Directors

Directors ¶Director· includes any person occupying the position of director, A person having control over the direction, conduct,  management of the affairs of a company. Any person in accordance with whose directions or instructions, the Board of a company is accustomed to act, is deemed to be a director of the company. Only individuals can be directors  Number of directors Every public company have at least 3 directors   Every other company have at least 2 directors. A public company having

(a) A pai paidd-up up cap capit ital al of of Rs. Rs. 5 cror crore e or or more more;; One tho thous usan and d or more more smal smalll sha share reho hold lder ers; s; (b) One shall have at least one director elected electe d by such small shareholders Sanction by the central government. Where the increase in number does not make the total number of directors more than 12, no approval of the t he central government is Needed.

APPOINTME APPOINTM ENT OF DIREC DIREC TORS 1. First directors. directors. articl cles es of a compa company ny usua usuall lly y name name the the firs firstt (a) The arti directors by their respective names or prescribe the method of appointing them. (b) If the the firs firstt dire directo ctors rs are are not not name named d sha shall ll be be determined in writing by the subscribers of the memorandum. the firs firstt dire directo ctors rs are are not not appoi appoint nted ed in in the the above above (c) If the manner, the subscribers become directors of the company. 2. Appointment of directors by the compa com pany ny Directors must be appointed by shareholders in  general meeting. In the case of a public company or or a subsidiary of a public company, at least 1/3rds of  the total number of directors shall be liable to retire by rotation.

Ascertainment of directors retiring by rotation rota tion and filling of vacancies (1) At the the annu annual al gene general ral meeti meeting ng of of a pub publi lic c compa company  ny  or 1/3rd (or the number nea nearest to 1/3rd) of the rotational directors shall retire from office. (2) The dire directo ctors rs to to reti retire re by by rotati rotation on at eve every ry ann annua uall general meeting shall be those who have been longest in the office since their last appointment. the ann annua uall gener general al meeti meeting ng the the comp compan any y may fill fill (3) At the up the vacancy by appointing the retiring director or some other person. (4) (4) If at the the meeti meeting ng the the pla place ce of of reti retiri ring ng dire directo ctorr is not not filled up, nor is there a resolution not to fill the vacancy, the retiring director shall be deemed to have been re-appointed at the adjourned meeting.

3. Appointment of directors by directors. directors.  The directors of a company may appoint directors(1)

As  additional  additional director s  s.  Any additional directors appointed by the directors shall hold office o ffice only up to the date of the next annual general meeting of the company.

(2)

In   a ca su  su al al vacancy.



If the office of any director appointed by the company in general meeting is vacated vacat ed before his term of office expires in the normal course, the resulting casual vacancy may be filled by the Board of directors at a meeting of the Board.

(3)

As  alternate  alternate director.



An alternate director can be appointed by the t he board if it is so authorised by 

(i)

The ar articles of of th the company, or

resolut utio ion n pass passed ed by the the comp compan any y in in the the gener general al (ii) A resol meeting. 

4. 



He shall act for a director, called ¶the original director· during his absence for a period of at least 3 months from the state in which Board meetings are a re ordinarily held.

Appointment of directors by third parties parties..  The debenture-holders or other, creditors, e.g., a banking company or financial corporation, who have advanced loans to the company to appoint appo int their nominees to the Board.  The number of directors so appointed shall not exceed 1/3rd of the total number of directors, and they are not liable to retire by rotation.

5.

Appointment by prop roportiona ortional rep representa resentation. tion.

6.

Appointment of directors by the centra centr al government. government. The purpose of the appointment is to prevent the affairs of the company from being conducted either in the manner-

(a)

Whic Which h is is oppr oppres essi sive ve to to any any memb member ers s of of the the comp compan any  y  ; or

Which h is is pre preju judi dici cial al to the the int inter eres ests ts of the the comp compan any  y  (b) Whic or to public interest. 

 The tribunal may pass the above order on a reference made to it by the central Government or on the application-

(i)

Of not less less than than 100 100 mem memb bers ers of of th the com compa pan ny, or

(ii) ii)

Of memb member ers s of of the the comp compan any y hold holdin ing g not les less s than than 1/10th of the total voting power.

POSITION OF DIREC DIR EC TORS

(1) Directors as agents. gents. 



A company, as an artifical person, acts through directors who are elected representatives of the shareholders.  They are, in the eyes of the law, agents age nts of the company for which they act,

(2) (2) Directors as emp employees. loyees. (3) Directors as officers. officers. The directors are treated as officers of the company. As such they are liable to to certain penalties if the provisions of the t he companies act are not strictly complied with.

(4) Directors as trustees. trustees. Directors are treated as trustees Of the co company·s mo money an and pr property ; and  Of the powers entrusted to them. Remova Removal of directors Directors may be removed by1. Shareholders : The shareholders may remove a director before the expiry of his period of office by  passing an ordinary resolution. This does not Apply y to the the case case of a dire directo ctorr appo appoin inted ted by the the (a) Appl Central Government author oris ise, e, in in the case case of of a priv private ate comp compan any, y, rem remova ovall (b) auth of a director holding office off ice for life on April 1, 1952 Apply y to the the case case of a comp compan any y whi which ch has has adopte adopted d (c) Appl the system of electing 2/3rds of its directors by the principle of proportional representation.

2.

Centra entral Government. Government. The central government may, in certain circumstances, remove managerial personnel from office on the recommendation of the tribunal. erson n con conce cern rned ed has been een guilty of fra (a) Any perso fraud, persistent negligence or def ault in carrying out his obligations and functions under the law, or breach of trust ; or busin iness ess of the the comp compan any y has has not not been been (b) The bus conducted and managed by such person in accordance with sound business princip rinciples compa pany ny is or or has has bee been n con condu duct cted ed and and (c) The com managed by the person concerned in a manner which is likely to cause, or has caused, c aused, serious injury or damage to the interest of the tra trade,

busin iness ess of the the comp compan any y is is or has has bee been n (d) The bus conducted and managed by the person concerned with intent to defra defraud its creditors, members or any other person  The person against whom a case is presented shall be  joined as a respondent to the application.

3.

Remova Removal by tribuna tribunal. where, on an application to the tribunal for prevention of oppression or mismanagement the tribunal finds that the relief  ought to be granted, it may terminate, set aside or modify any agreement between the company and the managing director or any other director or the manager.

I.

(1) (2)

II.

(a) (b) (c)

POWE POWERS OF DIREC DIREC TORS Genera General powers to the Boa Board The Boar Board d sha shall ll not not do do any any act act whi which ch is is to be don done e by the company in general meeting. The boar board d shal shalll exer exerci cise se its its power powers s subj subjec ectt to the the provisions , contained in the Companies Act, or in the Memorandum or the Articles of the company in general meeting. Powers to be exercised at Boa Board meetings Directors of a company shall exercise the following powers by means of resolutions passed at the meetings of the Board, the power toMake Make cal calls ls on sha share reho hold lder ers s in resp respec ectt of of mone money  y  unpaid on their shares: Issue de debentures ; Borrow Borrow moneys moneys other otherwi wise se than than on debe debent ntur ures es (say  through public deposits) ;

Invest st the the fund funds s of the the comp compan any y ; and and (b) Inve (c) Make loans. III. Powers to be exercised ex ercised with the approv approva al of  compa company ny in genera general meeting  The board of directors shall exercise the following  powers only with the consent of the company in general meeting : of (say under (a) To sell, lea lease or otherwise disp dispose of ( amalgamation scheme the whole, or substantially  the whole, of the undertaking of the company.) (b) (b) To remit or give time for repa repayment yment of a of any debt due to the compa company ny by a director except in the case of renewal or continuance of an advance made by a banking company to its director in the ordinary  course of business. (c) (c) To invest (excluding (ex cluding trust securities) securities) the amount of comp compensa ensation received by the company in respect of the compulsory acquisition of any  undertaking or property of the company.

(d) (d)

To borrow moneys where the moneys to be paid-up p capit apita al of  borrowed are more tha than the paid-u the company and its free reserves

(e) (e)

To contribute to ch arita cha ritable and other funds not directly relating to the business of the company or the welfare of its employees, amounts exceeding in any financial year Rs. 50,000 or 5 per cent of the t he average net profits of the three preceding financial  years, whichever is greater.

IV.

Politica olitical contributions. contributions. Sec. 293-a allows companies to make contributions to political purposes to any person, directly or indirectly out of  their profits.



Sec. 293-a however prohibits political contributions

Govern rnme men nt comp compan aniies and and (a) Gove (b) Companies which have been in existence for less than 3 financial years. Any other company may contribute any amount or  amounts, directly or indirectly, (a) To an any pol polit itic ical al part party, y, or (b) For any any poli politi tical cal pur purpos pose e to any any pers person on.. Thi This s is however subject to the following conditions : 1. The am amou ount nt shal shalll not not exce exceed ed 5 per per cent cent of its its average net profits during the three immediately  preceding financial years. 2. The com compa pany ny shal shalll disc disclo lose se in in its its pro profi fitt and and loss loss account the amount or amounts giving Particu cula lars rs of of the the total total amoun amountt contri contribu buted ted,, and and (a) Parti name of the the party party or per perso son n to whic which h or to (b) The name whom such amount has been contributed.

DUTIE DUTIES OF DIREC DIREC TORS 1. Fiduciary du duties, an and  The directors mustt he (a) Exercise their powers honestly and bona fide for the benefit of the company as a whole ;and place themsel themselves ves in a posit position ion in which which ther there e is is (b) Not place a conflict between their duties to the company and their personal interests. They must not make any  secret profit out of their position. 2. Duti Duties es of care care,, ski skill ll and and di diligen igence ce.. Directors should carry out their duties with  reasonable care and exercise such degree of skill and diligence as is reasonably expected of persons of  their knowledge and status. us  s tandard  s  of the care  Standard of care. There are vario us  tandard s  depending u  depending u   pon : 

(a) The type type and and nat natu ure of work work ; Divisi sion on of power powers s betwe between en dir direc ector tors s and and other other (b) Divi officers ; Genera rall usa usages ges and and custo customs ms in tha thatt of busi busine ness ss ; (c) Gene and (d) Wheth Whether er dire directo ctors rs work work grat gratut utio ious usly ly or remuneratively.

duties of directors. directors. atten end d Boa Board rd meet meetin ings gs.. (1) To att

Other

delega egate te his his fun functi ction ons s excep exceptt to the the exten extentt (2) Not to del authorised by the Act or the constitution of the company, and discl clos ose e his his inte intere rest st.. (3) To dis