REC- 1-51.p65 - Rural Electrification Corporation Ltd.
REC- 1-51.p65 - Rural Electrification Corporation Ltd.
REC- 1-51.p65 - Rural Electrification Corporation Ltd.
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14<br />
41st ANNUAL REPORT 2009-10<br />
As mentioned above, the total holdings of all FIIs /sub-accounts put together shall not exceed 24 per cent of the paid-up capital at any<br />
time without passing a resolution of the Board of Directors of <strong>REC</strong> followed by a Special Resolution to that effect by its General Body.<br />
The Reserve Bank of India monitors the ceilings on FII/NRI/PIO investments in Indian companies on a daily basis. For effective<br />
monitoring of foreign investment ceiling limits, the Reserve Bank has fixed cut-off points that are two percentage points lower than<br />
the actual ceilings. The cut-off point, for instance, is fixed at 8 per cent for companies in which NRIs/ PIOs can invest up to 10 per<br />
cent of the company’s paid up capital. The cut-off limit for companies with 24 per cent ceiling is 22 per cent.<br />
Further, RBI vide its Press Release and letter dated 7th July, 2010 has notified that the aggregate net purchase of equity share holdings<br />
in <strong>REC</strong> by FIIs under Protfolio Investment Scheme (PIS) has reached the trigger limit i.e. 22% and further purchase of equity shares<br />
of <strong>REC</strong> in the primary/secondary market would be allowed only after obtaining prior approval of the RBI and in keeping with the<br />
present free float of 33.20% of total paid-up capital of <strong>REC</strong>, it is proposed to seek approval of the General Meeting for increase in<br />
ceiling of holdings of FIIs in <strong>REC</strong>’s Paid-up capital from 24% to 35% so that FIIs can stretch their investment/holding limit up to<br />
33%, against <strong>REC</strong>’s present free-float of 33.20%, without any tirgger limit or restriction from RBI.<br />
As already stated above, any such increase in total shareholding by FIIs beyond 24% of the paid-up capital of <strong>REC</strong> requires approval<br />
of the Board of Directors of <strong>REC</strong>, approval of the General Body by passing a Special Resolution, and also approval of RBI.<br />
The Board of Directors have accorded their consent to the above proposal in its 366th Meeting held on 21st July, 2010 and recommends<br />
the passing of the proposed Special Resolution by members of the Company as contained in the Notice.<br />
None of the Directors is interested or concerned in the proposed Ordinary Resolution.<br />
ITEM NO. 9<br />
The existing provisions of Section 255 of the Companies Act, 1956 relating to “Appointment of directors and proportion of those who are<br />
to retire by rotation”, are reproduced hereunder:<br />
(1) Unless the articles provide for the retirement of all directors at every annual general meeting, not less than two-third of the total<br />
number of directors of a public company, or of a private company which is a subsidiary of a public company, shall-<br />
(a) be persons whose period of office is liable to determination by retirement of directors by rotation; and<br />
(b) save as otherwise expressly provided in this Act, be appointed by the company in general meeting.<br />
(2) The remaining directors in the case of any such company, and the directors generally in the case of a private company which is<br />
not a subsidiary of a public company, shall, in default of and subject to any regulations in the articles of the company, also be<br />
appointed by the company in general meeting.<br />
Existing Article 82 (1) of the Articles of Association (AoA) of <strong>REC</strong> provides that the Chairman/ Chairman and Managing Director of the<br />
Company shall be appointed by the President on such terms and conditions, remuneration and tenure as the President may determine<br />
from time to time. The Chairman/ Chairman and Managing Director so appointed shall not be liable to retire by rotation under Section 255<br />
of the Act.<br />
Further, existing Article 82 (2) of the AoA of <strong>REC</strong> provides that in addition to the Chairman/ Chairman and Managing Director, President<br />
may also appoint Vice Chairman/ Managing Director, Whole-time Functional Director and other Directors in consultation with Chairman/<br />
Chairman and Managing Director. No such consultation will however be necessary in case of appointment of Directors representing the<br />
Govt. The total number of Directors including Chairman/ Chairman and Managing Director/ Vice Chairman/ MD/ Whole-time Functional<br />
Directors and other Directors appointed under this Article shall not exceed 1/3rd of the total number of Directors of the Company and they<br />
shall not be liable to retire by rotation.<br />
The existing Article 82 (3) of the AoA of <strong>REC</strong> provides that the remaining Directors constituting 2/3rd of the Directors, whether Whole-time<br />
Functional Directors or Part-time Official/ Part-time Non Official Directors will be appointed in the General Meeting, in accordance with<br />
the provisions of the Act. The Directors so appointed shall be liable to retire by rotation.<br />
Prior to the Initial Public Offer (IPO) of shares of <strong>REC</strong> in March 2008, the entire paid up share capital of <strong>REC</strong> was held by the Central<br />
Government, and in terms of Govt. Notification No. GSR 906 dated 30-07-1981, Sections 255, 256 and 257 of the Companies Act, 1956<br />
dealing with Appointment of Directors, Ascertainment of Directors retiring by rotation and filling of vacancies thereof were not applicable<br />
to <strong>REC</strong>.<br />
The Chairman and Managing Director, other Whole-time Functional Directors i.e Director (Finance) and Director (Technical) are appointed<br />
by the President of India through the Ministry of Power. Further the Director representing the Government is also appointed by the<br />
President under this Article. In addition to the Whole-time Functional Directors and Director representing the Government, all other<br />
Directors including the Independent Directors are also appointed by the President. Thus, all Directors of <strong>REC</strong> are currently appointed by<br />
the President only.<br />
However the Article 82 (2) states that the total number of Directors including CMD/ Functional Directors, and other Directors shall not<br />
exceed 1/3 rd of the total number of Directors of the Company. The same is not practical as the number of Directors appointed under this<br />
Article exceeds 1/3 rd of the total number of Directors. The said Article 82(2) also states that the Directors appointed under this Article shall<br />
not be liable to retire by rotation. This is also not practical as the provisions of Section 255 of the Companies Act, 1956 require that at least<br />
2/3 rd of the Directors should be those who are liable to retire by rotation.