Director’ is defined under section 2(34) of the Companies Act, 2013, which states a director

is a person appointed to the board of the company. This means that any person who is not
appointed to the board of the company is not a director.

‘Board’ or ‘Board of Directors’ of a company is defined under section 2(10) of the

Companies Act, 2013, which means a collective body of company directors.

Types of Directors in a Company

A company has different types of directors, and all of them have different roles in the
company. Let’s study about all the directors one by one.

Managing Director

Managing director is a person who has substantial powers of management of the company.
He is given this power by the articles of the company, agreement with the company, passing
resolution in the general meeting of the company, or by the board of directors.

Independent Director

A person becoming the independent director of the company must fulfil certain criteria given
under section 149(6) of the Companies Act, 2013, which states that an independent director is
a person other than managing director, whole-time director, or nominee director, and:

 He must have relevant experience and should be a person of integrity as per the board.
 A person appointed as an independent director shall not be a promoter of the same
company or any other company which is the holding, subsidiary, or associate
company of the same company in which he has been appointed.
 The person shall not be related to the promoters or directors of the company or its
holding, subsidiary, or associate company.
 The person must not have any money-related relationship with the company or its
holding, subsidiary, or associated company other than his salary.
 None of his relatives or he himself shall not have any kind of interest in the company.
Provided, the relative can hold shares of face value up to Rs. 50 Lakhs or 2% of the
paid-up capital.
Section 149(4) of the Companies Act, 2013, states that every listed public company must
have 1/3rd of its total directors as independent directors.

Example: XYZ Ltd is a listed public company having a total of 15 directors. 1/3rd of 15 is 5.
Therefore, the company will have 5 directors as independent directors.

Rule 4 of Companies (Appointment and Qualification of Directors) Rules, 2014 states that
the following companies will have at least two independent directors:

 Companies having paid-up share capital of Rs. 10 crores or more.

 Companies having a turnover of Rs. 100 crores or more.
 Companies having outstanding loans, debentures, deposits, in aggregate of more than
Rs. 50 crores.

Small Shareholders Director

As per the Companies Act, 2013, a small shareholder means a shareholder holding shares of
the nominal value of Rs. 20,000 or less.As per Rule 7 of the Companies (Appointment and
Qualification of Directors) Rules, 2014, every listed company having paid-up share capital of
Rs. 5 crores or more and also having one thousand or more shareholders holding shares of the
nominal value of Rs. 20,000 or less may have a small shareholder director elected by such
small shareholders.

Women Director

Every listed company, and every other public company having a turnover of Rs. 300 crore or
more and paid-up share capital of Rs. 100 crore or more must appoint at least one women
director in the company.The women director can be appointed at any time during registration
of the company or even after incorporation and shall hold the office till the next annual
general meeting (AGM) of the company from the date of her appointment. She can also
resign from the office at any time by giving notice to the company.

Additional Director

The board of directors has the power to appoint additional directors if required by the
company. If a person has not been appointed as an additional director in the general meeting,
then he or she will not be appointed as an additional director of the company. The tenure of
the additional director will be till the time of the next annual general meeting (AGM) or the
last date on which the annual general meeting should be held, whichever is earlier.

Alternate Director

If the existing director of the company is not present in India for the last three months, then
the company shall appoint an alternate director in his place. A company can appoint an
alternate director if the articles of the company authorise so or by way of passing a resolution
in the company’s general meeting. The alternate director will hold the office till the term of
the existing director on whose place he has been appointed or if the existing director returns
to India.

Nominee Director

The nominee director is not appointed or removed by the company. He is appointed by the
financial institution, by an agreement, by the Government, or by any other person in order to
represent his interest in the company.

The company does not have the power to retire such directors, nor are they retired by
rotation. Only the agencies who have nominated such a director can remove the nominee
director.

Executive Director

An executive director is the company’s full-time working director. They are in charge of the
company’s activities and have a higher level of accountability. During their operations in the
company, they must be attentive and cautious.

Non-executive Director

A non-executive director is not involved in the day-to-day operations of the company. They
may take part in the planning or policy-making process, challenging the executive directors to
make decisions that are in the company’s best interests.
COMPOSITION OF BOARD OF DIRECTORS IN A LISTED COMPANY:

As per Regulation 17 of Securities and Exchange of India (Listing Obligations and

Disclosure Requirement) 2015 the composition of Board of Directors in a listed company is
as follows:

1. Board of directors shall have a combination of executive and non-executive directors with
at least one woman director and not less than fifty per cent of the board of directors shall
constitute of non-executive directors.

2. If the chairperson of the board of directors is a non-executive director, then at least one-
third of the board of directors shall constitute of independent directors and if the listed entity
has an executive chairperson, then at least half of the board of directors shall comprise of
independent directors.

Directorships – Section 165 of Companies Act, 2013

Directors are a vital part of the company management. Every company needs to appoint
directors at the time of incorporation. One person company needs to have at least one
director. A private company needs to have at least two directors, and a public company must
have at least three directors. A company can have a maximum of 15 directors.

A person appointed as a director will perform all the duties and functions of a director as per
the provisions of the Companies Act, 2013 (“Act”). A person is appointed as a director for
the Board of a company. The Board or Board of Directors of a company means the collective
body of directors of a company. The company operates through the Board of Directors. The
Board of Directors is responsible for the management of the company. They make decisions
regarding company affairs.

The Act lays down the provisions regarding the appointment, rights and duties of the
directors. Any person appointed as a director of a company has the freedom to be a director in
another company. However, Section 165 of the Act states the provisions relating to the
number of directorships a person can hold at a given time.

Number Of Directorships Of A Director

Section 165(1) of the Act states that a person can hold the office of director simultaneously in
20 companies. The number of 20 companies includes the office of alternate directorship. A
person cannot be a director in more than 20 companies at a given time. However, the
maximum number of public companies in which a person can be a director simultaneously is
10. An individual cannot be appointed as a director in more than 10 public companies at a
given time.

For calculating the number of public companies, the directorship in private companies that
are either holding or subsidiary of a public company is included. However, the directorship in
a dormant company is not included in calculating the limit of directorships of 20 companies.

The purpose of prescribing the number of the office of directorship is that the person who is
appointed as a director can give proper and sufficient time to a company. The Act prohibits a
person from holding the office of a director in more than 20 companies to provide quality
time to the companies in which he is a director and discharge his functions as a director in an
efficient manner.

Penalty For Non-compliance Of Section 165

Section 165(6) of the Act provides a penalty for a person who holds the office of a director in
contravention of this Act. If a person accepts an appointment as a director in more than 20
companies, then he will be liable to a penalty of Rs.2,000 for each day during which the
violation continues subject to a maximum of Rs.2 lakh. This penalty provision was included
in the Act from 21.12.2020 to prevent persons from holding the office of directors in more
than 20 companies.

Roles of Director

 Agent: A company is an artificial person and needs people in the Board of Company
to run the business of the company on behalf of and for the welfare of shareholders of
the company. The director acts as an agent of shareholders and promotes the objects
of the company so that the company can earn profits and increase the intrinsic value
of the share and earning of the company.

 Employee: Any Whole-time director appointed by the Board of Directors and

approved by the shareholders of the company acts as an employee of the company by
 managing the day-to-day affairs of the company. All the directors operate the
company in the contours of employment letter issued by the Board of Company.
 Officer: Director is treated as the main officer of the company and shall be liable for
penal consequences under various statutes, if affairs of the company are not in
compliance with the Companies Act, Income Tax Act, FEMA provisions and other
applicable Legal statues defined for various industries.
 Trustees: Director is treated as trustee of the company, money and property of the
powers are entrusted to and vested in them only as trustees.

Responsibilities of Director:

 The director of the company must act per the AOA.

 The director of a company shall act in good faith to promote the objects of the
company for the benefit of its members/ shareholders as a whole, and in the best
interests of the company, its employees, the shareholders, the community and for the
protection of the environment.
 The director of a company shall exercise his duties with due and reasonable care, skill
and diligence and shall exercise independent judgment.
 The director of a company shall not involve in a situation in which he may have a
direct or indirect interest that conflicts, or possibly may conflict, with the interest of
the company.
 The director of a company shall not achieve or attempt to achieve any undue gain or
advantage either to himself or to his relatives, partners, or associates.
 A director must ensure that all the affairs of the company are carried out in the best
possible way, without compromising on legal compliances of the company and not
prejudicial to the interest of Company.

Liabilities of the director of a company:

The liabilities of the director of a company are broadly defined in two categories:

1. Liability to Stakeholders: The directors are not personally liable to stakeholders if

they act within the scope of powers vested in them. The general rule in this regard is
that wherever an agent is liable, those directors would be liable, but where the liability
would attach to the principal only, the liability is the liability of the company. The
 Director shall also be liable in case of negligence & fraud by the Company,
knowingly making any misstatement or sharing false information with the
stakeholder, Failure to repay deposits on time, payment of dividend out of capital and
entering into a contract with related parties.
2. Liability to Company: The directors shall be liable to the company for the following:
a. Where they have acted ultra-vires the company: Directors have powers
subject to Companies Act, Memorandum and Articles of association.
Whenever they exceed these limits, they are personally liable for the act being
ultra vires. But if acts are intra-vires the company such acts can be
subsequently ratified by the shareholders in the general meeting, otherwise, if
a company suffers a loss on ultra-vires acts of its directors, the company can
claim such loss from the directors.
b. When they have acted negligently: Negligence may give rise to liability;
there need not be a fraud. But they will not be liable where they have acted
bonafide and for the benefit of the company. However, the error of judgement
will not be deemed as negligence.
c. Where there is a breach of trust: Directors are the trustees for the money
and property of the company. They hold an office of trust and if they misuse
their powers, they will be liable for breach of trust and may be required to
indemnify the losses incurred to Company. They also need to make regular
disclosures on their profits, if any, earned in course of the performance of
duties. Director can also be held liable for misconduct, provided it is not
wilful.
d. Misfeasance: Directors are liable to the company for misfeasance. The word
misfeasance covers wilful negligence. Mere failure on the part of the director
to take necessary steps for recovery of debts due to the company does not
constitute misfeasance. If the company is in the course of winding up, the
court may, on the application of the liquidator, creditor or contributory
examine the conduct of a director for any misfeasance or breach of trust
concerning the company.
What is Section 164(2)?

According to Section 164(2), a director is ineligible to be re-appointed as a director of a

business or to be appointed as a director of another company for five years after the company
of the director fails to comply with the following:

 For three consecutive financial years, has not filed annual returns or financial
statements
 Has failed to return any deposits it has accepted, pay interest on deposits, redeem
debentures on the due date, pay the interest due on debentures, or pay any dividend
declared for a period of one year or longer.

What is Disqualification of Director as per Section 164 (2)?

According to section 164(2) (a) of the Companies Act, 2013, if a company fails to file
financial statements or annual returns for three years in a row, the ROC has the authority to
list the directors of the default company as Disqualified Directors by deactivating their DIN
(Director Identification Number), and the directors will be ineligible for appointment or
reappointment for a period of five years.

The DINs of all the directors marked as inactive by the ROCs in 2017 due to disqualification
under Section 164(2) were forbidden from serving as directors in any other company for the
next five years. After the MCA de-flags the disqualification of DIN, a director who has been
disqualified under Section 164(2) of the Act is entitled to be re-appointed as a director of a
business. After five years from the date of disqualification, the MCA will de-flag the
disqualified DIN (Director Identification Number).

Reasons for Disqualification of a Director

 When a company fails to pay interest on deposits or reimburse a deposit it has

received.
 If the organisation fails to pay the required interest or redeem the debentures by the
due date.
 Failure to pay the declared dividend and continuing to do so for more than one year
may result in the company’s director being disqualified.
 If the director has applied for insolvency adjudication.
  If the director has been previously disqualified by a court.
 If the board of directors fails to disclose their or joint ownership interests in any
corporation.
 If the director has been convicted of a crime and sentenced to more than 6 months in
prison by a court.
 If a court determines that the director is mentally ill.
 If the company’s director is found guilty under section 188 of the Criminal Code for
party transactions made by the director in the previous five years.
 Directors who are still insolvent can be disqualified by the court.

Information on appealing Director Disqualification

An order disqualifying a Director does not take effect within 30 days of a conviction resulting
in a sentence or order, according to the Companies Act 2013. As a result, anyone who has
received an order has 30 days to file returns and appeals in order to stop the proceedings.

Once an appeal is filed, the person will continue to serve as Director for another seven days
after the appeal or petition is dismissed. As a result, anyone who has been disqualified as a
Director must file an appeal as soon as possible, along with any overdue returns, in order to
have a strong chance of continuing to act as a Director.

Important solution for Disqualification of Directors u/s 164(2)

The Companies Act of 2013 makes no provision for the removal of the DIN’s
disqualification. A director can appeal a DIN disqualification to the National Company Law
Appellate Tribunal (NCLAT) and request a temporary stay order. The order disqualifying a
director will not take effect until 30 days after it is passed under the Act.

When a director files an appeal with the NCLAT, he or she retains his or her position as a
director of the defaulting firm for the next seven days. A director has seven years to file the
annual returns in order to avoid being disqualified. There is no system in place to re-appoint a
disqualified director. After five years from the date of disqualification, a disqualified director
can be reappointed.

Directors can also take their case to the High Courts to have their director disqualification
lifted. However, different High Courts have differing opinions on whether Section 164(2)
disqualification should be lifted. The High Courts of Gujarat, Karnataka, Madras, and
Allahabad, for example, have awarded remedies with specific directives and revoked the
ROC lists, which included ineligible directors. The Mumbai High Court, on the other hand,
does not grant a remedy for the director’s disqualification.

Remedies Available After Disqualification:

 Appeal against Disqualification Order:

Section 164 of the Companies Act, 2013 also provides provisions for appeal against the
disqualification order.

1. It provides that an order disqualifying director shall not take effect within 30 days
from the date of conviction or disqualification order.
2. An appeal can be filed within these 30 days in National Company Law Appellate
Tribunal (NCLAT) to stay the proceedings.
3. Once an appeal is initiated the person would continue to be the Director until expiry
of 7 days from the date on which the appeal is disposed off.

Different Types of Committees under Companies Act, 2013

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:

Nomination and Remuneration 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 a
Nomination and Remuneration Committee.
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:

 Recommendation of success plans for the directors.

 To review the elements of the remuneration package, 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 according to the Schedule VII of
Companies Act, 2013 to the board.
 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.

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 Companies Act, 2013:

 Minimum 3 directors with majority of Independent Director.

  Members including the Chairman of Audit Committee should be able to read and
understand financial statement.

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.

Vigil Mechanism:

Vigil Mechanism provides adequate safeguard against victimisation of persons. It is

established for directors and employees to report their grievances and concerns.

Rule 7 of Companies (Meetings of Board and its Powers) Rules, 2014 describes about
establishment of Vigil Mechanism for every Listed Company and companies prescribed
below:

 Companies which accepts deposits from public.

 Companies which have borrowed money from bank and public financial
institutions in excess of Rs.50 Crores.
 The Board of Directors shall nominate a director to play role of Audit Committee
for the purpose of Vigil Mechanism for reporting purpose. The aggrieved person
will have direct access with the Chairperson/Nominated Director of the Audit
Committee.
 The details of establishment of such mechanism shall be disclosed on the
company’s website, and in the Board ‘report.

Penalty for the Violation of Audit Committee Provisions:

The Company shall be punishable with a fine of Rs. 1 lakh to Rs. 5lakh and every officer
of the company who is in default shall be punishable with imprisonment upto 1 year or
with Rs. 25,000 to Rs. 1 lakh or with both.

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.