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Directors retire by rotation

Legal Provision Section 152(6) of the Companies Act, 2013 read with rules Companies (appointment and qualification of directors) Rules, 2014 as amended thereto, if any, deals with the provision related to Rotational and Non-Rotational Directors.

Meaning of Rotational and Non Rotational Directors

Rotational Director

Rotational directors are those directors whose period of office is liable to retire by rotation in every Annual General Meeting and eligible for reappointment accordance with the provision of section 152 of the Companies Act, 2013 Rotational directors are also known as retiring directors or temporary directors.

Non Rotational Director

Non Rotational directors are those directors whose period of office is not liable to retire by rotation. They are Generally appointed By Articles of Association of the company. they are generally appointed for a fixed term or permanent in nature or otherwise. that is why, they are also known non-retiring /permanent directors.

Section 152(6) is applicable on public companies which means private companies are out of the ambit of retirement ,by rotation.

It states that unless it is provided by the articles of the company, 2/3rd directors are liable to retire by rotation and 1/3rd are liable to retire at every general meeting after the meeting at which first directors are appointed.

Any fraction in 2/3rd will be rounded off to the next number as rounding it off to the nearest number will sometime results in contravention of 2/3rd value.

Any fraction in 1/3rd will be rounded off to nearest number(specified in the act itself)

The retiring directors can be re-appointed by shareholders by casting votes in favour in excess of votes casted against the resolution.

Further, Independent directors and Nominee directors are excluded from the calculation of 2/3rd. A small shareholder director will always be a non rotational direction. He will be counted in 2/3rd but cannot be retired by rotation.fi

1/3rd directors which are liable to retire at AGM will be decided by FIFO method. The one who is longest in the office will be reitred first. If 2 or more directors are appointed on same day then it will be decided by draw of lot.

Let us take a situation:

Suppose there are total 15 directors in a public(unlisted company), 4 of which are independent, 7 of them are executive and 4 are non executive and non independent.

For calculating 2/3rd independent directors are not included in the calculation. So 11*2/3 will be 7.333. It will be rounded off to next number 8. 8 directors are retiring by rotation.

Out of these 8 directors 1/3rd are liable to retire in every AGM. 1/3rd of 8 is 2.666. So 3 directors shall retire at every AGM. Directors can be appointed by shareholders by majority.

Now which 3 directors are liable to retire at the AGM firstly? The directors which are holding office longest will go for retiring firstly. After their re-appointment or retirement, at next AGM, the next 3 directors who are holding office for longest will be liable for retirement.

Assume that these directors are standing in a line in such an order that the person who is holding office for longer when compared to other directors will stand first and the director who is holding office for minimum period of time will be standing at last.

Now the one who is re-appointed will go at last behind the person who has held office for the shortest duration and the one is retired will leave the line. And subsequently this cycle will continue.

Example: 

A Ltd. has total 11 rotational directors. Out of directors liable to retire by rotation, director that will retire at the AGM but eligible for reappointment will be _____.

A 3

B 4

C 5

D 6

Answer

Correct option is B 4

At least two-thirds of the Directors of a public company or of a private company subsidiary of a public company have to retire by rotation and the term "rotational Director" refers to such Directors who have to retire and one-third of these two-thirds of directors may be eligible for re-appointment at the end of his or her tenure. Therefore, A Ltd. had 11 rotational directors and hence out of directors liable to retire by rotation director that will retire at the AGM but eligible for reappointment will be 1/3 of 11 i.e. 3.67 rounded off to 4.

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