ROLE AND RESPONSIBILITIES OF

WHOTE-TIME DIRECTOR AND NON-

EXECUTVE DIRECTOR

UNDER COMPANIES ACT, 1956 &

OTHER LEGISLATIONS

Date: - February 2010 By – Aman Morya

Company Secretary Trainee
The Madras Aluminium Co. Ltd.
Vedanta Group
Mb. 91+9095214321
csaman13@gmail.com
 BOARD COMPOSITION
BOARD OF DIRECTORS

Executive Non Executive

Managing Director Independent Director

Whole Time Director Non- Independent Director

The role and responsibility of an individual director would

depend upon the nature of his directorship.
 A BOARD OF DIRECTORS is a body of elected or appointed directors
who jointly oversee the activities of a company or organization.

Typical duties of boards of directors include.

• Governing the organization by establishing broad policies and
objectives;
• Selecting, appointing, supporting and reviewing the performance of the
chief executive;
• Ensuring the availability of adequate financial resources;
• Approving annual budgets;
• Accounting to the stakeholders for the organization's performance.

Sources of Duties
• Common law
• Statutes - Law established by a legislative body
• The Memorandum and Articles of Association of the Company
• Service agreements specifically entered between the director and the
Company
• Resolutions passed at members’ or directors’ meetings
• The rules of a regulatory body, if any
 THE PERSONAL LIABILITIES WHICH CAN BE IMPOSED UPON THE
DIRECTORS FOR BOTH CIVIL AND CRIMINAL OFFENCES MAY
ARISE IN THE FOLLOWING CIRCUMSTANCES

• Abuse of powers – by acting beyond the scope of Memorandum

and Articles.

• Breach of duty – he will be liable to pay / reimburse the company

the profit made or loss suffered.

• Liabilities to shareholders – if a person suffers a loss as a result of

directors’ acts knowingly done against the rights of the members.

• Liabilities to investors – where directors fail to disclose material

information or give misleading information.

• General – compliance under various other laws.

 COMPANIES ACT AND DIRECTORS

The Companies Act, 1956 looks at all directors alike.

Throws some extra compliances in case of whole time directors.

Defines “officer in default” giving a degree of immunity to directors other

than the whole time directors.

Requires some disclosures by interested directors.

Does not exempt independent directors from any of the duties, liabilities,
responsibilities of the Board. Independent directors have the same power
that other directors have.

Non Executive Director - Non-executive directors are subject to similar

fiduciary duties as executive directors such as the duty to act in good faith
and for proper purposes, duties of no conflict etc
 ROLE AND RESPONSIBILITIES OF
WHOLE-TIME DIRECTORS
UNDER COMPANIES ACT, 1956

• Section 5 of the Companies Act, 1956.

• All applicable provisions of Companies Act, 1956
wherein offences are covered by Section 5 –
Officer in default.
 "OFFICERS IN DEFAULT"

Section 5 of the Companies Act provides a list of officers of a company

who are defined as "officers in default" so that those in charge of
management or who have been charged with the responsibility of complying
with any of the provisions of the Act are held responsible and liable for any
contravention of the Act.

A Whole-time Director of a company is also included in this list of officers

who are liable for the defaults and lapses of the company. The other officers
in this list are Managing Directors, Manager, Company Secretary and certain
other specified persons.

Some of the major provisions of the Act which attracts responsibility and
liabilities for non-compliance of following Sections not limited to Section
58A, 117C, 209A, 215, 217, 220, 225 to 230, 231 269, 292A, 301 to 304,
307,372A,383A,629A,etc.

It is not necessary to prove that the default has been committed by the
officer knowingly or willful. Where there is failure to comply with the
statutory provision , the mere failure will be made punishable
SCHEDULE XIII OF COMPANIES ACT, 1956

Further, Schedule XIII to the Companies

Act provides that no person shall be
eligible for appointment as a managing or
whole-time director or a manager of a
company if he had been sentenced to
imprisonment for any period, or to a fine
exceeding Rs. 1,000/- under any of the
following Acts -
 Schedule XIII

1. The Indian Stamp Act, 1899

2. The Central Excise Act, 1944
3. The Industries (Development and Regulation) Act, 1951
4. The Prevention of Food Adulteration Act, 1954
5. The Essential Commodities Act, 1955
6. The Companies Act, 1956
7. The Securities Contracts (Regulation) Act, 1956
8. The Wealth-tax Act, 1957
9. The Income-tax Act, 1961
10. The Customs Act, 1962
11. The Monopolies and Restrictive Trade Practices Act, 1969
12. The Foreign Exchange Regulation Act, 1973 (replaced by FEMA)
13. The Sick Industrial Companies (Special Provisions) Act, 1985
14. The Securities and Exchange Board of India Act, 1992
15. The Foreign Trade (Development and Regulation) Act, 1992
Duties and Responsibility of Whole Time Directors
under various other legislations

The legal responsibilities of Managing Director/

Whole Time Directors/Directors vary with the
nature of the organization, and with the
jurisdiction within which it operates
Labour Laws - Managing Director/ Whole Time Director comes under the definition
of employer under the labour laws hence he/ she will be responsible for the compliance
necessary under the provisions of Labour Laws

1.”Occupier’ under the Factories Act, 1948 – Occupier comes under the definition
responsible under section 7-A of the Factories Act for ensuring Health, Safety and
Welfare of all workers. Under Sec. 2(n) of Factories Act, any one of the directors can be
appointed as Occupier (by a resolution of BOD) who is having ultimate control over the
affairs of the Company. Decision of SC – Only Director of the Company can be
appointed as an occupier of the factory not simply an officer or employee.

2. Similarly, Managing Director/ Whole Time Director responsible under other

major laws, for e.g. as ‘Employer’ under the Employees State Insurance Act, 1948
(ESI Act), Decision of SC – It has been held that Managing Director/ Whole Time
Director is prima facia incharge of and responsible for the Company’s affairs and can be
prosecuted under ESI Act. Director – Appropriate Director may be nominated by the
Board of Director of the Company to act as a ‘Responsible Person’.

3. Managing Director/ Whole Time Director is duty bound and responsible under
other major laws, for e.g. EPF Act Minimum Wages Act, Payment of Wages Act etc..
To prosecute a Director, it should be shown that he was in charge of and was
responsible for the conduct of the company’s affairs.-
Responsibility under Other Acts and laws

Pollution Laws – Similarly, WTD/MD responsible under other major pollution related laws
and Acts, for e.g.

Air (Prevention and Control of Pollution) Act, 1981, Water (Prevention and Control of
Pollution) Act, 1947 Managing Director/Whole – Time Director shall be responsible for all
compliance of the company. - Manager of the site in not personally liable under the act
because he could not be equated with a person who was managing in a governing role of the
affairs of the company.

Income TaxAct,1961
Principal Officer (Director) of the company shall be responsible for the compliance of the
provision of Income Tax Act. MD/WTD may also responsible/ liable in the capacity of a
principal officer under the Income-tax Act for false verification of and income tax return.

Electricity Act, 2003

Under Section 149 of the Electricity Act, 2003, Every person who at the time when offence is
committed was in–charge of the company (Director) shall be deemed to be having guilty of
having committed the offence and shall be liable for the offence. For certain offences
committed under the Act, any director, manager or secretary or other officer of the Company
can be held liable if contribution/consent to any neglect is proved against them. Hence,
appropriate officer should be nominated/ appointed under the Act responsible for compliance.
The Mines Act, 1952, the ‘Owner’ and ‘agent’ of every mines
shall each be responsible for making financial and other provision
and for taking such other steps as may be necessary for
compliance with the provision of this Act and regulations, rules ,
bye-laws and order made thereunder. ‘Owner’ is defined in
relation to a mine, means any person who is the immediate
proprietor or lessee or occupier of the mine or of any part thereto.

Apart from specific legislations, the Directors of reputed

companies endeavour to follow basic principles of Good
Corporate Governance. They understand that transparency and
detailed disclosure of a Company’s financial position and
operation allow the investors to better assess the performance of
the Board and management which in turn enable them to make
informed corporate decisions.
 Conclusion
Ignorance of law is no excuse

• Legislation imposes numerous duties upon directors. The directors

are responsible for ensuring that the company complies with all
relevant legislations. Directors are presumed to know the law and it
is immaterial whether the director had knowledge of the law or not.
He is bound to know what the law is.

• It was decided in Calcutta Central Bank Limited that the Directors

cannot divest themselves of their responsibilities by delegating the
whole management to the Agent and abstaining from all enquiry; if
the agent proves unfaithful under certain circumstances the directors
cannot be absolved from all liabilities

• Before deciding to become a director of a company a person should

make himself familiar with the Acts and laws applicable to the
Company and liabilities of the director and penalties for wrongful
acts.
 Non Executive Director
Non-Executive Director

Independent Non-Independent

Nominee Directors Constituency Director Others

A non-executive director is a member of the Board of

Directors of a company who does not form part of the
executive management team. He/she is not an
employee of the company or affiliated with it in any
other way.
 Duty, Responsibility of Non-Executive Directors

• Non-executive directors are the custodians of the governance

process.

• They are not involved in the day-to-day running of business but

monitor the executive activity and contribute to the development of
strategy.

• Non-executive directors were undoubtedly subject to similar

fiduciary duties as executive directors such as the duty to act in
good faith and for proper purposes, duties of no conflict etc.

• Non-executive directors could not simply rely on the information

provided by the management or by the executive directors
 Non Executive Director in the
nature of independent Director
• He shall have to periodically review the legal compliance reports prepared
by the company as well as steps taken by the company to cure any taint.

• In the event of any proceedings against an independent director in

connection with the affairs of the company, defence shall not be permitted
on the ground that the independent director was unaware of this
responsibility.

• He shall not be a member in more than 10 committees or act as Chairman

of more than five committees across all companies in which he is a director
• Independent directors have the same power that other directors have.

• Non-executive directors should also provide independent views on -

Resources
Appointments
Standards of conduct
 Generally Non-Executive director have the responsibility
and duty in the following areas –

• Strategy: Non-executive directors should contribute to the development of

strategy.

• Performance: Non-executive directors should scrutinize and moniter the

performance of management, on the basis of agreed goals and objectives of
the Company.

• Risk: Non-executive directors should satisfy themselves that financial

information is accurate and that financial controls and systems of risk
management are robust and defensible.

• People: Non-executive directors are responsible for determining appropriate

levels of remuneration of executive directors and have a prime role in
appointing, and where necessary removing, senior management and in
succession planning.
THANK YOU