Directors

Directors

Directors

¶Director· includes any person occupying the position ¶Director· includes any person occupying the position of director,

of director,



 A person having control over the direction, A person having control over the direction, conduct,conduct, management of the affairs of a company. Any person management of the affairs of a company. Any person in accordance with whose directions or instructions, in accordance with whose directions or instructions, the Board of a company is accustomed to act, is

the Board of a company is accustomed to act, is deemed to be a director of the company.

deemed to be a director of the company.



 Only individuals can be directorsOnly individuals can be directors

Number of directors Number of directors



 EEvery public company have at least 3 directorsvery public company have at least 3 directors



 EEvery other company have at least 2 directors.very other company have at least 2 directors.



having-((a)a) A pA paiaid-d-up cup capapitital oal of Rf Rs. s. 5 cr5 crorore oe or mor morere;; ((b)b) OnOne te thohoususanand or d or mormore se smalmall sl shaharerehoholdlderers;s;

shall have at least one director electe

shall have at least one director elected by such smalld by such small shareholders

shareholders

Sanction by the central government.

Sanction by the central government. Where theWhere the

increase in number does not make the total number increase in number does not make the total number of directors more than 12, no approval of t

of directors more than 12, no approval of the centralhe central government is Needed.

APPOINTM

APPOINTMEENT OF DIRNT OF DIRECEC TORS TORS

1.

1. FFirst directorsirst directors..

((a)a) TThe ahe artirticlcles es of a of a comcompapany ny ususuaualllly nay name me ththe fie firsrstt

directors by their respective names or prescribe the directors by their respective names or prescribe the method of appointing them.

method of appointing them.

((b)b) If If ththe fie firsrst dit direrectoctors rs arare ne not not nameamed sd shahall bll bee

determined in writing by the subscribers of the determined in writing by the subscribers of the memorandum.

memorandum.

((c)c) If If ththe fie firsrst dit direrectoctors ars are re nonot apt appoipointnted ied in thn the abe aboveove manner, the subscribers become directors of the manner, the subscribers become directors of the company.

company.

2

2. . AAppppointment of directors by the comointment of directors by the compapanyny



 Directors must be appointed by shareholders inDirectors must be appointed by shareholders in general meeting. In the case of a public company o general meeting. In the case of a public company orr a subsidiary of a public company, at least

a subsidiary of a public company, at least 1/3rds of 1/3rds of  the total number of directors shall be liable to retire the total number of directors shall be liable to retire by rotation.

Ascertainment of directors retiring by rota

Ascertainment of directors retiring by rotation and fillingtion and filling of vacancies

of vacancies

((1)1) At tAt the he anannunual geal geneneral ral memeetieting ong of a pf a pubublilic comc compapany ny  or

or 1/31/3rdrd _{(or the number nea(or the number nearest torest to 1/31/3}rdrd_{) of the) of the}

rotational directors shall retire from office. rotational directors shall retire from office.

((2)2) TThe dihe direrectoctors trs to reo retitire bre by roty rotatiation at eon at evevery ary annnnuauall general meeting shall be those who have been

general meeting shall be those who have been

longest in the office

longest in the office since their last appointment.since their last appointment. ((3)3) At tAt the ahe annnnuaual genl genereral meal meetieting tng the che compompanany may y may fifillll

up the vacancy by appointing the retiring director or up the vacancy by appointing the retiring director or some other person.

some other person. (4

(4)) If If at that the meee meetiting tng the phe plalace oce of ref retitiriring ding direrectoctor is nr is notot filled up, nor is there a resolution not to fill the

filled up, nor is there a resolution not to fill the vacancy, the retiring director shall be deemed to vacancy, the retiring director shall be deemed to have been re-appointed at the adjourned meeting. have been re-appointed at the adjourned meeting.

3

3. . AAppppointment of directors by directorsointment of directors by directors..

 The directors of a company may appoint

 The directors of a company may appoint directors- directors-((11) ) AAs  s  additional director additional director s s .. Any additional directorsAny additional directors

appointed by the directors shall hold o

appointed by the directors shall hold office only upffice only up to the date of the next annual

to the date of the next annual general meeting of thegeneral meeting of the company.

company.

((22) ) I  I  n a ca n a ca su su al vacancy.al vacancy.



 If the office of any director appointed by If the office of any director appointed by thethe company in general meeting is vacat

company in general meeting is vacated before hised before his term of office expires in the normal course, the term of office expires in the normal course, the resulting casual vacancy may be filled by the

resulting casual vacancy may be filled by the BoardBoard of directors at a meeting of the Board.

of directors at a meeting of the Board. ((33) ) AAs  s  alternate director.alternate director.



 An alternate director can be appointed by tAn alternate director can be appointed by the boardhe board if it is so authorised by 

((ii)) TThhe ae arrttiiccllees os of tf thhe e ccoommppaannyy, , oorr

((ii)ii) A A reresolsolututioion pn passassed ed by by ththe ce compompanany iy in tn the he gengenereralal meeting.

meeting.



 He shall act for a director, called ¶the originalHe shall act for a director, called ¶the original

director· during his absence for a period of at least director· during his absence for a period of at least 33 months from the state in which Board meetings a months from the state in which Board meetings arere ordinarily held.

ordinarily held.

4

4_{. . AAppppointment of directors by thirdointment of directors by third papartiesrties..} 

  The debenture-holders or other, creditors, e.g., a The debenture-holders or other, creditors, e.g., a banking company or financial corporation, who banking company or financial corporation, who have advanced loans to the company to appo have advanced loans to the company to appointint their nominees to the Board.

their nominees to the Board.



  The number of directors so appointed shall not The number of directors so appointed shall not exceed 1/3

exceed 1/3rdrd of the total number of directors, andof the total number of directors, and they are not liable to retire by rotation.

5

5_{. . AAppppointment byointment by pproropportionortionaal rel reppresentresentaationtion..}

6

6. . AAppppointment of directors by the centrointment of directors by the centraall government

government.. The purpose of the appointment is to The purpose of the appointment is to prevent the affairs of the company from being

prevent the affairs of the company from being conducted either in the

conducted either in the

manner-((a)a) WhWhicich ih is ops opprpresessisive tve to ano any mey membmberers os of thf the coe compmpanany y  ; or

; or

((b)b) WhWhicich ih is ps prerejujudidicicial to al to ththe ie intntereresests ts of of ththe ce compompanany y  or to public interest.

or to public interest.



  The tribunal may pass the above order on a The tribunal may pass the above order on a

reference made to it by the central Government or reference made to it by the central Government or on the

on the application-

application-((ii)) Of Of nnot ot leless ss ththan an 10100 m0 memembberers os of tf thhe ce comompapanny, y, oror ((iiii)) Of Of memembmberers os of thf the coe compmpanany hoy holdldining not lg not lesess ths thanan

1/10

POSITION OF DIR

POSITION OF DIRECEC TORS TORS

((1) 1) DDirectorsirectors aass aagentsgents..



 A company, as an artifical person, acts throughA company, as an artifical person, acts through directors who are elected representatives of the directors who are elected representatives of the shareholders.

shareholders.



  They are, in the eyes of the law, age They are, in the eyes of the law, agents of thents of the company for which they act,

company for which they act,

(2

(2) ) DDirectorsirectors aas ems empployeesloyees..

((3) 3) DDirectorsirectors aas officerss officers.. The directors are treated as The directors are treated as officers of the company. As such they are liable t officers of the company. As such they are liable too certain penalties if the provisions of t

certain penalties if the provisions of the companieshe companies act are not strictly complied with.

((44_{) ) DDirectorsirectors aas trusteess trustees.. Directors are treated asDirectors are treated as}

trustees- OOf f tthhe ce coommppaannyy··s ms moonneey ay annd pd prrooppeerrtty ; y ; aanndd  OOf f tthhe e ppoowweerrs s eennttrruusstteed d tto o tthheemm..

Remov

Removaal of directorsl of directors

Directors may be removed Directors may be removed

by-1.

1. SShhaareholdersreholders : The shareholders may remove a: The shareholders may remove a director before the expiry of his period

director before the expiry of his period of office by of office by  passing an ordinary resolution. This does not

passing an ordinary resolution. This does not ((a)a) ApApplply to ty to the che case ase of of a dia direrectoctor apr appopoininted ted by tby thehe

C

Central Governmententral Government

((b)b) auauththororisise, ie, in the cn the case oase of a prf a privivate cate compompanany, ry, rememovaovall of a director holding off

of a director holding office for life on April 1, 1952ice for life on April 1, 1952 ((c)c) ApApplply to y to ththe cae case se of of a ca compompanany wy whihich hch has as adoadopteptedd

the system of electing 2/3rds of its

the system of electing 2/3rds of its directors by thedirectors by the principle of proportional representation.

2

2. . CCentrentraal Governmentl Government.. The central government may, The central government may, in certain circumstances, remove managerial

in certain circumstances, remove managerial

personnel from office on the recommendation of the personnel from office on the recommendation of the tribunal.

tribunal.

((a)a) AAny ny pperersoson cn cononcecernrned ed hhas as bbeeeenn guilty of frguilty of fraaud,ud, p

persistent negligence or def ersistent negligence or def aaultult in carrying out hisin carrying out his obligations and functions under the law, or breach obligations and functions under the law, or breach of trust ; or

of trust ; or

((b)b) TThe bhe bususininess ess of of ththe coe compmpanany hy has nas not ot bebeenen conducted and managed by such person in conducted and managed by such person in accordance with

accordance with sound business psound business princirincipplesles

((c)c) TThe che comompapany ny is ois or hr has bas beeeen cn cononduductcted ed anandd

managed by the person concerned in a manner managed by the person concerned in a manner which is likely to cause, or has c

which is likely to cause, or has caused, seriousaused, serious injury or

((d)d) TThe bhe bususininess ess of of ththe coe compmpanany iy is or s or hahas bs beeeenn

conducted and managed by the person concerned conducted and managed by the person concerned with intent to

with intent to defrdefraaud its creditorsud its creditors, members or, members or any other person

any other person

 The person against whom a case is presented shall be  The person against whom a case is presented shall be

 joined as a respondent to the application.  joined as a respondent to the application.

3.

3. RemovRemovaal by tribunl by tribunaall.. where, on an application towhere, on an application to the tribunal for prevention of oppression or

the tribunal for prevention of oppression or

mismanagement the tribunal finds that the relief  mismanagement the tribunal finds that the relief  ought to be granted, it may terminate, set aside or ought to be granted, it may terminate, set aside or modify any agreement between the company and the modify any agreement between the company and the managing director or any other director or the

managing director or any other director or the manager.

POW

POWEERS OF DIRRS OF DIRECEC TORS TORS

I

I_{.. GenerGeneraall ppowers to the Boowers to the Boaardrd}

((1)1) TThe Bhe Boaroard sd shahall nll not dot do ano any acy act wt whihich ich is to s to be dbe dononee by the company in general meeting.

by the company in general meeting.

((2)2) TThe bohe boarard shd shalall exl exerercicise ise its pots powerwers sus subjbjecect to tht to thee provisions , contained in the

provisions , contained in the CCompanies Act, or inompanies Act, or in the Memorandum or the Articles of the company in the Memorandum or the Articles of the company in general meeting.

general meeting.

II

II_{. P. Powers to be exercisedowers to be exercised aat Bot Boaard meetingsrd meetings}

Directors of a company shall exercise the following Directors of a company shall exercise the following powers by means of resolutions passed at the

powers by means of resolutions passed at the meetings of the Board, the power

meetings of the Board, the power

to-((a)a) MakMake ce calalls ls on son shaharerehoholdlderers in s in rerespspecect ot of mof moneney y  unpaid on their shares:

unpaid on their shares: ((bb)) IIssssuue de deebbeennttuurrees ;s ;

((c)c) BorBorrow row monmoneys eys othothererwiwise se ththan an on on dedebebentnturureses ((say say  through public deposits) ;

((b)b) InInvevest st ththe fue fundnds of s of ththe coe compmpanany ; ay ; andnd ((cc)) MMaakke e llooaannss..

III

III_{. . PPowers to be exowers to be exercised ercised with thewith the appapprovrovaal of l of} 

com

compapany in generny in generaal meetingl meeting



  The board of directors shall exercise the following The board of directors shall exercise the following powers only with the consent

powers only with the consent of the company inof the company in general meeting :

general meeting :

((a) a) TTo sell, leo sell, leaase or otherwise disse or otherwise dispposeose of of ((say undersay under amalgamation scheme the whole, or substantially  amalgamation scheme the whole, or substantially  the whole, of the undertaking of the company.)

the whole, of the undertaking of the company.)

(b

(b) ) TTo remit or give time for reo remit or give time for repapayment of yment of aany debtny debt due to the com

due to the compapanyny by a director except in theby a director except in the

case of renewal or continuance of an advance made case of renewal or continuance of an advance made by a banking company to its

by a banking company to its director in the ordinary director in the ordinary  course of business.

course of business.

(c

(c) ) TTo invest (exo invest (excluding trust securitiescluding trust securities)) thethe aamountmount of com

of comppensensaationtion received by the company inreceived by the company in respect of the compulsory acquisition of

respect of the compulsory acquisition of any any  undertaking or property of the company.

(d

(d) ) TTo borrow moneys where the moneys to beo borrow moneys where the moneys to be borrowed

borrowed aare more thre more thaan then the papaid-uid-upp ccapapititaall of of  the company and its free reserves

the company and its free reserves

(e

(e) ) TTo contribute to cho contribute to chaaritritaableble aand other fundsnd other funds notnot directly relating to the business of the company or directly relating to the business of the company or the welfare of its employees, amounts exceeding in the welfare of its employees, amounts exceeding in any financial year Rs. 50,000 or 5 per cent of t

any financial year Rs. 50,000 or 5 per cent of thehe average net profits of the three preceding financial average net profits of the three preceding financial  years, whichever is greater.

 years, whichever is greater.

IV

IV_{. . PPoliticoliticaal contributionsl contributions.. Sec. 293-a allowsSec. 293-a allows}

companies to make contributions to political companies to make contributions to political

purposes to any person, directly or indirectly out of  purposes to any person, directly or indirectly out of  their profits.

their profits.



 Sec. 293-a however prohibits politicalSec. 293-a however prohibits political contributions

((a)a) GoGovevernrnmemennt t cocompmpananiies es anandd

((b)b) CCompanies which have been in existence for lessompanies which have been in existence for less than 3 financial years.

than 3 financial years.



 Any Any other company other company may may contribute any contribute any amount oramount or amounts, directly or indirectly,

amounts, directly or indirectly, ((a)a) TTo ao anny py pololititicical al papartrty, y, oror

((b)b) For For anany poy polilititical pcal pururpospose to ae to any pny persersonon. T. Thihis iss is however subject to the following conditions :

however subject to the following conditions : 1.

1. TThe he amamouount nt shshalall nl not ot exexceceed ed 5 p5 per er cecent nt of of ititss

average net profits during the three immediately  average net profits during the three immediately  preceding financial years.

preceding financial years. 2.

2. TThe che comompapany ny shshalall dil discsclolose ise in in its pts prorofifit ant and lod lossss account the amount or amounts giving

account the amount or amounts giving

((a)a) ParPartiticuculalars ors of thf the toe total tal amoamoununt cont contritribubutedted, an, andd ((b)b) TThe nhe name ame of tof the he paparty rty or por perersoson to n to whwhicich or h or toto

whom such amount has been contributed. whom such amount has been contributed.

DUTI

DUTIEES OF DIRS OF DIRECEC TORS TORS 1

1.. FFiidduucciiaarry dy duuttiieess, a, anndd  The directors

 The directors

must-((a)a) EExercise their powers honestly and bona fide for txercise their powers honestly and bona fide for thehe benefit of the company as a whole ;and

benefit of the company as a whole ;and

((b)b) Not Not plaplace ce thethemselmselves ves in in a pa positosition ion in in whiwhich tch therhere ie iss a conflict between their duties to the

a conflict between their duties to the company andcompany and their personal interests. They must not make any  their personal interests. They must not make any  secret profit out of their position.

secret profit out of their position. 2.

2. DuDutities es of of cacarere, s, skikill ll anand dd diilligigenencece..



 Directors should carry out their duties withDirectors should carry out their duties with reasonable care and exercise such degree

reasonable care and exercise such degree of skillof skill

and diligence as is reasonably expected of persons of  and diligence as is reasonably expected of persons of  their knowledge and status.

their knowledge and status. Standard of care. There are vario 

Standard of care. There are vario us us  s s tandard tandard s s  of the care of the care  depending 

((a)a) TThe he tytype pe anand nd natatuure re of of wowork rk ;;

((b)b) DiDivivisision of on of powpowerers bes betwetween den dirirecectortors ans and othd otherer officers ;

officers ;

((c)c) GeGeneneraral ul usasages ges anand cud custostoms ms in tin thahat of t of bubusisineness ;ss ; and

and

((d)d) WhWhethether er didirerectoctors rs worwork gk gratratututioioususly ly oror remuneratively.

remuneratively.

O

O_{ther duties of directorsther duties of directors..}

((1)1) TTo ao attttenend Bd Boaoard rd memeetetiningsgs..

((2)2) Not Not to dto delelegaegate hte his fis fununctictionons excs excepept to t to ththe exte extenentt authorised by the Act or the constitution of the authorised by the Act or the constitution of the company, and

company, and