Post Graduate Programme in Management (PGPM)

LEGAL ASPECTS OF BUSINESS

(LAB)

Prof. Parul Gupta

PhD (Faculty of Law-JMI, New Delhi), LL.M., PGDBM

Dr. Parul Gupta

 SESSION 17
2

Board of Directors And Company Management &

Administration
 Directors and their appointment, Positions of directors,
Number of directorship,
 Disqualification of directors, Vacation of office and
removal of directors,
 Managerial remuneration, Loans to Director
 Meeting of board, Powers and duties of directors
 Contracts in which directors are interested,
 Liabilities of directors, Validity of acts of directors,
 Disabilities of director, Managing director and Manager

Dr. Parul Gupta

 3

REMINDER
Next Session - Tomorrow

Submission- Group Project

Quiz Test Three -Session 11 to 17

Dr. Parul Gupta

 Director of a Company
4
 Section 2 (34)
 “director” is 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.

 Board of Directors” or “Board” (Section 2 (10) )

in relation to a company, means the collective body
of the directors of the company.

Dr. Parul Gupta

 Director
5

Minimum/Maximum Number of Directors in a

Company (Section 149(1))
 three 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
Independent directors are not to be included for the
computation of total number of directors.
Number of Directorships (Section 165)
 maximum twenty directorships, including any alternate
directorship.
 maximum number of directorships in public companies/
private companies that are either holding or subsidiary
company of a public company shall be limited to ten.
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 Woman Director
6
Woman Director
 Every listed company to appoint at least one woman
director
 Every other public company having paid up share capital
of Rs. 100 crores or more or turnover of Rs. 300 crore or
more

Intermittent vacancy of a woman director:

 to be filled up by the board of directors within three
months from the date of such vacancy or not later than
immediate next board meeting, whichever is later.

Dr. Parul Gupta

 Appointment Of Directors
7

Appointment of First Director (Section 152)

 Usually the first directors of the company are named in its
articles.
 If no provision is made in the articles,
 the subscribers to the memorandum who are individuals


 General provisions
 Appointment in general meeting
 DIN is essential
 Declaration of qualification
 Consent to hold office of director
 Provision for retirement

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 Retirement & Filling Up the Vacancy
8

Retirement of director by rotation – 2/3 of total

 At the annual general meeting of a public company
one-third of such of the directors for the time being as
are liable to retire by rotation.
Filling up the Vacancy
 by appointing the retiring director or some other
person thereto
 at the adjourned meeting
 the retiring director is deemed to have been re-
appointed at the adjourned meeting (with certain
conditions)

Dr. Parul Gupta

 Additional Directors
9

Appointment of Additional Director

(Section 161(1))

The articles of a company may empower its

Board of Directors to appoint any person,
other than a person who fails to get
appointed as a director in a general meeting,
as an additional director

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 Alternate Director
10

Section 161(2)
 The Board of Directors of a company must be authorised
 The person should be absent for a period of not less than
three months from India.
 must be the person other than the person holding any
alternate directorship for any other Director in the Company.
 an Alternate Director to an Independent Director, has to
satisfy the criteria for Independent Directors.
 must not hold office for a period longer than that permissible
to the director
 reappointment of retiring directors in default of another
appointment must apply to the original, and not to the
alternate director.

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 Nominee Director
11

Section 161(3)
Subject to the articles of a company, the Board may
appoint any person as a director nominated by
any institution in pursuance of the provisions of
any law for the time being in force or of any
agreement or by the Central Government or the
State Government by virtue of its shareholding in
a Government company.

Appointment of Directors to be Voted

Individually (Section 162(1))
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 Independent Directors
12
Section 149(6) – 1/3 of total
an independent director means a director other than a managing director
or a whole-time director or a nominee director who does not have any
material or pecuniary relationship with the company/ directors.
Criteria for independent directors
 a person of integrity and possesses relevant industrial expertise and
experience;
 must not be a promoter or related to promoter
 must not have any material or pecuniary relationship with the company
or its promoters / directors/ holding/ subsidiary/ associate company;
 The relatives of such person must not have had any pecuniary
relationship with the company or its subsidiaries, amounting to 2% or
more of its gross turnover or total income or Rs. 50 lacs etc…..

Dr. Parul Gupta

 Independent Directors
13

Every listed company must have at least one third of its

directors as independent directors;
Public Limited Companies (Rule 4) – Min. Two
 paid up share capital of Rs. 10 crore or more; or

 turnover of Rs. 100 crore or more; or

 in aggregate, outstanding loans/borrowings/

debentures/ deposits/ exceeding Rs. 50 crore or more.
Intermittent vacancy
within three months from the date of such vacancy or
not later than immediate next board meeting,
whichever is later.

Dr. Parul Gupta

 Independent Directors
14

 Code of conduct for an independent director and

company (Section 149 (8))- Schedule IV

 Remuneration of an Independent Director (Section

149(9))
 Term of appointment (Section 149(10)) – 5 yrs
 Reappointment (Section 149(11)) – after 3 yrs
 Liability of an Independent Director (Section 149 (12))
the provisions of retirement of directors by rotation
are not applicable on Independent director (Section
149 (13)).

Dr. Parul Gupta

 Roles, Responsibilities and Liabilities
of Director
15

1. Independent directors
 Appointment and removal of non-independent directors
and other managerial employees
 Implementation of best corporate governance practices
 Strategy formulation and performance management
 Review of the performance of non-independent director
 Financial performance management of the company
 Resolving the disputes
 Expanded role in audit committee
 Appointment, removal and remuneration of Executive
directors, key managerial personnel and senior
management
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 Roles, Responsibilities and Liabilities
of Director
16

2. Other directors
 Mandatory disclosures
 Specified duties of the directors

 General duties of directors

 Duty to ensure corporate compliance

 Attendance in meetings

 Disclosure for transactions

Dr. Parul Gupta

 Legal Position of a Director
17

Case: N Narayanan v. Adjudicating

Officer

Discussion Point
Under the aforementioned circumstances,
could the Director be held personally liable
for preparing false records and presenting an
untrue picture of the company?

Dr. Parul Gupta

 Legal Position of a Director
18

Judgment and Explanation

It was held that the Directors of the company in question had

failed in their duty to exercise due care and diligence and
allowed the company to fabricate the figures and making
false disclosures. Company though a legal entity cannot act
by itself, it can act only through its Directors. They are
expected to exercise their power on behalf of the company
with utmost care, skill and diligence. A Director may be
shown to be placed and to have been so closely and so long
associated personally with the management of the company
that he will be deemed to be not merely cognizant of but
liable for fraud in the conduct of business of the company
even though no specific act of dishonesty is provided against
him personally.
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 Meetings of Board
19

Section 173

Frequency of meetings of Board

Participation on the meeting
Notice for the meeting of Board
 Notice to transact urgent business
Frequency of meeting in case of a One
Person Company, small company and
dormant company

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 Quorum for Meetings of Board
20

Section 174
Quoram for the meeting
Continuing directors acting for the
vacancy
Lack of Quoram

Passing of resolution by circulation

(Section 175(1))
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 Powers Of Board
21

Exercise of powers of Board (Section 179)

Delegation of powers specified in clause (d)
to (f)
 to borrow monies;
 to invest the funds of the company;
 to grant loans or give guarantee or provide security in respect of
loans;
Restrictions on Powers of Board (Section 180)
a. Powers to be exercised only after passing a special resolution
b. to invest otherwise in trust securities the amount of compensation received
by it as a result of any merger or amalgamation;
c.  to borrow money, where the money to be borrowed, together with the
money already borrowed by the company will exceed aggregate of its paid-up
share capital and free reserves,
d. to remit, or give time for the repayment of, any debt due from a director.
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 Disqualifications for Appointment of
Director
22
Section 164(1)
 he is of unsound mind and stands so declared by a competent
court;
 he is an undischarged insolvent;

 he has applied to be adjudicated as an insolvent and his

application is pending;
 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
Provided that if a person has been convicted of any offence and
sentenced in respect thereof to imprisonment for a period of
seven years or more,

Dr. Parul Gupta

 Managerial Remuneration
23

 Section 2(51)
 The directors within the definition of “key managerial
personnel” or “KMP”.
Section 197
 Maximum ceiling for payment of managerial
remuneration by a public company- Without the
permission of Shareholders it must not exceed 11% of
the net profit of the company in that financial year
 Remuneration by a company having no profit or
inadequate profit – schedule V
 Remuneration drawn in excess of prescribed limit
 Remuneration to directors in other Capacity

Dr. Parul Gupta

 Managerial Remuneration
24

Remuneration from holding or subsidiary

company

Recovery of Remuneration (Section 199)

Central Government or Company to Fix Limit

with Regard to Remuneration (Section 200)

Dr. Parul Gupta

 Removal of Director
25
Section 169
 Shareholders can remove any director before the
expiry of his tenure, except
 any director appointed by Tribunal for prevention of
oppression and mismanagement under section 242 and
 a director appointed under principle of proportional
representation under Section 163 (Section 169(1)).
Special notice to the Company for the removal of the
director (Section 169(2))
 Date of meeting
 Reasonable Opportunity of being heard
 Intimation by Company to all shareholders
 Publication in newspapers
 Appointment of director in place of removed director
Dr. Parul Gupta
 NEXT SESSION
26
SESSION 18
Company Meetings and Proceedings
 Meetings,
 General meeting of shareholders,
 Requisites of a valid meeting
 Proxies, voting and poll,
 Resolutions,
 Company management,
 Accounts and auditors,
 Prevention and oppression of mismanagement

Dr. Parul Gupta

 27

Dr. Parul Gupta