bring female members of the same family to the board which even though resulted in the inclusion of female members on the board but necessarily not their perspective. In the instant essay, the author analyses the provisions related to female representation on the board along with its benefits and lacunas.

Key words – Women director, board, gender, corporate governance

Introduction

Since the dawn of time, the traditional Indian mindset has restricted the role of women to take care of household activities, family and children. It took a long time for the society to accept that women had a role to play outside the four walls of the house as well.

The Companies Act 2013 [hereafter referred to as the Act] through its revolutionary provisions under Section 149(1)[2] worked towards gender equality and female representation at the decision-making level. The second proviso of the Section 149(1) talks about a specific class of companies which need to appoint women directors, this means that not all the companies need to have women directors on their board. The companies which are covered under the law will be discussed in the subsequent section along with other questions and points for deliberation on the female directors on the board of the company.

Review of provisions

We would first address the question raised in the previous section that which companies are covered under the Section 149 of the Act.

Companies which need to have a woman director

As stated under the second proviso of Section 149(1), certain classes of company should have at least one-woman director. The Rule 3 of the Companies Rule, 2014[3] states the classes of companies which are being referred to under the second proviso,

  • Every listed company[4]
  • Every public company having:
  • A paid-up share capital of rupees one hundred crore or more;
  • Turnover of three hundred crore or more

It is pertinent to note that apart from Public Companies, even Private Companies can be mandated to have women director[5]. This is because a Private Company which is a subsidiary of a Public Company can also be considered as a Public Company for compliance with the provisions of the Act[6]. So, when a Private Company is a subsidiary of a Public Company which is covered under the Rule 3 of Companies Rule, 2014, then the Private company would also require to appoint at least one-woman director.

This is a new provision, as there was no need for a women director in the Companies Act, 1956. So, a question which may arise as to the what would be the course in case of non-compliance with the provision.

Failure to comply with the Second proviso of Section 149(1)

Non-appointment of a Woman Director in compliance with the provision of the Act, would call for an application of compounding of offence by the company[7]. Whereby the company would file an application to the Registrar of Companies[8]. Even though the non-compliance was because of the omission on part of the Board, it is accepted if the application is made by the company and a few of the directors[9].     

Vacancy in the position of woman director

During the course of business if the position of the office of the woman director becomes vacant, then the board would be required to fill the same at the earliest and at the latest before  the next board meeting or three months from the date of vacancy of the position, whichever is later[10].

Role and Responsibilities of Women directors

The role and responsibilities of the Women directors is no different than their male counterparts. They are expected to bring a different perspective to the discussion and make sure that the decision made are judicial to all sections of the society. They can be present on the board in the capacity of an independent director or a nominee director as well.

The presence of a female director will also ensure that the internal business policies formulated are non-detrimental to the interest or needs of the female employees. But does this provision apply to all companies as covered by the legislature and there is no exclusion to the same?

Exceptions

The requirement of having a woman director is to promote a culture of inclusion and representation in the Board of Directors. This particular requirement has been given an exemption if the company is set up under the Special Economic Zone Act, 2005[11].

If an Unlisted Public Company, licensed by the RBI, SEBI or IRDA is located in an approved SEZ, then the requirement of compulsory Woman Director under Section 149 wouldn’t apply.

Woman Director as an Independent Director

The Companies Act mandates certain companies to appoint an independent director[12]. The purpose of these Independent Directors is to ensure that the organization not only works towards profit maximization but also keep in check on the shareholders welfare[13]. Thus, it becomes important that these independent directors do not have any pecuniary relationship with the company and they do not have any relative who has pecuniary relationship with the company[14].

Generally, there is a confusion as to the role of the Woman Director as an Independent Director. This confusion arises as a result of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 which states the top 1000 listed companies should now have at least one-woman independent director on the Board of Director.

If the company does not fall within the top 1000 listed company, then they need not have an Independent Woman Director, they would only have to comply with the requirement of having a Woman Director under the Companies Act.

Critical Analysis

The author believes the intent of the legislator behind bringing this change is to promote three things,

  1. Women representation in the Boardrooms
  2. Gender equality for opportunities
  3. Broader perspective in decision making

Women representation in Boardrooms

As a result of this progressive legislation, there has definitely been a drastic change in the involvement of female professionals in the Indian corporate boardrooms. The immediate impact of the legislation resulted in a growth of female representation to 17% from mere 6% in the year 2014[15].  

Gender equality for opportunities

The Companies Act 2013 challenges the age-old Patriarchal practices and further ensure the constitutional principle of equality by ensuring women participation in decision making at various levels[16]. Corporate are not just a unit of capitalism but a body which should bring both economic and societal changes and the same needs to start at the top of the organization by uplifting and empowering women[17].

Prior to the enactment of the new Act, the International Labour Organization ranked India at position number 120 in terms of the female labour participation[18]. This showed that there was an urgent need for legislative action to promote the female participation in the corporate sector, and the same had to start at the top so that it could have a trickle-down effect to the bottom.

Broader perspective in decision making

The intent of the parliament was definitely to increase inclusion of views and perspectives, but the corporate mindset of having restricted access to the seat where decisions are made, results in the corporate leaders appointing their own female relatives to the Board, which defeats one of the purposes of broad representation and perspective in the boardroom where the decisions are made. The strong patriarchal background would not allow the related female directors to have an independent personal opinion and thus just resulting in an additional member in the boardroom not an additional point of view.

This is the reason, the effectiveness of the requirement of Independent Woman Director under SEBI (LODR) Regulations would serve the purpose of upliftment and representation better. This ensures that the women director does not have any pressure or issue with placing forward her own view and demanding to be heard.  

The MCA has been deliberating upon introducing penal provisions for the non-compliance with the prescribed requirements under second proviso of Section 149[19], but it has not accepted the same yet.

Conclusion

Section 149(1) is definitely a step towards achieving gender equality in Indian Corporate sector. It has shown promise in uplifting women representation at the top level of the company but it would take time for the patriarchy driven corporate sector to accept that women can also contribute equally if not more when compared to their male counterparts, its important to give it some time to show some effective change.

The century old business practices cannot be changed within just a few years and thus the law makers and regulators need to be on watch at all times to ensure that none of the incidence of non-compliance is left without recursions. There is a need for increasing the compulsory female representation on the Board of Directors[20].

Further the Companies Act Provisions need to take inspiration from the LODR Regulations and promote women independent directors as that would result in real inclusion of women in decision, they would be able to present their own point and it won’t be just the female members of the same family who get a place on the board, resulting in the male members having more members of their family in order to comply with regulations.


[1] Student, Symbiosis Law School, Pune

[2] Companies Act, 2013, No. 18, Acts of Parliament, 2013

[3] Companies (Appointment and qualifications of Directors) Rules, 2014, Rule 3, (India)

[4] Section 2(52), Companies Act 2013

[5] Ramaiya, A., Guide to the Companies Act, 19th Edition, Lexis Nexis, 2020, Volume 2

[6] Section 2(71), Companies Act 2013

[7] Jalpower Corporation Ltd v Registrar of companies, (138 SCL 124) (NCLT-Hyd.)

[8] Section 441, Companies Act 2013

[9] Tejas Network Ltd, Re., 139 SCL.322(NCLT Bang.)

[10] Ramanujam, S., “6 Changes in the Companies Act, 2013 – Is it for the better?”, 4th Edition, Lexis Nexis, 2014

[11] Special Economic Zone, 2005, Notification No. GSR 8(E), (India)

[12] Section 149(4), Companies Act 2013

[13] Suneeth Katarki, Criteria For Independent Directors: Who Can Be?, Mondaq, (Last Accessed: 19/05.2021 15:23) https://www.mondaq.com/india/shareholders/377048/criteria-for-independent-directors-who-can-be

[14] Section 149(6), Companies Act 2013

[15] Jayshree Upadhyay, Regulatory nudge brings in gender diversity in board rooms, LiveMint, (Last accessed: 20/05/2021 18:29) https://www.livemint.com/companies/news/regulatory-nudge-brings-in-gender-diversity-in-board-rooms-iias-11590406703442.html

[16] STANDING COMMITTEE ON FINANCE (2011-12) FIFTEENTH LOK SABHA Ministry of Corporate Affairs THE COMPANIES BILL, 2011 FIFTY-SEVENTH REPORT

[17] IOSR Journal of Business and Management (IOSR-JBM) e-ISSN: 2278-487X, p-ISSN: 2319-7668. Volume 19, Issue 1. Ver. III (Jan. 2017), PP 59-64 http://www.iosrjournals.org/iosr-jbm/papers/Vol19-issue1/Version-3/H1901035964.pdf  

[18] Malika Basu, Ravi Peiris, Women in Leadership and Management in Public Sector Undertakings in India, International Labour Organisation, available at https://www.ilo.org/wcmsp5/groups/public/—asia/—ro-bangkok/—sro-new_delhi/documents/publication/wcms_632553.pdf

[19] Report of The Companies Law Committee February 2016, MCA

[20] Gayathri Balasubramnian, Mandatory Appointment of Woman Director under Companies Act, 2013: A Feminist Critique (Last accessed 20/05.2021 18:03)  https://www.lawctopus.com/academike/women-director-ca/#_ednref15

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