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KINDS OF DIRECTORS

WHAT EFFECTS THEY CAN HAVE ON A


COMPANY

SUBMITTED BY: HARSH PANDEY

ROLL NO : 1283048

(Email:harshpandey297@gmail.com)

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TABLE OF CONTENTS

INTRODUCTION ........................................................................................................... 3
KINDS OF DIRECTORS UNDER THE COMPANIES ACT, 2013 ............................ 4
GENERAL PROVISIONS RELATING TO APPOINTMENT OF DIRECTORS ....... 7
A STEP TOWARDS WOMEN EMPOWERMENT IN THE CORPORATE WORLD?
......................................................................................................................................... 9
TRACING THE CHANGES IN BOARD OF DIRECTORS- 1956 TO 2013............. 11
SETTING THE FRAMEWORK: EVOLUTION OF CORPORATE CRIMINAL
LIABILITY JURISPRUDENCE IN INDIA ................................................................ 12
VICARIOUS LIABILITY: WHEN? ......................................................................... 12
CONCLUSION : INDEPENDENT DIRECTORS: WHY THEY NEED TO STAND
UP NOW ....................................................................................................................... 14
WHAT SHOULD WE EXPECT FROM INDEPENDENT DIRECTORS .............. 15
ONE CONSISTENT CHORUS THAT FOLLOWS EVERY CORPORATE
SCANDAL IN THE WORLD IS WHY DID THE INDEPENDENT DIRECTORS
NOT DISCOVER THE SCAM ................................................................................. 15
BIBLIOGRAPHY ......................................................................................................... 17

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INTRODUCTION

On incorporation, a company becomes an artificial person in the eyes of law, it has a perpetual
succession. With all the strapping of a legal person, a company is unlike a living human being. It has
no physical existence. In order to enable a company to live and to achieve its objects as enshrined in
the objects clause of its Memorandum of Association, it has necessarily to depend upon some
agency, known as Board of directors.
The Board of directors of a company is a nucleus, selected according to the procedure prescribed in
the Act and the Articles of Association. Members of the Board of directors are known as directors,
who unless especially authorised by the Board of directors of the Company, do not possess any
power of management of the affairs of the company.
The Companies Act, 2013 does not contain an exhaustive definition of the term “director”. Section 2
(34) of the Act prescribed that “director” means a director appointed to the Board of a company.
Section 2 (10) of the Companies Act, 2013 defined that “Board of Directors” or “Board”, in relation
to a company, means the collective body of the directors of the company. The term ‘Board of
Directors’ means a body duly constituted to direct, control and supervise the affairs of a company.
As per Section 149 of the Companies Act, 2013, The Board of directors of every company shall
consist of individual only. Thus, no body corporate, association or firm shall be appointed as
director.

AIMS AND OBJECTIVES


The objectives of the researcher are as follows:
 To study the various kinds of directors under Companies Act, 2013.
 To understand the role of woman directors under the Companies Act, 2013.
 To critical examine the need of the various kinds of directors and the shift from the 1956 Act.

HYPOTHESIS
The hypothesis proposed by the researcher is that the differing compliance requirements with respect
to the appointment of independent directors and woman directors, will increase accountability,
independence and at the same time create gender diversity in the corporate world.

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KINDS OF DIRECTORS UNDER THE COMPANIES ACT, 2013

Directors of a company hold the most crucial position in the Company. Under the Companies Act,
2013, the position of the directors is even more significant. They are now formally included within
the definition of “key managerial personnel” or “KMP” under Section 2(51) of the Act.

New Categories and Qualifications of Directors

Resident Director1: The new Act has made certain important changes in the earlier regime,
particularly in respect of the appointment of directors. One of the changes brought is that Board of
Directors of a company must have at least one resident director, i.e. a person who has lived not less
than 182 days in India in the previous calendar year. The companies were given a time period of one
year since the commencement of the Act to incorporate this change.2

Woman Director3: Similarly, a new provision is introduced under section 149, which requires
certain categories of companies to have at least one woman director on the board. Such companies
are every listed company and every other public company having4-

1. Paid up capital of Rs. 100 cr. or more, or


2. Turn-over of Rs. 300 cr. or more.

Independent Director: Independent Director is for the first time introduced in the Act, and has
been clearly defined as “any director other than a managing director, a whole time director, and a
nominee director.”5 Such a director not having any significant pecuniary relationship with the
company is more efficient. Section 149 (4) requires that one third of the directors should be
independent directors. Section 149(6) lists in detail the specific qualifications for an independent
director-

1. Person of integrity and relevant experience

1
Section 149(3), The Companies Act, 2013.
2
Section 149(2), The Companies Act, 2013.
3
Proviso to Section 149 (1), The Companies Act, 2013.
4
Rule 3, Companies (Appointment and Qualification of Directors) Rules, 2014
5
Section 149(6), The Companies Act, 2013.

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2. Is not a promoter, nor has any relation with the promoters or directors of the company, its
holding, subsidiary or associate company;
3. Has no pecuniary relationship with company, its holding, subsidiary or associate company, its
promoters or directors in the preceding two years of his appointment
4. Has no relatives who have pecuniary relationship with company, its holding, subsidiary or
associate company, its promoters or directors, amounting to two percent in the preceding two
years of his appointment
5. Neither he, nor any of his relatives have held key 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.
6. Neither he nor any of his relatives have 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 (a) a firm of auditors or company secretaries in practice or cost auditors of
the company or its holding, subsidiary or associate company; or (b) any 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;
7. Neither he nor any of his relatives hold together with his relatives two per cent. or more of
the total voting power of the company; or
8. Neither he nor any of his relatives is a Chief Executive or director, by whatever name called,
of any nonprofit organization 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
9. Who possesses such other qualifications as may be prescribed.

The appointment of independent directors has to also be approved by the shareholders.6

Additional Directors: Additional Directors may be appointed by a company under section 161 of
the Act. The article should confer such power on the Board of Directors of the Company. 7 A

6
ICSI, Appointment and Qualifications of Directors, available at
https://www.icsi.edu/portals/0/APPOINTMENT%20AND%20QUALIFICATIONS.pdf, last seen on 09/11/2016.
7
Section 161 (1), The Companies Act, 2013.

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provision further added in 2013 with regards to such appointment is that the proposed person should
not have failed to get appointed as a Director in a General Meeting.8

Nominee Director: He is a Director nominated by any financial institution pursuant to any law for
the time being in force, or of any agreement or appointed by any Government or any other person to
represent its interest.9

Alternate Directors: Alternate Directors, under section 161(2) of Companies Act, 2013, may be
appointed by a company if the articles confer such power or a decision is passed by a resolution if an
independent Director is absent from India for not less than three months. He must be qualified to
become an independent director, but should not hold any Directorship.10 An alternate Director cannot
hold the office longer than the term of the Director in whose place he has been appointed.
Additionally, he will have to vacate the office, if and when the original Director returns to India.11
Any alteration in the term of office made during the absence of the original Director will apply to the
original Director and not to the Alternate Director.12

Small Shareholders’ Director13: According to section 151 of the Act every listed company may
have one director elected by such small shareholders in such manner and on such terms and
conditions as may be prescribed. “Small shareholder” means a shareholder holding shares of nominal
value of not more than twenty thousand rupees or such other sum as may be prescribed. Their
appointment criterion has been laid down in Rule 7 of Companies (Appointment and Qualification of
Directors) Rules, 2014.
OF DIRECTORS – Section 152
First Director14: First directors of most of the companies are named in their articles. Regulation 60
of Table F provides that the number of the directors and the names of the first directors shall be
determined in writing by the subscribers of the memorandum or a majority of them. If they are not so
named in the articles of a company, then subscribers to the memorandum who are individuals shall
be deemed to be the first directors of the company until the directors are duly appointed.

8
Supra 6.
9
Section 161(3), The Companies Act, 2013.
10
Proviso to Section 161 (2), The Companies Act, 2013
11
Ibid.
12
Ibid.
13
Supra 6, at 11.
14
Supra 6, at 17.

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In the case of a One Person Company, an individual being a member shall be deemed to be its first
director until the director(s) are duly appointed by the member in accordance with the provisions of
Section 152. Section 152(1) of the Act is applicable to all companies, whether public or private.

GENERAL PROVISIONS RELATING TO APPOINTMENT OF DIRECTORS

Number of Directors
Section 149(1) of the Companies Act, 2013 requires that every company shall have a minimum
number of 3 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. A company can appoint maximum
15 fifteen directors.15 A company may appoint more than fifteen directors after passing a special
resolution in general meeting and approval of Central Government is not required.16

Number of Directorships17:
Maximum number of directorships, including any alternate directorship, a person can hold is 20. It
has come with a rider that number of directorships in public companies/ private companies that are
either holding or subsidiary company of a public company shall be limited to 10 i.e., a person cannot
be a director of more than 10 public companies. For the purpose of counting such directorship in
public company, directorship in companies that are either holding or subsidiary of a public company
shall be included. Alternate directorship shall also be included while calculating the directorship of
20 companies. Section 8 company will not be counted for the purpose of maximum number of
Directorship. Further the members of a company may restrict abovementioned limit by passing a
special resolution.

Appointment of Directors

Section 152 of the New Act governs the appointment of directors. Certain specific requirements for
appointment of director as laid down in the Act are-

15
Section 149(1), The Companies Act, 2013
16
Proviso to Section 149 (1) (b), The Companies Act, 2013.
17
Supra 6, at 7.

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 If there is no provision for appointment of Director in the Articles (AoA), the subscribers to
the memorandum, who are individuals shall be deemed to be the first directors of the
company until the directors are duly appointed18;
 Director to be appointed in a general meeting.19 If it is so done, an explanatory statement for
such appointment, annexed to the notice for the general meeting, shall include a statement20
that in the opinion of the Board, he fulfills the conditions specified in this Act for such an
appointment;
 The proposed Director has to furnish his DIN (Director Identification Number) mandatorily.
DIN is allotted by the Central Government on application by a person intending to be the
Director of a company. DIN can be obtained in pursuance of section 153 and 154;
 The proposed Director has to also furnish a declaration stating that he is not disqualified to be
a director21.
 Furthermore, such appointment should be with his consent.22 Earlier such consent was not
mandatory for private companies. Consent implies that being appointed a director and taking
the charge of the office are two different things;23
 Consent has to be filed with the Registrar of Companies within 30 days of appointment.24

The provisions for optional proportionate representation which was earlier mandated only for public
companies and the private companies which are subsidies of a public company, has now been
extended to all private companies also.25 Also, the disqualifications for appointment and
reappointment of directors have been made applicable to the private companies. Therefore, prior to
appointing a director, a company must tick off the various disqualifications for appointment as
director under Section 164 of the New Act.26

18
Section 152 (1), The Companies Act, 2013.
19
Section 152 (2), The Companies Act, 2013.
20
Section 102, The Companies Act, 2013.
21
Section 152 (4), The Companies Act, 2013.
22
Section 152 (5), The Companies Act, 2013.
23
Supra 6, at 17.
24
Supra 22.
25
Section 163, The Companies Act, 2013.
26
Supra 6, at 23.

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A STEP TOWARDS WOMEN EMPOWERMENT IN THE CORPORATE WORLD?

Most of the companies recognize the importance of appointing directors of different ages and with
different kinds of educational background and functional expertise, but they often ignore the benefits
of gender diversity. The absence of women on corporate boards is embarrassingly noticeable. There
are many reasons for the scarce representation of women in the top positions, some say that
traditional companies do not hire women; few others say that maternity leaves are a serious
interruption of work and still others cite safety as an issue. This lack is being known as a “crisis of
talent retention.”

This legislation by the Indian Government is a good start for empowering women in the corporate
world. There are several of capable women around who can add value to the boards, with this
mandatory requirement these deserving women will get a chance to prove their efficiency.
Appointment of independent woman director would be beneficial in many ways but the provision is
not clear about appointing an independent woman director and since there are no such norms
regarding this, companies are likely to recruit women from amongst the promoter’s family and
friends irrespective of whether they are qualified for the post or not. Such being the case women will
be appointed to the boards but they would be the promoter’s wife, daughter, niece or a friend.

Here Norway's experience could serve as an example for us; Norway established a 40 percent quota
for women on its boards in 2003.27 At the start of the initiative, women held less than seven percent
of board seats but by 2010, women filled more than a quarter of those seats. Although the numbers of
women were up in Norway, there was little evidence that corporate performances had been
enhanced. A study conducted by the University of Michigan suggested that Norway’s introduction of
quotas had negatively impacted both performance and board quality. 28 In order to obey the law the
Norwegian firms appointed many women as members of the board who were less experienced.
Though such legislation and quota can be effective to bring women to the top positions in the

27
Getting Woman on Board, Norway-UK, available at http://www.norway.org.uk/norwayandcountry/Current-
Affairs/Norwegian-Politics/Getting-Women-on-Board/#.WCu0lzb_rmQ, last seen on 02/11/2016.
28
Lessons from Norway in getting women on Corporate Board, The Conversation, available at
http://theconversation.com/lessons-from-norway-in-getting-women-onto-corporate-boards-38338, last seen on
09/11/2016

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companies, its benefits will be short lived if there are no proper guidelines to implement it and if it is
not properly supervised by the Government.

Women should be accepted for their skills and not just because they are women. It’s indisputable that
only experienced women with the right qualifications should be appointed as a director of the boards.
There are lots of talented women out there; the deserving and qualified women should be brought on
board. This provision is definitely a step towards empowerment of women in the corporate world and
this will help women continue to build their presence in the corporate world.

In 2016, new women board member appointments in India stood at 11% of total hires in 2016, as
against 14.5% for new male directors. This is lower than the global overall average of 17% women.
In other Asian markets like Hong Kong and Malaysia, the same was 16.4% and 27.3%, respectively.
While the compulsion of maintaining one woman director on every listed company board could have
helped more women get board positions.29
By the amendment in 2014, the Securities and Exchange Board of India (Sebi) had made
amendments to Clause 49 of the listing agreement for all companies, stipulating that a board should
have at least 50 per cent of directors as non-executive or independent directors with at least one
woman director. These include party’s Delhi unit vice president Shazia Ilmi; Gujarat IT cell
convenor Rajika Kacheria; minority face of the BJP in Gujarat Asifa Khan; former BJP MLA
candidate from Odisha Surama Padhy and former Bihar MLC Kiran Ghai Sinha., who find
themselves on the boards of Navaratna PSUs that include Engineers India Ltd (EIL), Hindustan
Petroleum Corporation Ltd (HPCL), Bharat Heavy Electricals Ltd (BHEL) and the National
Aluminium Company Ltd (NALCO). So now the pertinent question which arises that it is that
necessary to provide woman directors that even political personalities can be an option just to fulfill
the desired condition of the clause mentioned in Act.

29

http://economictimes.indiatimes.com/articleshow/57342096.cms?utm_source=contentofinterest&utm_medium=text
&utm_campaign=cppst visited on 23rd February 2017

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TRACING THE CHANGES IN BOARD OF DIRECTORS- 1956 TO 2013

The following are the probable impact of the changes that have been brought with respect to Board
of Directors:

 Allowing companies to increase the maximum number of directors on their boards by way of
a special resolution would ensure greater flexibility to companies.
 The requirement to have a resident director on the board of companies can be viewed as a
move to ensure that boards of Indian companies do not comprise entirely of non-resident
directors. This provision has caused significant difficulties to companies, since it was brought
into force with immediate effect, requiring companies to restructure their boards immediately
to ensure compliance with the new Act.
 It is evident from provisions of the new Act that much emphasis has been placed on ensuring
greater independence of independent directors. The overall intent behind these provisions is
to ensure that an independent director has no pecuniary relationship with, nor is he provided
any incentives (other than the sitting fee for board meetings) by it in any manner, which may
compromise his / her independence. In view of the additional criteria prescribed in the new
Act, many listed companies may need to revisit the criteria used in appointing their
independent directors.
 While the mandatory requirement for appointment of women directors is expected to bring
diversity on to the boards, companies may find it difficult to be in compliance with the new
Act, unless they have already identified or internally groomed women candidates that are
qualified to be appointed to the board.

Thus, the hypothesis proposed by the researcher is largely based on how the companies monitor
their affairs, while complying with the new provisions and whether they are able to survive the
test of times.

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Setting the framework: Evolution of Corporate Criminal Liability
Jurisprudence in India

A constitution bench of five Judges in Standard Chartered Bank v. Directorate of Enforcement1


had held that a company can be prosecuted and convicted for an offence which requires a
minimum sentence of imprisonment. However, the constitution bench categorically clarified that
it is not expressing any opinion on the question whether a corporation could be attributed with
requisite mens rea to prove the guilt.
Thereafter, a division bench of the Supreme Court in Iridium India Telecom v. Motorola
Incorporated and Others2 had laid down that the criminal intent of the "alter ego" of the
company, that is the personal group of persons that guide the business of the company, would be
imputed to the company.

Vicarious Liability: When?

The Supreme Court in Sunil Bharti Mittal v. Central Bureau of Investigation and Others3 was
faced with the issue as to when can a director/person in charge of the affairs of the company be
prosecuted for an offence committed by the company. The Court relying upon Iridium stated that
the principal of attribution is applied to impute criminal intention to the company on account of
criminal intention of its alter ego and cannot be applied in a reverse scenario to make the
directors liable for offences committed by the company.
The three bench laid down that a director can only be prosecuted if there is sufficient evidence of
his active role coupled with criminal intent or where the statutory regime itself attracts the
doctrine of vicarious liability, by specifically incorporating such a provision. The Supreme Court
categorically laid down that, "When the company is the offendor, vicarious liability of the
directors cannot be imputed automatically, in the absence of any statutory provision to that
effect." It was surmised that it is a cardinal principle of criminal jurisprudence that there is no
vicarious liability unless the statute specifically provides for it.
Furthermore, earlier division bench decisions of the Supreme Court in J.K Industries Limited and
Others v. Chief Inspector of Factories and Boilers and Others4 and P.C Agarwala v. Payment of
Wages Inspector, M.P and Others5 have held that for vicarious liability under strict liability
statutes, a person in charge would be deemed to be responsible for the acts of the company.

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In the above backdrop, it is apt to examine the recent decision of the CCI in Ministry of
Agriculture v. Mayhco Monsanto Biotech (India) Limited6 ("Monsanto") wherein the CCI was
grappling with the issue of whether a director or an officer of a company be prosecuted for an
offence without arraigning the company itself as an accused and whether directors and the
company be simultaneously prosecuted? The judicial fora has seen a divergence of opinion on
this point.
The Hon'ble Supreme Court while dealing with a similar issue in State of Madras v. CV
Parekh7 under the Essential Commodities Act, 1955 held that the liability of the person-in-charge
of the company is binding when a contravention is committed by the company and if the
company is not prosecuted, the person-in-charge of the company could not be fastened with
liability.
Subsequently, in Sheoratan Agarwal v. State of Madhya Prasesh8, it was clarified by a division
bench of the Hon'ble Supreme Court that, "the company alone or the person-in charge of and
responsible for the conduct of the business of the company alone, may be prosecuted for the acts
of the company as there is no statutory requirement that such person cannot be prosecuted unless
the company is also arraigned as an accused alongside him." This was in contrast to the earlier
decision of the Supreme Court in CV Parekh.
The Supreme Court thereafter in Aneeta Hada v. Godfather Travels and Tours (P) Ltd9 while
adjudicating a dispute under the Negotiable Instruments Act, 1881 ruled that the prosecution of a
company is a condition precedent if its officer-in charge or responsible for the conduct of its
business is to be prosecuted.
The CCI in Monsanto was dealing with the issue on whether under Section 48 of the Competition
Act, 200210, a director can be simultaneously proceeded along with that of the company or a
conviction on the company is a condition precedent to proceed against the director. The CCI
observed that:
1. Under Indian law, numerous statutes impose vicarious liability for the acts of the company
upon its directors and other officers key managerial positions.
2. Such provisions generally contain an exception stating that the director shall not be held
vicariously liable for the acts of the company if he is able to prove that the alleged act was
committed without his knowledge and negligence and has exercised all due diligence to
prevent the commission of the offence.

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3. Vicarious liability is attached on the officer-in-charge and responsible for the conduct of
business of the company by fiction of law in spite of the fact that such person may or may
not have been directly responsible for the commission of such offence by the company.
4. A person vicariously liable for acts of the company may be prosecuted simultaneously with
the company.
5. The Competition Commission of India is not required to first record a conviction against the
company to proceed against the directors.30

Conclusion : Independent directors: Why they need to stand up Now

In the past few earnings season, there has hardly been a board meeting of listed companies which did
not pause in their deliberations to discuss the ramifications of the recent disputes in one of India’s
most trusted business groups on the corporate governance matters. These discussions were varied,
engaging and included deliberations on the role, objectivity and probity of independent directors in
promoter-controlled companies or in companies with dispersed ownership in matters relating to
conflicts between the boards and their listed subsidiaries, and how control is exercised by the
principal owners who are in minority, etc.
We have recently seen diverse display of conduct by the independent directors in two of the iconic
companies and groups in India. In the case of one, the non-executive chairman openly canvassed
with the promoters for removal of a director prior to a shareholders meeting and was rewarded for
this with multiple board positions soon after the voting. There were other directors within the group
who steadfastly took positions of what they believed to be in the best interest of the company and not
what the promoters desired. Their position later got voted out by a dispersed group of shareholders in
a general meeting.
The other board conversation involves the role the independent directors played in determining the
fair value and dealing with conflict of interest of the CEO in an acquisition, especially when the CFO
has dissented on the transaction. Laws around the world categorise directors (including promoters) as
working, non-executive or independent based on the asymmetry of information that exists and their
ability to control decisions. Working directors often have significant influence in the decisions to
induct outside directors and hence the assumption that outside directors are beholden to them.

30

http://www.mondaq.com/india/x/563958/Directors+Officers/DIRECTORS+LIABILITY+REVISITING+THE+PRINCIPLES+OF+
VICARIOUS+LIABILITY

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Expectations from independent directors tend to be exaggerated. Investors, regulators and public
often expect them to arbitrate in every matter of conflict, oversee controls, delineate risks and
strategise and give directions in all aspects involving the business and operations, some of which go
beyond the realm of their legal duties and responsibilities.

What should we expect from independent directors

Under the Companies Act of 2013, a director on the board of a company, whether is a principal
owner/promoter, nominee of an investor, working whole time or independent needs to act in good
faith and in the best interests of the company, its employees, shareholders, community and
environment. Law does not rank the priority of such interests of varied stakeholders and one may
assume that they rank pari passu or equally with each other in enjoying the responsibilities of
directors towards them. Directors act as a collegium working collectively towards the best interests
of the stakeholders; responsibilities and liabilities follow every role a director is expected to perform.
In setting up strategies, budgets or oversight of policies directors have a collective responsibility,
shared across the board. Working directors have additional responsibilities and liabilities under
various laws for any operational or legal breach, while independent directors are responsible only for
those acts which are done either with their consent or through a board process. If, however,
information is deliberately concealed or not presented through a board process or acts have been
done without their knowledge, the law protects an independent director who does not have to bear
the responsibility or consequences arising out of such executive actions.

One consistent chorus that follows every corporate scandal in the world is why
did the independent directors not discover the scam

Directors are expected to act with due care, skill and diligence and exercise independent judgement
on all matters affecting the company whose interests are paramount. Directors, especially
independent directors, need to demonstrate that they acted in good faith while exercising their
business judgement.
In order to determine what an independent director is responsible for one can seek the construct of
the law which makes them specifically responsible for acts and imposes punitive consequences for
slippage. For example, members of an audit committee work as experts in that role and need to
demonstrate their expertise in discharge of audit duties. Courts and regulators have consistently held
that where due care and diligence was not exercised, no immunity from prosecution can be granted if

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directors have repeatedly disregarded red flags, not paid heed to complaints raised by whistle
blowers or simply did not spend time necessary to support their decisions.
In matters of ambiguity like determining fair value in case of acquisition or sale or for dealing with
conflict of interests of the CEO or promoters, depth of judgement needs to be explicit and may
include documented deliberations, use of independent experts, counsel etc. to support their
conclusions. Boards in their quest for answers swing from being prolonged and obtuse to being
almost reckless in decision making and that causes anguish for regulators, small shareholders and
other investors, knowing well that they have liabilities which are both civil and criminal in case of a
breach.
Independent directors cannot hide behind the guise of circumstances and claim to not knowing what
an otherwise reasonable person sitting in a similar position should know. While information
asymmetry in the case of an independent director could be a challenge, the test of diligence on the
part of an independent director is considered fulfilled if she has made all reasonable attempts to get
the information which will help take a balanced view.
All directors, including independent ones, must cater to the interests of the shareholder. While this
duty is not towards any individual shareholder, the law requires directors to act in a manner which
will be in the company’s best interests.. This right must be exercised by independent directors not
only in their affirmative actions backed by reasoned judgement, but also through dissent during a
vote in case of an impasse.
Once the directors have consented to a resolution, which is also reiterated through the minutes, it is
assumed that the decision has gone through a due and fair process of diligence in an independent
manner without favour or fear of any other person exercising control or influence. This balance is
difficult to achieve, even for individuals who have been extremely successful and have significant
reputation to protect.
Demonstration of independence by boards and independent directors has been disparate, at times just
perfunctory which in turn creates a unique governance challenge since the corporate dice is always
loaded in favour of the promoters and their nominees. Independent directors are the trustees of good
corporate governance. If they do not stand up to be counted when required, the society loses one of
its strongest pillars of good governance. In recent years, we have seen a welcome change in the way
independence is being demonstrated in India’s board rooms but we have miles to go before we
cement our faith in the institution.31

31
http://www.financialexpress.com/opinion/independent-directors-why-they-need-to-stand-up-and-be-
counted/564650/

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BIBLIOGRAPHY
 STATUTES:
The Constitution of India, 1950

 ACTS:
1. The Companies Act, 2013
2. The Companies Act, 1956
3.
4. The Norwegian Quota Act, 2003

 ONLINE RESOURCES:
1. http://scholarlycommons.law.case.edu/cgi/viewcontent.cgi?article=1550&context=jil
2. http://ejil.oxfordjournals.org/content/20/1/23.full
3. http://www.nishithdesai.com/information/research-and-articles/nda-hotline/nda-
hotline-single-view/article/companies-act-2013-greater-emphasis-on-governance-
through-the-board-and-board-processes.html?no_cache=1
4. https://www.mca.gov.in/SearchableActs/Section149.htm
 BOOKS:

1. A.K Majumdar and Dr. G.K Kapoor, Company Law and Practice (New Delhi: Taxmann
Publications Limited, 2000).

2. Avtar Singh, Company Law (Lucknow: Eastern Book Company, 1999).

3. Paul L. Davies, Gower's Principles of Modern Company Law (London: Sweet and
Maxwell Limited, 1997).

4. Ramaiya, Guide to the Companies Act Part I 14th ed. (New Delhi: Wadhwa and
Company Law Publishers, 1998).

 LEGAL DATABASE:
1. WESTLAW
17

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