This research highlights the duties involved for new directors and also gives information and guidance as to how to avoid being in breach of these duties. It points out the various laws about the liability of directors in case of any fault of his own or in cases if he has any knowledge about the fault.
Estimated Reading Time: 8 minutes

Introduction

The director of a Company has a wide range of duties and roles to perform after getting the company registered. The memorandum of association mentions the laws of a corporation while the articles of association mention the duties of directors. The current stakeholders are more conscious of their duties, and rights and it is the shareholders who are the ultimate authority, which employs its ministry in the form of directors to run the company and earn the profit.[1] The functions of a company’s directors originate with a number of lawful obligations, which are mentioned in the Companies Act 2013[2].

Directors have a lot of responsibility on their heads as they have to supervise, control, and to give directions for the affairs of the company. While performing all these duties, the director has to be diligent, careful and be skilled in his work. They have to take all steps to safeguard the company from any wrongful act and to maintain the corporate governance of the company.[3]

Statutory Definition

Director in Companies Act 2013 under Section 2(34) is defined as a director selected to the panel of a company[4]. Section 149 of Indian Companies Act, 2013 mentions about having the panel of directors that is the board of directors is compulsory, and there is a certain arrangement to be followed for appointment of Board of Directors. These requirements are different for different companies, for a public company 3 to 15 directors and for a private company 2 to 15 directors and for a one-person Company the minimum is 1 director, and there should be at least one-woman director in every company[5].

The provisions of Company Act, 2013 lay emphasis about the Independent Directors meaning a director who is different from the full-time director where he cannot be a managing director, whole time director or a nominee director but his duty will be the same of fulfilling standards as specified under Section 149 of Indian Companies Act, 2013[6].

Additional Director, Alternate Director and Nominee Director

Other than these directors, the Act also mentioned about the additional director, alternate director, and nominee director. These directors are also selected by the board of directors through their conferred authority. Alternate directors are selected in lieu of any director who is absent for the period of three months from India. It is to note that alternate director cannot be appointed for an independent director unless he is qualified to be appointed as independent director.

The Alternate director also cannot office for the period longer than permissible to the director in whose place he has been appointed.[7] The Board may also appoint any director nominated by any institute or by the government by virtue of the shareholding.[8]

Functions of Directors

A director is a person who is very much responsible for the success of the company. Director, by virtue of his position needs to perform lots of function. Being entirely responsible, he needs to be active and to act according to the situation. However, he has to act only till the extent of authority provided and with relation to the article of association of the company. The functions, accountability and responsibilities which promote corporate governance through the sincerest efforts of director efficient management and fast determination. He further has to develop conclusion making to evade pointless dangers to the company and its stakeholder’s.[9] The provision 166 of the Companies Act, 2013 states the duties of director[10].

Law-abiding duties

The first and foremost thought in the mind of directors while taking any decision should be for the greater benefit of the company. His decisions should show and represent sensible maintenance while it should also show his skills and assiduousness. The directors are bound to follow their duty keeping in mind contractual and law-abiding duties they have, for example, memorandum of association, article of association and the contracts with employees as well as between the director and shareholders.

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The directors cannot permit others to affect his decisions or to make any specific decisions based on other employee’s opinions. He will not neglect his duty if the contract signed into by the currently established company, limits the use of the director’s enjoyment.

Fiduciary duties

The Directors are asked to function in a way sanctioned by the company’s composition, memorandum and employees depend on the advice or work of directors while making their decisions.  Directors must not accept assistance from any other individual for getting the post of a director otherwise it will increase the chance of a conflict of interest[11]. Directors have a vital role in preventing any difference of interest after the registration of the company.  They are bound by law to act in a bona fide manner that is for the best interest of the company after it has engaged itself in the company registration process. This includes the responsibility to act appropriately as well as not making any secret profits or any other gain for personal interest. These are called the Fiduciary duties of Directors[12].

Duty to look into the health and safety of his employees

During a situation of the act of God or any other extreme conditions, he also has the duty to look into the health and safety of his employees and other associates by ensuring they get a safe working environment. Suppose the company cannot perform its role conferring to the business formation and working strategy, then, in that case, there is a requirement of circumstantial economic evaluation which has to be planned accordingly to prevent this situation. Shareholders must be completely conscious of the present scenario of the corporation. They must be truthful while liaising with the stakeholders and also make them familiar with the emergency tactics to face challenges caused due to any crisis.

The director has to maintain the secrecy of any sensitive exclusive information or any other important facts, commercial confidences, technologies, unpublished value to be conserved and should not be revealed unless accepted by the board or needed by law[13].A director is accountable for the service of his staff. This comprises not only their pledged and constitutional rights but also their common comfort and safety while they are working for them. The Director should ensure that proper accounting of profits of the company and also tax to be submitted accordingly.

Managerial function

The director’s functions also involve making the loss of the Creditors as low as possible as well as the management of his staff.

Section 2 (60) of Companies Act 2013 talks about the officers who are in default. Such officer is liable for punishment and penalty. Directors are supposed to act as per the provisions of Section 166 of the Companies Act, 2013. The section enlists that:

(i) he should act in good faith,

(ii) shall exercise his duties with due diligence and skill and

(iii) he should not make undue gain or profit.

While performing his functions and duties, if the direction breaches the trust of the shareholders or does not act according to section 166, then he can be considered as officers in default.[14]

Liabilities of Director

According to Section 149 (12) of Companies Act 2013[15], an Independent Director has the same liability for such conduct which is referred through the Board and if it incurs that misconduct happened with the Director’s knowledge and with his consent or whether the Director has not taken any suitable action with regards to the misconduct then in such cases Director will be responsible.[16]

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With such cases, there can be civil liability as well as a criminal liability on the director. Criminal liability arises if the offence is committed by them or he had any knowledge about the misconduct. They can also be made liable if any misstatement in the prospectus has been published with his knowledge or consent.[17] 

Through the Negotiable Instruments Act 1881, any sign on the dishonoured cheque by the Director, it will mean that Director might lead to action along with the company depending upon their liability[18]. Directors can also be charged under the offences under Labour Laws, specifically in case of Employees Provident Funds and Miscellaneous Provisions Act, 1952 and Factories Act, 1948[19].

Conclusion

The analysis of the above-mentioned legal writing shows us about the challenges one faces or will face when opting to be a Director. Although it feels like it is impossible, but it is not as challenging. If the work is done with full intensity and honesty, there cannot be any difficulty while being a director. The Directors need to be prepared with all strategies to avoid any grave circumstance against them or against the company in any kind of difficult situation or any other unforeseen circumstances. They should ask the stakeholders to conduct the board meetings more often so that fresh strategies are made.

There is a very need for proper training for directors on employee management techniques is necessary, and they will equip employees to work in a very strategic manner of the organization. Directors need to be well organised and should be ready with all strategies well before time.


[1]Management and Board Governance, Ministry of Corporate Affairs, Government of India, available at http://www.mca.gov.in/MinistryV2/management+and+board+governance.html  accessed  Sep 19, 2020 at 12:20 pm

[2] Seema Jhingan , Neha Yadav and Saniya Kothari, India: Roles And Responsibilities Of A Director Under Companies Act, 2013 – Pitfalls And Safeguards, Monday, last updated on 18th July 2016, available at https://www.mondaq.com/india/directors-and-officers/510724/roles-and-responsibilities-of-a-director-under-companies-act-2013-pitfalls-and-safeguards accessed on Sep 19, 2020 at 12:42 pm

[3]Companies Act, 2013; Section 149

[4] Types of Director under the Companies Act 2013, Tax Guru, last updated on 15th June 2015, available at https://taxguru.in/company-law/types-director-companies-act-2013.html accessed on Sep 19, 2019 at 1:11 pm

[5]Appointment and Qualification of Directors, The Institute of Company Secretaries of India, available at https://www.icsi.edu/media/portals/0/APPOINTMENT%20AND%20QUALIFICATIONS.pdf accessed on Sep 19,2020 at 1:38 pm

[6]Companies Act, 2013;Section 149

[7] Companies Act, 2013; Section 161

[8] Companies Act, 2013; Section 161 (4)

[9] Principle of Corporate Governance, Harvard Law School Forum on Corporate Governance, last updated  on 8th September 2016 available at https://corpgov.law.harvard.edu/2016/09/08/principles-of-corporate-governance/ accessed  Sep 19, 2020 at 4:37 pm

[10]Duties of Director under the Companies Act 2013, HG.org legal resources, available at https://www.hg.org/legal-articles/duties-of-directors-under-the-new-indian-companies-act-2013-33097#:~:text=Section%20166(3)%3A%20A,and%20shall%20exercise%20independent%20judgment.&text=Consequently%2C%20the%20roles%2C%20duties%2C,Indian%20Companies%20Act%20of%202013  accessed on Sep 19, 2020 at 5:08 pm

[11] Managing Conflict of Interest in the Public Interest, Organisation for Economic Cooperation and Development, available at https://www.oecd.org/gov/ethics/49107986.pdf  accessed on Sep 19, at 7:05 pm

[12] Richard Spink, The responsibilities and duties of a company director, Burges Salmon, available at https://www.burges-salmon.com/news-and-insight/publications/the-responsibilities-and-duties-of-a-company-director/ accessed on Sep 19, 2020 at 8:11 pm

[13]Corporate Governance Code , Hindustan Unilever Limited (2019), available at https://www.hul.co.in/Images/corporate-governance-code-with-appendices_tcm1255-537535_1_en.pdf accessed on Sep 19, 2020 at 9:23 pm

[14] Companies Act, 2013 ; Section 2(60)

[15]  Companies Act, 2013; Section 149

[16]Status of Independent Directors: Some Determining factors and relationships, Chapter IV, Shodhganga, available at <https://shodhganga.inflibnet.ac.in/jspui/bitstream/10603/171877/12/12%20chapter-4.pdf> accessed on Sep 20, 2020 at 2:37 pm

[17] Companies Act, 2013; Section 35 and Section 36

[18] Negotiable Instrument Act, 1881; Section 141

[19] Sulekha Kaul, India: Labour Laws in India, Monday, available at https://www.mondaq.com/india/employee-rights-labour-relations/625206/labor-laws-in-india–indian-industrial-disputes-act-1947 accessed on Sep 20, 2020 at 3:42 pm

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