Q.What is meant by appointment of directors by proportional representation? Why does the Companies Act, 2013 permit this method?

Ordinary majority voting at a general meeting can mean minority shareholders never get a single director of their choice onto the Board — proportional representation exists specifically to correct that.

Under the ordinary rule of appointment by general meeting (Section 152(2)), directors are elected by an ordinary resolution — meaning whichever candidate, or slate of candidates, commands a simple majority of the votes cast wins every seat being filled at that meeting. In a company with a dominant majority shareholder or shareholder group, this can result in every single director being the majority's chosen candidate, leaving minority shareholders with no representative on the Board at all, however substantial their collective stake might be.

Section 163 of the Companies Act, 2013 offers companies an alternative mechanism to address exactly this concern. It provides that the Articles of a company may provide for the appointment of not less than two-thirds of the total number of directors of the company in accordance with the principle of proportional representation, whether by the single transferable vote, by a system of cumulative voting, or otherwise, and that such appointments may be made once in every three years, with casual vacancies filled in the manner the Articles provide. Under a single-transferable-vote or cumulative-voting system, a shareholder's votes are not simply cast, all-or-nothing, for one candidate per seat; instead, the voting mechanics allow a sufficiently large minority block of shareholders to concentrate its votes on fewer candidates than there are seats, giving that minority a realistic chance of electing at least one director of its own choosing, proportional to its actual voting strength, rather than being permanently outvoted on every single seat by the majority. …