Who is a Director of a Company?
The directors are responsible for the company's overall health and for the
interests of the shareholders as well. Directors have duties to the corporation
and are essentially fiduciary agents. The shareholders of the corporation
appoint directors to oversee the management of the business in the shareholders'
best interests. Additionally, no firm can succeed if its directors are not good
and honest; as a result, corporate success can only be attained if the company's
directors carry out their responsibilities and strictly enforce their director
Consequently, directors are essential to all corporate governance systems.
Certain equitable principles and common law rules serve as the foundation for
the director's general duty.
Ensuring corporate governance and benefiting shareholders, the Companies Act of
2013 has secured the preservation of this power and duty balance to the maximum
extent practicable. To ensure effective adherence to regulations, prevent
corporate governance errors, and safeguard the organization's legal integrity,
it utilizes a combination of punitive and regulatory actions, which may include
stringent judicial proceedings.
Powers of the Directors of a Company:
A resolution or separate item specifying that directors lack the authority to
perform specific activities has not been passed by the majority of businesses.
But in order to define this kind of authority, the Act calls for a resolution at
a general meeting. The following choices should be made by the directors,
although they usually also need the consent of the shareholders via a
Duties of a Company's Director under the Companies Act, 2013:
The following responsibilities of a company's directors are outlined in Section 166 of the Companies Act 2013:
- Credit given to the directors
- Fixed-term employment agreements exceeding two years for directors.
- Large-scale real estate deals in which the directors personally benefit.
- The issuance of the shares.
Liability of the Director:
- A director is required to carry out their duties in accordance with the company's bylaws.
- A director is required to behave honestly, in the best interests of the company's stakeholders, and to advance the goals of the organization.
- A director must exercise independent judgment while using all necessary caution, skill, and diligence in the performance of his duties.
- In order to protect the company's interests, a director should be continuously aware of possible conflicts of interest and make every effort to avoid them.
- The director must confirm that the transactions are in the best interests of the company and that the necessary considerations have been made before approving related party transactions.
- To guarantee that users' rights and the company's monitoring system are not harmed by such use.
Any and all actions detrimental to the company's interests could result in the
directors being held individually or jointly accountable. The director may be
held accountable on behalf of the Company in the following circumstances, even
though the director and the Company are separate legal entities:
Director and Board of Directors in a Company-
- Provided that a current or former director (during the defaulter's time period) can demonstrate that the non-recovery or non-payment of taxes is the result of egregious carelessness or a breach of duty, then the tax shortfall and any associated penalties must be paid.
- Returning a share application or the excess money applied for a share application.
- To cover the costs associated with qualifying shares.
- There is a civil liability in the event that the prospectus contains a false statement.
- Dishonest business practices, together with all associated obligations and agreements signed.
According to Section 2 (34) of the Companies Act 2013, a "director" is defined as "a director appointed to the Board of a company," where "Board of Directors" or "Board" in the context of a Company refers to the entire group of the company's directors. Every company is required under Chapter XI, Section 149 of the Companies Act 2013 to have a board of directors, with the following members of the board of directors:
Responsibility of Board of Directors-
- Public Company: The number of directors to be selected should be three at the very least and fifteen at most. Additionally, the number of independent directors must be at least one-third.
- Private Company: A private company might have as few as two directors and as many as fifteen.
- One Person Company (OPC): The appointment of at least one director is required.
Resignation of Director in a Company:
- The board of directors of a firm is primarily in charge of:
- Creating the strategic objectives and strategies of the organization.
- Monitoring the advancement of objectives and policies.
- Identifying the senior leadership.
- Giving appropriate people, such shareholders, an accounting for the company's conduct.
Though a director can be appointed by the Board of Directors, he/she has to be
qualified for that position in a company, the person can be disqualified from
his/her position by the BODs through any valid reasons, taken by the BODs.
But a director can also resign from his/her position due to many valid reasons,
and it has been mentioned under Section 168 of the Companies Act, 2013.
- A director may resign from his office by giving a notice in writing to
the company and the Board shall on receipt of such notice take note of the
same and the company shall intimate the Registrar in such manner, within
such time, and in such form as may be prescribed and shall also place the
fact of such resignation in the report of directors laid in the immediately
following general meeting by the company:
Provided that a director shall also forward director may also forward a copy of
his resignation along with detailed reasons for the resignation to the Registrar
within thirty days of resignation in such manner as may be prescribed.
- The resignation of a director shall take effect from the date on which
the notice is received by the company or the date, if any, specified by the
director in the notice, whichever is later:
Provided that the director who has resigned shall be liable even after his
resignation for the offences which occurred during his tenure.
- Where all the directors of a company resign from their offices, or
vacate their offices under section 167, the promoter or, in his absence, the
Central Government shall appoint the required number of directors who shall
hold office till the directors are appointed by the company in general
There used to be no clause describing the process by which a director might
leave their position. The provisions outlined in Section 318 of the Companies
Act, 1956, were applied to the resignation. It has been decided that a director
who resigns from office is not entitled to any compensation under this clause.
Mother Care (India) Pvt. Ltd. v. Ramaswamy P Aiyar.
The court determined that a director's resignation is valid even if he is the
sole director holding the position.
Following the Act of 2013, Section 168 now establishes the following provisions:
- By providing written notice to the business, the director may leave his position.
- The board is required to act upon receipt of the notice.
- The company must notify the registrar in accordance with the deadline.
- It is required of the corporation to include the resignation in the director's report at the next general meeting.
- Within thirty days of resigning, the director must submit a copy of his resignation to the registrar along with a thorough explanation of his resignation.
The director remains accountable for any wrongdoing connected to him or occurring during his tenure, even after he has resigned.
Possible Reasons behind Resignation by a Director:
Provisions under the Old Companies Act:
- Better Career Option:
Resignation is a possibility for directors in the event that they are prevented from serving as directors by AOA or if they are presented with better opportunities. In order to pursue an intriguing career opportunity at a Bangalore-based startup, Ravi Venkatesan resigned from his position as an independent director at Infosys.
- Disagreement with the Board:
At any point in time, any of the directors may decide to step down if there is a disagreement among them or a lack of trust among them. This can lead to ego clashes and poor communication, which can negatively impact the company's performance and the crucial role of decision making.
- Irregularities in the Company Affairs:
A director may resign from the company to protect himself from personal culpability resulting from actions that may or may not be within his control if he becomes aware of suspicions or dishonest practises in the firm's operations and finds himself drawn into them.
Current organisations like SFIO, ED, and EOW as well as laws like the PMLA Act that impose penalties on officials who violate the law, including property attachment or a 10-to 20-year jail sentence. Any violation, even on the part of the KMP, could result in arrest or personal culpability. A director may step down at the first evidence of concern about the company's potential for loss or fraud charges, as shown by the financial statements and cash flows.
- Removal given the face of resignation:
In the event that the director defaults, violates, or disregards compliances, the board may wish for him to resign from his position. Occasionally, though, the dismissal is accompanied by a request for the director to resign in order to get a bilateral benefit rather than being fired.
- Withdrawal of Nomination:
This pertains to the nominee directors on the BOD who are primarily chosen by the banks, who are investors in NBFC. The nominee director may resign following the completion of the transaction between the entity and the company, or occasionally after the entity withdraws its candidature.
Since the 1956 Act made no mention of a defined procedure, many problems
regarding whether a director's departure is unilateral or bilateral were raised.
Pandurang Camotim Sancoalcar v. Suresh Prabhakar Prabhu
The Bombay High Court ruled that the 1956 Companies Act does not contain any
provisions regarding a director's resignation and that the Articles of
Association 1956 Act should be consulted instead.
If the AOA stipulates that obtaining board approval or following another
process, such as shareholder approval, is required, then such guidelines must be
T. Murari v. State.
The resignation of the managing director would become effective upon submission
to the board in companies where not even the AOA has made a statement regarding
Legal Position of the Director in India and United Kingdom:
It is very challenging to describe the precise legal status of directors in a
company. The judges have provided distinct definitions for directors,
designating them as trustees, agents, or managing partners, respectively. These
are the individuals who have been duly appointed by the business to oversee and
manage its operations. The terms "agent," "trustee," and other similar terms do
not fully describe the roles and obligations of directors.
Ram Chand & Sons Sugar Mills Pvt. Ltd. v. Kanhayalal Bhargava (1966)
That elucidating the legal status of directors in a company is quite
challenging. Even though the phrases "agent," "trustee," and "manager" do not
have the same legal meaning, judges have summed it up as a multifaceted role
that is held in these capacities.
Directors as an Agent:
A business cannot operate independently and in its own right. It would require
representation from someone at all times. Since a company can only act through
its directors, the relationship is one of principle and agent. The directors
have the authority to act and decide on behalf of the firm because of this
relationship. The company is responsible for every agreement or transaction
entered into on its behalf, not the directors. The directors merely sign and
make agreements on the company's behalf; they are not personally liable.
Ferguson v. Wilson
It has been determined that the directors act as the company's agents. Legal
precedent has established that a firm need an agent in order to function because
it is unable to function as an artificial person on its own.
Ray Cylinders & Containers v. Hindustan General Industries Limited (1998)
It was noted that directors act as the company's representatives rather than
those of the members. This indicates that, with the exception of situations in
which a relationship between the two results from unique circumstances, the
directors represent the company rather than any one of its individual members.
Apart from its members, or shareholders, a company is a distinct legal entity.
Kirlampudi Sugar Mills Ltd. v. G. Venkata Rao
It was observed that the CEO of the business cannot be accused of taking
personal loans if he executes a promissory note and obtains funds from other
sources for the business's needs. The person who borrowed money acting as the
firm's agent will not be held responsible even if the company is unable to pay
the sum promised.
H.P. State Electricity Board v. Shivalik Casting (P.) Ltd.
It has been established that the company cannot be sued for the amount of surety
if a director provides surety in his own or personal capacity rather than for
the benefit of the company.
Bhajekar v. Shankar
It was claimed that a resolution passed by the company can ratify a transaction
undertaken by the director that exceeds his authority but still remains under
the purview of the company's power.
Director as a Trustee:
A director of a company holds the same status as a trustee. Because they oversee
the assets and look out for the company's best interests, directors are referred
to as trustees. A trustee is someone who can be trusted with the business's
assets and works to forward the objectives of the organization rather than their
own interests. A trustee is also granted other powers, referred to as powers in
trust, such as the allocation of shares, the ability to make calls, the
acceptance or rejection of transactions, etc.
Dale & Carrington Investment (P.) Ltd. v. P.K. Prathapan
It was observed that the directors must behave in their fiduciary position,
which entails that they must operate with the highest care, skill, good faith,
and diligence on behalf of the company, with a particular focus on the interests
of the business they are serving.
Peskin v. Anderson
It was decided that a business's directors have an obligation to the firm as a
whole and are not trustees for specific shareholders or obligated to them in any
way just by virtue of their positions. They can buy their shares while the
negotiations to sell the company's undertaking are still ongoing, without saying
Director as a Managing Partner
A company's directors act as a representative of its shareholders' desires. They
frequently represent the interests and objectives of the shareholders. As such,
they possess immense abilities and are capable of carrying out numerous
functions that are exclusive to them. Owing to the clauses outlined in the
firms' MOA and AOA, the board of directors serves as the highest policy and
Director as an Employee/Officer
In a general meeting that the company holds, shareholders choose directors.
Following his election, the director is entitled to the powers and privileges
set forth in the Act. The shareholders are unable to restrict these rights and
privileges, nor are they permitted to meddle in the directors' decision-making
process. Given their authority and privileges, directors cannot be referred to
as company employees. This is due to the fact that employees are not allowed to
make decisions on their own; instead, they always follow their employer's
instructions and have restricted authority.
Lee Behrens & Co., Re
It was observed that the shareholders select the individuals who will lead the
business's operations on their behalf. This indicates that in this particular
situation, they are functioning as an agent. Additionally, it is evident that
they are neither the company's servants nor workers.
R.R. Kothandaraman v. CIT (1957)
The Madras High Court ruled that, given the legislation makes no mention of it,
nobody may stop the director from taking a job under a particular contract he
has with the company.
To summarize the legal position of directors in a company, Jessel M.R can be
Forest of Dean Coal Mining Co., Re 
Depending on the context, directors may be referred to as trustees, commercial
trustees, managing partners, or trustees. Ultimately, what matters is that you
recognizeorganization that directors are essentially businessmen who oversee a
trading company for the benefit of all shareholders as well as themselves. They
have a fiduciary duty to the company with regard to the authority and resources
Laws require directors to act fairly and reasonably in the course of carrying
out their responsibilities and furthering the objectives of the organization. In
addition to their fiduciary connection with the corporation, directors also
function as agents. The director does all of these duties simultaneously. The
precise legal status of directors is not well understood, but if they abuse or
overuse their authority, they will be subject to mandatory legal obligations.
Unlike agents, who merely need to follow the principal's directions, directors
do, in some circumstances, have their own independent authority.
The management of the company's assets is also assigned to the directors. They
have to operate with integrity, in the best interests of the organization, and
with moderation while using their authority.
Ultimately, it can be argued that the directors own a distinct identity as well.
Simply said, they are not the entirety of managing partners, trustees, or
agents; they just have some of those traits. Therefore, it can be concluded that
they do not act as the company's agents, trustees, or managing partners.