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COMPANY LAW PROJECT Topic: Chairman, Managing Director and Board o Director!

B":# $hre"a $han%ar &th $eme!ter N'a(!

)NTROD*CT)ON
It is a well established fact that a Corporation is an artificial being, invisible, intangible and existing only in contemplation of law. A corporation has neither a mind nor a body of its own and hence must act through living persons. This makes it necessary for every corporation to entrust its business to some human agents. Here is where the necessity of directors and other managerial personnel come into being. This essay will focus on three important managerial positions in a company namely the Chairman, anaging !irector and the "oard of !irectors. Their appointment, functions, roles and responsibilities, liabilities and procedure for resignation and dis#ualification will be covered over the course of this essay.

C+A)RMAN O, A COMPANY
The Chairman of the company holds a higher position in the company and represents the management of the affairs of the company. The position brings with it a huge status symbol even though it has no statutory recognition. Though the term $Chairman%Chairperson& has not been defined under the Companies Act '()* +hereinafter to be called as the Act,, a chairman is appointed as a ceremonial head of the board meetings to ensure the proper conduct of business at a company meeting, the procedure of which has been provided for in the Act. -ntil a chairman is elected, generally the .resident of the company usually acts as the de facto chairman of the company. /enerally, the by0laws of a company are written in such a way that the position of the chairman is automatically filled up by a high ranking officer of the company such as the .resident and%or C12 of the company until a chairman is elected and in the event of a vacancy in the position.

Proced're or Appointment
$ection -./0-1 of the Act discusses the procedure for appointment of the Company Chairman. It states that unless the Articles of Association of the Company provide otherwise, the members of the board personally present at the meeting shall, by a show of hands, elect one of themselves to be the Chairman. C(a'!e 2 of the section provides

that if a poll is demanded on the election of the Chairman, then unless as a result of such poll another person is elected as the Chairman for the meeting, the Chairman elected by a show of hands under Clause ) shall continue to be the Chairman of the meeting. )n orma( Appointment It was held in the )334 case of New Cedo Engg Co Ltd, Re1 that where shareholders informally invite a person to be the chairman of the company without passing a resolution for his%her appointment, they could not later say that there was no appointment. The ratio behind such a decision of the court is that if the act done informally is such that, had it been done formally it would have had )((5 assent of all those who could have participated in the formal act. In such cases, if the informal act has been carried out, it would be idle to insist upon formality as a condition to validate the act which was assented to by all those competent to assent to it. Appointment 3" the Co'rt The Court has the power to appoint an independent chairman to preside over a meeting of a company. 6uch appointment will occur only in situations whereby there are conflicts among the shareholders and a peaceful meeting under the chairmanship of a person appointed by any faction of the shareholders is improbable. 6uch a situation was seen in the case Ananthalakshmi 45 Tiffins Barytes Asbestos & aints Ltd,! among many others.* Appointment 'nder Ta3(e A .rior to the amendment of the Companies Act, )378 in '()*, there was no provision in the Act which dealt with the Chairman of the Company. 2nly Table A or the model Articles of Association contained provisions relating to the appointment of the Chairman of a Company. 1ven today, those companies which choose to adopt Table A as their Articles of Association will have to follow the rules and regulations with regard to the appointment of the Chairman of a Company. Reg'(ation 670-1 says that the board may elect a chairman of its meetings and determine the period for which he should hold office. It also provides that if no such chairman is elected, or if at any meeting the chairman is not present within five minutes after the time for holding the meeting has been appointed, the directors who are present may choose one of the members present to chair the meeting. Reg'(ation &- envisages a solution for a situation where the chairman of /eneral meeting who isn9t present within fifteen minutes of the time appointed for the meeting to begin or if the chairman is unwilling to chair the meeting. In such a case, the directors present shall elect from among the remaining members present to chair the meeting. Reg'(ation &2 also deals with /eneral eetings of a company and states that where the chairman is not present within )7 minutes of the time appointed for holding the meeting and no director is willing to act as the chairman of the meeting or if no director is present within )7 minutes of the time appointed for the meeting to begin, in such a situation, the remaining members of the meeting shall choose one among themselves to chair the meeting.
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+)334, ) "C:C ;3;, p.<)4 AI= )37' ad 8( * 6elvara> v. ylapore H... ?und, @)38<A ) Comp :B 3* +)334, ;3 Comp Cas 7* "om

adC Dishore E. .atel v. .atel 1ngg Co :td,

Fow, the Chairman so elected for the general meeting of the Company shall preside over every general meeting of the company, until he is replaced by a newly elected chairman. However, as was held in the case of "aster 45 "aster#, mere appointment of a permanent director as the chairman of the company does not mean he will hold the position so long as he remains a director of the company. This ratio prevents any director from wrongfully using his permanent position in the company to his advantage.

Remo4a( And Re!ignation


It can be safely said from the above section that the position of the Chairman is at the behest of the "oard. Hence, the office of the Chairman is held at the en>oyment of the "oard of !irectors and the shareholders of the Company. In order to remove a Chairman, a member must propose a vote of no confidence against the chairman and this move should be seconded by another member. The chairman has the right to make a representation against such removal. The matter is then put to vote. If the chairman loses the vote, he relin#uishes his chair. "ut where the companyGs articles appoint the chairman, the meeting cannot remove him unless it is due to bad faith, impartiality or abuse of authority. As for resignation, the Chairman must simply submit a notice for his resignation from the post of Chairman before the "oard and upon the assent by all members, he resigns from his post.

Po8er!

Leading Meeting! The main role of the Chairman of the Company is to lead meetings of the "oard of !irectors. The leadership of the Chairman is essential because the "oard is generally large and consists of members of different interest groups and hence there may be conflicts which need to be guided toward a solution in a peaceful manner. And this is something that the Chairman must achieve in his position. Apart from leading the meetings, he also has the important responsibility of calling for meetings, be it general or special. He also has the right to bring up an issue to discuss in the meeting and end the topic of discussion if he feels that the matter has been resolved or if there is no way to resolve the matter in peace. Ad9o'rnment o Meeting! A Chairman cannot stop a meeting un>ustly or without the consent of the members of the "oard and the shareholders. If he does so, then the other members of the "oard have the power to elect another Chairman and continue unfinished business. This was decided by the adras High Court in the case of Narayana Chettiar 45 $aleeswara %ills&. "ut it is within the competence of a Chairman to ad>ourn a meeting in case there is disorder in the meeting with regards to some issue. However, before ad>ourning the meeting, the Chairman must communicate his decision of doing so to the "oard along with the date on which the meeting will convene. If the chairman adopts any other course, the members who can constitute a #uorum may continue with the meeting and lawfully transact the announced business. This was held by the 6upreme Court in the case of Chandrakant $hare 45 'hantaram $ale(
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)3)8 I Chancellor 7*' AI= )37' ad 7)7 8 +)3<3, 87 Comp Cas )') 6C

Ca!ting :ote Another power that the Chairman has is the right to a casting vote provided under $ection 2&0-1 of the Act. This is apart from the normal power of voting he has as a director of the "oard. The provision envisages that in case of a tie of votes, the Chairman can exercise a casting vote or a tie breaking vote. However, it is not necessary that only the regularly elected Chairman can exercise this vote. 1ven in situation where a Chair is elected for only one meeting the right to a casting vote exists for him%her. This was held in the case of T)*) rasada+handran Nair 45 Anandamandarim ,otels Ltd,Recording o Min'te! o Meeting $ection -.6 of the Companies Act, '()* provides that after every resolution is passed in a meeting by a show of hands, the Chairman must record an entry to that effect in the books which include the minutes of the meeting. This will work as conclusive evidence of the fact of passing of such resolution. $ection --;0&1 of the Act gives the Chairman the complete power to the Chairman to decide to exclude a matter from the minutes of the meeting if it is defamatory of any person, detrimental to the interests of the company or is immaterial to the meeting proceedings. $ection --;071 also gives him%her the complete discretion to include or exclude any matter from the minutes of the meeting. $ection -.<0&1 of the Act gives the Chairman the power to appoint a number of persons from the "oard to scrutiniHe the poll process to ensure that the resolutions passed without any foul play being committed. The section in C(a'!e 7 also gives the Chairman the right to regulate the manner in which the poll is conducted. Proced'ra( Deci!ion 2ne of the most important duties of a Chairman is that he must be well aware of the rules and procedures of the Company provided under the AoA of the Company and the bye0laws of the Company. Afterall, these very procedural matters will be dealt with at the meetings in any issue regarding the Company and in order to give a fair, logical and rational decision, the Chairman must be well ac#uainted with the rules and procedures of the Company as well as the 6tatutes relating to Corporate :aw. 2nly then can he set a good example for the remaining members of the "oard to follow suit. A good Chairman is one who guides the remaining members of the general meeting towards a feasible solution while at the same time gives the other members of the meeting the freedom to voice their opinions on the matter as they too are well versed in the business of the Company and can bring good ideas and resolutions to the table. These are thus the various powers of the Chairman which if used wisely and not misused will create an efficient Chairman.

MANA=)N= D)RECTOR >W+OLE T)ME D)RECTOR O, A COMPANY


The anaging !irector9s position is one of the most coveted positions in the corporate world. He%6he is a key managerial person of the company. <The Companies Act, '()*
; <

+'((', ))( Comp Cas *34 C:" 6ection '+7), of the Companies Act, '()*

has defined the term anaging !irector in $ection 20&/1 as a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.

Appointment
As the definition suggests, a anaging !irector may be appointed by the "oard of !irectors or by way of an agreement or by the members of the general meeting by passing a resolution in the meeting. However, such an appointment must be done in accordance with the Articles of Association or the emorandum of Association of the company. Appointment, if carried out by way of election by "oard will be done by mode of proportional representation. The Companies Act also has provisions which state that every .ublic Company having a paid0up share capital of five crores or more must compulsorily appoint a anaging !irector. 2n the other hand, there is no statute that makes it mandatory for a .rivate Company to appoint a anaging !irector. However, if the AoA of the Company prescribes the appointment of an !, it must be adhered to. Re?'i!ite! or Appointment A anaging !irector of a company can only be appointed if there is a power to that effect in the Articles of Association of the company. This was first stated by J'!tice $8in en Ead" in the decision of Bos+hoek ro.rietory Co Ltd 45 "/ke0. It is an essential re#uirement for being a anaging !irector that he%she must also be a director of the Company. If any person holds the position of an ! in contradiction of the above term is not a valid anaging !irector. )( Thus, a managing director occupies the dual capacity of being a director as well as employee of the company. Another re#uisite of being a anaging !irector of a company under $ection -<70@1 of the Act is that it is necessary that the person occupying the post of the ! must be above the age of ') and below the age of ;( years. However, the proviso states that a person above ;( years of age may be appointed as a ! if the "oard passes a special resolution for such an appointment. The Act also provides that no company can have both a anaging !irector and a anager9s office at the same time.)) $ection -<7021 of the Act states that the maximum time for which a person can hold the position of anaging !irector is five years. Condition! to 3e '( i((ed or Appointment Apart from the basic re#uisites stated above, there are certain conditions that need to be satisfied before appointing a person as the anaging !irector of a company. These conditions are given in $ched'(e : of the Companies Act, '()*. These conditions are as followsI0 ). He or she should not have been sentenced to imprisonment for any period, or a fine imposed under any of the following statutes, namelyI i., The Indian 6tamp Act, )<33C
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@)3(8A ) Ch )4<, )73 6hirlaw v. 6outhern ?oundaries :td., +)34(, )( Com Cases I I +CA,C "alchand C v. !evashola +Filgiri, Tea 1states Co. :td., +)3;', 4' Com Cases 8'* + ad,. )) 6ection )38+),
)(

ii., The Central 1xcise Act, )344C iii., The Industries +!evelopment and =egulation, Act, )37)C iv., The .revention of ?ood Adulteration Act, )374C v., The 1ssential Commodities Act, )377C vi., The Companies Act, )378C vii., The 6ecurities Contracts +=egulation, Act, )378C viii., The Jealth Tax Act, )37;C ix., The Income Tax Act, )38)C x., The Customs Act )38'C xi., The onopolies and =estrictive Trade .ractices Act, )383 K now the Competition Act, '(('C xii., The ?oreign 1xchange =egulation Act, )3;* K now the ?oreign 1xchange anagement Act, )333C xiii., The 6ick Industrial Companies +6pecial .rovisions Act, )3<7C xiv., The 6ecurities 1xchange "oard of India Act, )33'C and % or xv., The ?oreign Trade +!evelopment and =egulation, Act, )3;*. '. He or she should not have been detained or convicted for any period under the Conservation of ?oreign 1xchange and .revention of 6muggling Activities Act, )3;4. *. He or she should have completed twenty0five +'7, years of age, but be less that the age of seventy +;(, years. However, this age limit is not applicable if the appointment is approved by a special resolution passed by the company in general meeting or the approval of the Central /overnment is obtained. 4. He or she should be a managerial person in one or more companies and draws remuneration from one or more companies sub>ect to the ceiling specified in 6ection III of .art II of 6chedule LIII. 7. He or she should be a resident of India. G=esidentG includes a person who has been staying in India for a continuous period of not less than twelve +)', months immediately preceding the date of his or her appointment as a managerial person and who has come to stay in India for taking up employment in India or for carrying on business or vocation in India. However, this condition is not applicable for companies in the 6pecial 1conomic Mone, as notified by !epartment of Commerce from time to time. 8. All !irectors of Indian companies are re#uired to obtain !irector Identification Fumbers +N!IFsN,. .rimarily, !IFs are re#uired to authenticate any electronic filings made by the company. These conditions apply even when considering appointment of whole time directors of a company. Re!triction o ho(ding an MD po!ition in m'(tip(e companie! $ection 2.@0@1 states that a managing director cannot hold the same position in any other company except unless the company is the subsidiary of the company where he holds the position of the !. There is a proviso to this restriction though and it provides that a person may be appointed as the anaging !irector even though he is an ! of one other company +only one, provided that every member of the "oard approves by passing a resolution which is accepted by all the directors present at the meeting.

HoweverI0 ). A $pure& private company '. An association that carries on business not for profit *. An association that prohibits any payment of dividends 4. Holding the position of Alternate !irector are excluded from the restriction stated above. Thus, a person can hold the position of ! in more than one company and still be appointed as a anaging !irector in any other company, but only in the above four situations.

Compen!ation
$ection -<60-1 of the Act discusses the remuneration to be given to people holding managerial positions including the post of the anaging !irector. According to the provision, the compensation to be given to all the managerial staff of the company including that of the anaging !irector must not exceed ))5 of the net profits of the company computed as per the procedure described under $ection -<; of the Act. This is calculated for a yearly basis. The section also goes on to say that the remuneration of such staff shall not be deducted from the gross profits of the company. However, if the company9s "oard approves, such a ceiling amount may be exceeded. The proviso to the section envisages the maximum amount that can be given as remuneration to the anaging !irector cannot exceed 75 of the annual net profits of the company and in the situation that there is more than one ! in the company, the amount should not exceed )(5 of the net profits of the financial year for all the anaging !irectors taken together. =emuneration for any professional services provided by the anaging !irector shall not be included in the yearly salary of the ! as provided for in the 6ection. If any director draws directly or indirectly, by way of remuneration any sums in excess of the limit or without the prior sanction of the Central /overnment, where it is re#uired, he shall refund such sums to the company and until such sum is refunded, hold it in trust for the company. The company shall not waive the recovery of such sum unless permitted by the Central /overnment. In the case of 1..er 2oab '/gar %ills Ltd 45 Com.any Law Board1!the !elhi High Court held that the /overnment could not by administrative action reduce the ceiling on the remuneration fixed by the Act for the managing director. In the case the Company :aw "oard granted approval to appointment of a managing director sub>ect to the condition that his salary be reduced to a ceiling below that imposed by 6ection )3;. The Court held that the "oard could not do so as 6ection 8*;0A)* permits only such conditions to be imposed as are not contrary to the express provisions of the Act. However, this aspect of the decision was overruled by the 6upreme Court in Com.any Law Board 45 1..er 2oab '/gar %ills Ltd1#

Po8er!

The "oard is responsible for the management and conduct of the business of the company. A managing director as such has no specific powers or duties recognised by
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+)3;), 4) Comp Cas 84* !el 1mpowers the /overnment to impose a lower ceiling on remuneration while approving a candidate for managing directorship )4 +)3;;, ' 6CC )3<

the Act. He derives the powers from the company or its "oard, and 6ection '+74, gives sufficient indication as to the sources of powers of a managing director. A managing director has those duties to perform which the "oard of directors may choose to entrust upon him%her. "ut for the most part of it, the anaging !irector helps to manage the affairs of the company. This means regulation and supervision of the business of the Company.

Remo4a( And Di!?'a(i ication


The legal position on the removal of a anaging !irector and a !irector of a company is the same. A !irector can be removed by an ordinary resolution of the general meeting after a special notice has been given, before the expiry of his term of office. However, this is not applicable to !irectors appointed by proportional representation or the !irectors appointed by the Central /overnment. A director of a company can be removed by 6hareholders Central /overnment The Court $ection -7/0-1 discusses the criteria for dis#ualification of a person from being considered for the position of a anaging !irector. The same criterion applies for !irectors of a company as well. According to the provision any person suffering from any of the following dis#ualifications will not be appointed as a anaging !irector or a Jhole time !irector of a company. ). A person who is an -ndischarged Insolvent, or has at any time been ad>udged an insolvent. '. A person who suspends, or has at any time suspended, payment to his creditors, or makes or has made a composition with them. *. A person who is or has been convicted by a court of an offence involving moral turpitude. 4. A person who has been sentenced to imprisonment of not less than six months or if hasn9t been five years since such sentence is completed. The proviso to the fourth criteria states that if a person had a sentence of seven years or more of imprisonment will not be considered for employment as a ! or a !irector of a company.

BOARD O, D)RECTOR$
A company being an artificial entity acts through natural persons called as !irectors who collectively form the "oard of !irectors. The management of the affairs of a company is vested with the "oard and hence they form a working organ of a company. "efore going into the powers, duties and liabilities of the "oard, it is prudent to first learn more about !irectors of a company who form the "oard.

Director! a! Agent! A Tr'!tee! o the Compan"


The position that the directors of a company hold is that they are professional men hired by the Company to direct its affairs. They are the controller of the company9s affairs. In

the words of Lord J'!tice Bo8en-&, Directors are described sometimes as agents, sometimes as trustees and sometimes as managing partners. But each of these expressions is used not as exhaustive of their powers and responsibilities, but as indicating useful points of view from which they may for the moment and for the particular purpose be considered. Thus, a !irector is both an agent and trustee of the company. Agent It was first recognised in the case of "erg/son 45 3ilson1(that directors of a company are agents of the company in the eyes of law. The court in its >udgement held that, The Company has no person it can act only through directors and the case is, as regards those directors, merely the case of principal and agent. Thus, the fundamental principles of agency come into play when the !irectors deal with the company as well as with third parties. Jhen a !irectors contracts in the name of the company or on its behalf, the company is the one that will be held liable for such contract and not the director. Thus, in the case of Elkington & Co 45 ,/rter1- where the plaintiff supplied certain goods to a company through its Chairman who promised to issue him a debenture for a price, but failed to do so and the company went into li#uidationC the Court held that the Company was liable to the plaintiff and not the Chairman. A notice to a !irector of a company is as good as a notice to the company only where it is the duty of the !irector, as an agent and during the course of employment, to receive the notice and communicate it to the company. "eing an agent of the company, a !irector has to disclose any personal interest that he may have in any transaction of the company. It should also be noted that a !irector is an agent only of the company and not its individual members with the exception of special circumstances arising out of a case. Tr'!tee 1ven though !irectors are not in technical terms, the trustees of a company, yet they are considered and treated as trustees of the money of the company over which they have control and which is in their hands to control. It is common knowledge that ever since Boint 6tock Companies came to being, !irectors have been held liable for making good moneys that have been misapplied in the same footing as a trustee. 1ven the Courts in India have recognised !irectors as trustees of a Company after Chie J'!tice Chandra Redd" held in the case of Ramaswamy 4yer 45 Brahmayya & Co, 15that, The directors of a company are trustees for the company, and with reference to their power of applying funds of the company and for misuse of the power they could be rendered liable as trustees and on their death, the cause of action survives against their legal representatives. The nature of office held by !irectors of a company could also be attributed as a reason for them being considered as trustees of a company. After all, !irectors manage the affairs of the company for the benefit of the shareholders and this position is one of
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Imperial Hydropathic Hotel Co v. Hampson, +)<<', '* Ch ! )C A.B. Budah v. =ampada /upta, AI= )373 Cal ;)7 )8 +)<88, ' Ch App ;; ); @)<3'A ' Ch 47' )< @)388A ) Comp :B )(;

trust, which, if undertaken, is their duty to perform fully. )3 The !irectors are only trustees for the company and not for its individual shareholders. This principle was first laid down in the case of er+i6al 45 3right!7whereby the Court held that !irectors don9t have any fiduciary duty towards the shareholders of a company and were not bound to disclose negotiations of contracts that were yet to be made.

Appointment o Director!
The appointment of !irectors is very strictly regulated by the Companies Act, '()*. Condition! or e4er" ne8(" ormed compan" According to $ection -/<0-1 of the Act, every company should have a "oard of !irectors consisting of individuals as directors and there should be a minimum ofI0 ). * !irectors in a .ublic Company '. ' !irectors in a .rivate Company *. ) !irector in a 2ne .erson Company and a maximum of )7 directors in a Company. However, a company may appoint more than )7 !irectors by passing a special resolution in the "oard meeting. The proviso to this provision states that it is compulsory in such companies, that there must be at least one woman director. It is also necessary that every company should have one !irector who has stayed in India for a total period of not less than )<' days in the previous calendar year. )ndependent Director $ection -/<071 of the Act defines the term independent director as, a director other than a managing director or a whole!time director or a nominee director," 8a9 #ho, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience$ 8b9%i& #ho is or was not a promoter of the company or its holding, subsidiary or associate company$ %ii& #ho is not related to promoters or directors in the company, its holding, subsidiary or associate company$ 8+9 #ho has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year$ 8d9 'one of whose relatives has or had pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors, amounting to two per cent. or more of its gross turnover or total income or fifty la(h rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year$ 8e9 #ho, neither himself nor any of his relatives" %i& )olds or has held the position of a (ey managerial personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed$
)3 '(

Eork O Forth idland =ly Co v Hudson, +)<7*, 8) "eav 4<7 @)3('A ' Ch 4')

%ii& *s or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of" ! + firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company$ or ! +ny legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent or more of the gross turnover of such firm$ %iii& )olds together with his relatives two per cent or more of the total voting power of the company$ or %iv&*s a Chief ,xecutive or director, by whatever name called, of any nonprofit organisation that receives twenty!five per cent. or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds two per cent. or more of the total voting power of the company$ or 8f9 #ho possesses such other -ualifications as may be prescribed. This is an exhaustive definition and gives the re#uisites for becoming an Independent !irector of a Company. The period for which an independent director can hold office is for 7 years and this period can be extended by passing a special resolution in the annual general meeting of the company. $ection -&. of the Companies Act, '()* discusses the selection of an Independent !irector and provides that they may be selected from a data bank of eligible and willing persons maintained by an Institution or Association prescribed by the Central /overnment. "ut once a person is short0listed from the data bank, the members of the "oard must approve of such a person and then only can he be appointed as an Independent !irector of the Company. It has been given in the act under C(a'!e / o $ection -/< that every :isted .ublic Company shall have at least one0third of the total number of directors as independent directors and the Central /overnment of India will provide the minimum number of independent directors in such class%classes of companies. Mode! o Appointment o Director! !irector may be appointed in the following waysI -5 B" the artic(e! a! regard! ir!t director! The first directors of a company are to be appointed by the subscribers of the memorandum of association. They are generally listed in the AoA of the Company. If they do not appoint any, all the subscribers who are individuals become directors. The very fact of incorporation makes them the first directors of the company. However, they only hold office until the date of the first annual general meeting of the company. $ection -&2 of the Act discusses the appointment of ?irst !irectors. 25 B" the compan" in genera( meeting5 The primary managerial function of the shareholders of a company is to elect !irectors for the company. According to $ection -&2 of the Act, every !irector of a company shall be elected in the general meeting unless the act provides otherwise. @5 B" 4oting According to $ection-720-1 of the Act, at a general meeting of a company, a motion for the appointment of two or more persons as directors of the company by a single

resolution shall not be moved unless a proposal to move such a motion has first been agreed to at the meeting without any vote being cast against it. Thus if two or more persons are appointed as directors by a single resolution, unless there is a vote that is taken in the meeting, the same is void and non existent in the eyes of law. ') This was first held in the case of Ragh/nath 'war/. %ath/r 45 2r) Ragh/ra: Bahad/r!!. To solve this problem, wishes of the shareholders in relation to each proposed director should be obtained, put to vote, and then appointment made accordingly. Jhere the candidates are greater in number than the posts that are offered, the first appointment will go to the person securing the most number of votes and further in descending order from among those in whose favour the number of votes cast are more than those cast against them. /5 B" the princip(e o proportiona( repre!entation Formally, the basic method adopted by the Act for the election of !irectors is simple ma>ority of shareholders. $ection -7@ of the Act, however, was enacted by the :egislature so that the minority may have an opportunity of placing their representatives on the "oard. The provision envisages that that the appointment of not less than two0thirds of the total number of the directors of a company shall be done in accordance with the principle of proportional representation, whether by the single transferable vote or by a system of cumulative voting or otherwise and such appointments may be made once in every three years. The section also provides that casual vacancies of directors elected by proportional representation shall be filled in accordance with the procedure laid down under 6ection )8)+4, of the Act. &5 Appointment 3" Compan" La8 Board>Centra( =o4ernment The !irectors of a company may be appointed by the Company :aw "oard or Central /overnment for the purpose of prevention of oppression and mismanagement. The power of the Central /overnment comes into play only when a petition is filed to the Fational Company :aw Tribunal for prevention of oppression and mismanagement.

D'tie! o the Board o Director!


Fow that the position of !irectors in a company and their appointment has been covered, this essay shall now cover the duties of the "oard of !irectors. The powers of the "oard of !irectors can be classified under two headsI0 ). .owers that could be exercised only at the meeting of the "oard '. .owers that could be exercised only with the consent of the company in the general meeting However, with all power comes its own cost and even in this case there are two restrictions to the powers of the "oard. The proviso to $ection -6<0-1 of the Act discusses these restrictions. ?irstly, being agents of the company, the !irectors cannot do any act which the company itself, as the principal, cannot do under the emorandum of Association. 6econdly, the "oard shall not exercise those powers or perform acts which the Companies Act, Articles of Association, emorandum of Association or any other 6tatute re#uires to be done by the company in its general meeting.
') ''

6ection )8'+', @)388A ' Comp :B )((

Po8er! eBerci!a3(e 3" the Board at their meeting As per $ection -6<0@1 of the Companies Act, '()*, the "oard shall exercise the following powers only by means of a resolution passed at a meeting of the "oard. They areI0 +a, To make calls on shareholders in respect of money unpaid on their sharesC +b, To authorise buy0back of securities under section 8<C +c, To issue securities, including debentures, whether in or outside IndiaC +d, To borrow moniesC +e, To invest the funds of the companyC +f, To grant loans or give guarantee or provide security in respect of loansC +g, To approve financial statement and the "oard9s reportC +h, To diversify the business of the companyC +i, To approve amalgamation, merger or reconstructionC +>, To take over a company or ac#uire a controlling or substantial stake in another companyC +k, Any other matter which may be prescribed De(egation o Po8er! The proviso to this section provides that the "oard may chose to delegate the powers given from +d, to +f,, by passing of a resolution at a meeting, to any committee of directors, the managing director, the manager or any other principle officer of the company or in the case of a branch office of the company, the principle officer of the branch office. However, it should be noted that any of the powers stated above may be taken away or restricted by the company in its general meeting. Po8er! eBerci!a3(e 3" the Board 8ith the con!ent o the compan" As per $ection -;. of the Act, the "oard has the following powers that they can exercise sub>ect to consent of the company by way of passing of a special resolution vis a visI0 +a, To sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any of such undertakings +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 paid0up share capital and free reserves, apart from temporary loans obtained from the company9s bankers in the ordinary course of business +d, To remit, or give time for the repayment of, any debt due from a director. +e, Contribute to any charitable funds or any fund not related to the business of the company or the interests of its employees However, this is sub>ect to the condition that the funds to be contributed must exceed =s. 7((((%0 or 75 of the net profits of the company during three immediately preceding financial years, whichever is higher. These powers may be exercised only after a special resolution approving it has been passed by the members in the /eneral eeting of the company.

Board Re!o('tion!
There are two kinds of "oard resolutions that the directors of a company may passI0 ). Those that are passed in the "oard meeting '. Those passed in circulation Fow, this essay has already delved into passing of resolutions in the "oard meeting, but passing of a resolution in circulation has not been discussed so far and hence will be briefly explained. Pa!!ing o a re!o('tion in circ'(ation $ection 2;< of the Companies Act, )378 discusses the topic of resolution passing by circulation. 2nly directors and their committees are allowed to pass a resolution by circulation. The Act is for the most part of it clear on the powers exercisable by the "oard upon passing of resolutions only on convening of "oard meetings. "ut where the act is silent, the "oard is empowered to take decisions by passing resolutions in circulation. ?or this to take place, the resolution has to be circulated in draft together with the necessary papers to all the directors or members of the committee. 2nly then will it have been deemed to be passed.

)! a Director 3o'nd to 3e pre!ent at the meetingC


Fo director is bound to be present at the "oard meeting. However, if he fails to be present at meetings regularly and does not have any reasonable and sufficient excuse for doing so, he will be held guilty for breach of duty '*. Jill absence from the meeting will amount to negligence and the company, represented by the members of the "oard and the shareholders, may hold the negligent director liable for his non attendance. He will also be liable for the loss suffered by the company due to his non attendance at the meetings.

P(ace o Meeting
There is no provision in the Act which specifies as to where the "oard should conduct its meeting. Hence, there is no restriction as to how and where they hold the meeting. They may even do it via telephone or through video conferencing. !irectors can even hold their "oard meetings in a foreign country. However this is sub>ect to the condition that such a meeting is held in a foreign country for a >ustifiable reason and without any mala fide intent. There is nothing holding the company9s "oard from holding a meeting on a public holiday or even after business hours.

Condition! or a 4a(id Board meeting


The conditions re#uisite for a valid board meeting of a company to take place are mentioned under the Companies Act as followsI0 -5 NOT)CE 0$ection 2;71 A notice regarding the "oard meeting must be given to every director who for the time being is in India. ?or those directors who are not in India at the time, a notice must be sent to their usual address when they stay in India. A notice must be sent to every director regardless of whether any director has expressly said that he would not be able
'*

6ection '<*+),+g, of the Companies Act, )378

to attend the meeting. This is because no director has the right to waive off his right to receive the notice. It must be borne in mind that a contingent notice is not a sufficient notice. "ut in the case of ad>ourned meetings a notice is not re#uired because an ad>ourned meeting is a continuation of the previous meeting for which notice has already been served to all the directors. Content! o the notice 1very notice to be submitted before a meeting should have certain standard contents. These are as followsI0 a., .lace, !ate and time of the meeting. b., "usiness to be transacted at the meeting +agenda, is not mandatory but is good practice. Condition! to ma%e meeting 4a(id e4en tho'gh notice pro4i!ion not o((o8ed If the notice has not been sent in accordance to the procedure given in the aforementioned section, the proceedings at the "oard meeting will not be held irregular or invalid. This was stated in the case of armeshwari rasad ;/.ta 45 1nion of 4ndia!# whereby the court held that, for a board meeting to be effective, it must be duly convened by proper notice to each director and in default the meeting will be held as irregular. "ut if the following conditions are satisfied, the proceedings of the meeting will not be held as invalid even though notice was not served in accordance to the provision regarding notice. They areI0 a., All the directors attend the meeting and do not raise any ob>ection to the non0service of notice b., Jhere the absent directors make no complaint about the want of notice particularly when the proceedings are ratified by confirming the minutes of the earlier meeting, at a subse#uent meeting where at the absentee directors are present. 25 D*OR*M 0$ection 2;61 The #uorum of the board basically means the minimum number of directors competent to transact and vote on any business before the meeting. It must be noted that #uorum is re#uired throughout the "oard meeting. -nder the Act, this minimum limit is one third of the total strength +fraction in that one third, rounded off as one, or two directors whichever is higher. Here, total strength means the total strength of the "oard excluding the total number of directors whose place remains vacant at present. The law does not prevent the Articles of Association of the Company to prescribe a higher #uorum for the "oard. 1ven where the number of directors of the company is reduced below the minimum fixed by the articles, business may still be transacted if a #uorum exists as fixed by the law. Con!e?'ence! o no ?'or'm Puorum is a mandatory re#uirement for a board meeting and any transaction of a business nature that is done with a #uorum is invalid unless it is ratified in the next meeting. "ut even this is sub>ect to the fact that the transaction must be intra vires the Act. Contracts entered into with third parties who are not having any knowledge of any defect in the constitution of the "oard will not be affected, for the absence of a #uorum. Jhen a #uorum is not there in case of an ad>ourned meeting, the meeting is said to be dissolved.
'4

@)3;*A ' 6CC 74*

Can the Board act 8itho't ha4ing a ?'or'mC The "oard may act without a #uorum but only for the following two purposesI0 a., Increasing the number of directors to what is fixed for the purpose of #uorum b., 6ummoning a general meeting of the company These are thus the necessary powers, duties and liabilities of directors of the "oard and how they function in a "oard meeting.

CONCL*$)ON
This essay envisaged to bring out the essential features of the Chairman, anaging !irector and "oard of !irectors of a company. It is clear from this essay that the position held by these managerial personnel or key persons of the company is very valued and esteemed. They have enormous responsibility to run the company, supervise its activities and actions of its employees, transact business for the company as well as pass resolutions for the interest of the company at board meetings and general meetings. They must reconcile the conflicting interests of the shareholders of the company, keep at bay the creditors of the company and ensure that no harm befalls on the company. In short, they form the essential working organ of the company without which there exists a corporate identity with no existence. Hence, this essay concludes on the note that the responsibility of directors is large, but so is the payoff K which is the continued and successful existence of the company.