Directors

‘Director’ includes any person occupying the position

of director,
 A person having control over the direction, conduct,
management of the affairs of a company. Any person
in accordance with whose directions or instructions,
the Board of a company is accustomed to act, is
deemed to be a director of the company.
 Only individuals can be directors
Number of directors
 Every public company have at least 3 directors
 Every other company have at least 2 directors.
 A public company having-
(a) A paid-up capital of Rs. 5 crore or more;
(b) One thousand or more small shareholders;
shall have at least one director elected by such small
shareholders
Sanction by the central government. Where the
increase in number does not make the total number
of directors more than 12, no approval of the central
government is Needed.
 APPOINTMENT OF DIRECTORS
1. First directors.
(a) The articles of a company usually name the first
directors by their respective names or prescribe the
method of appointing them.
(b) If the first directors are not named shall be
determined in writing by the subscribers of the
memorandum.
(c) If the first directors are not appointed in the above
manner, the subscribers become directors of the
company.
2. Appointment of directors by the company
 Directors must be appointed by shareholders in
general meeting. In the case of a public company or
a subsidiary of a public company, at least 1/3rds of
the total number of directors shall be liable to retire
by rotation.
Ascertainment of directors retiring by rotation and filling
of vacancies
(1) At the annual general meeting of a public company
or 1/3rd (or the number nearest to 1/3rd) of the
rotational directors shall retire from office.
(2) The directors to retire by rotation at every annual
general meeting shall be those who have been
longest in the office since their last appointment.
(3) At the annual general meeting the company may fill
up the vacancy by appointing the retiring director or
some other person.
(4) If at the meeting the place of retiring director is not
filled up, nor is there a resolution not to fill the
vacancy, the retiring director shall be deemed to
have been re-appointed at the adjourned meeting.
3. Appointment of directors by directors.
The directors of a company may appoint directors-
(1) As additional directors. Any additional directors
appointed by the directors shall hold office only up
to the date of the next annual general meeting of the
company.
(2) In a casual vacancy.
 If the office of any director appointed by the
company in general meeting is vacated before his
term of office expires in the normal course, the
resulting casual vacancy may be filled by the Board
of directors at a meeting of the Board.
(3) As alternate director.
 An alternate director can be appointed by the board
if it is so authorised by
(i) The articles of the company, or
(ii) A resolution passed by the company in the general
meeting.
 He shall act for a director, called ‘the original
director’ during his absence for a period of at least 3
months from the state in which Board meetings are
ordinarily held.
4. Appointment of directors by third parties.
 The debenture-holders or other, creditors, e.g., a
banking company or financial corporation, who
have advanced loans to the company to appoint
their nominees to the Board.
 The number of directors so appointed shall not
exceed 1/3rd of the total number of directors, and
they are not liable to retire by rotation.
5. Appointment by proportional representation.
6. Appointment of directors by the central
government. The purpose of the appointment is to
prevent the affairs of the company from being
conducted either in the manner-
(a) Which is oppressive to any members of the company
; or
(b) Which is prejudicial to the interests of the company
or to public interest.
 The tribunal may pass the above order on a
reference made to it by the central Government or
on the application-
(i) Of not less than 100 members of the company, or
(ii) Of members of the company holding not less than
1/10th of the total voting power.
 POSITION OF DIRECTORS
(1) Directors as agents.
 A company, as an artifical person, acts through
directors who are elected representatives of the
shareholders.
 They are, in the eyes of the law, agents of the
company for which they act,
(2) Directors as employees.
(3) Directors as officers. The directors are treated as
officers of the company. As such they are liable to
certain penalties if the provisions of the companies
act are not strictly complied with.
(4) Directors as trustees. Directors are treated as
trustees-
• Of the company’s money and property ; and
• Of the powers entrusted to them.
Removal of directors
Directors may be removed by-
1. Shareholders : The shareholders may remove a
director before the expiry of his period of office by
passing an ordinary resolution. This does not
(a) Apply to the case of a director appointed by the
Central Government
(b) authorise, in the case of a private company, removal
of a director holding office for life on April 1, 1952
(c) Apply to the case of a company which has adopted
the system of electing 2/3rds of its directors by the
principle of proportional representation.
2. Central Government. The central government may,
in certain circumstances, remove managerial
personnel from office on the recommendation of the
tribunal.
(a) Any person concerned has been guilty of fraud,
persistent negligence or default in carrying out his
obligations and functions under the law, or breach
of trust ; or
(b) The business of the company has not been
conducted and managed by such person in
accordance with sound business principles
(c) The company is or has been conducted and
managed by the person concerned in a manner
which is likely to cause, or has caused, serious
injury or damage to the interest of the trade,
(d) The business of the company is or has been
conducted and managed by the person concerned
with intent to defraud its creditors, members or
any other person
The person against whom a case is presented shall be
joined as a respondent to the application.
3. Removal by tribunal. where, on an application to
the tribunal for prevention of oppression or
mismanagement the tribunal finds that the relief
ought to be granted, it may terminate, set aside or
modify any agreement between the company and the
managing director or any other director or the
manager.
 POWERS OF DIRECTORS
I. General powers to the Board
(1) The Board shall not do any act which is to be done
by the company in general meeting.
(2) The board shall exercise its powers subject to the
provisions , contained in the Companies Act, or in
the Memorandum or the Articles of the company in
general meeting.
II. Powers to be exercised at Board meetings
Directors of a company shall exercise the following
powers by means of resolutions passed at the
meetings of the Board, the power to-
(a) Make calls on shareholders in respect of money
unpaid on their shares:
(b) Issue debentures ;
(c) Borrow moneys otherwise than on debentures (say
through public deposits) ;
(b) Invest the funds of the company ; and
(c) Make loans.
III. Powers to be exercised with the approval of
company in general meeting
 The board of directors shall exercise the following
powers only with the consent of the company in
general meeting :
(a) To sell, lease or otherwise dispose of (say under
amalgamation scheme the whole, or substantially
the whole, of the undertaking of the company.)
(b) To remit or give time for repayment of any debt
due to the company by a director except in the
case of renewal or continuance of an advance made
by a banking company to its director in the ordinary
course of business.
(c) To invest (excluding trust securities) the amount
of compensation received by the company in
respect of the compulsory acquisition of any
undertaking or property of the company.
(d) To borrow moneys where the moneys to be
borrowed are more than the paid-up capital of
the company and its free reserves
(e) To contribute to charitable and other funds not
directly relating to the business of the company or
the welfare of its employees, amounts exceeding in
any financial year Rs. 50,000 or 5 per cent of the
average net profits of the three preceding financial
years, whichever is greater.
IV. Political contributions. Sec. 293-a allows
companies to make contributions to political
purposes to any person, directly or indirectly out of
their profits.
 Sec. 293-a however prohibits political
contributions
(a) Government companies and
(b) Companies which have been in existence for less
than 3 financial years.
 Any other company may contribute any amount or
amounts, directly or indirectly,
(a) To any political party, or
(b) For any political purpose to any person. This is
however subject to the following conditions :
1. The amount shall not exceed 5 per cent of its
average net profits during the three immediately
preceding financial years.
2. The company shall disclose in its profit and loss
account the amount or amounts giving
(a) Particulars of the total amount contributed, and
(b) The name of the party or person to which or to
whom such amount has been contributed.
 DUTIES OF DIRECTORS
1. Fiduciary duties, and
The directors must-
(a) Exercise their powers honestly and bona fide for the
benefit of the company as a whole ;and
(b) Not place themselves in a position in which there is
a conflict between their duties to the company and
their personal interests. They must not make any
secret profit out of their position.
2. Duties of care, skill and diligence.
 Directors should carry out their duties with
reasonable care and exercise such degree of skill
and diligence as is reasonably expected of persons of
their knowledge and status.
Standard of care. There are various standards of the care
depending upon :
(a) The type and nature of work ;
(b) Division of powers between directors and other
officers ;
(c) General usages and customs in that of business ;
and
(d) Whether directors work gratutiously or
remuneratively.
Other duties of directors.
(1) To attend Board meetings.
(2) Not to delegate his functions except to the extent
authorised by the Act or the constitution of the
company, and
(3) To disclose his interest.