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Directors Role, Responsibilities and
Liabilities
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Director Directing mind and will of the
Company
Meaning under the Companies Act,!"#
$ection % &'()
Director includes any person occupying the position of
director, by whate*er name called.
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+ualification
No educational or other qualifications are required in order to
become director of the company whether public or private.
Similarly, the Companies act !"# does not prescribe any
requirement as to age limit for becoming a director. $he only condition is as per section %"& No body corporate, firms or
associates can become a director. 'nly (ndividual can be a Director
of a company because the office of a director is office of
responsibility, accountability and position of trust.
Section %)* negatively stipulates the eligibility requirement forbecoming a director by providing certain disqualifications.
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Number of Directors
+s per section %"% every public company shall have & directors and
every other company shall have at least % directors.
a-imum no. of directors in case of private company shall be as
specified by the articles. (t could be ) or or even %/ or %".Central0ovt. approval not required in case of any increase in number.
$he act does not prescribe any ma-imum number of directors for
public company also but if the ma-imum no of directors e-ceed %,
prior approval of central 0ovt. would be required.
$hus the approval of central govt will be necessary for theincrease in number of directors , and not for the appointment .
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$hadow DirectorDeemed Director
+ny person in accordance with whose directions
or instructions directors are accustomed to act.&$ection -(
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Legal .osition of Directors
As Agents / Directors are the agents of theCompany 01hus , where the directors contract in thename and on behalf of the company it is thecompany which is liable for it and not the Directors
&$ub2ect to e3ceptions( As 1rustee / 1he Directors of the company are
trustees&to a limited e3tent(for the company withreference to their power of applying funds of thecompany and for misuse of the power they could berendered liable as trustees0
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Are Directors 4mployees5
Directors are notthe employees of the company as once
elected they en1oy well2defined rights and powers under
the Companies +ct,!"# or the +rticles of the Company
3ven the shareholders who elect them cannotinterfere
with their rights and powers e-cept under certain
circumstances
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1ypes of Directors / A 6lance
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43ecuti*e Director
43ecuti*e Director7 means managing
director or whole/ time director 0
8ot defined under the Companies Act, !"#0
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8on/43ecuti*e Director
8on/e3ecuti*e directors are the directors on the
9oard of a company, other than a Managing
Director and whole/time Director or a Directoremployed in his professional capacity0
8ot defined under the Companies Act, !"#0
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:nderstanding/ Managing Director
Meaning under the Companies Act,!"#
$ection %&%#( 4anaging Director5 means a director who, by virtue of an agreement with the Company or of a resolution passed by the company in general meeting or
by virtue of its memorandum or articles of association , is entrusted with substantial powers of management which would
not otherwise be e-ercisable by him ,
A8D includes a director occupying the position of managing director by
whatever name called6
Contd;;;000
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:nderstanding/ Managing Director
.ro*ided that the power to do administrative acts of routine naturewhen so authorised by the 7oard such as power to affi- the commonseal of the company to any document or to draw and endorse anycheque on the account of the company in any ban8 or to draw andendorse any negotiable instrument or to sign any certificate of share
or to direct registration of transfer of any share , shall not be deemedto be included within the substantial powers of management.
9rovided further that a managing director of a company shalle-ercise his powers sub1ect to superintendence, control and directionof the 7oard of Directors
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:nderstanding/
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=ndependent Director
As per Clause >! of Listing Agreement 4(ndependent Director5 shall mean a non/e3ecuti*e
directorof the company who6
a. apart from receiving director5s remuneration, does not haveany material pecuniary relationships or transactions with
the company, its promoters, its directors, its seniormanagement or its holding company, its subsidiaries andassociates which may affect independence of the director;
b. is not related to promoters or persons occupying
management positions at the board level or at one levelbelow the board;
c. has not been an e-ecutive of the company in theimmediately preceding three financial years;
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d. is not a partner or an e-ecutive or was not partner or ane-ecutive during the preceding three years, of any of thefollowing6
i. the statutory audit firm or the internal audit firm that isassociated with the company, and
ii. the legal firm
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Appointment of Directors
Subscribers2 as Directors
+ppointment of first Directors +ppointment at general meeting
+ppointment by the 7oard of Directors
+ppointment by third parties, and
+ppointment by Central 0overnment.
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Appointment by the company
?$ection %"" to %"- , %#' , %#>@Appointment of subsequent directors is made at everyannual general meeting of the company.
Section 255 provides that not less than two third of the
total number of directors of a public company or a privatecompany must be appointed by the company in generalmeeting.
These directors must be subject to the retirement by
rotation.
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A..=81M481 9B 1=RD
.AR1=4$ ?$ection %""@Section 255 permits that one third of the total numberof directors of a public company or a private companywhich is subsidiary of a public company to beappointed by parties other than share holders on a
non-rotational basis.
The articles may give right to debenture holders !nancial corporations or ban"ing companies who haveadvanced loans to the company to nominate directorson the board of company.
The number of directors so nominated should note#ceed one third of the total strength of the board.
The are not liable to retire b rotation.
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A..=81M481 9B $MALL
$AR4LD4R$
? $ection %"% @
+ small shareholders means a shareholder holding shares
nominal value of >s.%/,/// or less he may be a holder ofequity share or preference share or both.
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A..=81M481 9B C481RAL
64R8M481The central government has the power undersection $%& to appoint directors on an order passedby the tribunal 'earlier company law board( to
e)ectively safeguard the interest of the company orits shareholders or the public interest to preventmismanagement.
Such directors shall hold o*ce for a period note#ceeding three years on any one occasion.
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Additional Directors
&$ection %#E(
Appointment by the 9oard of Directors
Filing up the Casual acancy
&$ection %#%(AlternateDirectors
&$ection ''(
Appointment by the 9oard of Directors
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Additional Directors
$ection %#E
Nothing in section %"", %" or %"! shall affect any powerconferred on the 7oard of directors by the articles to appointadditional directors6
.ro*ided that such additional directors shall hold office only upto the date of the ne-t ensuing annual general meeting of thecompany6
.ro*ided further that the number of the directors and additionaldirectors together shall not e-ceed the ma-imum strength fi-edfor the 7oard by the articles.
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Filling of casual *acancies among directors
$ection %#%
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Alternate Directors
$ection ''
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.owers of the 9oard of Directors
6eneral .owers of the 9oard under section %!
.owers entrusted under the Companies Act, !"#
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.owers entrusted to Directors under the Companies
Act,!"#) Certain powers of the 9oard of Directors which can be e3ercised
only at a meeting)
9ower to ma8e calls on unpaid shares : Section %!%
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$he power of filling vacancies in the 7oard
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Certain powers of the 9oard of Directors which can be
e3ercised only at a meeting 00 Contd00
Ananimous consent of all directors present at 7oard meetingnecessary for appointing as managing director or manager,a person who is already managing director or manager ofanother company 2 Sections
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Duties of Directors $tatutory
$o file return of allotments
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Duties of Directors 6eneral
Duty of good faith : Directors must act in the best interest of the
company and should not ma8e any secret
profits.
Duty of care / Director must display such care in
performance of wor8 assigned to him
which a man of ordinary prudence would
ta8e in his own case
Duty not to delegate 2 Director being an agent is bound by the
ma-im 4delegatus non potest delegate5
sub1ect to certain e-ceptions.
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Liabilities of Directors
iability to the company
iability to third parties
iabilities for breach of statutory duties
iability for acts of co2directors
Criminal liability.
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Liabilities to the company
7reach of fiduciary duty2 where a director acts dishonestly to theinterests of the company, he will be held liable for breach offiduciary duty.
Altra vires acts2 Directors are supposed to act within theparameters of the provisions o the Companies +ct, emorandum
and +rticles of association, since these lay down the activities to thelimits of the company and consequently to the powers of the 7oardof Directors. Ehere the directors act ultra vires, they are liable toindemnify the company for any lossFdamage suffered due to suchact.
C'N$DGGG...
.
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Liabilities to the company C81D;;00
Negligence 2 Ehere the Directors fail to e-ercise
reasonable care, s8ill and diligence, they shall be deemed
to have acted negligently in discharge of their duties and
consequently shall be liable for any loss or damageresulting there from.
isfeasance 2 Directors can also be held liable for their
acts of 4misfeasance5 ,i.e., misconduct or wilful misuse of
powers .
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Liability to third parties
iability under the provision of Companies +ct, !"#
is2statement in 9rospectus
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Liability for breach of statutory duty
$he Companies +ct, !"# imposes numerousstatutory duties on the directors under various sections
of the +ct. Default in compliance of these duties attract
penal consequences.
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Liabilities for acts of co/directors
+ director is the agent of the company
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Criminal Liability
+part from civil liability director of a company may also incur criminal
liability under common law as well as Companies +ct and otherstatutes. Some of them
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1hanG you