Directors are like agents to the company for they have a big role to play in the entire working of the company as they have to manage the affairs of the company. They are responsible to meet a certain objective for the company, to make policies and enforce those policies as the company which is an artificial person is intangible not having the mind and body that the company can act and can make decisions independently hence directors are at the helm of affairs of regulating the Company. The Companies Act, 2013 defines the director as “director means the director appointed to the board of the company”[1].
Table of Contents
Maximum and Minimum Number of Directors
“Every company shall have a minimum number of three directors in the case of a public company, two directors in the case of a private company, and one director in the case of a One Person Company. A company can appoint a maximum of fifteen directors at a time. A company may appoint more than fifteen directors after passing a special resolution in a general meeting and approval of the Central Government is not required. A period of one year has been provided to enable the companies existing on or before the commencement of the Companies Act, 2013 to comply with this requirement”[2].
Director Identification Number (DIN)
Application for allotment of number: the person who does want to become the director has to apply to the Central Government and the application should be filed in the prescribed form and manner [3].
Prohibition on more than one Identification Number: if a number has been allocated, no more number can be allotted by the person concerned [4].
Director to intimate Director Identification Number: “Every existing director shall, within one month of the receipt of Director Identification Number from the Central Government, intimate his Director Identification Number to the company or all companies wherein he is a director.”[5].
Company to inform Director Identification Number to Registrar: According to Section 157 of the Companies Act, 2013 within 15 days of receipt of the information concerning its Identity Number from the Director concerned, the company shall provide that information to the Registrar or to any other officer or entity as may be defined by the Central Government. The details must be given in the specified form and manner and also for late filing under Section 403 with prescribed penalties or extra fees. Where the entity fails to do so even after the expiry of the corporation becomes punishable by the late filing date not less than Rs 25,000, but up to Rs 1,00,000. Every Officer A fine of not less than Rs 25,000 extending up to Rs 25,000 must be charged by those who are in default. 1,00,000 Rs [6].
Obligation to indicate Director Identification Number: any entity or business must indicate the Director Identification Number on any return, data, or information needed to be given under If they apply to or have some reference to the director,[7] the Act and according to the section 159 of the Companies Act “If any individual or director of a company, contravenes any of the provisions of section 152, section 155 and section 156, such individual or director of the company shall be punishable with imprisonment for a term which may extend to six months or with fine which may extend to fifty thousand rupees and where the contravention is a continuing one, with a further fine which may extend to five hundred rupees for every day after the first during which the contravention continues”[8].
Appointment of Directors
- Appointment of Directors through election by small shareholders: “A listed company is required to have one director who should be elected by small shareholders” [9]. Small shareholders in this context are referred to as shareholders holding shares of the value of maximum Rs. 20,000.
- Appointment at the General Meeting: Section 152 lays down the provision that directors should be appointed by the company in the General Meetings [10]. The person so appointed is assigned with a director identification number. He also has to make sure in the meeting that he is not disqualified from becoming a director. The individual appointed has also to file his consent to act as a director within 30 days with the registrar.
- Appointment by nomination: The appointment of Directors can also be made with respect to the Company’s articles and not only through the general meetings. When an agreement between the shareholders has been included in the articles that entitles every shareholder with more than 10% share to be appointed as a director, then they can be nominated as director. Also, subject to the articles of the company, the Board can appoint any nominated person by any institution in pursuance of law, as a director.
- Appointment by voting on an individual basis: “The appointment of a director is made by voting at the general meeting as laid down under section 162 of the Companies Act, 2013”[11]. The candidates have to vote individually and the wishes of the shareholders regarding each proposed director are required.
- Appointment by proportional representation: the article of a company can enable the appointment of directors through the system of voting by proportional representation [12]. This system of voting is used to make effective minority votes. This system of proportional representation can be followed by a single transferable vote or by the system of cumulative voting or other means.
- Appointment of Directors by Board: Generally, the appointment of the directors is done in the annual general meeting of the shareholders but there are two instances when the Board can also appoint a new director. If the article empowers the Board to appoint additional directors along with prescribing the maximum number. Section 161 of the Act also authorizes the directors to fill casual vacancies.
- Appointment by Tribunal: Under section 242(j) of the Companies Act 2013, the Company Law Tribunal has the power to appoint directors [13].
Disqualification of Director
Under Section 164 of the Companies Act, 2013 the minimum qualification criteria for the appointment of director has been laid down. For a person to be elected as a director, the disqualifications are the following:
- Unsoundness of mind.
- If he is an undischarged insolvent.
- When it is applied to be declared as insolvent and such application is pending.
- When he is sentenced for imprisonment for an offense involving moral turpitude for a period of a minimum of six months.
- If the tribunal or court has passed an order disqualifying him for being appointed as the director.
- If he has not paid his calls in respect to any shares of the company.
- When he is convicted of an offense which deals with related party transactions.
- When he has not complied with the requirements of Director Identification Number.
Positions of Directors
- Director as an agent: In the eyes of the law, directors are agents of the company under which they work. The company itself does not act, it can act only via its directors and for the purpose of creating a partnership, it hinges on the relationship between the principal and the intermediary and also between the company and the directors. If those directors are liable as agents, those directors will be liable; where the liability is attached directly to the principal and the liability then becomes the responsibility of the company. Where the directors render arrangements on behalf of the company, they assume no personal responsibility if they operate within the limits of their jurisdiction. The Corporation alone would be responsible for such a situation. In the following cases, directors assume personal liability If they use the name of the company wrongly and where directors surpass their obligations.
- Directors as a trustee: “The directors have also been described as trustees of the company. They are trustees of the company’s money or property that comes into their hands or which is perhaps actually under their control and of the powers entrusted to them. But in a real sense, the position of directors differs from that of the trustees because a trustee can’t be an employee of the trust but a director can be an employee of the company. Again, an artificial person can become a trustee but an artificial person cannot become a director. As only an individual can be a director. Hence, directors may better be considered as being quasi trustees”[14].
- Directors as officers: “Under Sec. 2(59) of the Companies Act, they are liable to certain penalties if the provisions of the Companies Act are not complied with. Moreover whether or not a director is in the employment of the company, he shall be treated as an officer of the company”[15].
- Directors as employees: Although directors are company officers, they are however not employees or servants of the corporation. They can therefore not seek their remuneration as a preferred borrower in the event of the winding-up of a company under Section 327 of the Companies Act, 2013. But in addition to being a director, whether as a secretary, manager, accountant, or otherwise, if any director is also in the service or employment of the company, he can be considered as an employee. As such by virtue of that, he will be entitled to the remuneration and other benefits admissible to him as an employee in addition to his rights as a director to sitting fee, etc.
- Directors as managing partners: Directors are often described as managing partners because, like a company partner, they handle the company’s affairs and are typically significant owners of the firm as well. Both proprietary functions are carried out, such as allocating shares, making calls, forfeiting shares, etc. All the partners in a company, however, operate on the basis of a joint entity. In the case of directors, though, that is not so. There is no ability for a director to bind the other directors and shareholders. In addition, directors are subject to retirement by turnover, while a company’s partners are not. The directors, however, are not, in the full sense, managing partners, and therefore, directors are described as trustees, members, or managing partners. The board of directors is the heart and soul of the company. It is only with the help of the brain of any company that the body and the company will function.
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Kinds of Directors
- Residential Director: Residential directors are those directors that every company should have as the director who has been in India for 182 days or more.
- Independent Director: In the Companies Act, 2013. Independent directors have been defined as those types of directors not related to the company. These types of directors are appointed by the company whose Public companies with a turnover of more than Rs. 10 Crores; Public companies with Rs.100 Crores or more in revenue, Public companies with gross loans, debentures and deposits of Rs. 50 Crores or more pending.
- Nominee Director: Nominee Directors are those directors who shall be named by a third party according to the company’s articles of incorporation in compliance with the statute or other laws in effect for the time being.
- Small Shareholder Director: Small Stakeholders will appoint a single director although this practice involves a process which is to pass notice to at least 1000 stakeholders or 1/10th of all investors.
- Additional Director: Additional Directors are those directors who can be appointed by a public and private company. The person should be appointed as a director in the board meeting or passing resolution by the circulation of the board and these directors are unable to hold office beyond the next Annual General Meeting or the due date on which such an Annual General Meeting should be performed.
- Alternate Director: Alternate directors are those directors who are being appointed in the place of the original director and the original director has gone for a period of 3 months outside India. Alternate Director can be appointed by the articles or special resolution and shall hold the position until the director in whose place he has named returns or the time of the holding of the original director’s office comes to an end.
- Woman Director: In the case of a woman director every listed company and every company who has a paid-up share of 100 crores or more, a public company which has a turnover of 300 crores or more shall have at least one woman director.
Duties of Directors
There are several duties which a director has to perform those duties are as follows:
- Act in accordance with the articles of the company.
- Act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community, and for the protection of the environment.
- Exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
- Not involved in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
- Not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.
- Not assign his office and any assignment so made shall be void.
Powers of Director
Board Meetings: The board of directors after passing the resolution at the board meetings can proceed with using the following powers: They can make calls to the shareholders, issue debentures, borrow money otherwise than on debentures, invest the funds of the company and make loans. To approve financial statements and the board’s report as well as to diversify the business of the company lies within the domain of the directors’.
Powers to be exercised with the approval of the company in general meeting (Sec. 180) :
(a) “Sale or lease of the company’s undertaking
(b) Extension of the time for payment of a debt due by a director
(c) Investment of compensation received on the acquisition of the company’s assets in securities other than trust securities.
(d) Borrowing of money beyond the paid-up capital of the company.
(e) Contributions to any charitable fund beyond Rs.50,000 in one financial year or 5% of the average net profits during the preceding three financial years, whichever is greater.”[16]
General Powers: General Powers are those powers that allow the company to exercise rights and empowers the board to execute all such powers and engage in actions.
Powers under rule 8: “Rule 8 of the Companies rule, 2014 provides that, the following powers shall be exercised only by means of resolutions passed at a meeting of the board, namely:
a) To make a political contribution;
b) To appoint or remove key managerial personnel;
c) To appoint internal auditors and secretarial auditors;
d) To take note of the disclosure of the director’s interest and shareholding
e) To accept or renew or review the terms and conditions of public deposits.”[17]
Conclusion
A director has been given several powers and duties to act and to manage the company for achieving its objectives. He also acts like a trustee, sometimes agent, and other different roles that are bestowed upon him. While using his power he also has certain limitations and he has to act honestly so that his company can reach many milestones.
REFERENCES
[1] The Companies Act, 2013, s.2(34).
[2] The Companies Act, 2013, s.149(1).
[3] The Companies Act, 2013, s.153.
[4] The Companies Act, 2013, s.155.
[5] The Companies Act, 2013, s 156.
[6] The Companies Act, 2013, s.403.
[7] The Companies Act, 2013, s.158.
[8] The Companies Act ,2013.
[9] The Companies Act, 2013, s.151.
[10] The Companies Act, 2013.
[11] The Companies Act, 2013.
[12] The Companies Act, 2013, s.163.
[13] The Companies Act, 2013.
[14] Dr. Avtar Singh, Company Law (Eastern Book Company, Lucknow, 17th edn., 2018).
[15] The Companies Act, 2013.
[16] The Companies Act, 2013.
[17] Companies Rule, 2014, R.8.
BY UDDESHYA YADAV | LOVELY PROFESSIONAL UNIVERSITY