The duties and responsibilities of directors stipulated by the Indian Companies Act of 2013,

can broadly be classified into the following two categories: ---

[i] The duties and liabilities which encourage and promote the sincerest investment of the
best efforts of directors in the efficient and prudent corporate management, in providing
elegant and swift resolutions of various business-related issues including those which are
raised through "red flags", and in taking fully mature and wise decisions to avert
unnecessary risks to the company.

[ii] Fiduciary duties which ensure and secure that the directors of companies always keep
the interests of the company and its stakeholders, ahead and above their own personal
interests.

The following duties and liabilities have been imposed on the directors of companies, by the
Indian Companies Act of 2013, under its Section 166: ---

A director of a company shall act in accordance with the Articles of Association (AOA)
of the company.

A director of the company shall act in good faith, in order to promote the objects of
the company, for the benefits of the company as a whole, and in the best interests of
the stakeholders of the company.

A director of a company shall exercise his duties with due and reasonable care, skill
and diligence and shall exercise independent judgment.

A director of a company shall not involve in a situation in which he may have a direct
or indirect interest that conflicts, or possibly may conflict, with the interest of the
company.

A director of a company shall not achieve or attempt to achieve any undue gain or
advantage either to himself or to his relatives, partners, or associates and if such
director is found guilty of making any undue gain, he shall be liable to pay an amount
equal to that gain to the company.

A director of a company shall not assign his office and any assignment so made shall
be void.

If a director of the company contravenes the provisions of this section such director
shall be punishable with fine which shall not be less than one Lakh Rupees but which
may extend to five Lac Rupees.

INDEPENDENT DIRECTORS
The liability regime of the CA-2013 not only imposes the above-mentioned duties and
responsibilities on the directors of Indian companies, but also advocates for independence
and equitableness of the board of a company, especially a public limited company.
Consequently, the roles, duties, and responsibilities of the Independent Directors have also
been stipulated by the new Indian Companies Act of 2013. An Independent Director is that
member of the board of a company, who does not possess any financial relationship with the
company (except the sitting fees), nor can own shares in the company. The earlier Indian
Companies Act of 1956 had no explicit provisions for the independent directors, and only the
Old Clause 49 of the Listing Agreement of SEBI contained prescriptions for induction of
independent directors to the listed companies.

The new Indian Companies Act of 2013 dictates that every listed company must contain at
least one-third of the total magnitude of its directors, as the independent directors; and it
also empowers the Government of India to include other categories of companies within the
scope of this provision or requirement (Section 149 of the CA-2013). Public limited
companies composited as per the former CA-1956, are granted a transition period of one
year for making strict compliance with this mandatory provision. Again, the independent
directors are not permitted to hold office for more than two consecutive terms of five-year
periods.

In the new regime, the roles and duties of the independent directors attained significant
expansion, and many new other areas have been prudently covered. Broadly, they are
intelligently assigned the highly responsible role of the arbiters among various constituencies
within the corporation. Hence, the new provisions for the independent directors of the limited
companies are certainly very constructive for transparent and sound corporate governance,
and are hugely beneficial to the company and its all shareholders. Some of the most
significant functions, duties, and liabilities of the independent directors, are the following (as
per the Schedule IV of the CA-2013): ---

To assist in forwarding equitable and independent judgment to the board

To secure and promote the interests of all stakeholders of the concerned company,
particularly of the minority shareholders

To conciliate and balance the conflicting interests of the stakeholders

To attend actively and constructively most of the board and committee meetings

To pay proper and adequate attention to Related Party Transactions (RPTs)

To report concerns honestly and impartially about any unethical behavior, violation of
the code of conduct, or any suspected fraud in the company

CONCLUSION
Thus, the new Indian Companies Act of 2013 is certainly a very innovative and landmark
legislation in respect of the duties and responsibilities of the directors (of companies) also.
Both broad categories of directors, namely, the directors having pecuniary relationship with
the company, and the independent directors, have been properly considered under this
mature legislation for directors. It is quite obvious from above illustrations that the CA-2013
sincerely seeks to make the corporate management and governance in India rather efficient,
fully accountable, transparent, and maximally beneficial to all stakeholders and related
professionals, through this intelligent legislation over duties and responsibilities of directors
in Indian companies.

Cyrus Mistrys sudden ouster from his post as Chairman

of Tata Sons poses a number of interesting legal
questions. As the Chairman of Tata Sons, Mistry has
certain rights under the Companys Articles of
Association as well as the Companies Act, 2013.
Although the Economic Times reported that Mistry was
not going to take any legal action against the boards
decision, a chary Tata Trusts has filed a number of
caveats with Company Law Board to ensure that an ex-
parte order is not passed against them. This begs the
question as to what Mistry and ShapoorjiPallonjis legal
options are under the current provisions of law.

News 18
Assuming that recent reports detailing the events of the
board meeting where Mistry was ousted is accurate, the
assembly might itself be illegal. The NDTV report states
that Mistrys removal was not listed on the boards
agenda and that it was brought up as a residuary item.
Section 101 of the Companies Act of 2013 lays down
rules for notices of meetings. The provision stipulates
that every notice of a meeting shall specify the place,
date, day and the hour of the meeting and shall contain a
statement of the business to be transacted at such a
meeting.
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Courts have held that a good notice must fairly disclose
the purpose for which the meeting is called, be open, be
free from craftiness, and be in a language understood by
common people. Consequently, if a resolution is passed
without the notice fairly disclosing it, it will be void.
Courts have also held that if a notice does not specify a
particular business to be transacted there at, the meeting
cannot deal with that matter. The notice of a general
meeting must fairly and intelligently convey the
purposes for which the meeting is called; it should not
be misleading or equivocal.
Section 102 of the Act discusses the statement to be
annexed to the notice. This clause corresponds to
Section 173 of the erstwhile Companies Act of 1956 and
seeks to provide that a statement setting out all the
material facts concerning each item of special business
to be transacted at a general meeting, shall be annexed
to the notice calling such a meeting. Unlike Section 101
which has been held to be a directory provision, Section
102 of the Act is a mandatory section and its stipulations
are to be followed strictly.
The section requires that shareholders should be
informed truly of the nature of the business that will be
transacted in the meeting. What is required by the
section is a full and frank disclosure without reservation
or suppression. Statements which do not provide
sufficient disclosure of the important facts material to a
proposed resolution will not conform to the provisions
of law and are contrary to proper corporate governance
norms. In view of the positions taken by the courts on
this matter, Mistry can call for an invalidation of the
motion through which he was dismissed.
According to tenets established by the courts, a
chairman who has been elected by a meeting can be
removed by the meeting. The usual proceeding would be
for a member to propose a vote of no confidence in the
chair and this move must be affirmed by a second
member. The chairman has the right to make a
representation against the removal and the matter is
then to be put to a vote. If the chairman loses the vote,
he must relinquish the chair. However, where the
appointment is made under the provisions of the
companys articles, that appointment not being made by
the members, the meeting cannot remove him unless it
is due to bad faith, partiality or abuse of authority.
The Articles of Association of Tata Sons clearly stipulate
that a Selection Committee shall be constituted for the
purpose of appointing a Chairman. The Committee will
make a recommendation and the board may appoint the
person so recommended as the Chairman of the Board
of Directors. Article 121B of the Articles of Association
states that a director is entitled to give 15 days notice to
the board for any resolution that has to be discussed or
passed.
ShapoorjiPallonji, the construction company owned by
Mistrys family, has an 18 percent stake in Tata Sons
making it the second largest shareholder in the
company. News agencies predict that the construction
behemoth will file an action against the Tata Group for
oppression of a minority shareholder under Sections
397-398 of the Act of 1956. These provisions were new
and had no predecessors in the Companies Act of 1913.
The genesis of these provisions is from Section 210 of
the English Companies Act, 1948. Prior to this
enactment, shareholders had no right to complain of
oppression or mismanagement unless the case fell
within any of the three recognised exceptions to the
famous case Foss vs Harbottle. The only remedy
available to shareholders at the time was to apply for the
winding up of a company on the ground that it was just
and equitable to do so. Section 397 provides for relief if
the affairs of a company are conducted in a manner
which is prejudicial to public interest or oppressive to
any members.
Section 398 provides that members of the company may
apply to the tribunal if a material change has taken place
in the management or control of the company, including
but not limited to an alteration in its board of directors,
and that such a change will result in prejudice to public
interest or the interests of the company. Under this
Section the Tribunal may pass orders to rectify the
situation. Under the Act, ShapoorjiPallonji would have
to establish that Mistrys removal is an action that is
detrimental to the interests of the Tata group. A figure
that bodes well for Pallonji in this regard is the recent
market capitalisation of the Tata Group, which doubled
during Mistrys abrupt tenure. However, there are many
statistics that also go against them.
Though there are a significant number of legal options
open to Mistry and the Pallonji group, the litigious battle
that is slated to ensue between the two titans of Indian
industry will be a hard fought one. One only hopes that
the outcome will establish precedent for better and
cleaner corporate governance in the future.
s the boardroom battle in Tata Sons heads towards the courtroom, legal experts feel
Cyrus Mistry, the ousted chairman, may contest his removal citing provisions in the
Articles of Association of Tata Sons. Other legal options include approaching the
National Company Law Tribunal (NCLT) alleging mismanagement and oppression of
minority shareholders under Sections 241-246 of the Companies Act, 2013.

According to the provisions of company law, a shareholder holding more than 10 per
cent shares has the right to file a petition before the NCLT, alleging oppression or
mismanagement, seeking appropriate relief. Mistrys family, the Shapoorji Pallonji
group, has 18.4 per cent stake in Tata Sons. About 66 per cent of equity of Tata Sons
is held by philanthropic trusts, managed by members of the Tata family.

An aggrieved chairman could also file necessary application before the court for
injunction against his removal, said legal experts.

Experts said there is no specific legal provision under the Companies Act, 2013, for
removal of the chairman of a board.

The removal process relating to a chairman is typically governed either by the

Articles of Association of a company or the terms of the contract by virtue of which
he is appointed, said Rohit Kochhar, managing partner, Kochhar & Co.

The board has unfettered power to remove the chairman by passing a resolution
backed by a majority vote, unless the Article of Association provides otherwise, he
added.

Further, the board is under no statutory obligation to cite any reason at the time of
removal of the chairman.

As a matter of governance, the board should discuss the matter and provide the
reason for removal and give necessary opportunity to the chairman to represent his
case, said Pavan Kumar Vijay, founder, Corporate Professionals. However, under
company law, the chairman does not have any statutory right to represent his case
before the board or to assert a defence.

Legal experts said that when a director is removed from the board by the
shareholders, the outgoing director has the right to represent his or her case in
accordance with Section 169 of the Companies Act.

However, in the Tata Sons case, Cyrus Mistry continues to act as a director in the
board, representing the Shapoorji Pallonji group. So Mistry cannot claim violation of
any statutory right, unless specifically provided for in the Article of Association.
Legal experts said in this case any allegations of mismanagement and oppression of
minority shareholder would entail a long-drawn legal battle that is likely to head for
arbitration.

Most terms of contracts have provision for arbitration as a dispute resolution

mechanism, said the head of a corporate law firm.

So, citing violation of the Articles of Association to contest his removal is the best
legal bet for Mistry, said experts. With the Tata group taking evasive legal action by
filing caveats in the Bombay high court, Supreme Court and the NCLT, the ball is in
Mistrys court to up the stake in the brewing legal battle.
The board has constituted a selection committee to choose a new chairman. The
committee comprises Ratan N. Tata, Venu Srinivasan, Amit Chandra, Ronen Sen
and Lord Kumar Bhattacharyya, as per the criteria in the Articles of Association
of Tata Sons, the groups statement says.

Cyrus Mistrys family and his familys business empire, the Shapoorji Pallonji
Group (which is the single largest stakeholder in Tata Sons), have reportedly
opposed the move. According to media reports, the Shapoorji Pallonji group is
claiming Cyrus Mistrys removal is illegal and that minimum 15 days notice is
needed.

Mistrys removal quickly became the talking point among business circles in
Mumbai and Delhi, not least because such sudden sackings are simply not the
Tata style. Cyrus had the shortest stint as the chairman-Nowroji Saklatwala had a
six year tenure in the 1930s, when he died of a heart attack in 1938.

So what do we know and what dont we know about Mistrys stepping down and
the future ahead for Tata Sons? The Wire breaks it down.

Whose decision was it for Mistry to go?

While its still unclear at this point, a statement put out by a Tata Trusts
spokesperson says that on the recommendation of the principal shareholder, it
was decided that a change would be necessary for the long-term interest of Tata
Sons and Tata Group.

The board in its collective wisdom and on the recommendation of the principal
shareholder (Tata Trusts) decided it may be appropriate to consider a change for
the long term interest of Tata Sons and Tata Group. There is no change at the
levels of CEOs in the operating companies, the statement says.
What exactly are the Tata Trusts? It comprises of the Sir Ratan Tata Trust and
Allied Trusts and the Sir Dorabji Tata Trust and Allied Trusts. According to its
website, the Tata Trusts own two-third of the stock holding of Tata sons, the
apex company of the Tata group of companies.

The website also describes Ratan Tata as the Chairman of the Tata Trusts. It
could be fair, even if not confirmed, to describe Mistry stepping down as a
decision taken by Ratan Tata.

Was Mistrys appointment not considered carefully?

On the contrary, the panel constituted to find a successor for Ratan Tata in 2010,
the same panel which chose MIstry, took over a year to come to its decision. In
contrast, the panel appointed to find a successor for Mistry today has been given
only four months to come to a decision.

Mistrys appointment was also widely seen as part of a larger generational shift
needed at Tata Sons. His ascension to the top posting also represented the first
time that a member of the Shapoorji Pallonji family (a construction company
business family that is the biggest shareholder of Tata Sons) had exercised
management control since they first started acquiring Tata Sons shares in the
1930s.

How was Mistrys performance as the head of the Tata Group, a

position he held for nearly 4 years?

Multiple analyses of Mistrys tenure dont paint a glowing picture. If one steps
back and takes a quick snapshot of how the largest publicly-listed Tata entities
have done over the last four years, the result is below average. Out of the nine
biggest listed Tata group firms, seven have had negative economic value added,
meaning that their earnings before interest and tax translate into a return below
their overall cost of capital, according to an analysis by the Economist.

While there are bright spots, Jaguar Land Rover and Tata Consultancy Services
being two of the brightest, other group verticals such as hotels and chemicals
have suffered; some due to structural issues left behind by Ratan Tata and others
due to not being able to cope with global headwinds.

The re-structuring of Tata Sons has also been seen by the business community
true test of Mistrys abilities. While the salt-to-software conglomerates outside
shareholder structure has long been cited as an advantage when it looks to get
into new markets or raise capital, it has also resulted in a crucial strategic and
economic tax for the overall group. Long-standing concerns by analysts that
multiple analysts have had that Tata firms often bid on same contracts or that
forays into new sectors are duplicated still remained valid under the Mistry era.

Nowhere is this clearer than Tata Docomo and Tata Sky, which are unable to
combine their services to offer a competitive combination, simply because they
are owned by different shareholders. Both these firms have suffered, with the
Tata Docomo venture being all but a major embarrassment for the Tata Group at
this point.

Other questions that Mistry has faced are over his decisiveness in shutting down
new verticals or reversing business decisions taken by Ratan Tata. For instance,
in 2007, Tata Sons acquired Anglo-Dutch firm Corus for $13-billion, one year
before European steel demand suffered a nasty slump. The acquisition, in
hindsight, has been seen as part of the great Indian rollback of overseas
acquisitions.

Just earlier this year, Mistry finally took a decision to put its UK steel plants up
for sale. Kotak Institutional Equities analyst said at the time, For the first three
years it looked like Mr Mistry was continuing on the path of his predecessor. But
this is a defining moment for him. If, finally, they are taking a call that they need
to shut down some parts of the business, then I assume its a good thing.

Will this impact the relationship between the Pallonji Group and Tata
Sons?

Almost certainly so, if media reports on the Pallonji Groups opposal to Mistrys
removal are true. This is also a a question that will likely play out in the weeks
and months ahead. Although Mistry was the first chairman to not be related to
the groups founder Jamsetji Tata, he is related to the Tata family through his
sisters marriage. Cyruss sister is married to Noel Tata, half brother of Ratan
Tata.

More crucially, Mistrys father, Shapoorji Pallonji, is the second-largest

stakeholder in the Tata Group with a stake of a little over 18.5% in Tata Sons.
Mistrys nomination and ascension to the top position in that way was seen very
much as a vote for continuity and a vote to keep the peace, according to one
former Tata executive.

The Pallonjis family holding is the biggest stakeholder in the Tata Sons, second
only to the charitable trusts chaired by Ratan Tata.

At least one observer has pointed out that Tata Trusts (headed by Ratan Tata)
were at odds with Tata Sons in a fundamental clash of cultures. Additionally, it
appears as if Mistry was not even given the option of resigning or stepping down
of his own accord. Media reports claiming that the Pallonji group is against
Mistrys removal, claiming it is illegal, are a sign of an ugly legal spat in the days
ahead. .

Do we know if Mistrys successor will be more effective or work better

with Ratan Tata?

This again is unclear. According to industry observers, the fact that Ratan Tata
still remained chairman of Tata Trusts laid the ground for natural clashes
between Tata and Mistry. While this may not have manifested in any form of
direct or overt interference, there are some former Tata executives who believe
that the two men clashed over the execution of Ratan Tatas personal passions
(such as aviation where the Tata Group has diverted its investments to both
AirAsia and Vistara) or the replacement of key managers and executives that had
Tatas favour.

Interesting parallels can be drawn to other similar, if not exact, situations in other
companies. IT firm Infosys for instance has for the longest time lived under the
shadow of founder Narayana Murthy. While we may never know the nature of the
dispute between Cyrus Mistry and Ratan Tata, it is clear that Mistry never got
around to executing his own strategy (a plan he refers to as Vision 2025 ) for the
Tata Group conglomerate.

This is not to say that Mistry had not started making the right moves. Some of
his turnaround acumen is best seen in more low-profile firms such as Tata Power.
The move to junk the Corus acquisition was also wise, even if it came a little late.
And the Vision 2025 plan gave us a peek at Mistrys potential passions and, more
importantly, his perspective on where the future of the Tata Group may have been
heading: namely, business clusters concentrated around the areas of defence and
aerospace, retail and finance.

The names doing the rounds of his possible successors include respected
outsiders such as Pepsi chief Indra Nooyi. Inside candidates are reportedly Noel
Tata and TCS CEO N Chandrasekaran. Theres no guaranteed success for any of
Mistrys successors, although choosing an internal candidate over an external one
(and vice versa) will say a lot about how the Tata Group views itself. There are
ample examples of both options working out.

The more pertinent question, therefore, is whether the Tata Group can move from
a sprawling conglomerate with endless silos to a tightly integrated and
focused machine oriented towards the future.