Who Are Directors?
Directors are the persons appointed to direct and supervise the affairs of a
company. The company's business is consigned in the hands of directors. Team of
directors of the company is collectively known as its Board of Directors, which
wields the supreme executive authority controlling the management and affairs of
a company. In practice it is the Board of Directors which looks after the
management and protects the interests of all the stakeholders of the Company
Basically, Board of Directors is a group of trustworthy and respectable people
who looks after the interests of the large number of shareholders who are not
directly involved in the management of the company. They are entrusted with the
responsibility to act in the best interests of the company. The Companies Act,
2013 does not contain an detailed definition of the term director”. Section 2
(34) of the Act says that director” means a director appointed to the Board of
a company. A director is a person appointed to perform the duties and functions
of director of a company in conformity with the provisions of the Companies Act,
2013. Directors are at times described as trustees, agents and sometimes as
managing partners. Directors are viewed differently according to circumstances.
According to the provisions of Companies Act, 2013 it is mandatory for every
company to have minimum 3 directors in case of public limited companies, at
least 2 directors in case of private limited companies and 1 director in case of
one-person companies. Maximum a company can have 15 directors. In Case the
company wishes to appoint more directors, it can do so by passing the special
resolution in its general meeting (GM).
Types of Directors:
According to provisions of law, every company needs to appoint a director who
has been in India and stayed for at least 182 days in a previous calendar year.
They are non-executive directors of a company and contribute the company by
improving corporate credibility and enhancing the governance standards. That is
to say, an independent director is a non-executive director without a
relationship with a company which can impact the independence of his judgment.
The term of the independent directors is up to 5 consecutive years; however,
they are entitled to reappointment by passing a special resolution with the
disclosure in the Board's report. Below mentioned are the companies that need to
appoint minimum two independent directors:
Public Companies having Paid-up Capital of Rs.10 Crores or more,
Public Companies having annual Turnover of Rs.100 Crores or more,
Public Companies having total outstanding loans, deposits, and debenture of
Rs.50 Crores or more.
Small Shareholders Directors
A listed company, can after the notice of at least 1000 small shareholders or
10% of the total number of the small shareholder, whichever is lower, shall have
a director which would be elected by small shareholders.
As per Section 149 (1) (b) second proviso of the Companies act, it is mandatory
for a company, be it a private company or a public company, to appoint at least
one woman director in case it satisfies any of the following criteria:
The company is a listed company & its securities are listed on the stock
The paid-up capital of such company is up to Rs.100 crore or more with a
turnover of Rs.300 crores or more.
A person could be appointed as an add. director and can occupy his post until
next AGM (Annual General Meeting). In absence of the AGM, such a term would
conclude on the date on which such AGM should have been held.
Alternate director refers to a person appointed by the Board, in order to fill
in for a director who might be absent from the country, for the period of more
than 3 months.
Nominee directors can be appointed by a specified category of shareholders,
banks or lending financial institutions, third parties through contracts, or by
Central Government in case of oppression or mismanagement.
Appointment of Directors:
According to the provisions of Companies Act 2013, only an individual can be
appointed as a member of the board of directors. Usually, the appointment of
directors is made by shareholders. A company, a legal firm and an association,
with an artificial legal personality can't be appointed as a director. It must
to be a real person.
In a company which is public or a private, a total of two-thirds of directors
are appointed by the shareholders. The remaining one-third members are appointed
with regard to prescribed guidelines in the Article of Association. In case the
company is a private company, their Article of Association can authorise the
method to appoint any and all of the directors. In case the Articles are silent,
the directors have to be mandatorily be appointed by the shareholders. The
Companies Act also have a provision that permits a company to appoint two-thirds
of the company directors to be appointed through the principle of proportional
representation. This happens if the company has accepted this policy.
Nominee directors shall be appointed by third party authorities or the
Government to tackle misconduct and mismanagement. It is the primary duty of
directors to act honestly, exercise reasonable care and skill while they perform
their assigned duties on behalf of the organization.
Appointment of Managing Directors
A Managing director (MD) must be an individual i.e. a real person and s/he can
be appointed for a maximum period of five years. A Managing director of a
pre-existing company can be appointed as a managing director of another company
as long as the board of directors of the first company approve and are aware of
this new appointment.
Conditions for Appointing Directors
The Companies Act does not prescribe any qualifications for Directors of any
company. An Indian company may, therefore, in its Articles, stipulate
qualifications for Directors. However there are certain condition which needs to
be fulfilled to appoint directors.
The following conditions needs to be fulfilled while appointing a director:
- S/he should not have been sentenced to imprisonment for any period, or a
fine imposed under various laws and statutes.
- They must not have been detained or convicted for any duration under the
Conservation of Foreign Exchange and Prevention of Smuggling Activities Act,
- S/he must have completed 25 years of age, but should be less than 70
years of age. However, this age limit is not applicable if the appointment
is approved by a special resolution passed by the company in GM or the
approval of the Union government is obtained.
- They should be a managerial person in one or more companies and draws
Consideration from one or more companies subject to the limitations
specified in Section III of Part II of Schedule XIII.
- S/he should be Indian Resident. It means a person who has been staying
in India for a continuous period of not less than 12 months immediately
preceding the date of his/her appointment as a managerial person and who has
come to stay in India for taking up employment in India or for carrying on
business or occupation in India.
Powers Of Directors
Corporate body incorporated is artificial person, so it is necessarily needed to
be represented by living person. So, the functioning and the business of any
company is entrusted in the hands of directors. Office of director is that
office of the company who handle all the affairs and daily business of the
In the case of Bath vs standard land company limited Neville J held that board
of directors are the brain of the company and company acts only in their
directions. Though director is such a salient position it is endowed with
various powers to handle the business of the company.
A board of directors is the biggest authority of the company and is vested with
the various powers under section 179 of the companies act 2013. Directors can
make any and all of the decisions and can exercise the power of which the
company has authority or is entitled. Directors appointed have all the control
over the operations of the company.
All the powers are not absolute, directors can exercise their power
independently but are subject to memorandum and articles and also board of
director are not competent to do the act which are required to be done by the
shareholders in general meetings.
There are certain powers which can be exercised only when resolution has been
passed at the board meeting.
Those powers include power to:
Powers to be exercised with general meeting approval
- To make calls
- To borrow money
- Issue funds of the company
- To grant loans are give guarantees
- To approve financial statements
- To diversify the business of the company
- To apply for amalgamation merger or reconstruction.
- To take over a company or to acquire a controlling interest in another
- Shareholders may impose restrictions on exercise of these powers.
Section 180 of the Companies Act 2013 provides with those powers which can be
exercised only if they approved in general meeting
- To sale, lease or otherwise dispose of the whole or any part of the
- To invest otherwise in trust securities
- To borrow money for the purpose of the company
- To give time or refrain the director from repayment of any debt.
If restrictions which are imposed by this section are breached by the director,
the title of lessee or purchaser is affected. But if person has acted in good
faith with due care and diligence then it is not affected. This section does not
apply to the companies whose ordinary business involves the selling of property
or to put a property on lease.
Power to constitutes audit committee
Under section 177 board of director has power to constitute an audit committee.
It needs to be constituted of at least three directors including independent
directors. The eligibility of the member of audit committee's chairman is that
he or she appointed should be able to read and understand financial statements.
It is in accordance with the terms of reference specified by board in writing
the audit committee shall function.
Power to constitute nomination and remuneration committee and stakeholder
Under section 178 of the companies act 2013, board of directors is empowered to
constitute nomination and remuneration committee and stakeholders' relationship
There should be three or more non executive director, out of which half are
required to be independent director in nomination and remuneration committee.
Stakeholder relationship committee can also be constituted by board in which
there can be more than 1000 shareholders, debenture holders aur any other
security holders. This committee shall resolve grievances of the shareholders.
Power to make contribution to charitable and other funds
Board of directors can contribute for the genuine and Bonafide cause as a
charity under section 181 of the act. Only condition imposed is that, when
contribution is more than 5% of net profit of company, then permission is
required to be taken of company in general meeting.
Power to make a political contribution
Under section 182 of companies act 2013, political contributions can be made by
companies but company making it should not be government company and which has
been in existence for less than 3 years. There is 7.5 % of limit imposed that is
companies' contribution to political parties shall not exceed this limit. Any of
the contribution should first be sanctioned by board of directors.
Power to contribute to National defence fund
Under section 183 of companies act, directors is empowered to make contribution
to National defence fund and to any of the fund which is made for the purpose of
National defence. Any amount of contribution should be done as may be fit, the
only thing needed to be done is that the amount contributed should be disclosed
in the profit and loss account during financial year which it relates to.
Duties Of Director
- Section 166 of the Companies Act, 2013 defines the duties of Directors.
A Director of a company should perform the following duties
- He should act in accordance with the articles of the company.
- He should always Act in good faith for promoting the objects of the
company and for the benefit of its members and act in the best interests of
the company, shareholders, its employees and the community at large.
- Exercise his duties with due and diligence and should exercise
- Should not involve in situations which directly or indirectly conflict
with the interest of the company.
- Should not achieve or take undue gain or advantage of his office whether
for himself or for his relatives, associates or partners.
If the director contravenes any provisions of this section, he shall be
punishable by a fine of Rs. 1,00,000 or more, which may extend up to Rs.
Resignation Of Director
Resignation could be done by director of the company under section 168 (1) of
the companies act 2013. A director has the option to resign from his office by
giving notice in writing to the company and board shall on receipt of such
notice take note of the same and company shall intimate this to registrar in the
manner as prescribed. In the immediately following general meeting by the
company, it should be laid down in the reports of director
Within 30 days from the day of resignation. Director shall also forward copy of
resignation along with detailed reason of resignation to the registrar of the
company. There is no right provided under companies act 2013 to any managerial
person to reject the resignation of the director. But if any offence has been
committed by director, then he shall be liable even after the resignation.
As per section 168 (2) of companies act 2013 the resignation of director shall
take effect from the date on which the ‘notices received' by the company or 'the
date if any specified' by director in the notice whichever is later.
Removal Of Director
When we talk about directors of the company, they constituted very important
position in the company. Directors are also called brain of the company as they
are completely responsible for operating a business of company. But many times,
situations come where management has to Suo Moto remove person from the post of
director. For example, due to negligence, breach of privacy or any other
condition etc. It is section 169 of the companies act 2013 which deals with the
removal of directors.
Directors appointed by tribunal cannot be removed from the post of directorship
and where the company has availed itself of option to, appoint not less than two
third of the total number of directors according to principle of proportional
representation as per provision of companies act 2013 then also no removal from
post of directorship could be there
Removal by Company Law Board/National Company Law Tribunal
Any of the director of the company is found guilty of misconduct like
oppression, harassment, fraud etc then he could be removed by the National
company law tribunal or company law board. There is provision that if the
director is removed by National company law tribunal then he cannot resume the
position of director in any company for the period of next five years
Procedure for Removal of Directors
Firstly, concerned director should be intimated about his removal, board meeting
should be done and resolution for removal of director should be passed. Notice
of the meeting should be sent before 14 days of the general meeting. In meeting
director should be allowed to speak and he should be listened, if it's just and
equitable then only the resolution to remove director should be passed. If
resolution gets passed then the documents for such removal should be prepared
and the concerned department should be intimated if the director is independent
director, then the consent of two third members of the meeting is necessary.
Directors of company play indispensable role in the functions of company. There
are many types of directors which are appointed by the company and each has it's
different functioning. They play vital role in smooth operation of company and
that's the reason they are vested with many powers, at the same time there are
certain restrictions to avoid misuse of powers.
- Navneet Jain - B.A.Ll.B. 4th Year Bharati Vidyapeeth New Law College,
- Nishkal Jain - B.A.Ll.B. 4th Year Bharati Vidyapeeth New Law College,