Duties And Responsibilities Of Directors Under The Indian Companies Act, 2013

Introduction

The ultimate executive authority controlling the management and affairs of a company vests in the team of directors of the company, collectively known as its Board of Directors. The foundation of board of directors was based on the premise that a group of trustworthy and respectable people should look after the interests of the enormous number of shareholders who are not directly involved in the management of the company. The position of board of directors is that of trust as the board is entrusted with the responsibility to act in the best interests of the company.

Definition

The Companies Act, 2013 does not contain an exhaustive definition of the term “director”.

Section 2 (34) of the Act prescribed that “director” means a director appointed to the Board of a company.

A director is a person appointed to perform the duties andfunctions of director of a company in accordance with the provisionsof the Companies Act, 2013.
A company, though a legal entity in the eyes of law, is an artificial person, existing only in contemplation of law. It has no physical existence. It has neither soul nor body of its own. As such, it cannot act in its own person. It can do so only through some human agency. The persons who oversee the management of the affairs of acompany are termed as directors. They are collectively known as Board of Directors or the Board. The directors are the brain of a company.

Section 2 (10) of the Companies Act, 2013 defined that “Board of Directors” or “Board”, in relation to a company, means the collective body of the directors of the company.

Composition

Minimum Directors

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, two directors in the case of a private company, and one director in the case of a One Person Company.

Maximum Directors

A company can appoint maximum 15 fifteen directors. A company may appoint more than fifteen directors after passing a special resolution in general meeting and approval of Central Government is not required.

Woman Director

Every listed company shall appoint at least one woman director within one year from the commencement of the second proviso to Section 149(1) of the Act. Every other public company having paid up share capital of Rs. 100 crores or more or turnover of Rs. 300 crore or more as on the last date of latest audited financial statements, shall also appoint at least one woman director within 1 years from the commencement of second proviso to Section 149(1) of the Act.

Independent Directors

Every listed public company shall have at least one-third of the total number of directors as independent directors (fraction is to be rounded off to one). Central Government has prescribed under Rule 4, public companies with specified limits as on the last date of latest audited financial statements mentioned below shall also have at least 2 directors as independent directors:- paid up share capital of Rs. 10 crore or more; or turnover of Rs. 100 crore or more; or in aggregate, outstanding loans/borrowings/ debentures/ deposits/ exceeding Rs. 50 crore or more.

Directors Elected By Small Shareholders

Director elected by Small Shareholders- Section 151 According to section 151 of the Act every listed company may have one director elected by such small shareholders. For this section, “small shareholder” means a shareholder holding shares of nominal value of not more than twenty thousand rupees or such other sum as may be prescribed.

Residence

Residence of a director in India Section 149 (3) of the Act has provided for residence of a director in India as a compulsory i.e. every company shall have at least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year.

Duties Of Directors

The 2013 Act has now codified directors’ duties under Section 166. The provisions of this Section apply to all categories of directors, including independent directors.

Section 166 of the 2013 Act stipulates the following:

(a) Subject to the provisions of this Act, a director of a company shall act in accordance with the articles of a company.

(b) A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment.

(c) A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.

(d) A 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.

(e) A 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 and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain of the company.

(f) A director of a company shall not assign his office and any assignment so made shall be void.

If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than Rs. 1,00,000 but which may extend to Rs. 5,00,000.

Responsibilities Of Directors

The duties set out in the above section are not exhaustive. Apart from the duties set out in Section 166, directors are also responsible for various obligations provided under other Sections of the 2013 Act.

For example:

(a) The board needs to lay the financial statements for approval and adoption at the annual general meeting of the shareholders (Section 129);

(b) The directors are responsible for devising proper systems to ensure compliance with the provisions of all applicable laws and to ensure that such systems are adequate and are operating effectively (Section 134);

(c) Director needs to ensure that the company complies with obligations relating to corporate social responsibility provided under (Section 135);

(d) The board is responsible for appointing first auditors (Section 139);

(e) A director needs to disclose his interest in a contract with the company (Section 184);

(f) A director is prohibited from engaging in forward dealing of securities (Section 194);

(g) The board is responsible for appointment of whole time key managerial personnel (Section 203);

(h) The directors are responsible for issuance of notice of holding of board meetings and general meetings etc.

Conclusion

Directors act as agents and trustees of the shareholders therefore directors must exercise all care and due diligence as a man of ordinary prudence would exercise while performing their duties. It must be noted that directors are expected to show greater degree of professional expertise and skill in discharge of their duties.

If they fail or gross negligence is evident from their action or non-action, then they will be liable for punishment.

References:

• Companies Act 1956
• Companies Act 2013
• icsi.edu