INTRODUCTION

The board of directors of the company is responsible for the management of the company and therefore, they are given wide powers to carry out the objectives of the company. However, the powers of the directors are governed by the provisions of the Companies Act, 2013 which erstwhile were covered under the Companies Act, 1956. The objective of this handbook is therefore, to lay down the duties, responsibilities and liabilities of directors in the light of the new Companies Act, 2013. Another objective of handbook is to apprise the directors of their responsibilities under other legislations vis-à-vis direct/indirect taxes, labour and employment as well environment. The handbook provides a brief snapshot of the responsibilities of director under various Indian legislations.

DUTIES AND RESPONSIBILITIES OF DIRECTORS

The Director must perform the following duties while carrying out the objectives of the company:

A. General Duties/Responsibilities

  • To act within powers in accordance with the Articles of Association;
  • 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 interests of the company, its employees and the shareholders;
  • To exercise reasonable care, skill and diligence;
  • To exercise independent judgment;
  • To avoid conflict of interest;
  • To avoid any undue gain or advantage either to himself or to his relatives, partners, or associates;
  • He shall not assign his office.

B. Specific Duties

  • To attend at least one board meeting held during a period of twelve months;
  • To lay in the annual general meeting of the company, the financial statements of the financial year;
  • To appoint the first auditor of the company;
  • To disclose his concern or interest in any company or companies or bodies corporate, firms, or other association of individuals which shall include the shareholding, in the prescribed format in the first meeting of the Board in which he participates as a director and thereafter at the first meeting of the Board in every financial year or whenever there is any change in the disclosures already made;
  • To intimate his Director Identification Number (DIN) to the company or all the companies wherein he is a director within one month of the receipt of such number;
  • Every director should refund the excess sum which he received by way of remuneration to the company and until such sum is refunded, he should hold it in trust for the company;
  • To produce all the documents and furnish all the statements, information and explanations in such form as may be required by the registrar for the conduct of inspection and enquiry;
  • Where a proposal is there to wind up the company voluntarily, the majority of its directors should make a declaration at a Board meeting, verified by an affidavit to the effect that they have made a full enquiry into the affairs of the company and formed an opinion that the company has no debt or that it will be able to pay its debts in full from the proceeds of assets sold in voluntary winding up.

ADDITIONAL OBLIGATIONS OF A DIRECTOR IN CASE OF A PUBLIC LISTED COMPANY

  • In case of listed companies i.e. when the shares of the company are listed on a stock exchange in India the company is required to have at least one-third of the total number of directors as independent directors. Accordingly, a director has to give a declaration that he meets the criteria of independence provided in section 149 of the Companies Act, 2013 at the first meeting of the Board in which he participates as a director and thereafter at the first meeting of the Board in every financial year or whenever there is any change in the circumstances which may affect his status as an independent director. The criteria of independence of a director is as under:

    "(a) who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience;
    (b)
    1. who is or was not a promoter of the company or its holding, subsidiary or associate company;
    2. who is not related to promoters or directors in the company, its holding, subsidiary or associate company;
    (c) who has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year;
    (d) none of whose relatives has or had pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors, amounting to two per cent. or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year;
    (e) who, neither himself nor any of his relatives—

    1. holds or has held the position of a key managerial personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed;
    2. is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of—

      1. a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or
      2. any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent. or more of the gross turnover of such firm;
    3. holds together with his relatives two per cent. or more of the total voting power of the company; or
    4. is a Chief Executive or director, by whatever name called, of any nonprofit organisation that receives twenty-five per cent. or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds two per cent. or more of the total voting power of the company; or
    (f) who possesses such other qualifications as may be prescribed."
  • No director of a listed company i.e. where the shares of the company are listed on a stock exchange in India, should enter into insider trading;
  • In case of a listed company, an independent director is liable in respect of those acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently.

RELATED PARTY TRANSACTIONS

No company shall enter into any contract or arrangement with a related party with respect to –

" a. sale, purchase or supply of any goods or materials.
b. selling or otherwise disposing of, or buying, property of any kind;
c. leasing of property of any kind;
d. availing or rendering of any services;
e. appointment of any agent for purchase or sale of goods, materials, services or property;
f. such related party's appointment to any office or place of profit in the company, its subsidiary company or associate company; and
g. underwriting the subscription of any securities or derivatives thereof, of the company."

except with the consent of the board of directors of the company.

The term "Related Party" means –

  1. the director or his relative (term "relative is defined below);
  2. a key managerial personnel or his relative;
  3. a firm, in which a director, manager or his relative is a partner;
  4. a private company in which a director or manager or his relative is a member or director;
  5. a public company in which a director or manager is a director and holds along with his relatives, more than two per cent. of its paid-up share capital;
  6. any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;
  7. any person on whose advice, directions or instructions a director or manager is accustomed to act;
  8. any company, which is—

    1. a holding, subsidiary or an associate company of such company; or
    2. a subsidiary of a holding company to which it is also a subsidiary;
  9. such other person as may be prescribed.

Relative means anyone who is related to another if –

  1. they are members of a Hindu undivided family;
  2. they are husband and wife;
  3. one person is related to another in the following manner, namely:

    • Father;
    • Mother;
    • Son;
    • Sons' wife;
    • Daughter;
    • Daughter's Husband;
    • Brother;
    • Sister;

LOAN TO DIRECTORS

The Companies Act, 2013 provides that no company shall directly or indirectly advance any loan including any loan represented by a book debt to any of its directors or to any person in whom the director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person.

However, the Ministry of Corporate Affairs has vide its circular dated 5th June, 2015 has exempted private companies from the applicability of these provisions:

  • in whose share capital no other body corporate has invested any money;
  • if the borrowings of such a company from banks or financial institutions or any body corporate is less than twice of its paid up share capital or INR 500 Million, whichever is lower; and
  • such a company has no default in repayment of such borrowings subsisting at the time of making transactions.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.