Women Directors in Company Law

Abstract: The Companies Act, 2013 saw the introduction of several new additions to the
existing company law jurisprudence through introduction of several new concepts such as
Corporate Social Responsibility, One Person Company, class action suits, etc. One such
important addition was the requirement of appointment of at least one woman director on
the Board under Section 149(1). In this era where the issue of gender balance is in the
forefront of world discussions, this is a significant step towards gender equality in the
corporate governance. This article seeks to study the need of this legislation and also sheds
light on a few deficiencies and shortcomings of the current provision with the help of case
studies and comparative analysis with similar provisions across various jurisdictions in
different countries.

Introduction:

Article 14 of the Constitution of India provides for the fundamental right of equality before
the law including gender equality. While ‘equality’ would be the final desired goal there are
various steps which are required to be taken to reach this goal. In the past decade there have
been several measures which have been taken to promote the role of women in the corporate
sphere. The guidelines laid down by the Supreme Court in the Vishaka Case1 later gave way
to the enactment of the Sexual Harassment of Women (Prevention, Prohibition, Redressal)
Act. While there have been various advancements for promotion of women in workplace,
there has always remained a huge gap when it comes to role of women in leadership
promotions. The Companies Act, 2013 made an attempt to diminish this gap by
implementation of Section 149(1)2.

Provision:

The second proviso of Section 149(1) provides for the appointment of at least one woman
director on the Board for certain classes of companies. Rule 3 of the Companies

1
Vishaka and others v. State Rajasthan, AIR 1997 S.C. 3011
2
The Companies Act, 2013, Section 149(1).

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(Appointment and Qualifications of Directors) Rules, 2014 specifies the classes of the
companies. This includes every listed company and every other public company having a
paid-up share capital of one hundred crore rupees or more or turnover of three hundred crore
rupees or more.

The companies incorporated under the Act are granted a period of six months from the date
of the incorporation. The existing companies had to fulfil the requirement within one year of
enactment of the provision. 3

Further, any intermittent vacancy of a woman director is to be filled- up by the board of at the
earliest but not later than immediate next Board meeting or three months from the date of
such vacancy whichever is later.4 In the recent case of Tejas Networks Ltd.5, where there was
a delay in appointing woman director and prosecution against company and its officers was
initiated by the Registrar of Companies before Special Court for the violation, on company’s
application for compounding of offence, same was permitted by levying compounding fees
even though prosecution launched was pending before the Special Court for the said
violation.6

This provision was added because of the lack of representation of women at leadership
positions in the corporate sector. The enactment of the section is aimed towards paving the
gender gap in corporate governance.

The companies are bound to comply with the provisions under Section 450 of the Companies
Act and companies listed under SEBI are bound by Section 49 of the Equity Listing
Agreement. SEBI also released a circular making it mandatory to have at least one woman
director. Failure to comply with the provision would result in disciplinary actions.7

Representation of women in Board of Directors in various countries:

Gender diversity is a very important topic worldwide. Several countries have imposed
legislations and reservations to promote role of women in corporate governance.

3
A. Ramaiya, Guide to Companies Act (18th ed. Wadhwaand Company, Nagpur 2015)
4
G K Kapoor & Sanjay Dhamija, Company Law & Practice, (24th ed. Taxmann, New Delhi 2019)
5
re [2017] 77 taxmann.com 255 (NCLT Bangalore)
6
Taxman’s, Company Law and Practice, 464-65 (24th ed. 2019)
7
Vaibhavi Tadwalkar, Soundarya Lahari Vedula, ‘Representation of Women on the Board of Directors under
Companies Act 2013’, Christ University Law Journal 4,33-47 (2015).

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Norway was one of the first countries globally to impose a gender quota requirement for
corporate board membership to 40%. Although the provision was initially voluntary, later it
was made mandatory as penalty was imposed. In 2010, France also made a 40% reservation
for women on the Board compulsory for some of its largest companies. In 2011, Italy
enforced a requirement of 33% quota for women for all the public companies. The European
Commission in 2013 made a proposal for 40% representation in public companies.8

United States does not have a legislation at the federal level. However various States have
implemented their own legislations. In 2013, state of California passed a resolution which
encouraged public companies to have one to three women directors on their board by the year
2016. However on the other hand, several countries like Japan and China still have no such
requirements and therefore show underrepresentation of women at executive posts.9

Several researches have indicated that companies which have women on their board show a
better financial performance and returns.10 Experts also believe that female directors provide
for a greater impetus for change in times of good performance.11

Issues, Shortcomings and Case Studies:

While the provision introduced in the Companies Act 2013, is a major step by India towards
bridging the gap between genders in the boardroom it has several shortfalls.

Many companies have implemented the provision by employing their female relatives/
friends.12

For example, after the enactment of the provision Reliance Industries introduced Mrs. Nita
Ambani wife of the chairman Mukesh Ambani as the new director. Several other companies

8
Vaibhavi Tadwalkar, Soundarya Lahari Vedula, ‘Representation of Women on the Board of Directors under
Companies Act 2013’, Christ University Law Journal 4,33-47 (2015).
9
Arti Sharma, ‘Structure and powers of Board of Directors of Public and Private Companies- How far
Significant for Corporate Governance comparison between India and other common law countries, accessed on
22nd January, 2020 at http://thelawbrigade.com/wp-content/uploads/2019/05/Arti.pdf
10
Siri Terjesen, Ruth Sealy, Val Singh, ‘ Women Directors on Corporate Boards: A review and Research
Agenda, Internation Review, 2009, 17(3), 320 – 337
11
Dr. Rajesh Kumar Agarwal, ‘A study on Appointemnt of Women Directors by Companies’, International
Journal of Ethics in Engineering & Management Education, Vol 2, issue 10, October 2015.
12
Richa Bhattacharya, ‘ Gender diversity on board improves, but more ground needs to be covered, The
Economic Times, February 19, 2018, accessed at
https://economictimes.indiatimes.com/news/company/corporate-trends/gender-diversity-on-boards-improves-
but-more-ground-needs-to-be-covered-experts/articleshow/62988324.cms?from=mdr

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have followed similar footsteps. Other companies like Asian Paints, Raymond, Kirloskar
Engines have also appointed the family members to fulfil the requirement of the woman
director. This is a loophole which is often abused by companies. This prevents the legislation
from serving its intended purpose. The law commission therefore recommended the
implementation of a ‘independent woman director’ which is yet to be implemented.

The other side of strict implementation of this legislation is that companies may appoint
undeserving candidates as by virtue of being a woman for fulfilment of the requirement.

Conclusion:

Introduction of Section 149(1) in the Companies Act 2013 is an important step by India
towards paving the gender bridge which exists in the corporate governance. This was an
important step as there has been lack of sufficient representation of women in the senior level
positions in the companies.

In this article, we have discussed several issues that are apparent in this enactment as there is
an abuse of possibilities by the companies because of which rationale behind enforcing this
legislation is often negated. There is a need for stricter guidelines and provisions for the
appointment of women in the Board of Directors. The suggestion of having at least one
independent woman director should also be duly considered. Stricter guidelines and penalties
should also be implemented for noncompliance. Also, the provision for the women director
should not only be made for listed companies which satisfy the classification requirement but
all other companies to ensure good governance.

Also, despite the provision, the real necessity is for a cultural change in the mind-set of the
society to encourage women. In this era of progress, gender equality is essential to enhance
the development of role of women to contribute to the development of the country.

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