Can a Managing Director vote for his own appointment proposed in ageneral meeting of listed company?

The answer is yes and no. Let’s see how…

According to Companies Act Section 188 & Regulation 23 of SEBI LODR Regulations, 2015 the Related Parties aren’t allowed to vote in Related Party Transactions.

Should appointment of Director be considered as a Related Party Transaction?

COMPANIES ACT, 2013:

According to Companies act the following are Related Party Transactions:-

sale, purchase or supply of any goods or materials;
selling or otherwise disposing of, or buying, property of any kind;
leasing of property of any kind;
availing or rendering of any services;
appointment of any agent for purchase or sale of goods, materials, services or property;
such related party's appointment to any office or place of profit in the company, its subsidiary company or associate company; and
underwriting the subscription of any securities or derivatives thereof,of the company:

Out of these the appointment and remuneration of MD isn’t a related party transaction under Section 188 of Companies Act; it is only governed by Section196,197 and 203 of the Companies Act, 2013. Hence According to Companies Act, appoint MD being a Related Party can vote to his own appointment.

SEBI LODR:

“related party transaction” means a transaction involving a transfer of resources, services or obligations between:

1. a listed entity or any of its subsidiaries on one hand and a related party of the listed entity or any of its subsidiaries on the other hand; or
2. a listed entity or any of its subsidiaries on one hand, and any other person or entity on the other hand, the purpose and effect of which is to benefit a related party of the listed entity or any of its subsidiaries, with effect from April 1, 2023; regardless of whether a price is charged and a “transaction” with a related party shall be construed to include a single transaction or a group of transactions in a contract:

According to the definition given above also, there is no specific mention on “appointment of any Director”, hence appointment of MD won’t cover the ambit of related party transaction and MD is allowed to vote?

Like this, we shall not come into conclusion, according to the latest amendment, w.r.t Regulation23,the following as added:-

“(e) remuneration and sitting fees paid by the listed entity or its subsidiary to its director, key managerial personnel or senior management, except who is part of promoter or promoter group, shall not require approval of the audit committee provided that the same is not material in terms of the provisions of sub-regulation (1) of this regulation.”

Hence according to this amendment the remuneration paid to Directors who is part of promoter group or whose remuneration is material in terms of the provisions of sub-regulation(1) of this regulation requires approval of the Audit Committee.

Further according to Regulation 23(4),

All material related party transactions and subsequent material modifications as defined by the audit committee under sub-regulation (2), shall require prior approval of the shareholders through resolution and the related parties shall abstain from voting on no related party shall vote to approve such resolutions whether the entity is a related party to the particular transaction or not.

On reading amendment along with regulation 23(4), it is clear that, the Director whose remuneration is material in terms of provisions of Sub regulation (1), needs not only the Audit Committee approval but also the shareholders’ approval. Hence according to regulation 23(4), Director being a related party can’t vote to the material related party transaction.

CONCLUSION:

In short,

S.NO	DIRECTOR REMUNERATION AND COMPANY	APROVAL	DIRECTORS’ VOTE IN GENERAL MEETINGS
1.	Un-Listed Company	Remuneration not considered RPT, approval only under Section 197 of Companies Act, 2013.	*CAN VOTE IN* *FAVOUR*
2.	Listed Company and Non – Material RPT	Only Audit Committee, if Director Forms part of Promoter Group. Else approval only under Section 197 of Companies Act, 2013.	*CAN VOTE IN* *FAVOUR*
3.	Listed Company and Material RPT	Approval under Section 197 and Regulation 23(4) Applicable.	*CAN’T VOTEIN* *FAVOUR*

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From the desk of CS SHARATH