Retirement of directors by rotation

The concept “retirement of directors by rotation” is not applicable to private Companies provided there is no provision in the Articles of Association. According to the Companies Act, 1956, unless the Articles provided for the retirement of all directors at every Annual General Meeting, at least 2/3 of the total number of directors must retire by rotation. (in this blog there is an article “whether Managing Director is liable to retire by rotation” ).  The rest (1/3rd) will be non-retiring directors(permanent). Thus, the total strength of non-rotational directors in no case be more than one third of the total strength.

If there are 15 directors in a Company, 5 directors (1/3rd) are non-rotational directors and 10 directors are liable to retire by rotation.

The Companies Act, 1956 explain the manner in which the retirement of directors by rotation and filling up these vacancies through Section 256.

At the first Annual General Meeting held after the appointment of first directors and at each subsequent Annual General Meeting, one third of the retiring directors,(one third of two third of the total strength) must retire by rotation. The A G M can reappoint them or appoint some others in their places.

The longest in office shall retire first.

If the dates of appointments are same, then the order of retirement is determined by mutual agreement or by draw of lots.

Retiring directors are eligible for reelection.

According to Section  256(4) of the Companies Act, 1956, the retiring directors shall be deemed to be reappointed, if

i.        The A G M fails to fill up the vacancy due to retirement by rotation and adjourned ;

ii.        The adjourned meeting also fails to fill the vacancy due to retirement; and

iii.        It was not expressly resolved not to fill the vacancy.

Such automatic reappointment shall not be taken place, if:

a.    A resolution for reappointment of such Director has been put to vote and lost;

b.    Such Director informed his unwillingness to be a Director to the Board or Company in writing;

c.    He is disqualified for such appointment;

d.   If a specific resolution required for his appointment or re appointment.

e.    Section 263(2) is applicable (appointment of two or more directors by a single resolution).

A Director, who is liable to retire by rotation, cannot continue to be a Director on the reason that the Annual General Meeting has not been held. Such a Director has to be in office to the last day on which the AG M should have been held as required by the Act (Section 166).

The concept of retirement of directors by rotation is not applicable to Government Companies (please see the Article “Government Companies” in this blog)

Important Points:

Since Additional directors hold office only up to the next A G M, they are not liable to retire by rotation.