1. Introduction – Directors
Directors are the key managerial personnel of a company and act as its brain and guiding authority. They are entrusted with the responsibility to manage, direct, and supervise the affairs of the company and ensure it functions in accordance with the law and shareholder interests.
2. Meaning and Definition of Director
Section 2(34), Companies Act, 2013:
“Director” means a director appointed to the Board of a company.
The Board of Directors (BoD) is a collective body of such directors, responsible for managing the company’s operations, policy-making, and compliance obligations.
3. Types of Directors
| Type | Description |
|---|---|
| Executive Director | Actively involved in the day-to-day operations of the company. |
| Non-Executive Director | Not involved in daily operations; advises and supervises. |
| Independent Director | Non-executive director with no pecuniary relationship. Mandatory for listed companies. |
| Nominee Director | Appointed by a financial institution or government. |
| Additional Director | Appointed by the Board until the next AGM. |
| Alternate Director | Acts in place of another director during absence (≥ 3 months). |
| Small Shareholders’ Director | Represents small shareholders in listed companies. |
4. Appointment of Directors
A. General Requirements (Section 152):
- Every director must be appointed in a general meeting.
- Must have a Director Identification Number (DIN).
- Must provide consent to act as director in Form DIR-2.
B. First Directors (Section 152(1)):
- Named in the Articles of Association (AoA), or
- If not named, subscribers appoint the first directors.
C. Subsequent Appointment:
- By shareholders at AGM through an ordinary resolution.
- Proportional representation may be adopted for fair board composition.
D. Number of Directorships (Section 165):
- A person cannot be a director in more than 20 companies at the same time, of which only 10 can be public companies.
5. Board Composition Requirements
| Company Type | Minimum Directors |
|---|---|
| Private Company | 2 |
| Public Company | 3 |
| One Person Company | 1 |
Maximum Number of directors (Section 149(1)): 15, but more can be appointed via special resolution.
6. Duties of Directors
Statutory Duties (Section 166):
- Act in accordance with the Articles of the company.
- Act in good faith to promote the objects of the company and for the benefit of all stakeholders.
- Exercise duties with due and reasonable care, skill, and diligence.
- Avoid conflict of interest.
- Not achieve or attempt to achieve undue gain.
- Not assign office of director to another person.
Violation of Section 166 may lead to penalty up to ₹1,00,000.
Fiduciary Duties (Common Law):
- Duty of loyalty and honesty.
- Duty to act in best interest of the company.
- Duty to disclose interest in contracts (Section 184).
7. Powers of Directors
As per Section 179, the Board has the power to:
- Make calls on shareholders.
- Authorize buy-back.
- Issue securities.
- Approve financial statements.
- Borrow money.
- Invest company funds.
- Grant loans or give guarantees.
Note: Some powers require board resolution, others require shareholder approval.
8. Liabilities of Directors
A. Civil Liability
- Breach of duty: Liable for losses caused to the company.
- Misstatement in Prospectus (Section 35): Liable to compensate investors.
B. Criminal Liability
- Fraud (Section 447): Imprisonment up to 10 years and fine.
- Failure to repay deposits, dividends, etc.: Penalties under various sections.
C. Liability under Other Laws
- Income Tax Act, Environmental Laws, FEMA, Labour Laws, etc., impose specific liabilities on directors for non-compliance.
9. Resignation & Removal of Directors
Resignation (Section 168):
- A director may resign by giving written notice.
- Company must file Form DIR-12 and the director must file Form DIR-11.
Removal (Section 169):
- Shareholders may remove a director by passing an ordinary resolution after giving a reasonable opportunity of being heard.
10. Disqualification & Vacation of Office
Disqualification (Section 164):
- Unsound mind, insolvency, conviction, or default in filing financial statements, among others.
Vacation of Office (Section 167):
- Occurs when disqualified, fails to attend Board meetings (12 months), or incurs disqualification under law.
Conclusion
Directors occupy a central role in corporate governance, and their appointment, responsibilities, and accountability are clearly outlined under the Companies Act, 2013. Ensuring the integrity and competence of directors is crucial for maintaining investor confidence and organizational compliance.