Mumbai: In a case of institutional investors exercising their rights under the Companies Act, 2013, minority shareholders of drugmaker Alembic Ltd have proposed a resolution for a seat on the board.

Alembic had on 12 July received a notice from Unifi Capital Pvt. Ltd, an institutional investor at the company, which proposed Murali Rajagopalachari’s candidature for being appointed as a small shareholder director under Section 151 of the Companies Act, 2013.

As per a note by Institutional Investor Advisory Services (IiAS), a proxy advisory firm, published on Monday, the company would consider this resolution on 28 July.

The Section 151 of Companies Act, 2013, allows a small shareholder director on the board with the specific intent of having the interest of small shareholders represented in the decisions made by the board. The threshold for such appointment is 10% of minority shareholder or 1,000 shareholders. Even the board has discretionary power to quash the request, if it considers that the candidate for the board seat is not competent.

This is a prevalent practise at stock exchanges and depositories, who have shareholder directors (or public interest directors) on their board. Same is true for public sector banks who, under the Reserve Bank of India (RBI) regulations, are required to have shareholder director representations on their boards. But the movement at Alembic is first such instance of provisions being used by minority investors.

According to IiAS, this will change the equation between companies and their shareholders.

“A set of small, yet discerning shareholders in Alembic Limited have woken up to the fact that their ownership of shares in a company need not be passive," said IiAS in the note.

On Monday, Alembic Ltd shares rose 8.22%, or Rs3.30, to close at Rs43.45 even as the benchmark index Sensex rose 0.68% to end at a new high of 32,245.87 points.