DIRECTORS

Definition

According to Section 2(13) of the companies Act of 1956- any person occupying the position of a director by what ever name called.

INTRODUCTION
The person through whom a company acts and does its business are termed as director. Collectively known as board of directors or board Brain of the company.

They occupy a pivotal position in the structure of the company.

MEANING
Responsible for directing , conducting and controlling the affairs of a company. A person elected by shareholders to manage day-today affair of the company individually known as director.

Section 252 of the companies Act of 1956 states that:

Public co., - 3 director Pvt co., - 2 director

Distinction between Trustee and Director

Trustee
1. Legal owner of the trust property 2. Manages the affairs of the trust property with his own name 3. Is not a beneficiary

Director
1. Is not the legal owner

2. Manages the affairs of the company on the name of the company 3. Is an agent of the company

4. It is purely a fiduciary relationship

4. Complex relationship including fiduciary relationship.

QUALIFICATION OF DIRECTORS:
There is no any academic or professional qualification including share qualification.
AOA- hold at least one share in the company with in 2 months. If he fails, he has to vacate the office.

DIS-QUALIFICATION OF A DIRECTOR
As per Sec 274 of companies Act:Unsound mind

Undischarged insolvent
Applied to be adjudicated as an insolvent & his application is pending.

 Convicted by court imprisonment for not less than 6 months and a period of 5yrs has not elapsed since the expiry of the sentence.

Not paid any calls for 6 months from last date fixed for the payment. Dis-qualified by any order of the court under Sec 203.

APPOINTMENT OF DIRECTOR
1. First directors: - Persons who are named. - Subscribers to the memorandum
2. By the Company in a general meeting

3. Board of directors:

a) additional director: Board can fix. but should not exceed maximum number fixed by AOA. Durationonly upto the next AGM. b) alternate director: If any director is out of state for more than 3 months, duration-till he returns c) casual vacancies: If director appointed by co. in general meeting is vacated before his term, board can fill that casual vacancy. Duration-only upto the date till original director holds the office. 4. Third parties (nominal director)

ll
5. The principal of proportional representation.

6. The central government.

Remuneration
Must not exceed 11% of the net profit of the company for that financial year. If co. has no profit or inadequate profit-then: < Rs 1 cr-Rs 75,000 pm >1 cr, < 5 cr -100000 > 5 cr , < 25 cr- 125000 > 25 cr, < 50 cr- 150000 >50 cr, < 100 cr- 175000 Rs. 100 crs. Or more - 200000

Removal of directors
Shareholder Central Govt. The court

POWERS OF DIRECTOR
The powers of director are given by the companies Act & the AOA, which may be discussed under two heads :1. General powers 2. Specific powers

1. GENERAL POWERS OF THE DIRECTOR

It can be studied under two heads namely: a) Powers of board of directors b) Shareholders intervention in exceptional circumstances.

a. Powers of BOD
All such powers of the company and to do all such acts & things as the company is authorized to exercise & to do.

Limitation of the BOD

The BOD cannot exercised those powers which are to be exercised by the shareholders in the Annual General Meeting (AGM).
The BOD must exercise its power, subject to the provisions contained in the companies Act, MOA, & AOA.

b. Shareholders intervention
If the shareholders finds that the company is not safe in the hands of present management, then they can interfere and replace the existing management.

Following cases for the intervention of shareholders:

When there personal interests is in conflict with their duties towards the company and is against the interest of the company. Where the directors have for some valid reason become incompetent. Where the directors are un-willing to act.

2. SPECIFIC POWER OF DIRECTOR

The companies Act specifies certain powers of the BOD
It also lays down the ways in which they are to be exercised.

Such specific powers are: Make calls on shareholders.

Issue debentures.

Borrow the money

Invest the fund of the company. Make loans.

Restrictions on the powers of directors:

As per Sec 293 and 294 of the companies Act of 1956 1. To lease, sell or otherwise dispose of the whole or substantially the whole of the undertaking of the company.

2. To remit or extent the time for the payment of debt due from a director to the company.

3. To invest any compensation received. 4. To borrow in the excess 5. To donate to any charitable fund during any financial year.

6. To appoint a sole selling agent. 7. To invest on any other body corporate. 8. To alter the name and objects clause of MOA

Statutory duties of directors

It can be classified into broad categories: 1. Minimum subscription. 2. Allotment of shares.

3. All money received from the applicants for shares.

4. Return the money to those for non allotment of shares. 5. Statutory meeting. 6. To prepare and file a statutory report. 7. To forward a copy of the statutory report.

8. To call annual general meeting every year. 9. Necessary information and explanation to auditors. 10. Approve the Balance sheet and P\L account.

11. Proper accounts are kept. 12. Pay dividends. 13. To keep the register of members. 14. Copy of special resolution.

15. To send the notice. 16. Notify the change if any. 17. Disclose to the board their interest. 18. To see the broad meeting is held.

19. To exercise powers. 20. Share certificate and warranty. 21. Debenture certificate.

22. To keep the register of mortgages and charges.

23. Declaration of solvency of the company. 24. Statement of affairs. 25. Sign the prospectus.

General duties
1. Mange the affairs of the company. 2. Good faith. 3. Exercise of reasonable care. 4. Usage of property.

5. They should not make any secret profit. 6. Attend all broad meetings. 7. Must not be negligent in the discharge of their duties.

Liabilities of directors
It can be broadly classified into three categories: 1. Liabilities to the company. 2. Liabilities to outsiders. 3. Criminal liabilities.

1. Liabilities to the company.

As long as they act intra vires their powers and the powers of the company, - in good faith - bona fide - exercise reasonable care - skill and diligence. the director of the company do not incur any personal liability to the company.

In following cases they become liable:

1. For acts ultra vires the powers of the company. eg: payment of dividend out of capital. 2. For acts ultra vires their power. 3. For breach of trust or misfeasance. eg: making of secret profit.

4. For acting dishonestly. eg: purchasing property in their own name and selling to company. 5. For gross negligence in the performance of there duties.

6. For willful misconduct eg: misappropriation of companys assets and fund willfully. 7. For any illegal act.

Liabilities to outsiders
Directors incur personal liabilities to outsiders on contracts made on behalf of the company. The directors are personally liable to outsiders in the following cases:-

1. For mis-statement or non-disclosure of material facts in the prospectus. 2. For breach of implied warranty of authority. 3. When they fail to exclude their personal liability.

4. When they act in their own names. 5. For acting fraudulently. 6. For making irregular allotment in contravention of the provisions of the companies Act.

Criminal liabilities:
It refer to liabilities which arises for fraud or non-compliance of the various provisions of the companies Act. -- This subject the director to fine or imprisonment or both.

Following are some cases:

1. For issuing a prospectus containing misstatement. (Sec 63) 2. For fraudulently inducing persons to invest money in the company (Sec 68) 3. For the failure to file return as to allotment of shares with the registrar of companies (Sec75)

4. For failure to give notice to registrar of companies about consolidation of share capital. 5. For defaulting filling with the registrar of companies the particulars of any charge created by the company (Sec 142)

6. For not keeping the register of members and debenture holders (Sec 150 & 152) 7. For failure to hold annual general meeting (Sec 168)

8. For failure to file annual return with the registrar of companies (sec 162)

9. For failure to place before the company at an annual general meeting the annual accounts and balance sheet (Sec 210)
10. For failure to attach boards report to the balance sheet. 11. For holding directorships in more than 20 companies in contravention of the provisions of the companys act.(sec 279)

12. For granting loans to a director without obtaining the permission of the central government.(sec295)
13. For proceeding with allotment of shares without receiving the minimum subscription. 14. For failure to send copies of special resolution passed at the general meetings to the registrar of companies.

15. For acting as a director of the company after removal by the court.(sec 407) 16. For failure to supply the required information and explanation to the auditors of the company during the course of audit.
17. For making false declaration of the solvency of the company.(sec 488)

18. For concealing the name of a creditor. 19. For failure to keep proper accounts.(sec 541) 20. For making false statement in any return, report, certificate, prospectus, balance sheet etc(sec 628)

21. For giving false evidence.

22. For wrongful withholding of property . (sec 630)

Unlimited liabilities of director

The liabilities of the directors is limited like of any other shareholder of the company. The liability of the director can be made unlimited by a provision in the MOA.

The directors become personally liable to contribute from their personal property.

Liability of a director for the Acts of his co-director

A director of a company is not liable for the act or mis-conduct of his co-directors unless he has expressly or impliedly authorized it.

Disclosure of interest by directors (Sec 299)

If any director is interested in any contract or arrangement on behalf of the company, he must disclose the nature and the extent of his inertest in board meeting. If this provision is not complied with by a director, he becomes punishable with a fine upto Rs.5,000.

Register of contracts in which a director is interested

Every company must maintain a register of contracts in which its directors are interested.(Sec 301)
It is to ensure that the provision relating to the disclosure of interest by the directors is complied with.

The register of contract should contain following particulars: The date of the contract The name of the parties to the contract The principal terms and conditions of the contract The date on which the contract was placed before the board The names of the directors who voted for and against the contract The names of the directors who remained neutral

The particulars must be entered in the register with in 7 days of the approval of the board.

Acceptance of office or place of profit

Under Sec 314, no office or place of profit in a company except the office of M.D.,manager, legal adviser, technical adviser, banker or trustee for debenture holders, can be held by any of the following persons without the consent of the company accorded by a special resolution:

Any directors of the company Any partner of such a director Any relative of such a director Any firm in which such a director or his relative is a partner Any private company in which the director is a director or member Any director or a manager of such a private company carrying a total monthly remuneration of Rs.500 or more

Loans to Directors
As per Section 295 of the Companies Act of 1956. a company without the approval of the Central Government,cannot grant loans or guarantee or secure loans directly or indirectly to any of the following persons:

A)The director of a company or the director of its holding company B)A partner or relative of any such director C)Any firm in which such a director or his relative is a partner

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