AN INSIGHT TO
Directors – Role, Responsibilities and
Liabilities
This Presentation…….
“…….is an attempt to highlight the role,
responsibilities and liabilities of the Directors
of a Company as outlined under various
provisions of Companies Act, 1956.”
Director – Directing ‘mind’ and ‘will’ of the
Company
Meaning under the Companies Act,1956
Section 2 (13):
“Director” includes any person occupying the position of
director, by whatever name called.
Who may be appointed as a Director?
No body corporate, association or a firm shall be
appointed director of a company, and only an
individual shall be so appointed. (Section 253 )
Shadow Director/Deemed Director
Any person in accordance with whose directions
or instructions directors are accustomed to act.
(Section 7)
Overcoming mental blocks
Can a Body corporate become the director of
the Company?
Legal Position of Directors
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As Agents - Directors are the agents of the
Company .Thus , where the directors contract in the
name and on behalf of the company it is the
company which is liable for it and not the Directors
(Subject to exceptions)
As Trustee
- The Directors of the company are
trustees(to a limited extent)for the company with
reference to their power of applying funds of the
company and for misuse of the power they could be
rendered liable as trustees.
Are Directors Employees?

Directors are not the employees of the company as once
elected they enjoy well-defined rights and powers under
the Companies Act,1956 or the Articles of the Company

Even the shareholders who elect them cannot interfere
with their rights and powers except under certain
circumstances
Types of Directors - A Glance
Directors
Non-Executive
Executive
Independent
Non- Independent
Executive Director

“Executive Director” means managing
director or whole- time director .
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Not defined under the Companies Act, 1956.
Non-Executive Director
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Non-executive directors are the directors on the
Board of a company, other than a Managing
Director and whole-time Director or a Director
employed in his professional capacity.
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Not defined under the Companies Act, 1956.
Understanding- Managing Director
Meaning under the Companies Act,1956
Section 2(26) – ‘Managing Director’ means a director who, by virtue
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of an agreement with the Company or
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of a resolution passed by the company in general meeting or
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by virtue of its memorandum or articles of association ,
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is entrusted with substantial powers of management which would
not otherwise be exercisable by him ,
AND

includes a director occupying the position of managing director by
whatever name called:
Contd………...
Understanding- Managing Director
Provided that the power to do administrative acts of routine
nature when so authorised by the Board such as power to
affix the common seal of the company to any document or
to draw and endorse any cheque on the account of the
company in any bank or to draw and endorse any
negotiable instrument or to sign any certificate of share or to
direct registration of transfer of any share , shall not be
deemed to be included within the substantial powers of
management.
Provided further that a managing director of a company
shall exercise his powers subject to superintendence,
control and direction of the Board of Directors
Understanding- Whole Time Director
Meaning under the Companies Act,1956
Explanation to section 269 – ”whole time director”
includes a director in the whole time employment of
the company
Overcoming Mental Blocks
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Can a company have two Managing directors ?
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Is Managing Director/ Whole Time Director an employee of
the Company ?
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Whether the whole time employee appointed as a part time
director can be construed as a whole time director?
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If the whole time company secretary is appointed as part
time director without being entrusted with the substantial
powers of management, can he be regarded as whole time
director?
Independent Director
As per Clause 49 of Listing Agreement
‘Independent Director’ shall mean a non-executive
director of the company who:
a.
apart from receiving director’s remuneration, does not have
any material pecuniary relationships or transactions with
the company, its promoters, its directors, its senior
management or its holding company, its subsidiaries and
associates 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 level
below the board;
c.
has not been an executive of the company in the
immediately preceding three financial years;
Independent Director…contd…
d.
is not a partner or an executive or was not partner or an
executive during the preceding three years, of any of the
following:
i.
the statutory audit firm or the internal audit firm that is
associated with the company, and
ii.
the legal firm(s) and consulting firm(s) that have a material
association with the company.
e.
is not a material supplier, service provider or customer or
a lessor or lessee of the company, which may affect
independence of the director; and
f.
is not a substantial shareholder of the company i.e.
owning two percent or more of the block of voting shares.
Important sections under Companies Act, 1956 as are
applicable to Directors

Sections 255 to 269 relating to appointment.

Section 274 relating to disqualifications.
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Section 283 relating to vacation of office.

Section 284 relating to removal.

Sections 198,
remuneration.
309,310
and
311
relating
to
Appointment of Directors
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Subscribers- as Directors
Appointment of first Directors
Appointment at general meeting
Appointment by the Board of Directors
Appointment by third parties, and
Appointment by Central Government.
Appointment by the Board of Directors
Appointment by the Board of Directors
Additional Directors
(Section 260)
Filing up the Casual Vacancy
(Section 262)
Alternate Directors
(Section 313)
Additional Directors
Section 260
Nothing in section 255, 258 or 259 shall affect any power
conferred on the Board of directors by the articles to appoint
additional directors:
Provided that such additional directors shall hold office only up
to the date of the next ensuing annual general meeting of the
company:
Provided further that the number of the directors and
additional directors together shall not exceed the maximum
strength fixed for the Board by the articles.
Brainstorming-additional directors
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Whether a resolution passed at the board meeting
necessary for appointment of additional Directors?
Filing of return under section 303(2) – Whether
necessary?
Can an additional director be appointed as Managing/
Whole time director?
Can general body appoint additional directors?
Filling of casual vacancies among directors
Section 262
(1) In the case of a public company or a private company
which is a subsidiary of a public company, if the office of any
director appointed by the company in general meeting is
vacated before his term of office will expire in the normal
course, the resulting casual vacancy may, in default of and
subject to any regulations in the articles of the company, be
filled by the Board of directors at a meeting of the Board.
(2) Any person so appointed shall hold office only up to the
date up to which the director in whose place he is appointed
would have held office if it had not been vacated as aforesaid.
Brainstorming-Casual vacancy
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Can a Resolution by circulation be passed for
appointment of a director by way of casual vacancy?
Filing of return under section 303(2) – Whether
necessary?
Whether the casual vacancy arises if a director
appointed in general meeting does not assume office?
Whether the vacancy arising on account of resignation
,etc of a director appointed by way of casual vacancy
can be filled again by way of casual vacancy?
Alternate Directors
Section 313
(1) The Board of directors of a company may, if so authorized by its
articles or by a resolution passed by the company in general meeting,
appoint an alternate director to act for a director (hereinafter in this
section called “the original director”) during his absence for a period of
not less than three months from the State in which meetings of the Board
are ordinarily held.
(2) An alternate director appointed under sub-section (1) shall not hold
office as such for a period longer than that permissible to the original
director in whose place he has been appointed and shall vacate office if
and when the original returns to the State in which meetings of the Board
are ordinarily held.
(3) If the term of office of the original director is determined before he so
returns to the State aforesaid, any provision for the automatic reappointment of retiring directors in default of another appointment shall
apply to the original and not to the alternate director.
Brainstorming-Alternate directors
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Can the general meeting itself appoint alternate
directors ?
Filing of return under section 303(2) – Whether
necessary?
Is the alternate director the agent of the original director?
Can the Company appoint Alternate Director as MD , in
case of absence of MD for 3 months?
Can alternate director be appointed as additional
director?
Can director of the company be alternate to another
director?
A clear picture
Sl.
No.
Particular
Section 260
Section
262
Section 313
1
Type of company
All
Public
All
2
Authority in AoA
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X
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3
Tenure
Till the
Till the
commencement unexpired
of next AGM
tenure of
the original
director
When the original
director returns to
the state or until
the expiry of office
of original
director,
whichever is
earlier
A clear picture
Sl.
No.
Particular
Section 260
4
Situation
No specified
situation
5
Whether
counted in
quorum of
board meeting

Section 262
Section 313
Office
of
director
appointed
in general
meeting
becomes
vacant
Director is absent
for not less than 3
months from the
state where the
board
meetings
are ordinarily held
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A clear picture
Sl.
No.
6
7
Particular
Applicability
of filing of
Form 32 and
Form 29
Applicability of
Sections 295,
297, 299 and
300
Section 260
Section 262
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Section 313
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Powers of the Board of Directors
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General Powers of the Board under section 291
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Powers entrusted under the Companies Act, 1956
General Powers of the Board
Section 291 of the Companies Act, 1956
Subject to the provisions of this Act, the Board of directors of a
company shall be entitled to exercise all such powers, and to do
all such acts and things, as the company is authorized to
exercise and do:
Provided that the Board shall not exercise any power or do any
act or thing which is directed or required, whether by this or any
other Act or by the memorandum or articles of the company or
otherwise, to be exercised or done by the company in general
meeting:
Provided further that in exercising any such power or doing any
such act or thing, the Board shall be subject to the provisions
contained in that behalf in this or any other Act, or in the
memorandum or articles of the company or in any regulations not
inconsistent therewith and duly made there under, including
regulations made by the company in general meeting.
Powers entrusted to Directors under the Companies
Act,1956:
Certain powers of the Board of Directors which can be exercised only
at a meeting:
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Power to make calls on unpaid shares – Section 292(1)(a)
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Power to issue Debentures and borrow moneys otherwise than on
Debentures – Section 292(1) (b) & (c).
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Power to invest the funds of the Company – Section 292(1)(d)
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Power to grant loans – Section 292(1)(e)
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Power to authorize the buyback of shares – Section 292(1)(aa)
CONTD……..
Certain powers of the Board of Directors which can
be exercised only at a meeting .. Contd..
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The power of filling vacancies in the Board (Section 262)
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Power to make political contributions (Section 293-A)
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Sanctioning or giving consent to contracts of or with any
director (Section 297(4))
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Receiving of notice of disclosure of interest (Section 299)
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Receiving notice of disclosure of share holdings of directors
only at a meeting of the Board (Section 308)
Contd………
Certain powers of the Board of Directors which can be
exercised only at a meeting .. Contd..
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Unanimous consent of all directors present at Board meeting
necessary for appointing as managing director or manager,
a person who is already managing director or manager of
another company - Sections 316(2) and 386(2)
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Sanction by unanimous consent of all the directors present
at a Board meeting necessary for making investments in
companies, loans etc. - Section 372A
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Declaration of solvency- Section 488(1)
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Approval of text of advertisement for inviting public depositsSection 58A read with rule 4(4) of the Companies
(Acceptance of Deposits) Rules, 1975.
Duties of Directors – Statutory
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To file return of allotments (Section 75)
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Not to issue irredeemable preference
redeemable after 20 years (Section 80)
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To convene statutory, Annual General Meeting (AGM) and also
extraordinary general meetings [Sections 165, 166 & 169]
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To prepare and place at the AGM along with the balance sheet
and profit and loss account a report on the company’s affairs
including the report of the Board of Directors (Sections 173, 210
and 217).

To authenticate and approve annual financial statement (section
215).
shares
or
shares
CONTD……….
Duties of Directors – Statutory
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Duty to attend board meetings
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To appoint first auditor of the company (Section 224)
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To appoint cost auditor of the company (Section 233B)
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To disclose interest (Section 299-300)
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To disclose receipt from transfer of property (Section 319)
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To disclose receipt of compensation from transferee of shares
(Section 320)
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To make a declaration of solvency in the case of a Members’
voluntary winding up (section 488).
CONTD……
Duties of Directors – General
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Duty of good faith –
Directors must act in the best interest of the
company and should not make any secret
profits.
Duty of care
- Director must display such care in
performance of work assigned to him
which a man of ordinary prudence would
take in his own case
Duty not to delegate - Director being an agent is bound by the
maxim ‘delegatus non potest delegate’
subject to certain exceptions.
Liabilities of Directors
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Liability to the company
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Liability to third parties
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Liabilities for breach of statutory duties
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Liability for acts of co-directors
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Criminal liability.
Liabilities to the company
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Breach of fiduciary duty- where a director acts dishonestly to the
interests of the company, he will be held liable for breach of
fiduciary duty.
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Ultra vires acts- Directors are supposed to act within the
parameters of the provisions o the Companies Act, Memorandum
and Articles of association, since these lay down the activities to
the limits of the company and consequently to the powers of the
Board of Directors. Where the directors act ultra vires, they are
liable to indemnify the company for any loss/damage suffered due
to such act.
CONTD………...
.
Liabilities to the company – CONTD……..
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Negligence
- Where the Directors fail to exercise
reasonable care, skill and diligence, they shall be deemed
to have acted negligently in discharge of their duties and
consequently shall be liable for any loss or damage
resulting there from.
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Misfeasance Directors can also be held liable for their
acts of ‘misfeasance’ ,i.e., misconduct or wilful misuse of
powers .
Liability to third parties
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Liability under the provision of Companies Act, 1956
 Mis-statement in Prospectus (section 62 and 63)
 Irregular allotment (section 71)
 Unlimited liability (section 322 and section 323)
 Fraudulent trading (section 542)
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Liability for breach of warranty of authority
The directors may be proceeded against for any loss sustained by
any third party where they transact any business which is ultra
vires the company or the articles of association of the company.
Liability for breach of statutory duty
The Companies Act, 1956 imposes numerous
statutory duties on the directors under various sections
of the Act. Default in compliance of these duties attract
penal consequences .
Liabilities for acts of co-directors
A director is the agent of the company (except for
matters to the dealt with by the company in the general
meeting) and not the agent of the other members of
the Board. So nothing done by the Board can impose
liability on a director who did not participate in the
boards action or did not know about it. To incur liability
he must either be a party to a wrongful act or must
consent to it.
Criminal Liability
Apart from civil liability director of a company may also incur criminal
liability under common law as well as Companies Act and other
statutes. Some of them (fine or /and imprisonment) are as follows:
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Filing of untrue prospectus or statement in lieu of prospectus
[Section 44(4)]
Failure to repay deposits (Section 58A)
Failure to repay excess application money [Section 93]
Fraudulently renewing a share certificate or issuing a duplicate
share certificate [section 84(3)]
Undischarged insolvent acting as director [section 202(1)]
Default in distributing dividends [section 207]
Failure to supply information to auditors [section 221(4)]
Failure to disclose interest [section 299 (4)]
Failure to disclose shareholding [section 308(3)]
Acting as director or manager after removal by the Company Law
Board [Section 407 (2)
Thank you