BOARD OF DIRECTORS

1. Discuss the different kinds of Directors and their roles under the Indian Companies
act, 2013?
First Director
The first directors of most of the companies are named in the AOA of the company. If they
are not so named in the articles of a company, then subscribers to the memorandum shall be
deemed to be the first directors of the company until the directors are duly appointed.
In the case of a One Person Company, an individual being a member shall be deemed to be
its first director until the director(s) are duly appointed by the member in accordance with the
provisions of Section 152.
Resident Director
Every company is required to have atleast one director, on its board as resident director.
Resident director is one who has stayed in India for a period of not less than 182 days during
the FY and in case of a new incorporated company the provision of section shall be
applicable proportionally at the end of the FY in which it is incorporated.
Additional Director- Section 161 (1)
The board of directors can appoint additional directors, if such power is conferred on them by
the articles of association. Such additional directors hold office only upto the date of next
annual general meeting or the last date on which the annual general meeting should have
been held, whichever is earlier.
Alternate Director- Section 161 (2)
(i) The Board of Directors of a company must be authorised by its articles or by a resolution
passed by the company in general meeting for appointment of alternate director.
(ii) The person in whose place the Alternate Director is being appointed should be absent for
a period of not less than 3 months from India.
Directors by Nomination Section 161(3)
the Board may appoint any person as a director nominated by any institution in pursuance of
the provisions of any law for the time being in force or of any agreement or by the Central
Government or the State Government by virtue of its shareholding in a Government
Company.
Directors in causal vacancy- Section 161
If any vacancy is caused by death or resignation of a director appointed by the shareholders in
General meeting, before expiry of his term, the Board of directors can appoint a director to
fill up such vacancy. The appointed director shall hold office only up to the term of the
director in whose place he is appointed.
Women directors S 149
The following classes of companies, including companies which existed prior to 1 April
2014, are required to appoint a minimum of 1 woman director:
• listed companies
• unlisted public companies having a paid-up share capital of at least INR 100 cr or a turnover
of at least INR 300 cr, as per the latest audited financial statements.
The requirement of appointing a woman director extends to every company incorporated
under Companies Act, 2013, which falls within one of the aforementioned classes.
Companies newly incorporated under Companies Act, 2013 and falling within the above
criteria requiring appointment of a woman director are required to comply with the said
condition within 6 months of incorporation.
In the event of any intermittent vacancy of a woman director, the board of the concerned
company is required to fill up such vacancy at the following board meeting or within 3
months from the date of such vacancy, whichever is later.
Small shareholders’ directors ( S/151)
A small shareholder is any shareholder holding shares of nominal value of not more than INR
20,000 (Indian Rupees Twenty thousand).
obligation on every listed company to have 1 director elected by small shareholders, upon
notice being given to the company in this regard by not less than 1000 small
shareholders or one-tenth of the total number of small shareholders, whichever is lower.
A listed company also has the option of appointing a director representing small shareholders
of its own accord.
A listed public company shall elect the SS director through postal ballot
Tenure of such director shall be for a maximum period of 3 years
On expiry of the term the same person may elected for another period of 3 yrs.

Independent director
An independent director in relation to a company, means a director other than a managing
director or a whole-time director or a nominee director
He is a non-executive director
ID helps company to improve corporate credibility and enhance governance standard.
Who has or had no pecuniary relationship with the company, its holding, subsidiary or
associate company, or their promoters, or directors, during the two immediately preceding
financial years or during the current financial year;
Who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and
experience;
who is or was not a promoter of the company or its holding, subsidiary or associate company;
who is not related to promoters or directors in the company, its holding, subsidiary or
associate company;
Tenure- 2 years and can be reappointed after 3 years
The following companies must appoint atleast 2 independent directors:
Public company having 100 Cr or more paid up capital
Public company having 100 Cr or more turnover
Public company with total o/s loans, deposits and debentures of 50 Cr or more.
The appointment of the independent directors shall be approved at the meeting of the
shareholders
The terms and conditions of the appointment of the independent directors shall be open for
inspection at the registered office.
The re-appointment of the independent directors should be on the basis of report of their
performance
Independent directors are entitled to fee, commission, and reimbursement but not entitled to
stock option.
ID who is removed or who resigns shall be replaced by a new ID within a period of not less
than 180 days from the date of resignation/removal
Seperate meeting of ID:
Atleast 1 meeting in a year (only IDs)
The meeting shall review the performance of the non-ID and board as well
Review the performance of the chairman taking view of the executive and the non-executive
directors.

Role of a director:
(a) Director as agent:- A Company as an artificial person, acts as through directors who are
elected representatives of the shareholders and execute decision making for the benefit of
shareholders.
In Ferguson v Wilson," The court said: The company has no person; it can act only through
directors and the case is, as regards those directors, merely the ordinary case of principal and
agent.
(b) Director as employee:- Directors are liable as employee under provisions of Companies
Act. When the director is appointed as whole time director of the Company then that
particular director shall be considered as employee director or whole time director of the
Company.
(c) Director as officer:- Director treated as officer of an Company.They are liable to certain
penalities if the provision of the Companies act are not strictly complied with or in case of
violations.
d) Director as Trustee:- Director is treated as trustees of the Company‘s money and
property and of the powers entrusted to and vested in them only as trustee.
In Ramaswamy Iyer v Brahamayya & Co, the Madras High Court observed: The directors
of a company are trustees for the company, and with reference to their power of applying
funds of the company and for misuse of the power they could be rendered liable as trustees
and on their death, the cause of action survives against their legal representatives.

2. Discuss the role of directors in a company. What are the provisions related to
appointment of directors in a company and the disqualification from being appointed as
directors of a company?

General provisions relating to appointment of directors

In the General meetings

1. Except as provided in the Act, every director shall be appointed by the company in general
meeting.
2. Director Identification Number is compulsory
3. Declaration that he is not disqualified to become a director under the Act.
4. Shall on or before the appointment give his consent to hold the office of director.
5. Articles of the Company may provide the provisions relating to retirement of the all
directors. If there is no provision in the article, then not less than two-thirds of the total
number of directors of a public company shall be persons whose period of office is liable to
determination by retirement by rotation and eligible to be reappointed at annual general
meeting. The directors to retire by rotation at every annual general meeting shall be those
who have been longest in office since their last appointment.
The company may fill up the vacancy by appointing the retiring director or some other person
thereto. If the vacancy of the retiring director is not so filled-up the meeting shall stand
adjourned till the same day in the next week, at the same time and place, or if that day is a
national holiday, till the next succeeding day which is not a holiday, at the same time and
place. If at the adjourned meeting also, the vacancy of the retiring director is not filled up, the
retiring director shall be deemed to have been re-appointed at the adjourned meeting, unless
—
(i) a resolution for the re-appointment of such director has been put to the meeting and lost;
(ii) the retiring director has expressed his unwillingness to be so re-appointed;
(iii) he is not disqualified for appointment;

Appointment by proportional representation- sec. 163

Directors are appointed by simple majority. Therefore sec. 163 was enacted by the legislature
so that the minority may have an opportunity to place their representative on the board. This
section enables a a co. to provide in its articles the system of voting by proportional
representation. This is to make minority votes effective.

Appointment by board
While the general power to appoint directors is vested in the GM of the shareholder, there are
atleast two cases when the board can also appoint new directors. These are: appointment of
additional director and appointment of casual vacancy.
BN Vishwanathan V tiffns Baryt Asbestos (p) ltd. – A clause in the articles of a co.
authorised the directors to fill the casual vacancy but the decision to fill casual vacancy was
taken in the GM hence was challenged. The court held since there was no valid board at the
time when decision was taken, the members had the right to elect.

Appointment by tribunal
The CLT has the power to appoint directors for prevention of oppression and
mismanagement.
Rolta India Ltd V venire industries Ltd. – An agreement between groups of shareholders
not to increase the no. of directors and capital of the company and also not to do anything
disturbing the existing pattern of management was held to be not binding on the co. so as to
prevent it from doing any of those things.

Disqualification
Disqualifications for appointment of director - Section 164 (1)
A person shall not be eligible for appointment as a director of a company, if —
(a) He is of unsound mind
(b) He is an undischarged insolvent;
(c) He has applied to be adjudicated as an insolvent and his application is pending;
(d) he has been convicted by a court of any offence, and sentenced in respect thereof to
imprisonment for not less than six months and a period of five years has not elapsed from the
date of expiry of the sentence. If a person has been convicted of any offence and sentenced in
respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to
be appointed as a director in any company;
(e) an order disqualifying him for appointment as a director has been passed by a court or
Tribunal and the order is in force;
(f) he has not paid any calls in respect of any shares of the company held by him, whether
alone or jointly with others, and six months have elapsed from the last day fixed for the
payment of the call;
(g) he has been convicted of the offence dealing with related party transactions under section
188 at any time during the last preceding five years; or
(h) he has not got the DIN.

An additional disqualification: Any person who is or has been director 20 Appointment and
Qualifications of Directors of any company which has not filed any financial statements and
Annual Return for 3 continuous financial year or has defaulted in payment of
debentures/deposit/dividend etc, shall also not be eligible for appointment as director of any
public company and for reappointment in the same company for a period of five years from
the date on which the said company fails to do so.

3. Directors are not only agents but also in some sense trustees of the company. Discuss
It is established in the case of Ferguson v. Wilson that the directors are considered as
“agents of the Company '' in the eyes of law. Company is an artificial person created by law
and cannot act on its own. It operates through its directors i.e. agents of the Company. Faure
Electric Accuinuolator Co., held that directors are agents for the company with powers and
duties of carrying on the whole of its business subject to the restrictions imposed by the
articles and the statutory provisions. Their role as agent is guided by the powers and duties
entrusted to them.
They are treated as trustees of the Company with regards to the money and the property of
the company they handle. They undertake all the transactions on behalf of the company and
utilise the company’s funds in the best possible manner to gain profits. The directors are also
the trustees in respect of powers entrusted to them. They must exercise these powers bonafide
and for the overall benefit of the company.
A director derives his authority to act as agent of the Company by virtue of its AOA. Thus,
his actions as an agent are considered as “actions of the Company” itself. However, the
director is not held personally liable for his acts unless specifically provided in the law.
Wherever a liability would attract to an agent; directors would be held liable whereas where
the liability would attract to the principal, the burden of liability will be shifted to the
company.
The relation of the directors with the company is guided by the general principle of agency. If
directors have any personal interest in a transaction of the Company then they have to
disclose the same like an agent.
Directors can incur a personal liability when they enter the contract in their own names, when
they use the name of the company for fraudulent purposes and when they exceed their powers
entrusted with them.
It is important to note that directors are agents of the company but not the agents of the
members of the company. A company is a distinct legal entity apart from its shareholders.
The directors are not considered as agents in any legal statute. Agents are appointed by the
principal whereas directors are elected by the shareholders of the Company. Agents work on
commission basis but that’s not the case of directors. Also, an agent is not required to
disclose the name of his principal but a director has to do the same. Therefore, the directors
are not the agents in the true legal sense.
In terms of Trust laws in India, a trustee holds legal ownership over the trust property of
which the equitable ownership lies with the beneficiary. Considering this explanation,
directors are not considered as full- fledged trustees of the Company. Unlike a trustee, the
property of the company is not legally vested in him. Also, a trustee executes contracts in
respect of the trust property in his own name whereas directors do the same under the
common seal of the company and not in his personal capacity.
A trustee never manages the trust property for his benefit whereas the director undertakes
management of trust property for the benefit of himself and other shareholders in the
company. An artificial person can become a trustee but an artificial person cannot become a
director of the Company. As, only an individual can be a director who can execute the
transaction in the name of the Company. Directors are commercial officers managing a
trading concern for the benefit of themselves and of all the shareholders in it. They are paid
officers of the Company. Thus we can say that directors are not trustees in real sense. Their
functions and duties make them Trustees of the Company. Directors may better be regarded
as quasi trustees looking at their roles.
Case laws:
In Smith v. Anderson, (1880) 15 Ch D 247 at p 275 case, the Court observed that in the real
sense the directors are not trustees. A trustee is the legal owner of the trust property and
contracts in his own name. On the other hand, the director is a paid agent or officer of the
company and contracts for the company.
In Percival v. Wright, (1902) 2 Ch. D. 421 case, the court held that directors have no duty
towards individual shareholders. Thus, the directors are trustees to the company and not of
individual shareholders.
In Allen v. Hyatt, (1914) 30 TLR 444 case, the Court held that the directors are trustees of
the profit for the benefit of the shareholders. They cannot always act under the impression
that they owe no duty to the individual shareholders. But it is of no doubt that the primary
duty of the director is to the company.
In Peskin v. Anderson, [2000] 2 BCLC 1 case, the Court held that the directors are not
agents or trustees of members or shareholders and owe no fiduciary duties to them. They are
agents and trustees to the company.
In Ramaswamy Iyer v. Brahmayya & Co. Ltd. (1966) 1 Co. Law Journal, 107 case, the
Court observed: "The directors of the company are trustees for the company, and with
reference to their power, they can be rendered liable as trustees."

4. Who can be appointed as a director of a company? Explain the provisions of the

Companies act relating to the legal position of a director and appointment of directors
by the Board of directors.
Ans: Qualifications for 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. The
Companies Act does, however, limit the specified share qualification of Directors which can
be prescribed by a public company or a private company that is a subsidiary of a public
company, to be five thousand rupees (Rs. 5,000/-).

Role:
(a) Director as agent:- A Company as an artificial person, acts as through directors who are
elected representatives of the shareholders and execute decision making for the benefit of
shareholders.
In Ferguson v Wilson," The court said: The company has no person; it can act only through
directors and the case is, as regards those directors, merely the ordinary case of principal and
agent.
In the case of Elkington & Co. v. Hurter {1892} 2CH 452 it was held that where directors
enter into contracts on behalf of the company, it is the company and not the directors who are
liable there under.
Being in the position of agent, directors should display a degree of care, skill and diligence in
the exercise of their power and function.
In the case of T R Pratt { Bombay } Ltd., v. M T Ltd., AIR 1938 PC 159 it was held that
notice to the directors amounts to notice to the company in the similar way a notice to the
agent in the ordinary course of business amounts to notice to the principal.

(b) Director as employee:- Directors are liable as employee under provisions of Companies
Act. When the director is appointed as whole time director of the Company then that
particular director shall be considered as employee director or whole time director of the
Company.
It was held by the Supreme Court in the case of  Ram Prashad v. CIT {1972} 86 ITR 122,
127 {SC}   that  a director of a company is not the servant of the company by reason of
holding the position of director. But he can work as a “director – employee” in the position of
a whole time director or managing director.
In the case of CIT v. Armstrong Smith {1946} 16 Comp Cas 172 it was held that a director is
not prevented from entering into contractual relationship with the company so that apart from
his office of director he becomes entitled to remuneration as an employee of the company. 
(c) Director as officer:- Director treated as officer of an Company. They are liable to certain
penalities if the provision of the Companies act are not strictly complied with or in case of
violations.

d) Director as Trustee:- Director is treated as trustees of the Company‘s money and

property and of the powers entrusted to and vested in them only as trustee.
In Ramaswamy Iyer v Brahamayya & Co, the Madras High Court observed: The directors
of a company are trustees for the company, and with reference to their power of applying
funds of the company and for misuse of the power they could be rendered liable as trustees
and on their death, the cause of action survives against their legal representatives.
In Lands Allotment Co., Re, {1894} 1 Ch 616, 631, it was held by the court that although
the directors are not, properly speaking, trustees, yet they have always been considered and
treated as trustees of money which comes to their hands or which are actually under their
control and directors are held liable to make good monies which they have misapplied upon
the same footing as if they were trustees.
In Selangor United Rubber Estates v. Cradock (1968) 1 WLR 1555, it was held that the
directors were trustees of the money standing to the credit of the company’s bank account
which they operated.
In Percival v. Wright (1902) 2 Ch 421, it was held that directors are trustees of the company
and not of any individual shareholders.
In Baket v. Gibbons [1972] 1 WLR 693 it was held that the position of trusteeship of
directors also extended to trade secrets and other items of intellectual property.
The Supreme Court had also recognised the fiduciary position of directors in companies in
the case of Chevalier I. I. Iyyappan v. Dharmodayan Co., Trichur , AIR 1966 SC 1017.

Appointment of directors by the Board of directors.

While the general power to appoint directors is vested in the GM of the shareholder, there are
atleast two cases when the board can also appoint new directors. These are: appointment of
additional director and appointment of casual vacancy.
BN Vishwanathan V tiffns Baryt Asbestos (p) ltd. – A clause in the articles of a co.
authorised the directors to fill the casual vacancy but the decision to fill casual vacancy was
taken in the GM hence was challenged. The court held since there was no valid board at the
time when decision was taken, the members had the right to elect.
5. Explain the powers and responsibilities of Directors. What is the procedure for
removing a director?

Powers of Directors
In exercising powers the board will be subject to the provisions contained in that behalf in the
Co. Act 2013, any other Act, MoA, AoA, or any other regulations.
According to Companies Act 2013, the Board of Directors of a Company has the following
powers in the Company.

General Powers Vested Under Section 179

Section 149 of the Companies Act, 2013 empowers the directors with the general power
vested in the Board. The Board of directors is entitled to exercise all the powers and do all
required actions which a company is authorised to exercise. But, such action is subject to
certain restrictions. The powers of directors are co-extensive with the powers of the company
itself. The director once appointed, they have almost total power over the operations of the
company.

There are three limitations on the exercise of the power of directors which are as follows:
 The board of directors are not competent to do the acts which the shareholders are
required to do in general meetings.
 The powers of directors are to be exercised in accordance with the memorandum and
articles.
 The individual directors have powers only as prescribed by memorandum and articles.

Powers To Be Exercised With General Meeting Approval

Section 180 of the Companies Act 2013 states certain powers which can be exercised by the
Board only when it is approved in the general meeting:
  To sale, lease or otherwise dispose of the whole or any part of the company’s
undertakings.
 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.
When the director has breached the restrictions imposed under the sections, the title of lessee
or purchaser is affected unless he has acted in good faith along with due care and diligence.
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 Constitute An Audit Committee

The board of directors are empowered under section 177 to constitute an audit committee. It
needs to be constituted of at least three directors, including independent directors. In the
committee, the independent directors need to be in the majority. The chairperson and
members of the audit committee should be persons with the ability to read and understand the
financial statements.
The audit committee is required to act in accordance with the terms of reference specified by
the Board in writing.

Power to constitute Nomination and Remuneration Committees and Stakeholders

Relationship Committee
The Board of directors can constitute the Nomination and Remuneration Committee and
Stakeholders Relationship Committee under section 178. The Nomination and Remuneration
Committee should be consisting of three or more non-executive directors out of which one
half are required to be independent directors.
The Board can also constitute the Stakeholders Relationship Committee, where the board of
directors consist of more than one thousand shareholders, debenture holders or any other
security holders. The grievances of the shareholders are required to be considered and
resolved by this committee.

Power to make a contribution to charitable or other funds

The Board of directors of the company is empowered under section 181 to contribute to the
bona fide charitable and other funds. When the aggregate amount of contribution, in any case,
exceeds the 5% of the average net profit of the company for the immediately preceding
financial years, then the prior permission of the company in a general meeting is required.

Power to make a political contribution

Under section 182 of the Companies Act 2013, the companies can make a political
contribution. The company making a political contribution should be other than a government
company or a company which has been in existence for less than three years.
Also, the amount of contribution should not exceed 7.5% of the company’s net profit in the
three immediately preceding financial years. The contribution needs to be sanctioned by a
resolution passed by the Board of Directors.

Power to contribute to National Defence Fund

The Board of Directors is empowered to make contributions to the National Defence Fund or
any other fund approved by the Central Government for the purpose of National defence
under section 183 of the Companies Act 2013. The amount of contribution can be the amount
as may be thought fit. This total amount of contribution made should be disclosed in the
profit and loss account during the financial year which it relates to.

Responsibilities/ Duties of Directors

Section 166 of the new Act provides that a director of a company (including a private
company) shall act in accordance with the Articles of the company. His duties are listed in
the section as under:
 To act in good faith
 Act in accordance with the Articles of Association of the Company
 To act so as to promote the objects of the Company
 Act in best interest of the Company and its stakeholders
 Exercise duties with due and reasonable care
 To exercise independent judgement
 Not to get involved in a situation where his interest conflicts with the interest of the
Company
 He cannot assign his office to any other person.
 Not to achieve undue gain or advantage
Removal of the Directors

Removal by the Shareholders

1. A Special notice of the intention to move a resolution for the removal of director be
furnished by No. of members (according to requirement of Section- 115 of Companies Act,
2013) to the company at least 14 days before the meeting at which it is to be moved,
excluding the day on which the notice is served and the day of the meeting. (Section 169).
2. Section 115-Special notice to Company- Only shareholder/s holding not less than 1% of
total voting power or holding shares on which an aggregate sum of not less than Rs. 5,00,000
has been paid up as on the date of notice, can send special notice to the Company for removal
of director. The same should be signed by the concerned shareholders.
3. The company must give intimation to the concerned director of the intended resolution by
sending a copy of the special notice received by it, forthwith on receipt thereof. The director
shall have the right to be heard on the resolution at the meeting.
4. The director, who is sought to be removed, can make a representation in writing against his
removal and request the company to notify it to the company’s members [section 169]. If the
director requests the company to notify the members of the company his representation
against his removal and the representation is of reasonable length and it has been received not
too late, the company must.
Mention in the notice of the resolution to be moved at the annual general meeting, the fact of
the representation having been received; and
Send a copy of the representation to every member along with the notice of the meeting if the
representation has been received before sending the notice of the meeting or separately if the
representation has been received after sending the notice of the meeting.
5. Hold and convene a General meeting & pass an ordinary resolution for the removal of
Director.
6. File e-form no. DIR-12with the Registrar of Companies within 30 days of passing the
resolution.
7. The vacancy is created under this section after the removal of the director then in the same
meeting of the removal another director is being appointed for time being, and a special
notice of the intended appointment is provided.
8. The newly appointed director has to hold the post until the duration up to the new formal
appointment of the director is made.
9. When a director is removed as aforementioned, his office vacates automatically u/s 167.
10. The removed director is liable for the damages and compensation which is required to be
payable to him in lieu of his removal or termination according to the prescribed terms and
conditions of the appointment.
Case:
It was held in a case of LIC of India v. Escorts Ltd. – AIR 1986 SC 1370 (1986) 59 Comp
Cas 548 (SC)that a shareholder cannot be restrained from calling an extra ordinary general
meeting for removal of a director.
It is essential that by way of principle of natural justice, the director concerned should be
given a reasonable opportunity of being heard to defend his case as to why he should not be
removed. Only after hearing his defence that the decision of removal should be taken by the
members. {Ref case: Queens Kuries & Loans P Ltd. V Sheena Jose {1993} 76 Comp Cases
821 [Ker]}.
It was held in the case of Tarlok Chand Khanna v Raj Kumar Kapoor , {1983} 54 Comp
Cas 12 Del, that any restriction upon the power of removal would be void. Moreover, even a
permanent director in terms of the articles of association, who is not liable to retire by
rotation, can be removed.

Removal by Tribunal
Where application is made to the tribunal against oppression and mismanagement of
company’s affairs- tribunal may order or termination
A director so removed not entitled to compensation for loss of office
Such director who is removed is not entitled to serve as manager, MD or director of the
company without leave of the tribunal for a period of 5 years from the date of the tribunal
setting aside his contract
Tribunal shall not grant leave unless the intention to apply for leave has been served
on the Central government and the govt has been given a reasonable opportunity of being
heard on the matter
If anyone continues and every other person who is a party to the contravention , shall be
punishable with imprisonment for a term which may extent to 6 months or with fine with may
extend to 5 lakh rupees or both.

Removal - Suo-moto by the Board

A Company has the authority to remove a Director by passing an Ordinary Resolution, given
the Director was not appointed by the Central Government or the Tribunal.
A Board Meeting will be called by giving seven days’ notice to all the directors. A special
notice will go to the directors informing them about the removal of the director.
On the day of the Board Meeting, a resolution for the holding of an extraordinary general
meeting will be passed along with the resolution for the removal of the director subject to the
approval of the shareholders.
A general meeting will be held by giving 21 days clear notice. In the meeting, the members
will be asked to vote on the matter. If the majority is in favour of the decision, the resolution
will be passed.
Before the passing of the resolution, an opportunity of being heard will be given to the
director.
After the passing of the resolution, the same procedure will be followed, and the forms DIR –
11 and DIR – 12 will be filed along with the same attachments of the Board Resolution,
Ordinary Resolution.
After the filing of the forms, the name of the director will be struck off from the Ministry of
Corporate Affairs website.
Conclusion
The directors of a company are like its brain. They have a major contribution to a company’s
growth and development and their position is very important for the company. They are given
certain powers under the Companies Act 2013 so that they can contribute their best to the
company. Along with powers, certain restrictions are also imposed on its exercise to avoid
any misuse of such powers.

Short Note :
2. Board meeting

◉ Number of meetings- Sec 173

Every company ( public or private) shall hold the first meeting of the BOD within 30 days of
its incorporation; thereafter the meetings shall be held as under:
a. A minimum of 4 Board meetings must be held every year
b. There is no requirement of holding the meeting every quarter
c. But the gap between 2 Board Meetings shall not be more than 120 days
◉ Notice of meeting and participation of directors
a. A min 7 day notice in writing should be given to every director, whether he is in India or
outside India, at his address registered with the company
b. In order to transact urgent business, a meeting may be called at a shorter notice. However,
for a meeting called at shorter notice at least one Independent Director is present, then the
decision taken at such a meeting . If no Independent Director is present , then the
decision taken at such a meeting shall be circulate to all directors and shall be final only on
ratification at least one Independent Director, if there is any
c. The notice shall be sent by hand delivery or by post or by electronic means
d. The participation of directors in a meeting of the Board may be either in person or through
video conference or such other audio visual means recognising the participation of directors
and recording and storing the proceedings of the meeting along with date and time

Quorum for the meeting of the Board- Sec 174

- Quorum of the Board meeting is 1/3rd of its total strength or two directors , whichever is
higher
- The participation of the directors by video conferencing or by other audio visual means
shall also be counted
- Where at any time the number of interested directors exceeds or is equal to two thirds of the
total strength of the Board of Directors, the number of directors who are not interested
directors and present at the meeting, being not less than two, shall be the quorum during such
time
- Where a meeting of the Board could not be held for want of quorum, then, unless the
articles of the company otherwise provide, the meeting shall automatically stand adjourned to
the same day at the same time and place in the next week or if that day is a national holiday,
till the next succeeding day, which is not a national holiday, at the same time and place.

SEBI

Question: Explain the role of SEBI in the Indian Capital Markets

Role of SEBI
SEBI acts as a watchdog for all the capital market participants and its main purpose is to
provide such an environment for the financial market enthusiasts that facilitate efficient and
smooth working of the securities market.
To make this happen, it ensures that the three main participants of the financial market are
taken care of, i.e. issuers of securities, investor, and financial intermediaries.

Issuers of securities
These are entities in the corporate field that raise funds from various sources in the market.
SEBI makes sure that they get a healthy and transparent environment for their needs.

Investor
Investors are the ones who keep the markets active. SEBI is responsible for maintaining an
environment that is free from malpractices to restore the confidence of general public who
invest their hard earned money in the markets.

Financial Intermediaries
These are the people who act as middlemen between the issuers and investors. They make the
financial transactions smooth and safe.
The Government has set up the Securities & Exchange Board of India (SEBI) in April, 1988.
For more than three years, it had no statutory powers. Its interim functions during the period
were

 To collect information and advice the Government on matters relating to Stock and
Capital Markets
 Licensing and regulation of merchant banks, mutual funds etc.
 To prepare the legal drafts for regulatory and development role of SEBI and
 To perform any other functions as may be entrusted to it by the Government.

Role of SEBI in capital markets

1. Power to make rules for controlling stock exchange: - SEBI has power to make new rules
for controlling stock exchange in India.
2. To provide license to dealers and brokers: - SEBI has power to provide license to dealers
and brokers of capital market. If SEBI sees that any financial product is of capital nature, then
SEBI can also control to that product and its dealers. One of main example is UPIL'S case
SEBI said, "It is just like mutual funds and all banks and financial and insurance companies
who want to issue it, must take permission from SEBI."
3. To Stop fraud in Capital Market: - SEBI has many powers for stopping fraud in capital
market. It can ban on the trading of those brokers who are involved in fraudulent and unfair
trade practices relating to stock market. It can impose the penalties on capital market
intermediaries if they involve in insider trading.
4. To Control the Merger, Acquisition and Takeover the companies: - Many big companies in
India want to create monopoly in capital market. So, these companies buy all other
companies or deal of merging. SEBI sees whether this merge or acquisition is for
development of business or to harm capital market.
5. To audit the performance of stock market: - SEBI uses his powers to audit the performance
of different Indian stock exchange for bringing transparency in the working of stock
exchanges.
6. To make new rules on carry - forward transactions: - Share trading transactions carry
forward can not exceed 25% of broker's total transactions.90 day limit for carry forward.
7. To create relationship with ICAI: ICAI is the authority for making new auditors of
companies. SEBI creates good relationship with ICAI for bringing more transparency in the
auditing work of company accounts because audited financial statements are mirror to see the
real face of company and after this investors can decide to invest or not to invest. Moreover,
investors of India can easily trust on audited financial reports. After Satyam Scam, SEBI is
investigating with ICAI, whether CAs are doing their duty by ethical way or not.
8. Introduction of derivative contracts on volatility Index: For reducing the risk of the
investors, SEBI has now been decided to permit Stock Exchanges to introduce derivative
contracts of volatility index, subject to the condition that;
 The underlying volatility Index has a track record of at least one year.
 The exchange has in place the appropriate risk management framework for such
derivative contracts.
 Before introduction of such contracts, the Stoc exchange shall submit the following
o Contract specifications
o Position and exercise limits
o Margins
o The economic purpose it is intended to serve
o Likely contribution to market development
 o The safeguards and the risk protection mechanism adopted by the exchange
ensure market integrity, protection of investors and smooth and orderly trading
o The infrastructure of the exchange and the surveillance system to effectively
monitor trading in such contracts and
o Details of settlement procedures and systems
o Details of back testing of the margin calculation for a period of one year
considering a call and a put option on the underlying with a delta of 0.25&-
0.25 respectively and actual value of the underlying
9. To require report of portfolio management activities: SEBI has also power to require report
of portfolio management to check the capital market performance.
10. To educate the investors: Time to time, SEBI arranges scheduled workshops to educate
the investors.
11. Settlement and Clearing –

 Weekly settlements
 Auctions for non-delivered shares within 80 days of settlement
 Advice to set up clearing houses, clearing corporation or settlement guarantee fund
Warehousing facilities permitted by SEBI.

Short Note:
Powers of SEBI
 It has the powers to access the books of records and accounts for all the stock
exchanges and it can arrange for periodical checks and returns into the workings of
the stock exchanges.
 It can also conduct hearings and pass judgments if there are any malpractices detected
on the stock exchanges.
 When it comes to the treatment of companies, it has the power to get companies listed
and de-listed from any stock exchange in the country.
 It has the power to completely regulate all aspects of insider trading and announce
penalties and expulsions if a company is caught doing something unethical.
 It can also make companies list their shares in more than one stock exchange if they
see that it will be beneficial to investors.
  Coming to investor protection, SEBI has the power to draft legal rules to ensure the
protection of the general public.
 It also has the power to regulate the registration of brokers and other middlemen who
will deal with investors in the market.
Short note 2:
Insider trading
Insider trading denotes dealing in a company’s securities on the basis of confidential
information relating to the company which is not published or not known to the public used
to make profit or loss. It is fairly a breach of fiduciary duties of officers of a company or
connected persons towards the shareholders.
Insider trading in India is generally regulated by the SEBI Regulations on Prohibition of
Insider Trading, 1992.  Section 458 of the Company’s Act, 2013 delegates or confers the
power to SEBI to prosecute both the listed and companies which are deemed to be listed of
insider trading which is going on illegally inside any of these companies.
 The prevention of insider trading is widely treated as an important function of
securities regulation. Section 11(2)E of companies act, 1956 prohibits the insider
trading. Prohibition of insider trading is necessary to make securities market-
 Fair and transparent.
 To have level playing field for all the participants in the market.
 For free flow of information and avid information asymmetry.

 Insider is the person who is connected with the company, who could have the
unpublished price sensitive information or receive the information from somebody in
the company.

Information deemed to be price sensitive are-

 Periodical financial results.
 Intended decalaration of the dividends
 Issue of securities or buy-back of securities
 Any major expansion plans or execution of new projects
 Amalgamation and mergers or takeovers
 Any significant changes in policies, plans or operations of the company.
For example, illegal insider trading would occur if the chief executive officer of Company A
learned (prior to a public announcement) that Company A will be taken over and then bought
shares in Company A while knowing that the share price would likely rise.

Liability for insider trading.

when allegations of a potential inside deal occur, all parties that may have been involved are
at risk of being found guilty.

For example, if Company A's CEO did not trade on the undisclosed takeover news, but
instead passed the information on to his brother-in-law who traded on it, illegal insider
trading would still have occurred (albeit by proxy by passing it on to a "non-insider" so
Company A's CEO wouldn't get his hands dirty).

Cases:
Rakesh Agrawal Vs. Securities Exchange Board of India-
In this case, The ABS company was in negotiation with Bayer A.G. which was based in
Germany. The MD of ABC company had access to unpublished information of the Bayer’s
company. It was alleged by the SEBI that the brother-in-law of MD had purchased some
shares from ABS and tendered the shares to Bayer in the open offer. Thus the SEBI
directed the MD to give compensation of Rs. 34 lakhs and it is the appellant’s responsibility
to give compensation to any of the investors making claims of violation of their interests.
However, in an appeal to SAT, the tribunal took the order back of compensation and withheld
by giving the verdict that the appellate Rakesh Agrawal did this to secure the interests of his
company.

Indiabulls Insider Trading Case

In this case, the executive director of Indiabulls was accused of making Rs. 87 lakhs
unlawfully by trading in Indiabulls when they had access to unpublished secret information
of sale of land and property privately which is the subsidiary of Indiabulls venture limited.
According to the regulator, the executive director of the Indiabulls venture limited was in the
management committee of the Indiabulls, therefore she was an insider and her husband too
was an insider. These unlawful gains were made in the year from 2017-19. The SEBI ordered
that strict criminal action be taken against the IVF and both the executive director of the
company and her husband have to impound  Rs. 87.4 lakhs both jointly and severally.
Mention the amendments from aishus link

Extra Reading

Board/ committee of sebi

The Board shall consist of the following members, namely:—

(a) a Chairman;
(b) two members from amongst the officials of the 5[Ministry] of the Central Government
dealing with Finance 6[and administration of the Companies Act, 1956 (1 of 1956)];
(c) one member from amongst the officials of 7[the Reserve Bank];
(d) five other members of whom at least three shall be the whole-time members,]
to be appointed by the Central Government.

Term of office and conditions of service of Chairman and members of the Board- not more
than 5 years
The Central Government shall remove a member from office if he
a) is, or at any time has been, adjudicated as insolvent;
b) is of unsound mind and stands so declared by a competent court;
c) has been convicted of an offence which, in the opinion of the Central Government,
involves a moral turpitude;
d) has, in the opinion of the Central Government, so abused his position as to render his
continuation in office detrimental to the public interest : Provided that no member
shall be removed under this clause unless he has been given a reasonable opportunity
of being heard in the matter.
The Board shall meet at such times and places, and shall observe such rules of procedure in
regard to the transaction of business at its meetings (including quorum at such meetings) as
may be provided by regulations.
The Chairman or, if for any reason, he is unable to attend a meeting of the Board, any other
member chosen by the members present from amongst themselves at the meeting shall
preside at the meeting.
Sec 11 Functions of Board: Wide powers
- regulating the business in stock exchanges and any other securities markets;
- registering and regulating the working of stock brokers, sub-brokers, share transfer
agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant
bankers, underwriters, portfolio managers, investment advisers and such other
intermediaries who may be associated with securities markets in any manner
- registering and regulating the working of the depositories, 14[participants], custodians
of securities, foreign institutional investors, credit rating agencies and such other
intermediaries as the Board may, by notification, specify in this behalf;]
- registering and regulating the working of 15[venture capital funds and collective
investment schemes], including mutual funds
- Promoting and regulating self-regulatory organisations ( Stock exchanges are SROs)
- prohibiting fraudulent and unfair trade practices relating to securities markets;
- promoting investors‘ education and training of intermediaries of securities markets
- prohibiting insider trading in securities
- regulating substantial acquisition of shares and take over of companies
- calling for information from, undertaking inspection, conducting inquiries and audits
of the 16[stock exchanges, mutual funds, other persons associated with the securities
market], intermediaries and self-regulatory organisations in the securities market
- calling for information and records
- performing such functions and exercising such powers under the provisions of the
Securities Contracts (Regulation) Act, 1956 (42 of 1956), as may be delegated to it by
the Central Government
- levying fees or other charges
- Can take interim measures In the interest of investors and securities market, suspend
trading, restrain persons from accessing the securities market, suspend office
bearersissue directions to intermediaries not to dispose of or alienate any asset
- Board to regulate or prohibit issue of prospectus, offer document or advertisement
soliciting money for issue of securities

Functions of SEBI:
SEBI primarily has three functions-
 Protective Function
  Regulatory Function
 Development Function
Protective Functions
As the name suggests, these functions are performed by SEBI to protect the interest of
investors and other financial participants.
It includes-
Checking price rigging
Prevent insider trading
Promote fair practices
Create awareness among investors
Prohibit fraudulent and unfair trade practices
Regulatory Functions
These functions are basically performed to keep a check on the functioning of the business in
the financial markets.
These functions include-
Designing guidelines and code of conduct for the proper functioning of financial
intermediaries and corporate.
Regulation of takeover of companies
Conducting inquiries and audit of exchanges
Registration of brokers, sub-brokers, merchant bankers etc.
Levying of fees
Performing and exercising powers
Register and regulate credit rating agency
Development Functions
SEBI performs certain development functions also that include but they are not limited to-
Imparting training to intermediaries
Promotion of fair trading and reduction of malpractices
Carry out research work
Encouraging self-regulating organizations
Buy-sell mutual funds directly from AMC through a broker
Objectives of SEBI:
SEBI has following objectives-
Protection to the investors
The primary objective of SEBI is to protect the interest of people in the stock market and
provide a healthy environment for them.
Prevention of malpractices
This was the reason why SEBI was formed. Among the main objectives, preventing
malpractices is one of them.
Fair and proper functioning
SEBI is responsible for the orderly functioning of the capital markets and keeps a close check
over the activities of the financial intermediaries such as brokers, sub-brokers, etc.

EXTRA READING

Directors in a Company
Responsible for controlling, managing and directing the affairs of a company.
Directors are considered the trustees of company’s property and money, and they also act as
the agents in transactions which are entered into by them on behalf of the company.
Directors are responsible for controlling, managing and directing the affairs of a company.

Minimum and Maximum number of directors in a company

Section 149(1) of the Companies Act, 2013 requires that every company shall have a:
minimum number of 3 directors in the case of a public company,
2 directors in the case of a private company,
and one director in the case of a One Person Company.
A company can appoint maximum 15 directors. A company may appoint more than fifteen
directors after passing a special resolution in general meeting.

Number of directorships- Section 165

Maximum number of directorships, including any alternate directorship a person can hold is
20.
Number of directorships in public companies/ private companies that are either holding or
subsidiary company of a public company shall be limited to 10.
The members of a company may restrict abovementioned limit by passing a special
resolution.
If a person accepts an appointment as a director in contravention of above mentioned
provisions, he shall be punishable with fine which shall not be less than Rs. 5,000 but which
may extend to Rs. 25,000 for every day after the first day during which the contravention
continues.

Annual rotation
The AOA of the company may provide for retirement of all the directors by annual rotation.
Only 1/3rd can be given permanent appointment. The articles can provide for all the directors
to be rotational. Those directors will retire who will retire who have been longest in the office
since their last appointment. As between persons who became directors on the same day,
retirement is to be determined either my mutual agreement or in default by lot.
BR Kundra V motion pictures Assn, - Held that directors cannot prolong their tenure by
not holding a meeting in time. They would automatically retire from office on the expiry of
max. permissible period within which a meeting ought to have been held.
If no directors are left to call an AGM the tribunal may call a meeting to appoint directors.
For this purpose the total no. of directors is not to include independent director.
Reappointment
The vacancies should be filled up at the same meeting. But there might be a situation when
the vacancy is not filled up in the GM. In such case, the meeting shall be adjourned for a
week. If at the reassembled meeting also no fresh appointment is made, the retiring directors
shall be deemed to have been reappointed, except in the following cases:
 Where the appointment of a particular director was put to vote, but the resolution was
lost.
 Where the retiring director has, in writing expressed his unwillingness to continue
 Where he is disqualified
 Where special or ordinary resolution is necessary for his appointment
A motion to appoint 2 or more persons as directors by a single resolution, if passed without
unanimous consent, being void under sec. 162, it shall not have the effect of reappointing
rotated out directors.

Remuneration
As per the provisions of Companies Act, 2013, the restriction under Section 197 and Section
198 shall apply to a public Company. Hence, any remuneration paid or payable by a private
company to its director shall be out of purview of the above said section.
Upper Limits Fixed on Remuneration (In case of Public Company)
As per Section 197 of the Act, the total managerial remuneration payable by a public
company, to its directors shall not exceed 11% of the net profits of that company. Can be
exceeded with the prior approval of the members of the company by an ordinary resolution.
If a director is paid remuneration for special services apart from directorial services, then
such amount must also be included in the total remuneration in order to ascertain the limits of
11% of net profits.

Remuneration in case of Company has no or inadequate profits

where in any financial year during the tenure of a managerial person, a company has no
profits or its its profits are inadequate, it may, pay remuneration to the managerial person not
exceeding, the limits under (A) and (B) given below:-
(A):

(1) (2)

Where the effective capital is Limit of yearly remuneration payable shall

not exceed (Rupees)

(i) Negative or less than 5 crores 60 Lakhs

(ii) 5 crores and above but less than 100 84 Lakhs

crores

(iii) 100 crores and above but less than 250 120 Lakhs
crores

(iv) 250 crores and above 120 lakhs plus 0.01% of the effective capital
in excess of Rs. 250 crores:

Provided that the remuneration in excess of above Iimits may be paid if the resolution passed
by the shareholders is a special resolution.
(B) In case of a managerial person who is functioning in a professional capacity,
remuneration as per item (A) may be paid, if such managerial person is not having any
interest in the capital of the company or its holding company or any of its subsidiaries
directly or indirectly or through any other statutory structures and not having any, direct or
indirect interest or related to the directors or promoters of the company or its holding
company or any of its subsidiaries at any time during the last two years before or on or after
the date of appointment and possesses graduate level qualification with expertise and
specialised knowledge in the field in which the company operates:
Provided that any employee of a company holding shares of the company not exceeding 0.5%
of its paid up share capital under any scheme formulated for allotment of shares to such
employees including Employees Stock Option Plan or by way of qualification shall be
deemed to be a person not having any interest in the capital of the company;

Remuneration to Non-Executive Directors (Including Independent Director)

In case Company Have enough Profits
As per the second proviso to Section 197(1) of the Act, Company may pay remuneration to
Non-Executive Directors (Including Independent Directors) within the following Limits:
1% of the net profits of the company, if there is a managing director, whole time director or
manager;
3% of the net profits of the company in any other cases.
And the above said limits are exceeds by the company with prior approval of members by
special resolution and and prior approval of any bank or public financial institution or non-
convertible debenture holders or any other secured creditor is also required in case of
defaulting company.
In Case Company Has No profits or Inadequate Profits
As per the provisions of Section 197(5) read with Schedule V of the Act, if company has no
profits in any financial year,only managerial personnel are entitled to remuneration. Hence, it
cannot pay remuneration to its non-executive directors (Including Independent
Director) except the sitting fees.
However as per Companies Amendment Bill, 2020, it is proposed to insert a new proviso in
section 149(9) and amend section 197(3), which provides that non-executive directors
(Including independent director) may receive remuneration, if a company has no profits
or inadequate profits in accordance with Schedule V of the Act, by aligning the same
with the provisions for remuneration to executive directors in such cases.
Schedule V
In cases where Schedule V is applicable on grounds of no profits or inadequate profits, any
provision relating to the remuneration of any director which purports to increase or has the
effect of increasing the amount thereof, whether the provision be contained in the company’s
memorandum or articles, or in an agreement entered into by it, or in any resolution passed by
the company in general meeting or its Board, shall not have any effect unless such increase is
in accordance with the conditions specified in that Schedule and if such conditions are not
being complied, the approval of the Central Government had been obtained.

Sitting Fees
Section 197(5) of the Act, provides that a director may receive remuneration by way of fees
for attending meetings of the board or committee thereof or for any other purpose whatsoever
as may be decided by the board, but the amount of such fees shall not exceed the amount as
may be prescribed.
an amount of sitting fees shall not exceed one lakh per meeting of the board or committee
thereof. executive directors are usually not paid sitting fees. 

Liability and criminal liability.

The Director can’t delegate their authority which is specifically imposed on them. However,
General tort principles make the directors personally liable if they have either intentionally or
negligently caused harm to third parties. The directors, who act in good faith and within the
scope of their authority, will not be held liable for the tortuous acts of the association.
The liabilities of Directors can be considered under the following heads.

1. Liability to the Company.

The liability of directors to the company arises under few circumstances only for example the
directors have acted ultra vires the company.
The liability of the Director to the company may arise from:
(a) Breach of Fiduciary duty- whenever a director works dishonestly to the interest of
company, he will be held liable for breach of fiduciary duty. Most of the powers of Directors
are ‘powers in trust’ as explained above and therefore, should be exercised in the benefit of
company and not for their own benefit or for the benefit of other members.

(b) Ultra vires acts- everybody in the company are supposed to work within the prescribed
limits or the provisions of Companies Act, Memorandum and Articles of association since
these lay down the limits to the activities of the company and consequently to the power of
board of Directors. If the Directors do anything which is beyond these prescribed limits it
would be considered as ultra vires and so he shall be made personally liable for this.

(c) Negligence-  where they fail to exercise reasonable care, skill and diligence, they shall be
deemed to have acted negligently in discharge of their duties and consequently shall be liable
for any loss or damage resulting therefrom.
(d) Mala fide Acts- directors are the trustees of the assets of the company including money,
property and also exercise power over them. And If they exercise such power dishonestly or
perform their duties in a malafide manner, they will be held liable for the breach of trust and
would be asked to reimburse the company of whatever the loss company has suffered of such
malafide act. Directors can also be made liable for the acts of Misconduct or wilful misuse of
powers.
2. Liability to third parties: The directors are not personally liable to outsiders or third
parties if they act within the scope of the powers vested in them. The directors are not
personally liable to the third parties for any contract on behalf of the company.
The discussion on liabilities of Directors towards third parties may be grouped as
under:
(a) Liability under the provisions of Companies Act, 1956:
(i) Prospectus: in case of any omission to state any particulars as per the requirement of the
section 56 and Schedule II of the act or mis-statement of facts in prospectus renders a director
personally liable for damages to the third party. Also if the party subscribes for any shares or
debentures on faith of the prospectus then for any loss or damage he may sustain by reason of
any untrue or misleading statement included therein , director shall be made liable to pay
compensation.
(ii) With regard to allotment: Directors may also incur personal liability for:
if he allots the share even before minimum subscription is received or before filing a copy of
the Statement in lieu of prospectus, he shall be liable to compensate not only to the company
but also to the allottee respectively for any loss, damages or costs which the company or the
allottee may have sustained or incurred thereby.
in case where minimum subscription is not received within 120 days of the opening of issue,
then money is to be repaid to all the applicants who have subscribed for shares within 130
days from the date of the issue of the prospectus, which if not repaid, the directors of the
company shall be made jointly and severally liable to repay that money with interest at the
rate of 6 % per annum on the expiry of 130th day.
(iii) Unlimited liability:  If there is a specific clause mentioned in MOA stating the liability
of all or any of the directors unlimited, their liability would be unlimited as per the MOA.

Further, in case of limited liability of a Company, the company may, if authorized by the
AOA, by passing resolution alter its Memorandum so as to render the liability of its directors
or of any director or manager unlimited. But the alteration making the liability of director or
directors or manager unlimited will be effective only when the concerned officer consents to
his liability being made unlimited. In case when Director does not agree to it such alteration
will not have any effect and so the he cannot be compelled to have unlimited liability.

(iv) Fraudulent trading: if the Directors have been found guilty of fraudulent trading during
the course of business, they may also be made personally liable for the debts or liabilities. If
in the course of the winding up of a company, it appears that any business of the company
has been carried on, with intent to defraud creditors of the company or any other person, or
for any fraudulent purpose, the court, on the application of the Official Liquidator, or the
liquidator or any creditor or contributory of the company may if it thinks it proper so to do,
declare that any persons who were knowingly parties to the carrying on business in the
manner aforesaid shall be personally responsible without any limitation of liability, for all or
any of the debts or other liabilities of the company as the court may direct.

Further, He shall be punishable with imprisonment for a term which may extend to two years,
or with fine which may extend to fifty thousand rupees, or with both.

Liability for breach of warranty: Directors are supposed to function within the scope of
their authority as given in AOA of the company and the Companies Act. Thus, where they
exceed the scope of their authority i.e. do any ultravires act, ultra vires to the company or
ultra vires to the articles; they may be proceeded against personally for any loss sustained by
any third party.

3. Liability for breach of statutory duties: The Companies Act, 1956 imposes numerous
statutory duties on the directors under various sections of the Act. Where any Default in
compliance of these duties attracts penal consequences.
4. Liability for acts of co-directors: Director is bound by the maxim delegates non- protest
delegare i.e. authority once delegated cannot be delegated again. Shareholders have appointed
him because of their faith in his skill, competence and integrity and they may not have the
same faith in another person. It was held in the case of J.K. Industries v. Chief Inspector of
Factories that the directors being in control of the company’s affairs cannot get rid of their
managerial responsibility by nominating a person as the occupier of the factory. The rule is,
however, not that rigid. The Act or Articles of Association of the Company may make a
delegation of functions to the extent to which it is authorized. A proper degree of delegation
and division of responsibility is permissible but not a total abrogation of responsibility.
Directors are responsible for the management of the company and cannot divest themselves
of their responsibility by delegating the whole management to agent and abstaining from all
enquiries. If the latter proves unfaithful, the liability is that of the directors as if they
themselves had been unfaithful.
Contractual Liability: Directors of the Company are bound to use fair and reasonable
diligence in discharging their duties and to act honestly. In R.K. Dalmia and others v. The
Delhi Administration, it was held that “A director will be personally liable on a company
contract when he has accepted personal liability either expressly or impliedly. Directors are
the agents or the trustees of a Company”. Express liability of the director usually arises only
when a director has personally guaranteed the performance of a contract. On the other hand
Implied liability will arise when a director signs a contract for the Company but failing to add
the vital word "limited". This rule is based upon the ordinary principle of agency that where
an agent enters into a contract without disclosing that he is acting as agent he accepts
personal liability by default. As it was held in the case of Penrose v. Martyr a bill was
addressed to a company and omitted the word "Limited" in describing it. The defendant
(Secretary to the Co.) signed the acceptance and was held to be personally liable by the
Court.
Liability of Directors for Torts of the company: - A company is a separate legal person
liable for its own torts. Directors as such are not liable for the torts or civil wrongs of their
company. A director may be held personally liable for damage caused by the tortious act of
the company, if he had himself given instructions for the act to be done by an employee of
the company or any other.
5. Criminal Liability- He may be held criminally liable for any of the act committed by
company where he has aided, abetted or procured the commission of such act.
Just as individuals owe a duty not to harm or injure others in society without justification, so
do companies owe a duty not to poison our water and food, not to pollute our rivers, beaches
and air, not to allow their workplaces to endanger the lives and safety of their employees and
the public, and not to sell commodities, or provide transport, that will kill or injure people.

So, the Companies Act, 1956 imposes criminal liability either in the form of fine or
imprisonment or both on the directors for contravention of certain statutory duties. Some of
the provisions of the Companies Act which make directors criminally liable (fine or/and
imprisonment) are:
i) Section 44(4) – Filing of prospectus or statement in lieu of prospectus containing untrue
statement.
ii) Section 58A(5) –failure to repay deposits within the prescribed time limit as specified
under the provisions of Section 58A.
iii) Section 58A(6) – Accepting deposits or inviting deposits in excess of the prescribed
limits.
iv)Section 63 – Issuing a prospectus containing untrue statement.
v) Section 68- Knowingly making a false, deceptive or misleading statement and thereby
inducing persons to invest money.
vi)Section 73 - Failure to repay excess application money.
vii) Section 84(3) – Fraudulently renewing a share certificate or issuing a duplicate share
certificate.
viii) Section 105 – Concealing the name of a creditor or misrepresenting the nature or
amount of the debt or claim of any creditor.
ix) Section 202(1) – If a person who is an undischarged insolvent is disqualified from being
appointed to any managerial office. If any such person discharges the functions of a Director
or takes part in the management of any company, he is punishable with fine up to Rupees
fifty thousand and imprisonment up to two years.
x) Section 207 – Default in Distributing Dividends.
xi) Section 209A – Failure to assist Registrar or any officer so authorized by Central
Government in inspection of books of account, etc.
xii) Section 210(5) – Failure to lay balance sheet, profit & loss account, etc, at the annual
General meeting.
xiii) Section 221(4) – Failure to supply information to auditors.
xiv) Section 488(3) – False declaration of Company’s solvency.
xxv) Section 209(5) – Non-compliance with the requirement of maintenance of proper books
of account.

Definition of Interested Director:

As per Section 2 (49) of the Companies Act, 2013, “interested director” means a director
who is in any way, whether by himself or through any of his relatives or firm, body corporate
or other association of individuals in which he or any of his relatives is a partner, director or
a member, interested in a contract or arrangement, or proposed contract or arrangement,
entered into or to be entered into by or on behalf of a company.”

Applicability of Section 184:

This section applies to any contract or arrangement entered or to be entered into between
two companies where any of the directors of the one or both company or more of them
together hold(s) more than two per cent. of the paid-up share capital in the other company.

Manner of disclosure:
the director shall disclose his concern or interest by giving a notice in writing in Form MBP-
1. The director shall not participate at the meeting of the Board in which such a contract or
arrangement is discussed in which the director is interested.
Also, every Company shall maintain one or more registers in Form MBP-4  furnishing
particulars of company or companies or bodies corporate, firms, or other association of
individuals in which the director is, directly or indirectly, interested.

Time for Disclosure of Interest:    

 At the first meeting of the Board in which he participates as the director and thereafter at the
first meeting of the Board in every financial year.
Whenever there is any change in the disclosures already made, then at the first Board
meeting held after such change.

Preservation of Notices of Disclosure:

All notices shall be kept at the registered office and such notices shall be preserved for a
period of eight years from the end of the financial year to which it relates and shall be kept in
the custody of the company secretary of the company or any other person authorized by the
Board for the purpose.

Penalty:
If a director of the company contravenes the provisions of this section, such director shall be
punishable with imprisonment for a term which may extend to one year or with fine which
shall not be less than fifty thousand rupees but which may extend to one lakh rupees, or
with both.

Disabilities of Directors –
With a view to protecting the interests of the company and the shareholders, the Companies
Act has imposed certain disabilities on the directors by virtue of which certain acts cannot be
done by the directors as indicated below:
a) Articles cannot provide for relieving directors from any liability on account of any
negligence, default, misfeasance, breach of duty or breach of trust by him (Sec.201).
b) Undischarged insolvent cannot be a director (Sec.274)
c) No person can be a director of more than 15 public companies (Sec.275)
d) Director cannot assign his office (Sec.312).

Managing director

Definition of Managing Director under Section 2(54) of Companies Act, 2013

Managing director means a director who,
by virtue of the articles of a company or
an agreement with the company or
a resolution passed in its general meeting, or
by its BOD, is entrusted with substantial powers of management of the affairs of the company
and includes a director occupying the position of managing director, by whatever name called

Appointment of a Managing Director In a Company

He must be an individual
The tenure of a Managing Director is fixed at 5 years maximum. they can be reappointed in a
company again but not before one year from the expiry of their five (5) year term.

Disqualification of a Managing Director of a Company

Section 196(3) of the Companies Act, 2013, mandates that a company shall not appoint, or
continue the employment of any person as Managing Director, Whole-time Director or
Manager if he falls under any of the following conditions.
1. If the person is below 21 years or has attained 70 years of age; although a person
above 70 years of age can be appointed by a special resolution.
2. If the person is an undischarged insolvent or has at any time been adjudged an
insolvent.
3. If he has at any time suspended payments to his creditors
4. If he has any time been convicted by a court for an offence and sentenced for more
than a period of six months.
5. If he has been sentenced to imprisonment for any period, or to a fine exceeding one
thousand rupees, for the conviction of an offence.
As per the Companies Act, 2013 Manager means an individual who, has the management of
the whole, or substantially the whole, of the affairs of a company, and includes a director or
any other person occupying the position of a manager, by whatever name called, whether
under a contract of service or not.

below given companies are required to appoint a Manager: –

1. Every listed company
2. every other public company having a paid-up share capital of ten crore rupees or more.

The appointment and other related provisions for appointment of Manager are:-
1. The Companies Act, 2013
2. SEBI (Listing Obligations and Disclosure requirements) Regulations, 2015.

A Manager who is appointed as key managerial personnel shall not hold office in more than
one company except in its subsidiary company at the same time except, Manager can be
appointed as Director in any other company after taking permission from the Board where
they are appointed as Manager.
Only three forms are required for appointment of Manager and these are:-
1. MGT-14 within thirty (30) days
2. DIR-12 within thirty (30) days
3. MR-1 within sixty (60) days
If a Manager resigns, the vacancy shall be filled-up by the Board at a meeting of the Board
within a period of six months from the date of such vacancy.
Any company which is mandatorily required to appoint a Manager if don’t appoint, such
company shall be liable to a penalty of five lakh rupees and every director and key
managerial personnel of the company who is in default shall be liable to a penalty of fifty
thousand rupees and where the default is a continuing one, with a further penalty of one
thousand rupees for each day after the first during which such default continues but not
exceeding five lakh rupees.

WHO IS A COMPANY SECRETARY?

who is appointed by a company to perform the functions of a company secretary under this
Act
WHO CAN APPOINT CS?
As per Section 203 of The Companies Act 2013,
Every listed company and every other companies having paid up share capital of rupees 10
crores or more shall have a whole time company secretary in their board.

DUTIES OF COMPANY SECRETARY

 The duties of Company Secretary are as follows:-
 to provide necessary guidance to the directors of the company with regard to their
duties, responsibilities and powers;
 to facilitate the convening of meetings and attend Board, committee and general
meetings and maintain the minutes of these meetings;
 to obtain approvals from the Board, general meeting, the government and such other
authorities as required under the provisions of the Act;
 to assist the Board in the conduct of the affairs of the company and in ensuring good
corporate governance.

Board committees
Under Section 177 of Companies Act, 2013, Board of Directors may delegate certain matters
to the committees set up for the purpose. Committees are formed as a means to improve
board effectiveness and efficiency in areas where more focused, specialised and technically
oriented discussions is required.
Following are some of the important committees to be constituted by the Board:
1. Audit Committee:
Applicability:
Every Listed Public Companies and Public Companies having a Paid-up share capital of 10
crore rupees or more, and a turnover of Rs. 100 Crore or more.
Additionally All Public Companies which have in aggregate outstanding loans, debentures
and deposits exceeding 50 crore rupees are required to constitute an Audit Committee.
Composition of Audit Committee as per clause 49 of Listing Agreement:
Minimum of 3 Director of which 2/3rd are independent Directors.
All members should be financially literate and at least 1 member shall have accounting or
related financial management expertise.
Function of Audit Committee:
  To recommend appointment, remuneration and terms of appointment of the Auditor
of the Company.
 To establish a Vigil Mechanism Policy.
 To call for remarks of the auditors about the internal control system.
 At the Annual General Meeting, the chairman of the Committee should be present to
answer the shareholder’s inquiry.
 To discuss any issues related to internal and statutory auditors and the management of
the Company. 
2. Nomination and Remuneration Committee:
Applicability:
Same as above
Composition of Nomination and Remuneration Committee as per Companies Act,2013:
Minimum of 3 Non-Executive Directors out of which two shall be Independent Directors.
Chairperson shall be an Independent director.
Functions of  Nomination and Remuneration Committee:
 To review the elements and structure of remuneration package.
 To review the changes to remuneration package, terms of appointment, severance fee,
requirement and termination policies and procedures.
 To recommend the shortlisted candidates who are qualified to be director and who can
be appointment in senior management.
 The committee is authorised to seek information about any employee and the
management is directed to co-operate.
 The Committee can be present at the General Meeting to answer the shareholder’s
queries.
3. Stakeholders Relationship Committee:
Section 178 of Companies Act,2013 states that a company which holds 1000 numbers of
shareholders, debenture holders, deposit holders and any other security holders at any time
during a financial year.
Composition of Stakeholders Relationship Committee:
As per the SEBI Listing regulations the Committee should consist of least three directors,
with at least one being an Independent director, shall be members of the committee and in
case of a listed entity having outstanding SR equity shares, at least two-thirds of the
committee shall comprise of independent directors.
The chairperson of the Committee shall be a non-executive director and such other members
as may be decided by the Board.
As per regulation the Committee shall meet at least once in a year. The chairperson or, in his
absence any other member of the committee authorized by him in this behalf shall attend the
general meetings of the Company.
Functions of Corporate Stakeholders Relationship Committee:
The Committee shall resolve complaints related to transfer/transmission of shares, non-
receipt of annual report and non-receipt of declared dividends, general meetings, approve
issue of new/ duplicate certificates and new certificate on split/consolidation/ renewal etc.
approve transfer/transmission, dematerialization.
4. Corporate Social Responsibility Committee:
Section 135 of Companies Act,2013 , with Companies(CSR Policy) Rules,2014 states that
every company having :
net worth of not less than Rs.500 crores or more
or turnover of not less than Rs. 1000 crores or more
Or Net Profit of Rs.5crore or more shall constitute a Corporate Social Responsibility
Committee.
Composition of CSR Committee as per Companies Act, 2013 :
In case of Listed Company at least 3 Directors out of which 1 should be an Independent
Director.
Functions of Corporate Social Responsibility Committee:
 To suggest and devise a CSR Policy
 To recommend the amount of expenditure of the devised policy above.
 To monitor the CSR Policy of company from time to time and prepare a transparent
monitoring mechanism.
 Institution of a transparent monitoring mechanism for implementation of the CSR
projects or programs or activities undertaken by the company.