The first step toward diversity and equity, especially toward gender, is to include women in the boardroom of a corporation. It is because of this provision in the Indian Company Law providing for the composition of certain categories of companies to include women directors, and the most vital aspect of the makeup of any board apart from the valuable perspectives and expertise of the women leaders. In that respect, legislation was designed to make places of work more inclusive as well as recognize diverse boards that result in better corporate governance.
This article discusses the legal mandate for the appointment of women directors, the applicability of the mandate, the process of appointment, tenure specifics, and the implication of non-compliance. Briefly, it addresses some key aspects of such a regulation that a company must keep in its compliance structure to balance board structures and get this board in all respects as the legal entity.
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Applicability of Woman Director in Company Law
According to the Companies Act 2013, Section 149, one woman director in the company is compulsory, and some kinds of companies include:
Listed Companies: Any company listed on a stock exchange shall have at least one woman director.
Public Companies with High Paid-up Capital and Turnover: A public company with a paid-up share capital of Rs 100 crore or more, or a public company having an annual turnover of Rs 300 crore or more, is also required to have one or more women directors, as mentioned above.
This requirement will increase the percentage of women sitting on corporate boards, enhance further diversity, and make overall better decision-making practices in companies. Companies that satisfy the criteria need to take up the provisions; otherwise, there are penalties and other follow-ups from the concerned authorities.
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Appointment of Woman Director
The appointment of a woman director to the companies above needs to follow a systemized process:
Identification and Nomination: Companies that are eligible nominate an appropriate woman director for the board through a Committee on Nomination and Remuneration. The committee would take care that the nominated lady director is compatible with company values and fulfills legal requirements.
Board Approval: The board has to sanction the appointment of a lady director by holding a meeting. In the meeting, the board would discuss how suitable, experienced, or credentialed that woman director is.
Shareholder Approval: This depends on the type of appointment, especially if the woman director is an independent director. In that case, shareholder approval is required through an Ordinary or Special Resolution, depending on the terms of her appointment.
The appointment is recorded in the company's records and filed with the Registrar of Companies (ROC) using prescribed forms, ensuring the details are transparent and legally compliant.
Read the history of company law in India.
Tenure of Women Directors
The tenures of a woman director, depending on the capacity through which they serve on the board, are as follows:
Independent Woman Directors: An independent woman director's term shall be five years from the date of first appointment. They may be further extended by another term of five years upon board and shareholder approval. The independent woman director shall, under law, observe a three-year cooling-off period before such reappointment in the same company after two consecutive terms.
Non-Independent Woman Directors: If a woman director is appointed in a non-independent capacity, her tenure will be on the terms laid down by the Articles of Association or the board. Usually, her tenure would be in accordance with the internal policies of the company, which specify her duration on the board.
The Company Law introduces fixed terms for independent woman directors; this would make a systematic way for the company to periodically refresh diverse perspectives within corporate governance.
Duties and Responsibilities of Women Directors
Women directors share equal burdens on the board just like their male counterparts. Some of their key duties and responsibilities include:
Adherence to the Corporate Governance Standards: These women directors are expected to uphold and promote robust practices of governance, ensuring integrity, transparency, and compliance within the company.
Contributing to Strategic Decisions: As board members, they participate in significant decisions, using their skills and knowledge to contribute towards the growth of the firm.
Legal and Regulatory Compliance Oversight: The directors are supposed to ensure that the company complies with the law. They discuss compliance matters and make efforts to minimize regulatory risks.
Women directors bring unique viewpoints to board discussions; thus, the decisions that result tend to resonate with the various stakeholders and customers.
Penalty in case of Non-Compliance for Appointment of Woman Director
Appointing no woman director within the specified time shall pose a significant penalty:
Company Penalty: The company is liable to be imposed fines. These fines can range from ₹50,000 in case of the first offense to a daily additional fine if the default continues.
Officer's Penalty: Defaulting officers of the company, including directors and executive officers responsible for compliance, are liable to be penalized for failing to fulfill this statutory obligation. This penalty can go up to ₹1,000 per day until the default is rectified.
Such sanctions show how serious the regulation to make a board include female directors is. It acts as a warning to companies, which fail to consider that having diverse boards is not something to be taken lightly.
Exemptions and Special Provisions
A company is exempt from appointing a woman director if:
Private Companies and Small Enterprises: In general, private companies and those whose turnover or capital is below a certain threshold are exempted from appointing a woman director so that the discretion can be exercised according to the size and nature of the company.
Vacancy in Position: If there is a vacancy in the position of a woman director due to resignation, removal, or otherwise, then the company shall fill such vacancy within six months from the date of vacancy.
These exemptions and special provisions ensure that the requirements of law are applied fairly and account for the different capacities of companies.
Know the features of Company Act 2013.
Importance of Women Directors for Corporate Governance
Adding women directors to corporate boards enhances governance in the following ways:
Enhanced Perspective in Decision-Making: Gender diversity on boards has been associated with more balanced and innovative decision-making that ultimately benefits the overall corporate performance.
Better reputation and stakeholder trust: gender-diverse companies are regarded as being forward-thinking, thus strengthening stakeholder trust and also investor relations.
Prevention of Group Think: the boards, being gender diverse, eliminate groupthink and provide an exciting environment questioning assumptions with different views available.
The presence of women directors serves to meet the larger agenda of balanced representation, ensuring a diversified corporate culture responsive to the tenets of society.
Conclusion
In addition to checking the legal boxes, the appointment of women directors on a corporate board serves as another progressive step forward toward gender balance and fair governance in corporate India. Appointment of the women directors does not satisfy only the regulatory needs of the organization but also brings about a healthy and novel environment that best fits modern corporate values.
Companies that meet these requirements will benefit from the different perspectives and management expertise that women bring to the board. This will, in turn, allow companies to boost their reputation, strengthen their governance, and contribute to the greater goal of gender balance.
Women Director in Company Law FAQs
1. What is the minimum number of women directors that can be appointed in India?
At least one woman director must be included in the list of a company and any public company whose paid-up share capital is over ₹ 100 crores and whose turnover is above ₹300 crores or more.
2. Till which year can an independent woman director serve?
An independent woman director can have tenure for up to five years. She can have further continuation up to another period of five years, with a gap of three years for two consecutive terms.
3. What are the penalties for non-compliance with the requirement of having a woman director?
The penalties for non-compliance include a fine of ₹50,000 on the first occasion and, in addition, a daily fine for continued non-compliance. Officers in default will also attract penalties.
4. Is a private company bound to appoint a woman director?
Private companies and other smaller companies below the threshold for capital and turnover are, in general, exempt from the obligation to appoint a woman director.
5. What if a female director resigns or vacates her office?
If the position of a woman director is vacant, then the company shall, within six months, fill that position with a new woman director so that it can continue to comply with the provisions.
