Section 163 of CA 2013 : Section 163: Option To Adopt Principle Of Proportional Representation For Appointment Of Directors

Explanation using Example

Imagine a technology company, 'FutureTech Pvt. Ltd.', which has a board consisting of 9 directors. The company's Articles of Association include a clause that allows for the appointment of directors based on proportional representation. This means that when it's time to elect directors, the shareholders can ensure that minority interests are represented on the board.

For example, if a group of small shareholders collectively holds a significant portion of shares but not enough to elect a director through a simple majority vote, they can use cumulative voting to pool their votes. This way, they can elect a candidate who represents their interests, ensuring that 6 out of the 9 (two-thirds) directors are appointed this way every three years. If one of these directors resigns before their term is up, FutureTech Pvt. Ltd. would follow the process outlined in section 161(4) to fill the vacancy.