SPECIAL ASSIGNMENT OF CRITICAL THINKING ESSAY (SACE)

Attendance Back Examination (1st Stage), April-2021

SUBJECT :- Corporate Law II

SEMESTER :- VI

NAME :- Lucky Tandon

BATCH :- XIV
I.D no. :- 14/2014/1032
Roll no. :- 75

HIDAYATULLAH NATIONAL LAW UNIVERSITY, RAIPUR (C.G.)

Question 1. "A director may be appointed either as dejure or defacto." In the
light of above, narrate the concept of dejure and defacto directors explaining the
meaning and contents. Also discuss who is a Global director and the necessity of
his appointment in modern company business.

Answer. The ultimate authority of controlling the management and affairs of a

company is vested with the board of directors of the company. Powers provided to a
director are vast and superior to any other title or individual associated with a
company. A company being a legal entity cannot have a physical existence, thus its
acts through various natural persons known as directors of the company. The Board of
Directors, which supervises how management serves and protects the long-term
interests of all of the Company's stakeholders, is at the core of corporate governance.

Despite the fact that the Board is made up of individual directors, the actions and
deeds of individual directors cannot bind the business unless a single director has
been explicitly authorized by a Board resolution to execute certain tasks on the
company's behalf.

“ The Companies Act, 2013 does not contain an exhaustive definition of the term
“director”. Section 2 (34) of the Act prescribes that “director” means “a director
appointed to the Board of a company. A director is a person appointed to perform the
duties and functions of director of a company in accordance with the provisions of the
Companies Act, 2013.” The definition of Director provided in this section is
inclusive. Any individual who holds the job of director, whether or not they are
identified as such, is referred to as a Director. It is not a person's name that determines
whether or not he is a Director, but rather the position he holds and the activities and
tasks that he does I.e key managerial functions direction, conduct or affairs of a
”

company which cannot otherwise be performed by any person other than a directer.
He serves as a Director as long as he has been lawfully appointed by the company to
run the company's operations and is permitted by the Articles to contract in the
company's name and on its behalf.
De-jure and De-facto Directors.

In a company, there can exist different kinds of directors such as Independent

director, whole time director, nominee director, managing director and so forth.
However in order to be lawfully appointed as a director in a company and individual
must comply to the provisions contained in the Companies Act 2013 Section 152.

A de-jure director (meaning a director from law) is an individual who is legally

appointed by methods and provisions as prescribed in the Companies Act 2013.
Section 149 of the Act provides that only individuals can be appointed as directors.
Thus, body corporate, association or firm cannot be appointed as the director of a
company. Usually the director of a company is appointed by the shareholders of a
company through passage of a simple majority or by way of proportional
representation through single transferable vote in the annual general meting(AGM).

Section 149(1) of the Companies Act, 2013 requires that “every company shall have a
minimum number of 3 directors in the case of a public company, two directors in the
case of a private company, and one director in the case of a One Person Company. A
company can appoint maximum 15 fifteen directors. A company may appoint more
than fifteen directors after passing a special resolution in general meeting and
approval of Central Government is not required. A period of one year has been
provided to enable the companies to comply with this requirement.”

As to the question of appointment of first directors of a company section 152 of the

Act states that the first directors of companies are usually named in their articles. If
“

not so named in the articles of a company, then the subscribers to the memorandum
who are individuals shall be deemed to be the first directors of the company till the
directors are duly appointed In the case of a One Person Company, an individual
being a member shall be deemed to be its first director until the director(s) are duly
appointed by the member in accordance with the provisions of Section 152. ”

Minimum No. of Directors as per Section 149(1)(a):

Three in case of Public Company.

Two in case of Private Company.

One in case of One Person Company.

Section 164 of the Companies Act 2013 provides for qualifications of a director.

They are:

“(1) A person shall not be eligible for appointment as a director of

a company, if —

(a) he is of unsound mind and stands so declared by a competent court;

(b) he is an undischarged insolvent;

(c) he has applied to be adjudicated as an insolvent and his application is pending;

(d) he has been convicted by a court of any offence, whether involving moral
turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less
than six months and a period of five years has not elapsed from the date of expiry of
the sentence. If a person has been convicted of any offence and sentenced in respect
thereof to imprisonment for a period of seven years or more, he shall not be eligible to
be appointed as a director in any company;

(e) an order disqualifying him for appointment as a director has been passed by a
court or Tribunal and the order is in force;

(f) he has not paid any calls in respect of any shares of the company held by him,
whether alone or jointly with others, and six months have elapsed from the last day
fixed for the payment of the call;

(g) he has been convicted of the offence dealing with related party transactions under
section 188 at any time during the last preceding five years; or

(h) he has not got the DIN.”1

Thus, in order to become a legally appointed director of a company an individual

must have to comply with the above mentioned provisions.

De Facto director.

There are several types of people participating in the company's operations, but not all
of them have the authority to bind the firm as the firm's embodiment. The directors
are the people in charge of managing and controlling the company's operations. De
jure directors are those who are properly appointed by the shareholders to exercise
control and manage the company's activities and who meet the statutorily mandated
1
Companies Act 2013 Section 164.
qualification criteria. However, in the absence of such an appointment, or in the case
of an irregular appointment, the law requires that the person's job be investigated to
see if he or she is a de facto director for the protection of people interacting with the
firm. Thus, a De facto director is not legally appointed and even may not be regarded
or acknowledged as such by his company, yet still act or purports to act as the director
of the company. In the case of Re Hydrodam (Corby)2 Ltd it was held by Millet J
that “a person who assumes to act as a director, he is held out as a director by the
company, and claims and purports to be a director, although never validly appointed
as such. To establish that a person was a De Facto director it is necessary to plead and
prove that he undertook functions in relation to the company which could properly be
discharged only by a director. It is not sufficient to show that he was concerned in the
management of the company’s affairs or undertook tasks in relation to its business
which can properly be performed by a manager below board level”. There is a crucial
necessity to determine as to who a company’s director is whether it be de facto or de
jure, so that the legal responsibility be attached to such an individual. Without legal
responsibility a company can perform act that are inconsistent with the law and which
may cause disorder in the society and escaping legal consequences that follow as they
do not have an individual appointed as a director. In the decision held by Millet J a
defacto director can be ascertained where an individual undertook functions which
can properly be discharged only by a director.

In the recent case of Re UKLI Ltd Secretary of State for Business, Innovation and
Skills v Chohan and others3 These ten traits, according to Judge Hillyard, are
significant in establishing a de facto director, however not all ten must be established:

“1.A de facto director must presume to act as if he were a director.

2.In regard to the acts or conduct complained of, he must be or have been a member
of the corporate governing structure and engaged in managing the company's
business.

3.He must either be the single person in charge of the company's business or have a
significant or dominating influence and power in doing so in relation to the things that
are the subject of the complaint. Other than that, influence is unlikely to suffice.

2
[1994] 2 BCLC 180 at 183.

3
[2013] EWHC 680 Ch
4.Whether the individual in question has performed acts or tasks that imply that his
authority to act in regard to the company's management is the same as if he were a de
jure director.

5.The tasks he performs and the acts for which he is being held accountable must be
those that could only be done by a director, not by a manager or other lower-level
employee.

6. It is relevant whether the person was held out as a director or claimed or purported
”

to act as such: but that, and/or use of the title, is not a necessary requirement, and even
that may not always be sufficient. ”

7. His role may relate to part of the affairs of the company only, so long as that part is
”

the part of which complaint is made . ”

8. Lack of accountability to others may be an indicator; so also may the fact of

”

involvement in major decisions. ”

9. The power to intervene to prevent some act on behalf of the company may suffice.
” ”

10. The person concerned must be someone who was more than a mere agent,
”

employee or advisor. ”4 ”

Global Director

A Global Director is in charge of overseeing all global aspects of a certain element

inside their firm. They manage a large network of people and resources, and they
employ specific methods to achieve the company's objectives and meet its demands.
Some manage their business's programmes, client relations, or finances, while others
handle their business's programmes, client relations, or finances.

In any case, they are in charge of developing a worldwide strategy and implementing
specific initiatives and programmes to achieve the intended outcome. They deal with
a large number of individuals at the same time and must maintain a large amount of
data. A Bachelor's degree in Business Administration or similar relevant field is
usually required for this post, while an additional degree, such as a Master's degree, is
sometimes desirable if not required. Years of experience in the sector are required,
and certification in the field may be advantageous. It's also beneficial to have project
management and sales experience.

4
Re UKLI Ltd Secretary of State for Business, Innovation and Skills v Chohan and others[2013] EWHC 680 Ch
Demand for Global Directors.

For a variety of reasons, foreign corporations seek directors from other jurisdictions.
They may, for example, require special foreign or regional experience in strategy,
corporate objectives, operations, and risk management. It has long been known that
overseeing substantial international corporate activities may necessitate the presence
of individuals on the board who are can:-

1. Understand how business is conducted in a particular geographic region.

2. Use such expertise to the benefit of the corporate business.

In addition to this adding directors from other jurisdictions can alleviate the
confidence of potential investors of a corporate business.

Director candidates must apply  due diligence on their expected responsibilities and

confirm that the company has suitable legal and regulatory compliance procedures in
place, as well as acceptable information systems. Director candidates should also do
some honest self-reflection to see whether they believe they have the capability to act
as a fiduciary in potentially challenging situations which may occur working for a
corporate business entity.

What does a Global Director do?

Global directors are in charge of overseeing all of their company's global initiatives.

They are in charge of coordinating global efforts to improve success and efficiency
across all programme areas, as well as dealing with and leading subordinates. The key
tasks of the global director also include offering professional guidance and making
critical business decisions based on market outcomes, production data, and customer
feedback. They plan programme budgets, collect data on programme spending, and
write thorough reports to present at business meetings.

Global directors also aim to promote new firm offerings to current and new markets,
as well as increase income while reducing the organization's resource usage. These
executives also find essential technologies and launch new programme efforts to
boost productivity, customer pleasure, and brand loyalty. Global directors must
coordinate operations and monitor success across several departments, divisions, and
regions, as well as employ strategic thinking to negotiate with suppliers, carry out
plans, and develop viable business models. Global directors also assess business and
staff performance in order to identify areas where they may improve.

The appointment and qualification needed for Global Directors are exactly akin to that
of an Independant Director of a company the regulations to which are provided under
Section 164 of the Companies Act 2013.