UNIT 1.

7
CONSTITUTION OF
BOARD OF DIRECTORS
AND THEIR RIGHTS
IC 344 – 07/02/2022
 Constitution of board of directors and their rights
▪ Section 20 of BR Act, 1949 prohibits loans and advances to directors or to any firm or company in which
directors are interested or loans to individuals in respect of whom any of its directors is a partner or guarantor.
▪ Disclosure of interest by directors is mandatory and in case there is any likelihood of conflict of interest
arising, the concerned director is required to abstain from participating in the decision-making process
relating to that case.
▪ Internal information flow: In order to fulfil their responsibilities, board members should have access to
accurate, relevant and timely information. Information currently volunteered by the management to the
board members is often quite inadequate. Whenever necessary the directors should be free to acquire, at the
expense of the company, independent professional advice in regard to the matters of the company. The board
meeting should be conducted properly with clearly laid down agenda for discussion, which should be
circulated well in advance and supported by substantive information. The minutes of the board meeting should
be circulated well in advance of the next board meeting. This should be a mandatory recommendation for all
companies.
▪ Board Structure – refer to provision in notes.
▪ Audit committee : Banks in India are required to set up an audit committee of board of directors to oversee and
provide direction to the internal audit/inspection function in banks in order to enhance its effectiveness as a
management tool. The CMD of the bank is not a member of the audit committee to ensure independence in
its functioning. The members of the audit committee comprise of the ED of the bank, two official directors
(nominees of RBI and Government) and two nonofficial and non-executive directors, at least one of them being a
professional Chartered Accountant. The Chartered Accountant director presides over the meetings.

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 Constitution of board of directors and their rights
ANNUAL AFFIRMATIONS FOR CONTINUING DIRECTORS ( Fit and proper Circular)
The Bank shall, at the end of every financial year, obtain not later than 30th April, the following declarations
reflecting the position as on 31st March from the existing directors:
a. Fit and Proper declaration in the format prescribed by RBI
b. Deed of Covenants executed with the Bank in the format prescribed by the RBI
c. Other declarations prescribed in the Applicable Laws.
The declarations as provided by the directors other than the members of NRC shall be scrutinized by the NRC.

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Thank you all

2/7/2022 TEZPUR UNIVERSITY