Training and Recruitment info - please reach 040- 4003 2244-47
+91 90 43 003 883 | [email protected] | Reach us

Roles and Responsibilities of Directors

October 28, 2019
Roles and Responsibilities of Directors’

Roles and Responsibilities of Directors’

The Companies Act, 2013 and the Secretarial Standards prescribed by the Institute of Company Secretaries of India provide for the rules and regulations regarding the appointment of Directors, conduct of Board Meetings and their roles and responsibilities.

I. Meaning:

As per Section 2(34) of Companies Act, 2013: Director” means a director appointed to the Board of a Company

II. Number of Directors required in Company:

Minimum

  1. One Person Company -  One Director.
  2. Private Limited Company -  Two Directors.
  3. Public Limited Company -  Three Directors.

Maximum Number of Directors that can be appointed in the Company:

15 directors can be appointed, if the Company proposes to appoint more than 15 directors then the Company is required to pass Special resolution in the General Meeting.

  • Executive Director An Executive Director can be either a Whole-time Director of the company as per clause (94) of section 2 of the Companies Act, 2013 (i.e., one who devotes his whole time of working hours to the company and has a significant personal interest in the company as his source of income), or a Managing Director (i.e., one who is employed by the company as such and has substantial powers of management over the affairs of the company subject to the superintendence, direction and control of the Board)
  • Non-Executive Director - Companies Act, 2013 does not specifically define a non-executive director. However, the meaning of non- executive Director can be taken from the definition of an executive Director. A person who is not falling in conditions of definition of ‘Executive Director’ shall be considered as ‘Non-Executive Director’. Non-executive directors are not employed by the company but appointed to bring an independent perspective to decision-making.
  • Resident Director: Every company shall have at least one director who stays in India for a total period of not less than one hundred and eighty-two days(182) during the financial year as per Section 149(3) of Companies Act, 2013. However, in the case of a newly incorporated company, the requirement under this subsection shall apply proportionately at the end of the financial year in which it is incorporated.

III. Duties of Directors with reference to Section 166 of the Companies Act, 2013.

  1. To act in accordance with the articles of the company,
  2. To 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 interest of the company, its employees, shareholders and other stakeholders;
  3. To exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.;
  4. A director of a company shall not involve in a situation in which he may have ad direct or indirect conflicts of interest;
  5. A director of a company shall not make or attempt to make undue gain or advantage either to himself or relatives, partners or associates; and
  6. A director of a company shall not assign his office and any assignment so made shall be void.

IV. General obligation of Directors

  • Every director shall have Director Identification Number(DIN) and Digital Signature Certificate(DSC)
  • Every director shall submit the following annexures for his appointment:
    • Form DIR-2: Consent to act as Director (Proof of address and identity proof)
    • Form DIR-8 i.e. Declaration that he/she is not disqualified from being appointed as a Director and (Section 164)
    • Form MBP-1 i.e. Disclosure of Interest of director in other entities
  • Every director should attend the Board meeting of the Company; he shall automatically be vacated from the office of directorship if he absents himself from all the meetings of the Board of Directors held during a period of twelve months with or without seeking leave of absence of the Board
  • The director shall not hold directorship in more than 20 Companies of which not more than 10 shall be public Companies.
  • The Directors must lay the financial statements for approval and adoption at the annual general meeting of the shareholders (Section 129);
  • 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);
  • Director needs to ensure that the company complies with obligations relating to corporate social responsibility provided under Section 135;
  • The board is responsible for appointing first auditors (Section 139);
  • A director needs to disclose his interest in a contract with the company (Section 184);
  • A director or any other person in whom the directors are interested should not directly or indirectly accept any loan or any security or any guarantee from the Company in which he holds Directorship.
  • A director is prohibited from engaging in forward dealing of securities (Section 194);
  • The board is responsible for the appointment of whole-time key managerial personnel (Section 203);
  • The directors are responsible for issuance of notice and holding of board meetings and general meetings etc
  • KYC of Directors - Every individual who has been allotted a Director Identification Number (DIN) shall ensure that his KYC is submitted to the Central Government on an annual basis.

V. Importance of Board Meetings, Quorum & participation:

Board Meetings are the common platform where Directors come together to take decisions relating to the management of the Company.  For the effective functioning and management of the Company, it is imperative that board meetings be held at frequent intervals.

Section 173 of Companies Act, 2013 and Secretarial standards on meetings of the Board of Directors lays down the important aspects that need to be considered with regard to Board Meeting.

Frequency of Board Meeting: First Meeting of Board of Directors should be held within 30 (Thirty) days from the date of Incorporation of the company.

The subsequent Board Meetings shall be conducted such that the gap between any two Board Meetings shall not exceed 120 days and there should be a minimum of 4(four) Board meetings in a calendar year.

However, in the case of One Person Company(OPC), Small company and Dormant company the Board shall meet at least once in each half of the calendar year with a minimum gap of at least 90 days.

Notice of Board Meeting: The Notice of the Board meeting should be called by giving 7 days’ notice to Directors at his registered address through:

By hand delivery

By post

By Electronic means

Shorter Notice: A meeting of Board of Directors can be called by shorter notice subject to the conditions:

If the company is required to have an independent director, then the presence of at least one Independent director is required.

If the company doesn't require to have an independent director: The meeting can be called at a shorter notice without any conditions to be complied with.

Quorum: The quorum of the Board meeting shall be 1/3rd of total strength or 2 (Two) directors, whichever is higher.

Where a meeting of Board could not be held for want of quorum, the meeting shall be automatically adjourned to the same time, same place next week (Not being a national holiday).

Quorum in case of Interested Directors:

If interested director exceeds or equal to 2/3 of total strength the remaining directors not being less than 2 (two) shall be the quorum.

However, there is relaxation that is being given to  Private Company as per the amendment dated 13th June, 2017, wherein it has been provided that sub-section (3) of Section 174 shall apply with the exception that the interested director may also be counted towards quorum in such meeting after disclosure of his interest pursuant to section 184."

Modes of participation in Board Meetings - The Board of directors may, apart from attending the meeting physically, participate in the meeting by way of video conferencing & other audiovisual means

Considering the Global presence of directors, Board Meetings through Video conferencing (VC) have become one of the most popular modes of participation. All matters can be dealt with in VC Meetings except the one mentioned below:

  • Approval of the annual financial statements;
  • Approval of the Board’s report;
  • Approval of the prospectus;
  • Audit Committee Meetings for consideration of accounts; and
  • Approval of the matter relating to amalgamation, merger, demerger, acquisition, and takeover.

VI. Circular Resolutions

Resolution-by-circulation as per Section 175 of the Act means the resolution which is passed by the circulation among the directors. The resolution should be circulated in draft, together with the necessary papers, if any, to all the directors, or members of the committee, as the case may be, at their addresses registered with the company in India by

  • hand delivery or
  • by post or
  • by courier, or through such electronic means as may be prescribed and

shall be approved by a majority of the directors, who are entitled to vote on the resolution.

Most of the businesses can be passed by circulation except those in which the Act specifies that it cannot be passed by circulation.

Resolutions passed by circulation shall be noted at a subsequent Meeting of the Board and the text thereof with dissent or abstention, if any, shall be recorded in the Minutes of such Meeting.

VII. Minutes

The Directors to ensure that the Minutes contain a fair and correct summary of the proceedings of the Meeting

Minutes shall be entered in the Minutes Book within thirty days from the date of the conclusion of the Meeting.

Minutes of the Meeting of the Board shall be signed and dated by the Chairman of the Meeting or by the Chairman of the next Meeting.

Directors must ensure that any questions raised by them in a board meeting or any dissent expressed is properly recorded in the minutes of the meeting to provide prima facie evidence, in case the role of the director is questioned at any time.

VIII. Importance of maintenance of Statutory records

Companies Act, 2013 and rules made thereunder mandates every company to maintain at its Registered Office its Statutory Registers (“the Registers”).

These Registers need to maintained and updated frequently and should be kept at the Registered Office of the Company for inspection by Directors, Members, Creditors and by other persons. A Company is required to provide the extracts from the Registers, if demanded by Directors, Members, Creditors and by other persons on payment of specified fees.

IX. Vacation of office of a Director:

The office of a director shall become vacant in case:

  • He incurs any of the disqualifications specified in section 164;
  • He absents himself from all the meetings of the Board of Directors held during a period of twelve months with or without seeking leave of absence of the Board;
  • He acts in contravention of the provisions of section 184 relating to entering into contracts or arrangements in which he is directly or indirectly interested;
  • He fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested
  • He becomes disqualified by an order of a court or the Tribunal;
  • He is convicted by a court of any offense, whether involving moral turpitude or otherwise and sentenced in respect thereof to imprisonment for not less than 6 months; Appointment and Qualifications of Directors Provided that the office shall be vacated by the director even if he has filed an appeal against the order of such court;
  • He is removed in pursuance of the provisions of this Act;
  • He, having been appointed a director by virtue of his holding any office or other employment in the holding, subsidiary or associate company, ceases to hold such office or other employment in that company

X. Disqualification of Directors

Any person shall not be eligible for appointment as a director of a company if he satisfies any of the below-mentioned points:

  • He is a person of unsound mind and stands so declared by a competent court;
  • He is an undischarged insolvent;
  • He has applied to be adjudicated as an insolvent and his application is pending;
  • He has been convicted by a court of any offense, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and five years has not elapsed from the date of expiry of the sentence.

If a person has been convicted of any offense and sentenced in respect thereof to imprisonment for seven years or more, he shall not be eligible to be appointed as a director in any company;

  • An order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force;
  • 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;
  • He has been convicted of the offense dealing with related party transactions under section 188 at any time during the last preceding five years; or
  • He has not got the DIN.

XI. Officer in default:

As per Section 2(60) of the Companies Act, 2013, The term “Officer in Default” means an officer who shall be held responsible for any default in the Company. The ambit of 'officer in default' is quite wide and includes, inter alia:

  • Every whole-time director;
  • Every Key Managerial Personnel ('KMP');
  • If no KMP then such director(s) as specified by the Board in its behalf or all directors, if no director is so specified;
  • any person who is charged with any responsibility by the board or any KMP, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent any default;
  • Any person in accordance with whose advice, directions or instructions the Board of the company is accustomed to act, other than a person who advises the Board in a professional capacity; and
  • Every director, in respect of a contravention of any of the provisions of the Act, who is aware of such contravention by the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance.

The officer in default shall be liable for the penalties for non-compliance.

XII. Liabilities of Non-Executive Directors

A non-executive director should be held liable only in respect of any contravention of any provisions of the Act which had taken place with his knowledge (attributable through Board processes) and where he has not acted diligently, or with his consent or connivance. Knowledge

If the director does not initiate any action upon knowledge of any wrong, such a director should be held liable. Knowledge should flow from the processes of the Board. Additionally, upon knowledge of any wrong, follow up action/dissent of such independent directors from the commission of the wrong should be recorded in the minutes of the board meeting.

XIII. Directors and Officers (D&O) Insurance Policy

D&O Policy is a liability insurance payable to the directors and officers of a company, or to the organization(s) itself, as indemnification (reimbursement) for losses or advancement of defense costs in the event an insured suffers such a loss as a result of a legal action brought for alleged wrongful acts in their capacity as directors and officers.

Directors and Officers (D&O) insurance is a means by which companies and their directors/ officers can mitigate potential personal liability. The insurance premium paid by the company for such a policy need not be treated as a perquisite or income in the hands of the director.

Considering the stringent penal provisions imposed even for not so grave non-compliances, directors must adopt an extra cautious approach. They need to ensure that they always act in the best interest of all stakeholders.

 Other posts on Directors:

 Independent Directors

Loan to Directors under Companies Act, 2013

Compare provisions relating to Director's pursuant to Companies Act, 1956 and Companies Act, 2013

Independent Directors

Secretarial Standard on Meetings of the Board of Directors 

Position of Independent Directors under the Companies Act, 2013

Disclaimer:

The entire contents of this document have been developed based on relevant information. Though the authors have made utmost efforts to provide authentic information however, the authors expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document.

Contributors:

  • By admin  gg 0 Comments   

    0 Comments

    Leave a Reply

    Your email address will not be published. Required fields are marked *