ACADEMIA Letters

Essay on Critical Evaluation of powers and duties of

directors under the company Law.
Ravi Ranjan Singh

A director is “bound to take such precautions and show such diligence in their office as a
prudent man of business would exercise in the management of his own affairs.”[1] This may
be considered very old but it still holds lots of relevancy. Those days are gone where certain
family-owned companies referred to themselves as industry monopolies when doing every-
thing they pleased to disgrace Corporate Authority and integrity to the fullest degree conceiv-
able. Shareholders of the new era are more mindful of their duties than ever before and more
influential than anybody can fathom. Through the Shareholders Revolt, corporate governance
becomes a democracy, with shareholders as the supreme force nominating the department in
the form of directors to run the show and gain them financial benefit. The Directors are en-
trusted with appropriate authority but also with expanded liability as a result of this process.
The Companies Act 2013 has guaranteed that this balancing of power and duties is upheld
to the greatest degree possible for the good of shareholders and to ensure effective corporate
governance. It implements both administrative and disciplinary steps, including strict judicial
measures, to ensure that laws are enforced properly, to prevent corporate governance mishaps,
and to protect the organization’s legal sanctity. Let us discuss the particular features of this
modern age of corporate governance and increase awareness of the Directors’ roles.

Introduction
A corporation is governed by two distinct groups of people: its members and its board of di-
rectors. The board of directors is responsible for the administration of the company’s business;

Academia Letters, June 2021 ©2021 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Ravi Ranjan Singh, rr541226@gmail.com

Citation: Singh, R.R. (2021). Essay on Critical Evaluation of powers and duties of directors under the company
Law. Academia Letters, Article 1370. https://doi.org/10.20935/AL1370.

1
they make financial and operating decisions and are accountable for the company’s compli-
ance with regulatory requirements. As an independent director, your job is to attend board
meetings in order to assist the board in making certain decisions and ensuring that the com-
pany’s responsibilities are met.[2]
The directors are on behalf of the founders, charged with managing the day-to-day activ-
ities of the corporation. Although the general rule is that directors can behave as a board, the
board may usually assign those powers to individual directors or to a board committee.[3]
Directorships are still in danger of having their integrity challenged. There is a relentless
effort to achieve harmony between personal and professional priorities. They are unshackled
by virtue of their influence and must be held in check in the public interest, to the benefit of
those who have invested and all who are on the ground.[4] The aim of this essay is to analyse
the duties and powers of the directors.
Duties and Powers of the Directors
The Companies Act, 1956 (’CA 1956’) made no mention of contractual duties for chief
executives, and executive demonstrations were usually scrutinised in terms of their powers
under section 291 of the Companies Act 1956 (which dealt with general board forces) and
other relevant statutes, as well as their set up sections under customary law as laid out in a
few legal precedents. In section 166 of the Companies Act, 2013 (’Companies Act 2013’), the
obligations of chiefs have been clearly stated. In summary, executives’ general responsibilities
under the Companies Act 2013 are as follows[5]:

• to act in accordance with the organization’s articles and, at the end of the day, to act
within forces;

• to behave with some basic integrity in order to advance the organization’s objectives
for the benefit of its members in general;

• to behave for the benefit of the company and its members, owners, and the group, as
well as the stability of the situation;

• to exercise proper and prudent treatment, experience, diligence, and independent judge-
ment;

• to keep a political distance from potentially irreconcilable circumstances that arise sud-
denly or unexpectedly;

• to keep a political distance from undue gain or benefit for himself, his family, accom-
plices, or partners; and not to delegate his office to someone else;

Academia Letters, June 2021 ©2021 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Ravi Ranjan Singh, rr541226@gmail.com

Citation: Singh, R.R. (2021). Essay on Critical Evaluation of powers and duties of directors under the company
Law. Academia Letters, Article 1370. https://doi.org/10.20935/AL1370.

2
 Massive business failures in recent years, such as Kingfisher, Sahara, and Satyam, have
repeatedly shown the ineffectiveness of the Company Act 1956 in enforcing corporate au-
thority. It has been observed often that, it’s the Directors who are responsible for failing to
meet Shareholder expectations and, on occasion, betraying stakeholder sentiments under the
guise of charisma, thereby using organisational mechanisms for personal gain. Companies
Act 2013 was passed almost 50 years after the previous amendment to address this threat.
It is founded on the values of board accountability, shareholder rights, self-regulation, and
transparency by disclosures. The 2013 amendment has ensured a number of proactive steps
by specifically specifying the Directors’ duties and obligations, as well as the penalties that
would be imposed if they are not followed.[6]
The roles, obligations, and obligations that foster corporate governance through directors’
valuable support in well-organized administration and quick determination of important cor-
porate issues, as well as serious and developed policymaking to prevent undue risks to the
corporate entity and its stakeholders.[7]
As the new Companies Act provides the powers to the BOD to take different actions, it
makes certain that all independent directors are equally responsible for the firm results. An
Independent Director is a member of the Board of Directors but has no financial connection
to the firm. as prescribed by the 2013 companies act. As per schedule IV of the companies
Act 2013:

1. Defending and supporting the rights of stakeholders, including minorities.

2. In the event of a conflict of interest among the stakeholders, acting as a mediator.

3. Assistance in delivering an independent and fair decision to the Board of Directors.

4. Proper focus towards the party transaction which is of any connection to it.

5. Any unethical act, code of ethics breach or alleged misconduct in the business should
be reported honestly and impartially.

To determine the distinction between the two, it is necessary to identify good faith and
best interest. The term “good faith” refers to a “bona fide state of mind” that requires “hon-
esty, faithfulness, adherence to fair commercial norms, and lack of motive to defraud.” Best
Interest, on the other hand, entails an obligation of allegiance with the aim of serving the best
interests of all parties involved fairly.
In the case of Stone V. Ritter[8], It was decided that directors must use caution in working
out the company’s affairs, irrespective of what the court considers to be to the advantage of the

Academia Letters, June 2021 ©2021 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Ravi Ranjan Singh, rr541226@gmail.com

Citation: Singh, R.R. (2021). Essay on Critical Evaluation of powers and duties of directors under the company
Law. Academia Letters, Article 1370. https://doi.org/10.20935/AL1370.

3
entity. On the scale of a normally responsible individual, directors should balance business
interests and shareholder interests. Because of the added factor of “belief,” the obligation
of good faith takes priority over the best interest. It establishes a higher bar since a director
behaving in bad faith will not be excused under the “financial judgement clause,” even though
the act was approved by the company’s board of directors.
The best interest criteria require a great deal of objectivity. The ‘good faith level’ elevates
itself when it requires conviction as well. Priority allocation is a puzzle since section 166
of the Companies Act 2013 doesn’t quite establish a hierarchy between different categories.
Benefit optimization does not always go quite well together with environmental concerns.
Conciliation of such interests faces considerable challenges, and on such occasions, the direc-
tor must respect all parties and fulfil his obligation to perform in moral integrity in order to
reach a decision.
The fact that ‘The use of the word “company” in section 166(2) implies an obligation of
good faith and best efforts” appears twice implies that” If the word had not been used in the
second section, a distinction between the two words may have been assumed. As a result, the
legislature plans to put the corporation as a whole’s priorities above all stakeholders.

Conclusion
A company, since it is a legal body, cannot operate on its own; thus, it has to act through
others. Within this umbrella lies the part of directors who serve in a capacity similar fashion
to the company’s guardians. in the capacity of the position as employees, they must put the
interests of the corporation and its owners first.
The many possible conflicts of interest cause countless complications leading to many
different views. There is a further need to examine the roles and obligations of American and
British directors in light of that reality. Under rule-based legislation and standard situations,
executives may have substantial responsibilities Aptitude, consideration, and patience are re-
quired of business executives. This is what we should bear in mind is the rule of confidence
theory, which holds that debt does not apply to heads of state because they are representatives
of power and authority in their native societies. As directors, they are in charge of money and
land, and so they act as fiduciaries. Furthermore, they exercise these functions in the inter-
ests of the firm. Executives are vulnerable to break of confidence in the event that they have
betrayed the organization’s integrity.
Directors are expected to use their talents while maintaining their sobriety. Assume var-
ious roles in the organisation, designator of professional roles, and additionally as an officer
in the organisation. This must be done in such a way as to allow for the widest understanding.

Academia Letters, June 2021 ©2021 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Ravi Ranjan Singh, rr541226@gmail.com

Citation: Singh, R.R. (2021). Essay on Critical Evaluation of powers and duties of directors under the company
Law. Academia Letters, Article 1370. https://doi.org/10.20935/AL1370.

4
References
[1] Trustees of the orange River Land & Asbestos Company vs. King (1892).

[2] Hannatu Adamu, A Critical Analysis of the Director’s Duty to Act in What he Believes
to Be the Best Interest of the Company: A Proposal for Amendment, ABUJCL. 166 – 84
(2014 - 2015).

[3] Shipra Sayal, Duties & Liabilities of director, LTJ (2019).

[4] Ibid.

[5] Laster, J. Travis, and John Mark Zeberkiewicz. “The Rights and Duties of Blockholder Di-
rectors.” The Business Lawyer, vol. 70, no. 1, 2014, pp. 33–60., www.jstor.org/stable/43665689.
Accessed 8 Apr. 2021.

[6] Hannatu Adamu, A Critical Analysis of the Director’s Duty to Act in What he Believes
to Be the Best Interest of the Company: A Proposal for Amendment, ABUJCL. 166 – 84
(2014 - 2015).

[7] Ibid.

[8] Stone v. Ritter 911 A. 2d 362 (Del. 2006)

Academia Letters, June 2021 ©2021 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Ravi Ranjan Singh, rr541226@gmail.com

Citation: Singh, R.R. (2021). Essay on Critical Evaluation of powers and duties of directors under the company
Law. Academia Letters, Article 1370. https://doi.org/10.20935/AL1370.