The non-executive directors are independent advisors to the company and are
members of the company's board of directors. They assist in the development of
strategy within the company through positive criticism, external experience and
expertise. They oversee the activities of the executive partners and help ensure
that their objectives are met. They ensure that obligations to stakeholders are
Roles Of Ned:
Non-executive directors spend part of their time overseeing the company,
attending management team meetings or board meetings. They add value by
providing a broad view of the company's problems and protecting the interests of
They are responsible for the following:
- Performance check
Non-executive directors are obliged to evaluate the performance of the
management team in terms of the fulfillment of goals and objectives. They
also monitor executive board members, can even remove senior management and
plan for further appointments.
Directors are also required to oversee the company's performance reporting.
In addition, they ensure that responsibilities to stakeholders are
understood and consistently met.
- Strategic direction
The non-executive directors are responsible for objectively assessing the
plans drawn up by the executive team. They help formulate and oversee
corporate strategy by providing constructive criticism and a broader
perspective on external factors affecting the business.
They provide an outside perspective and challenge existing plans, thereby
helping to improve business strategies. Non-executive directors also
establish company valuesand standards in cooperation with executive
- Commitment of time
A non-executive director must devote a significant amount of time to
overseeing the company. Thus, at the time of appointment, the director
should communicate to the board his other important time commitments. They
should inform the board of any significant changes in his/her schedule.
They should obtain the approval of the Chair before accepting any other
commitments that may affect his/her role. A non-executive director is
required to make time in his schedule to meet the expectations set out in
the appointment letter.
- Risk management
Non-executive directors share responsibility with executive partners for
developing frameworks and controls for risk management and access. They
should assure stakeholders that financial information is accurate and that
financial controls and risk management systems are robust and secure.
Non-executive directors can make connections outside the company and add
additional value to the company. External links can help a company achieve
its goals and mission.
In addition, a non-executive director may represent the company vis-à-vis
external companies. In cooperation with other members of the board of
directors, they ensure sufficient financial and human resources to meet
- Professional Development
Non-executive directors may receive advice on certain matters and discuss
them at board meetings. They may be entitled to receive independent training
necessary to perform their duties at company expense.
- Participation in committee meetings
A non-executive director may be required to actively participate in
committee meetings and perform his or her duties as a committee member. They
should be aware of the committee's purpose and other responsibilities, if
As per Section 197 of the Companies Act, non-executive directors in 2013
must receive salary as a monthly payment or a certain percentage of the
Will Non-Executive Directors Be Liable For The Day-To-Day Affairs Of The Company?
In the matter of Mr.Satvinder Jeet Singh Sodhi and Mr.Sakti Kumar Banerjee
Anr. Versus State of Maharashtra and Anr.
This case is relating to the liability of non-executive directors. The matter of
dispute was whether the non-executive directors can be held liable in the cheque
bounce case where the Supreme Court on Monday held that non-executive directors
of a company would not be liable under a cheque bounce case and no criminal
proceedings can be initiated against them, as they are not involved in the
day-to-day affairs of the company or in the running of its business.
Facts of the case:
The complaint was filed for the dishonour of the cheque where the company's
directors were held liable for such dishonour of cheque of Rs. 29,31,849.30 with
reasons of "Insufficient funds". The non-executive directors of the company
alleged that they should not held liable as they had no knowledge about the
transactions of this case.
- Whether non-executive directors to be held liable for the day-to-day
affairs of the company?
The Supreme Court held that non-executive directors of a company are not liable
in case of bounced check and cannot be prosecuted as they are not involved in
the day-to-day affairs of the company or running its business.
The court quashed a criminal case against a group of independent non-executive
directors of MBL Infrastructure in the bounced check case (Sunita Palita vs
Panchami Stone Quarry) and said that "liability depends on the role one plays in
the affairs of the company and not on the determination. or the very status as
held by this Court in the earlier judgment of SMS Pharmaceuticals Ltd.'
The court said that the Calcutta High Court had overlooked the roles played by
the petitioners in the company and the bench headed by Justice Indira Banerjee
said that the provisions of Section 138/141 of the Negotiable Instruments Act,
1881 creates a statutory presumption of dishonesty by the signatory of the check
and if the cheque is drawn on behalf of the company, including persons
responsible for the company or the company's business.
However, any person associated with the company does not fall under the purview
of Section 141 of the Act, the judges said, adding that a company executive who
was not managing or responsible for running the company's business at the
relevant time would not be liable.
The court was hearing an appeal against a HC order refusing to quash a
magistrate court summons against non-executive board members in 2018. The case
was based on the return of a check of Rs 1.71 million issued by the company.
While the HC said that any person who is a director, manager, secretary or
officer in a company can be prosecuted under NI, the law governing
bounce-related offences, the SC clarified that the main case will proceed
against the company, its executive and the check signatory.
According to the supreme court, the HC took a hyper-technical approach when
rejecting the proposal to cancel the criminal prosecution according to Section
482 of the Criminal Procedure Code, during a cursory reading of the formalistic
statements in the complaint, while agreeing to the content of Section 141 of the
Criminal Procedure Code., without any details.
"What the HC overlooked was the contention of these appellants that they were
non-executive independent directors of the accused company based on undisputed
materials on record. The SC noted that the petition expressly stated that all
accused persons were liable and responsible for all business management of the
accused company and held that the allegations in the complaint were sufficient
to meet the requirements of Section 141 of the NI Act," the judgment stated.
The non-executive directors play a vital role in the company. They play many
roles which builds the company strong externally by negotiating and dealing with
external people affecting the growth of the business. But they are not liable
for day-to-day affairs of the company which was made clear by the recent
judgement of the supreme court.
Written By: Jinal Jain M, Chennai