Understanding the Mandate to Appoint Women Directors Under Indian Company Law

Posted by Written by Melissa Cyrill Reading Time: 6 minutes

Each Indian company is required to maintain a minimum number of directors under law. The Companies Act of 2013 introduced the appointment of women directors to the Board of Directors (the Board) of certain classes of companies.

The highest-level decision-making and governance responsibilities within any company are entrusted to its Board of Directors. Directors thus play a pivotal role in overseeing company management.

Provisions pertaining to the role of women directors in a company are addressed in Section 149 of the Companies Act, 2013, and the Companies (Appointment and Qualifications of Directors) Rules, 2014.

It is important to recognize that while the law mandates the inclusion of a woman director, whether independent or otherwise, the significance of this requirement should be acknowledged in the broader context of the positive impact a woman on the board brings to the company culture and overall performance.

India’s compliance record

A decade after the implementation of the Companies Act 2013, which mandated at least one woman director on company boards, Nifty-500 companies have an average of one in five board members being women – 223 Nifty-500 companies have only one woman director. The Nifty-500 is India’s first broad-based stock market index, encompassing the top 500 listed companies on the National Stock Exchange.

Find Business Support
Corporate Establishment and Governance Advisory

According to research from Prime Database, the ratio was one woman director for every eight board members in 2018, while a decade ago, it stood at one woman director for every 20 members. Out of 4,783 directors, there are 885 women that cumulatively sit on the boards of Nifty-500 companies.

Companies with the highest women representation on their Board include Apollo Hospitals (6 women directors out of 11 board directors), Zomato (4 out of 7), Cummins India (5 out of 9), Nestle India (4 out of 8). Companies with the lowest representation include L&T (1 woman director where the Board size is 19), LIC (1 out of 15), Page Industries (1 out of 15). 

Per reporting in the Economic Times, globally, one in three S&P 500 company board directors are women, driven not by legal mandates but by investor pressure and company initiatives for increased gender diversity. The UK-backed Hampton-Alexander Review has proposed a target of 40% women representation on FTSE-350 company boards by the end of 2025.

READ: Understanding the Role of Independent Directors in Indian Companies

Companies in India where it is mandatory to have a woman director

The second clause in Section 149(1) of the Companies Act, 2013 mandates that a specific category of companies (as delineated in the Rules) must include at least one woman director on their boards. Rule 3 of the Rules stipulates that the following categories of companies are obligated to appoint at least one woman director:

  • Every listed company
  • Every other public company with either:
  • Paid-up share capital of INR 1 billion (approx. US$12 million) or more; or
  • Turnover of INR 3 billion (approx. US$36.02 million) or more

Upon meeting the aforementioned criteria, a company is required to appoint a woman director to its board within six months from the date of fulfillment of these conditions. The determination of paid-up share capital or turnover is based on the figures from the last date of the latest audited financial statements.

Find Business Support
De-Risk Your Business with Multi-disciplinary Review and Legal Advisory

Any intermittent vacancy of a woman director should be promptly filled by the Board, no later than the immediate next Board meeting or within three months from the date of the vacancy, whichever occurs later.

Regulation 17(1) of the Securities and Exchange Board of India (Listing Obligation Disclosure Requirements), Regulations 2015, mandates that the board of directors of a listed entity must maintain an optimal blend of executive and non-executive directors, including at least one woman director. Additionally, not less than 50 percent of the board of directors should consist of non-executive directors.

Under SEBI LODR regulations, for the top 500 listed entities, it has been obligatory to have at least one independent woman director starting April 1, 2019, and for the top 1000 listed entities, this requirement extends to at least one independent woman director since April 1, 2020. The determination of the top 500 and 1000 entities is based on market capitalization at the end of the immediate previous financial year.

READ: New Disclosure and Compliance Obligations for Listed Companies in India

Appointment process

The process for appointing a woman director is as follows:

  • The proposed woman director must submit her consent to act as a director in the company using the prescribed Form DIR-2 and file an intimation about her disqualification in Form DIR-8 with the company.
  • The company should conduct a general meeting and obtain shareholders’ approval for the appointment of the woman director through a resolution.
  • In the case of listed companies, the company must disclose the general meeting proceedings to the stock exchange within 24 hours of the conclusion of the general meeting and post it on its website within two working days.
  • After the appointment of the woman director through a resolution in the general meeting, the company should file the following forms with the Registrar of Companies (ROC):
  1. Form MGT-14 within 30 days of passing the resolution in the general meeting.
  2. Form DIR-12 regarding the particulars of the appointment of a woman director within 30 days of such appointment.
  • The company should make the necessary entries in the director and key managerial personnel register and the register of contracts in which the woman director is interested in Form MBP-4.
  • The company board must fill any intermittent vacancy of a woman director within three months from the date of the vacancy or the next board meeting, whichever is earlier. A woman director can be a non-executive director or an executive director.

Key provisions pertaining to the appointment and qualification of directors, including independent directors, are outlined in the Act. Any individual appointed as a Director or Independent Director to the Board is obligated to adhere to these provisions upon accepting the position. The necessary requirements that must be observed include:

  • Section 149 – Requirement for a company to establish a board of directors
  • Section 150 – Procedures for the appointment of independent directors and the establishment and maintenance of an independent director databank
  • Section 152 – Appointment of directors
  • Sections 154 to 158 – Allocation and notification of DIN (Director Identification Number)
  • Section 164 – Disqualification criteria for directorship appointment
  • Section 165 – Limit on the number of directorships
  • Section 166 – Duties of directors (Although duties of the directors and the independent directors are widely spread under the whole Companies Act, 2013. For example, Section 134 – Financial Statement, Board’s report; Section 173 – Meetings of the Board; Section 174- Quorum; Section 175 – Passing of Resolutions by Circulation.)
  • Section 168 – Resignation of director
  • Section 169 – Removal of director

Tenure

Find Business Support
Gain the Intelligence Needed to Make Informed Decisions for Your Asia Business

The tenure of the appointment of a woman director is until the next annual general meeting (AGM) from the date of appointment. She is eligible for reappointment at the general meeting. However, the tenure of a woman director is subject to retirement by rotation as per Section 152(6) of the Act, which is applicable to other directors. The woman director can also resign at any time by providing notice to the company.

Penalty for non-compliance

The penalty provision under Section 172 of the Companies Act, 2013 applies in case of non-compliance regarding the appointment of a woman director. Section 172 of the Act stipulates that the company and every officer in default will be penalized with a fine ranging from INR 50,000 (US$600.43) to INR 500,000 (US$6004.30).

Per reporting in the Economic Times, over two months, the Ministry of Corporate Affairs (MCA) has penalized four companies for their failure to adhere to the prescribed timelines in appointing female directors, as outlined in the Companies (Appointment and Qualification of Directors) Rules. This enforcement, targeting three private companies and one under the governance of the Maharashtra government, reflects an intensified effort to address such shortcomings and improve gender diversity in boardrooms.

Since mid-October, the Registrar of Companies (RoC) under the MCA has levied fines of INR 485,000 (US$5,824.31) each on JM Financial Properties and Holdings, Shankar Packagings, and Krishna Solvechem, along with certain key executives associated with these companies. MSRDC Sea Link, a wholly-owned subsidiary of the Maharashtra State Road Development Corporation, has incurred a penalty of INR 185,000 (US$2,221.64).

Other considerations

Section 165 of the Companies Act stipulates limitations on the number of directorships an individual can hold simultaneously. A person is restricted from holding office as a director, including any alternate directorship, in more than twenty companies concurrently. It is important to note that, when determining the limit of twenty directorships, directorship in a dormant company is not considered.

Furthermore, there is a specific restriction on the maximum number of public companies in which a person can serve as a director, capped at 10. In computing this limit, directorships in private companies that function as either the holding or subsidiary company of a public company are included. This provision ensures a balanced and manageable distribution of directorial responsibilities.

[US$1=INR 83.27]

About Us

India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Delhi and Mumbai. Readers may write to india@dezshira.com for more support on doing business in India.

We also maintain offices or have alliance partners assisting foreign investors in Indonesia, Singapore, Vietnam, Philippines, Malaysia, Thailand, Italy, Germany, and the United States, in addition to practices in Bangladesh and Russia.