“Unwomanly” and “arrogant”: These were some of the comments which Valli Arunachalam, the fourth-generation scion of the Murugappa group (Group), would have to face when she presented her candidature for possibly becoming the first woman director at Ambadi Investments Limited (AIL), the holding company of the Group. As Valli rested her candidature on the combined 8.15% stake inherited from her father in light of Vineeta Sharma v. Rakesh Sharma, her campaign came to an abrupt end when 91% of the Board voted against her candidature in its 79th AGM held on 21-9-2020. While such gender disparity scandals on the Boards of Indian family conglomerates are not unheard of, the issue seems grave when viewed in light of the oft-flouted corporate governance policies established for the same with regards to the listed entities.
The policy measures adopted by the Indian Government and the Securities and Exchange Board of India (SEBI) have led to an increment in the number of women Board members in India from a lowly 5% in 2013 to a moderate 15% in 2019. However, Indian companies have rarely inducted more women on their Boards than the minimum stipulated requirement; only 2.2% of the Nifty-500 firms had more than three women in their boardrooms (2019). Despite various studies showing a positive correlation between the number of women in senior positions and the firm’s performance, there were less than 5% women CEOs in India in 2019. As per the NSE (National Stock Exchange) Infobase (data as on 21-4-2021), there are presently only 2044 women directors in NSE-listed companies as compared to 11416 directors in total. 1235 out of 5524 independent directors are female while 75 NSE-listed companies have no women directors on their Boards.
Apropos of the above, the authors have herein tried to highlight the current mandate of gender diversity in Indian boardrooms and the shortfalls in the present framework along with providing probable suggestions to promote gender diversity at the top echelon of Indian corporate structures.
As examined below, the current framework is a mix of statute, rules and guidelines:
(a) The Companies Act, 2013 (Act) first introduced a provision mandating a woman director and laid the groundwork for the beginning of adequate representation in Indian boardrooms. The second proviso to Section 149(1) of the Act specifies that such class or classes of companies as may be prescribed shall have at least one-woman director.
(b) The Companies (Appointment and Qualification of Directors) Rules, 2014 (Rules) elucidates on the statutory provisions enshrined in the Act and specifies the classes of companies that shall have at least one-woman director. As per Rule 3, these are:
- Every listed company.
- Every other public company with either a paid-up capital of INR 100 crores or more, or a turnover of INR 300 crores or more.
A specified company under the provisions of the rule has six months from the date of incorporation to comply with the provisions. Furthermore, in case such a woman director resigns then the company has to fill the vacancy at the earliest but not later than 3 months or the next meeting of the Board, whichever is later.
(c) Section 450 of the Act deals with “punishment where no specific penalty or punishment is provided”. While the second proviso to Section 149(1) and Rule 3 both do not specify any penalty or punishment for non-compliance, Section 450 prescribes punishment for contravention of such provisions. It lays down a structure of fines for companies, officers of such companies or any other person which can extend to INR 2 lakhs for companies and INR 50000 for individuals/officers.
(d) An Equity Listing Agreement is a 54-clause agreement executed between the stock exchange and the entity which is being listed on it. The main purpose of this agreement is to ensure that companies follow good corporate governance practices. The stock exchange on behalf of the market regulator (SEBI) ensures that listed entities comply with the agreement. Clause 49(II)(A)(1) of the agreement specifies that the Board of Directors (BoD) of the company shall have at least one-woman director. The timeline to comply with the same was till 31-3-2015. SEBI vide its circular dated 8-4-2015 prescribed a fine structure for non-compliance with Clause 49(II)(A)(1). Pursuant to this circular, several listed entities were fined by stock exchanges.
(e) The market regulator, SEBI, has a series of regulations to govern and regulate listed entities. Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Regulations) is one such set of regulations used by SEBI to regulate listed entities. Regulation 17(1)(a) provides that a listed entity should have at least one-woman director on its Board.
To facilitate the implementation of these Regulations, SEBI released a circular dated 22-1-2020 on streamlining of fines for non–compliance of listing obligations and disclosure requirements (LODR) by listed entities and standard operating procedure (SoP) for suspension and revocation of trading of specified securities (circular). Annexure I of this circular prescribes a fine of INR 5000 per day for non-compliance by a listed entity with the provisions of Regulation 17(1). As per Annexure II, non-compliance, and non-payment of fine can result in freezing of shares of the promoter(s). Non-compliance with the provisions of Regulation 17(1) for two consecutive quarters can result in the scrip (share/stock of a listed entity) of the entity being placed in category Z. This means that the scrip is suspended from trading and cannot be traded intraday. The scrip is thus traded on a “trade for trade” basis only on selected days which are specified by the regulator. Pursuant to this, a number of entities were fined under a previous version of these SOPs issued in 2018 for not complying with the Regulations.
The way forward
Based on the above regulatory framework, the authors have observed certain areas which, if given further focus, could help in moving the mandate beyond mere representation, towards equality.
(a) The Ministry of Corporate Affairs, by way of a notification dated 4-1-2017 excluded “Specified International Financial Services Centres (IFSC) Companies” from the purview of the second proviso to Section 149(1) of the Act. While the overall purpose of the said notification was to reduce statutory compliances/hurdles that specified IFSC Companies have to deal with, the issue of ensuring adequate representation of women in BoD should not be reduced to something that is looked upon as a mere statutory compliance/hurdle for a company.
(b) As per the second proviso of Rule 3 of the Rules, any intermittent vacancy of a woman director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy, whichever is later. A maximum period of 120 days is permissible between two board meetings. Thus, any intermittent vacancy of a woman director must be filled up between 90-120 days by the Board. However, Annexure II, Paragraph 2 point (a) of the SEBI circular dated 22-1-2020 allows listed companies a period of 180 days (two consecutive quarters) to not comply with LODR Regulation 17(1) before action is initiated for suspension of trading of shares of the said entity. This period in the circular should be reduced to be in consonance with the period stated in Rule 3.
(c) Although the provisions for both independent and women directors are corporate governance measures, however, the dissonance therein is apparent. Rule 3 of the Rules mandates that every public company with either a paid-up capital of INR 100 crores or more or a turnover of INR 300 crores or more must have at least one female director. Rule 4 mandates that every public company with either the paid-up share capital of INR 10 crores or more or turnover of INR 100 crores or more must have independent directors. Thus, in order to widen the base of companies having the gender diversity mandate, it is advisable to lower the pecuniary threshold limits in Rule 3 in a phased manner to a level similar to that in Rule 4.
(d) At present, the Companies Act, associated rules, and SEBI Regulations prescribe one woman director. To increase the number of women directors, this number can be revised to a proportion or a fraction of the Board for certain specified entities.
As is indicated from the aforesaid discussion, a holistic framework has been developed in the nation to encourage the representation of women in key positions at corporates. However, the latest figures given by the NSE suggest a stark contrast between the ideated measures and ground realities. The need of the hour is strict implementation of the above framework and modification of the same to increase compliance and coverage rates.
† 4th year BA, LLB (Hons) student at Rajiv Gandhi National University of Law, Punjab.
†† 4th year BA, LLB (Hons) student at Rajiv Gandhi National University of Law, Punjab.
 (2020) 9 SCC 1
 See, “Murugappa Group Family Feud Rages On; Valli Arunchalam Denied Board Position“
 See, “More Women are Joining Boards but Few Get Corner Office“
 See, IMF Working Paper titled “Gender Diversity in Senior Positions and Firm Performance: Evidence from Europe“
 Supra note 3.
 See, NSE Infobase
 S. 149(1), Companies Act, 2013
 R. 3, The Companies (Appointment and Qualification of Directors) Rules, 2014
 S. 450, Companies Act, 2013
 Cl. 49(II)(A)(1), Equity Listing Agreement
 SEBI Circular dated 8-4-2015
 See, “Woman Directors: 1,375 BSE, 191 NSE Companies Fined for Non-Compliance”
 Regn. 17(1)(a), Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015
 SEBI Circular dated 22-1-2020
 See, “NSE Penalises 250 Companies for Non-Compliance with Listing, Disclosure Norm”
 SEBI Circular dated 3-5-2018
 Ministry of Corporate Affairs Notification dated 4-1-2017
Supra note 15.
 R. 4, Companies (Appointment and Qualification of Directors) Rules, 2014