Company Law

Unit-3

Company Management:
• Directors
• Managing Directors

• Manager

• Whole time Director

• Company Secretary
Director:​ A Director is one of those persons, who are responsible for directing, governing
and controlling the policy or management of a company. All directors collectively are called
as Board of Directors or Board. They are the top administrative organ and the company can
operate only through them. They are the brain of the organization responsible for all policy
making and decision making activities.
Legal Position of Directors:

• Director as Agents: ​In Ferguson v. Wilson6, the court clearly recognized that
directors are in the eyes of law, agents of the company. It was held that, the
company has no person; it can act only through directors and the case is, as regards
those directors, merely the ordinary case of a principal and agent. When the
directors contract in the name, and on behalf of the company, it is the company
which is liable on it and not the directors.
• Director as Trustees:​ Directors are the trusties of the company’s money, property
and their powers and such must account for all the moneys over which they exercise
control and shall refund any moneys improperly paid away, and shall exercise their
powers honestly in the interest of the company and all the shareholders, and not
their own sectional interest.
• Director as Organs of Corporate Body:​ The organic theory of corporate life “treats
certain officials as organs of the company, for whose action the company is held
liable just as a natural person is for the action of his limbs. Thus the modern directors
are more than mere agents or trustees. The Board is also correctly recognized to be
a primary organ of the company. Directors and managers represent the directing
mind or will of the company and control what it does.

Ms. Anchal Chaudhary

Assistant Professor
St. Andrews Institute of Technology & Management
Types of Directors:

• Residential Director​: As per the law, every company needs to appoint a director who
has been in India and stayed for not less than 182 days in a previous calendar year.
• Small Shareholders Directors​: A listed company, could upon the notice of minimum
1000 small shareholders or 10% of the total number of the small shareholder,
whichever is lower, shall have a director which would be elected by small
shareholders.
• Independent Director​: Independent directors are non-executive directors of a
company and help the company to improve corporate credibility and enhance the
governance standards. In other words, an independent director is a non-executive
director without a relationship with a company which might influence the
independence of his judgment.
The tenure of the Independent directors the hall up to 5 consecutive years; however,
they shall be entitled to reappointment by passing a special resolution with the
disclosure in the Board’s report. Following companies need to appoint at the least
two independent directors:

• Public Companies with Paid-up Capital of INR 10 Crores or more,

• Public Companies with Turnover of INR 100 Crores or more,
• Public Companies with total outstanding loans, deposits, and debenture of
INR 50 Crores or more.

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Assistant Professor
St. Andrews Institute of Technology & Management
 • Women Director​: A company, whether be it a private company or a public company,
would be required to appoint minimum one woman director in case it satisfies any of
the following criteria:

1. The company is a listed company and its securities are listed on the stock exchange.
2. The paid-up capital of such company is INR 100 crore or more with a turnover of INR
300 crores or more.

• Additional Director​: A person could be appointed as an additional director and can

occupy his post until next Annual General Meeting. In absence of the AGM, such
term would conclude on the date on which such AGM should have been held.
• Alternate Director​: Alternate director refers to a personnel appointed by the Board,
to fill in for a director who might be absent from the country, for more than 3
months.
• Nominee Directors​: Nominee directors could be appointed by a specific class of
shareholders, banks or lending financial institutions, third parties through contracts,
or by Union Government in case of oppression or mismanagement.

What is the required number of directors in a company?

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​. A company may appoint more than fifteen directors
after passing a special resolution in general meeting.

What are the documents required to become a director?

• DIN (Director Identification Number);

• Income-tax PAN;

• Personal Information

• Details of Nationality;
• Occupation;

• Full Address with PIN Code (present and permanent)

• Educational and professional qualifications;

• Any legal proceedings initiated or pending against such person;

• List of limited liability partnerships in which he is or was a designated partner along
with Name of the LLP, Nature of Industry; and Duration- with dates;

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 • List of companies in which he is or was director along with Name of the company;
Nature of industry; Nature of directorship, Executive / Non-executive / Independent
/ Nominee Director; and Duration with dates.
Appointment of Directors:
• The articles of a company may list the names of the first directors in its articles of
association, if no names are mentioned in the articles, the subscribers of the
memorandum become the first directors.
• Directors can be appointed by the initial - of the company at its first general meeting.

• A company may appoint an additional director if it needs.

• An Alternate Director may be appointed by the board during the absence of a
director for a period not less than 3 months
• A vacant position of director can be filled by the members of the board on
temporary terms
• Nominee Director – It refers to any person nominated as director by a financial
institution or a government body who holds shares in the company. He must be
appointed by the company.
• On complaint against oppression or mismanagement in a company, the tribunal may
order the company to appoint the required number of directors as directed by the
Tribunal.

• A director may be appointed by the central government under certain

circumstances.
• A director may be appointed by a single transferable vote system or cumulative
transferable vote system.

Duties of Directors:
1. General Duties of Directors:
● To form policy and determine objectives of a company
● To delegate power to any committee if the Articles permit
● To issue instructions to subordinates for the implementation of policy to review
company’s progress
● To appoint their subordinate officer, managing director, Manager, Secretary,
other employees
● To act in accordance with the Articles of the company providing that articles are
subject to the provisions of this Act. (sec 166(1))
● To act in Good faith in order to promote the objects of the company. However
the promotion of the objects should be for the benefit of the company.
● To perform duties with Due and reasonable care and Diligence.
● Duty to not to achieve or attempt to achieve any undue gain or advantage either
to himself or to his relatives.

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Assistant Professor
St. Andrews Institute of Technology & Management
 2. Specific Duties of Directors:
● Must disclose his shareholding in a company.
● Must disclose his interest in contracts of the company
● Must disclose their name, address and occupation
● Duty to take up qualification shares within 2 months after his appointment
● Decide the minimum subscription and issue prospectus. It must not contain any
false or misleading statement
● To issue forfeit and transfer shares
● To declare dividend and arrange for the payment.
Permissible Remuneration payable under the Companies Act 2013:

Condition Max Remuneration in any financial year

Company with one Managing director/whole 5% of the net profits of the company
time director/manager

Company with more than one Managing 10% of the net profits of the company
director/whole time director/manager

Overall Limit on Managerial Remuneration 11% of the net profits of the company

Remuneration payable to directors who are neither managing directors nor whole-time directors:

For directors who are neither managing 1% of the net profits of the company if there is a managing
director or whole-time directors
director/whole time director

If there is a director who is neither a 3% of the net profits of the company if there is no managing
Managing director/whole time director
director/whole time director

Provision for the Removal of Company Directors:

A director can be removed from his office by:

(i) The shareholders under section 284;
(ii) The Central Government under sections 388-B to 388-E; and

(iii) The Company Law Board under section 402.

(i) Removal by the Shareholders:

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Assistant Professor
St. Andrews Institute of Technology & Management
According to section 284, “A company may, by ordinary resolution, remove a director before
the expiry of his period of office.” Special notice of at least 14 days is required to be given
for moving a resolution to remove a director.
On receipt of notice of a resolution to remove a director, the company shall forthwith send
a copy thereof to the director concerned. The director shall be entitled to be heard on the
resolution for his removal at the meeting.
On request of the director, the company shall send a copy of any representation made by
the director in writing thereon to each of its members. In case the copies of the
representation could not be sent to the members because it was received too late, the
director concerned may require it to be read out at the meeting.
However, Central Government may not allow the representation to be sent out or read to
the members if on an application of the company or any member, the Government is
satisfied that the rights conferred by law shall be abused by the director concerned in
securing needless publicity for the defamatory matter.
The vacancy caused by the removal of a director may be filled at the same meeting in which
the removal takes place provided an earlier special notice to this effect has been given to
the members together with the removal notice.
The person so appointed will hold office up to the date to which his predecessor would have
held it, had he not been removed. If the vacancy is not filled at the meeting, it may be filled
by the Board as a casual vacancy.
(ii) Removal by the Central Government:
Central Government has the power (under Sec. 388B, 388C, 388D, and 388E) to remove
directors of a company from office on the recommendations of the Company Law Board
(Tribunal w.e.f. its constitution).
The case of any director or other managerial personnel may be referred by the Central
Government to the Company Law Board (Tribunal) for enquiry, where the Central
Government is convinced of the existence of any of the following circumstances:
● Such person is or has been guilty of fraud, misfeasance, persistent negligence or
default in carrying out his obligation and functions under the law, or breach of trust;
or
● The business of the company is not or has not been conducted and managed by such
person in accordance with sound business principles or prudent commercial
practices; or
● The company is or has been conducted and managed by such person in a manner
which is likely to cause, or has caused serious injury or damage to the interest of the
trade, industry or business to which such company pertains; or
● The business of the company is or has been conducted and managed by such person
with intent to defraud its creditors, members or any other persons or otherwise for a
fraudulent or unlawful purpose or in a manner prejudicial to public interest.
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Assistant Professor
St. Andrews Institute of Technology & Management
After the hearing of the case, the Company Law Board (Tribunal) shall record its findings and
forward it to the Central Government. If the Company Law Board has declared a person
unfit to occupy any office connected with the conduct and management of the company,
the Central Government shall remove such person from office.
Such person shall not be entitled to hold office of a director or any other office connected
with the management of the affairs of any company during a period of 5 years from the date
of the order of removal.

(iii) Removal by Company Law Board:

Where an application is made to the Company Law Board (Tribunal after it is formed) under
section 397 and 398 against oppression and mismanagement of a company’s affairs, the
Company Law Board may, if satisfied, order for the termination or setting aside of an
agreement which the company might have made with its directors (Sec. 402).
The effect of such order will be removal of such director or directors from his or their office.
Such a director (including managing director) shall not be entitled to serve as a manager,
managing director or director of any company without the sanction of the Company Law
Board for a period of 5 years from the date of the Company Law Board’s order terminating
or setting aside his contract with the company. He shall also not be entitled to claim any sort
of compensation from the company for the loss of office (Sec. 407).
Difference Between Manager and Director:
Definition of Manager:
In a real sense, the term manager can be defined as the individual who is responsible for the
governing and controlling the organization. He/She is someone who always has his/her
organization’s overall perspective in the mind and whatever he/she does are aligned
towards the company’s objectives.
A manager is the practitioner of management, which involves making optimum use of
resources, i.e. Men, Machine, Material, Money, and Method, in order to attain the goals of
the organization. He/she is an employee of the organization who is appointed by and
reports to the board of directors.

Definition of Director:
A director can be defined as the elected and appointed member of the organization, whose
primary function is to look after the activities of the organization. They are jointly known as
the board of directors or say board. Board of Directors frames the plans and policies, create
strategies, set objectives and goals of the organization. They are the ones, who decides the
success or failure, along with the culture and practices of the company.

Ms. Anchal Chaudhary

Assistant Professor
St. Andrews Institute of Technology & Management
Ms. Anchal Chaudhary
Assistant Professor
St. Andrews Institute of Technology & Management
Company Meetings:

A meeting can be defined as, a lawful association, or assembly of two or more persons by
previous notice for transacting some business. The meeting must be validly summoned and
convened. Such gatherings of the members of companies are known as company meetings.

1. Meetings of the Shareholders:

● Statutory Meeting:
This is the first meeting of the shareholders conducted after the commencement of
the business of a public company. Companies Act provides that every public
company limited by shares or limited by guarantee and having a share capital should
hold a meeting of the shareholders within 6 months but not earlier than one month
from the date of commencement of business of the company.
Usually, the statutory meeting is the first general meeting of the company. It is
conducted only once in the lifetime of the company. A private company or a public
company having no share capital need not conduct a statutory meeting.
● Annual General Meeting:
The Annual General Meeting is one of the important meetings of a company. It is
usually held once in a year. AGM should be conducted by both private and public ltd
companies whether limited by shares or by guarantee; having or not having a share
capital. As the name suggests, the meeting is to be held annually to transact the
ordinary business of the company.
● Extra-ordinary General Meetings (EOGM):
Statutory Meeting and Annual General Meetings are called the ordinary meetings of
a company. All other general meetings other than these two are called Extraordinary
General Meetings. As the very name suggests, these meetings are convened to deal

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Assistant Professor
St. Andrews Institute of Technology & Management
 with all the extraordinary matters, which fall outside the usual business of the
Annual General Meetings.
EOGMs are generally called for transacting some urgent or special business, which
cannot be postponed till the next Annual General Meeting. Every business
transacted at these meetings is called Special Business.
Persons Authorized to Convene the Meeting:
The following persons are authorized to convene an extraordinary general
meeting.
The Board of Directors.
The Requisitionists.
The National Company Law Tribunal.
Any Director or any two Members.
● Class Meetings:
Class meetings are those meetings, which are held by the shareholders of a
particular class of shares e.g. preference shareholders or debenture holders.
Class meetings are generally conducted when it is proposed to alter, vary or affect
the rights of a particular class of shareholders. Thus, for effecting such changes it is
necessary that a separate meeting of the holders of those shares is to be held and
the matter is to be approved at the meeting by a special resolution.
For example, for cancelling the arrears of dividends on cumulative preference
shares, it is necessary to call for a meeting of such shareholders and pass a
resolution as required by Companies Act. In case of such a class meeting, the holders
of other class of shares have no right to attend and vote.
2. Meetings of the Directors:
Meetings of directors are called Board Meetings. These are the most important as
well as the most frequently held meetings of the company. It is only at these
meetings that all important matters relating to the company and its policies are
discussed and decided upon.
Since the administration of the company lies in the hands of the Board, it should
meet frequently for the proper conduct of the business of the company. The
Companies Act therefore gives wide discretion to the directors to frame rules and
regulations regarding the holding and conduct of Board meetings.
The directors of most companies frame rules concerning how, where and when they
shall meet and how their meetings would be regulated. These rules are commonly
known as Standing Orders.
3. Meetings of Debenture Holders:
The debenture holders of a particular class conduct these meeting. They are
generally conducted when the company wants to vary the terms of security or to
modify their rights or to vary the rate of interest payable etc. Rules and Regulations
regarding the holding of the meetings of the debenture holders are either entered in
the Trust Deed or endorsed on the Debenture Bond so that they are binding upon
the holders of debentures and upon the company.

4. Meetings of the Creditors:

Strictly speaking, these are not meetings of a company. They are held when the
company proposes to make a scheme of arrangements with its creditors. Companies
like individuals may sometimes find it necessary to compromise or make some
Ms. Anchal Chaudhary
Assistant Professor
St. Andrews Institute of Technology & Management
 arrangements with their creditors, In these circumstances, a meeting of the creditors
is necessary.

Requisites of a Valid General Meeting:

A general meeting of the members is said to be valid when it is properly convened and duly
constituted. A meeting is said to be properly convened when proper notice of the meeting is
issued by a ‘proper authority to all the persons entitled to receive the notice. Following are
the requisites of a valid general meeting:
● Proper Authority:
The proper authority to convene a general meeting of the company’s members is the
Board of Directors. For this, the Board of Directors has to pass a resolution at its
meeting. Such a meeting of the members can be Annual General Meeting, or
Extraordinary General Meeting. In certain cases, even such meetings may be called by or
requisitioned by the members themselves or by the Tribunal.
Notice: The notice of every meeting of the company shall be given to:
● Every member of the company, legal representative of any deceased member or
the assign of an insolvent member,
● The auditor or auditors of the company and
● Every director of the company.
For general meeting of the members, notice has to be given at least 21 days in advance.
In calculating 21 days, the date of the issue and the date of meeting are not included. In
case the notice is sent by post, two days for postal transit are excluded. Therefore, the
notice of a general meeting should be sent 25 days before the date of the meeting if the
notice is sent by post. The notice should contain the agenda of the meeting which
means a ,list of all the items to be discussed in the meeting. The notice must specify the
place, time and purpose of the meeting.
The meeting may be held with a shorter notice if it is so agreed by at least 95% of the
members entitled to vote in such meeting. Deliberate omission to give notice to any
member can render the meeting invalid. An accidental omission to give notice to or non
receipt of it by any individual member will not affect the meeting’s validity. The notice
must contain a statement about the business to be transacted at the meeting, clearly
dividing the business into Ordinary Business and Special Business. The notice may be
sent to a member by post or by courier or by such electronic or other mode as may be
prescribed.

● Place of the Meeting:

Annual General Meeting:​ An AGM must be held by a company at its registered office or
at any other place in the same city, town or village where the registered office of the

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 company is situated. The Central Government may exempt any company from this
provision subject to such conditions as it may impose.
Extraordinary General Meeting (EGM):​ Unlike AGM, EGM can be held at a place other
than the registered ‘office of the company or the city, town or village in which the
registered office of the company is situated.

● Quorum:
It means the minimum number of members required to be present at the meeting. If
this minimum number of members is not present, then the meeting is held to be invalid
and no business can be transacted at it. Generally, it is the Articles of Association of the
company wherein the requirement of the quorum is specified regarding various
meetings whether it is Board Meeting or General Meeting of the members.
Quorum, is required to be present at the beginning of the meeting. It need not be
present throughout or at the time of taking votes on any resolution. A quorum must be
present throughout in the case of Board’s Meetings.
Section 103 of the Companies Act contains provisions relating to number of members
which would constitute quorum for a meeting of the company.

As per Section 103, unless, the Articles of the company provide for a larger number:
In case of a public company:

● Five members personally present if the number of members as on the date of

meeting is not more than one thousand.
● Fifteen members personally present if the number of members as on the date of
meeting is more than one thousand but less than or equal to five thousand.
● Thirty members personally present if the number of members as on the date of
the meeting is more than five thousand.
In the case of a private company, two members personally present, shall be the
quorum for a meeting of the company.
If the quorum is not present within half -an -hour from the time appointed for holding
the meeting of the company:
● The meeting shall stand adjourned to the same day in the next week at the same
time and place, or to such other date and such other time and place as the Board
may determine or
● The meeting, if called by requisitionists shall stand cancelled. In the case of an
adjourned meeting or of a change of day, time or place of meeting, the company
shall give not less than three days notice to the members either individually or by
publishing an advertisement in the newspapers (one in English and one in

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 vernacular language) which is in circulation at the place where the registered
office of the company is situated.
If at the adjourned meeting also, a quorum is not present within half-an -hour from the
time appointed for holding the meeting, the members present shall be the quorum. Can
one person constitute a quorum?
Ordinarily, one person present in the meeting cannot form a quorum. Under the
following circumstances, even one person present may form the quorum for a general
meeting.
● When the Tribunal calls or directs the calling of an Annual General Meeting, it
may give direction to the company that one member present in person or by
proxy shall be deemed to constitute a meeting.
● In case of class meetings, if all the shares of a particular class are held by one
person, he shall constitute the quorum.
● If there is only one creditor or debenture-holder, he shall constitute quorum for
the creditors debenture-holders’ meeting.

● Chairman [Section 104]:

The successful conduct of any meeting is largely dependent upon the personality of the
chairman. He acts as the Presiding Officer of the company’s meeting. It is this chairman
who is responsible for maintaining order and also conducting the meeting. He puts
motions before the meeting, counts the votes, announces the results and also certifies
the records (minutes) of the meeting by putting his signatures. Unless the Articles of the
company provide otherwise, the members personally present at the meeting shall elect
one of themselves to be the Chairman thereof on a show of hands.
If a poll is demanded on the election of the chairman, it shall be taken in accordance
with the provisions of this Act and the chairman elected on a show of hands shall
continue to be the chairman of the meeting until some other person is elected as
chairman as a result of the poll, and such other person shall be the chairman for the rest
of the meeting.
Section 104 leaves the appointment of the chairman to be regulated by the Articles of
the company. The provisions of this section would be applicable only if the Articles do
not otherwise provide. The Articles generally contain provisions on the lines of
Regulations 45 to 47 contained in Table F of Schedule I.
These Regulations are as follows:
● Regulation 45:​ The chairman, if any, of the Board shall preside as chairman at
every general meeting of the company.
● Regulation 46:​ If there is no such chairman, or if he is not present within fifteen
minutes after the time appointed for holding the meeting, or is unwilling to act

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Assistant Professor
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 as the chairman of the meeting, the directors present shall elect one of the
directors present to be the chairman of the meeting.
● Regulation 47:​ if at any meeting, no director is willing to act as chairman or if no
director is present within fifteen minutes after the time appointed for holding
the meeting, the members present shall choose one of the members present to
be the chairman of the meeting.
Powers of the Chairman:
● To decide all incidental questions which arise at the meeting.
● To regulate the course of the proceedings at the meeting.
● To decide priority among-st speakers when two or more persons simultaneously
rise to speak.
● To stop the speaker when his allotted time is over.
● To check irrelevant and personal references during the course of debate.
● To order and take a poll
● To expel an unruly member
● To exercise casting vote in case of equality of votes.

Duties of the Chairman

● To see that the meeting is properly called.
● To see that proper notice of the meeting has been given to all.
● To see that the requirements of the Companies Act and Articles of Association
are duly compiled with.
● To take care that proper discipline is maintained at the meeting.
● To see that the proceedings are conducted in a proper manner.
● To see that the voting is fair.
● To declare the meeting closed when all the business has been transacted.
● To see that proper and correct minutes are entered in the minutes book.

● Minutes (Section 118):

Minutes man a written record of all the proceedings of the meeting. Some important
points pertaining to minutes are as follows:
● Every company shall take steps to get the/Minutes of the proceedings of general
meetings, meetings of the Board of Directors and its committees and every
resolution passed by postal ballot prepared within 30 days of conclusion of such
meeting or passing of resolution by postal ballot.
● Separate minutes books have to be maintained for each type of meeting.
● Every minutes book shall be in a bound form and not in a loose-leaf form.
● Every page of the minutes book must be serially numbered.
● Minutes must present a fair and proper summary of all the proceedings
conducted at the meeting.

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Assistant Professor
St. Andrews Institute of Technology & Management
 ● All appointments made at any of the meetings aforesaid shall be included in the
minutes of the meeting.
● In the case of a meeting of the Board of Directors or of a committee of the Board,
the minutes shall also contain
— The names of the directors present at the meeting and
— In the case of each resolution passed at the meeting, the names of the
directors, if any, dissenting from, or not concurring with the resolution.
● There shall not be included in the minutes, any matter which, in the opinion of
the chairman of the meeting:
— Is or could reasonably be regarded as defamatory of any person or
— Is irrelevant or immaterial to the proceedings or
— Is detrimental to the interests of the company. The chairman shall
exercise absolute discretion in regard to the inclusion or non -inclusion of
any matter in the minutes on the grounds stated
● above. The minutes kept in accordance with the provisions of the Act shall be
evidence of the proceedings recorded therein.
● Each page of every such book shall be initial or signed and the last page of the
record of proceedings of each meeting or each report in such books shall be
dated and signed:— In the case of minutes of proceedings of a meeting of the
Board or of a committee thereof, by the chairman of the said meeting or the
chairman of the next succeeding meeting.
— In the case of minutes of proceedings of a general meeting, by the
chairman of the same meeting within the aforesaid period of 30 days A or
in the event of the death or inability of that chairman within that period,
by a director duly authorized by the Board for the purpose.
— In case of every resolution passed by postal ballot, by the chairman of the
Board within the aforesaid period of 30 days or in the event of there
being no chairman of the Board or the death or inability of that chairman
within that period, by a director duly authorized by the Board for the
purpose.
● The minutes book of general meetings shall be kept at the registered office of
the company, preserved permanently and kept in the custody of the company
secretary or any director duly authorized by the Board or at such other place as
may be approved by the Board.
● Minutes constitute a prima-facie proof of meetings being in order.
● The minutes book shall be open for inspection to members during business hours
without any charge subject to such restrictions as the
● company may impose. A member shall be entitled for a copy of any minutes
subject to payment of fees. The copy should be made available
● to him within seven days of his making request.
● If any default is made in complying with the provisions of the Act in respect of
any meeting, the company shall be liable to a penalty of

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Assistant Professor
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 ● twenty five thousand rupees and every officer of the company who is in default
shall be liable to a penalty of five thousand rupees.
● If a person is. found guilty of tampering with the minutes of the proceedings of
meeting, he shall be punishable with imprisonment for a term which may extend
to two years and with fine which shall not be less than twenty e thousand rupees
but which may extend to one lakh rupees.
Company Management:
Managing Director:​ A managing director is someone who is responsible for the daily
operations of a company, organization, or corporate division. In some countries, the term is
equivalent to CEO (Chief Executive Officer) the executive head of a company. In other
countries, managing directors primarily work as the heads of individual business units within
a company rather than heading up the company as a whole. As a member of senior
management, the managing director is also expected to keep a company solvent and to
promote expansion and innovation within the industry.
Manager:​ An individual who is in charge of a certain group of tasks, or a certain subset of a
company. A manager often has a staff of people who report to him or her.
As an example, a restaurant will often have a front-of-house manager who helps the
patrons, and supervises the hosts; or a specific office project can have a manager, known
simply as the project manager. Certain departments within a company designate their
managers to be line managers, while others are known as staff managers, depending upon
the function of the department.
Whole Time Director:​ Under Section 2 (94) of the Companies Act, 2013
Whole Time Director means a director in the whole-time employment of the company. In
other words, a director employed to devote the whole of his time and attention in the
carrying on of the affairs of the Company.
A person, who is proposed to be appointed as a managing director or whole-time director,
can’t be appointed unless he is already a director in the company. So, holding of office of
director is a prerequisite for holding of office of managing or whole-time director.
Company Secretary:​ A Company Secretary is the senior position in any public or private
organization, placed at the top most level of the organization’s hierarchy i.e. at
Management level.
The company secretary is responsible for regulating and efficiently managing the financial,
legal and statutory requirements. Along with that he has to comply with the corporate
governance that includes the welfare of all the stakeholders of the company viz
shareholders, employees, customers, suppliers, financiers, government and the society.

Liability of directors:
1. Liability to outsiders:​ The directors are not personally liable to outsiders if they act
within the scope of powers vested in them. The general rule in this regard in that
Ms. Anchal Chaudhary
Assistant Professor
St. Andrews Institute of Technology & Management
 wherever an agent is liable, those directors would be liable, but where the liability
would attach to the principal only, the liability is the liability of the company. The
directors are personally liable to third parties of contracts in the following cases:
● They contract with outsiders in their personal capacity
● They contract as agents of an undisclosed principal
● They enter into a contract on behalf of a prospective company.
● When the contract is ultra-vires the company.
In default of statutory duties, the directors shall be personally liable to third parties
in the following cases:
● Mis-statement in prospectus.
● Irregular allotment.
● Failure to repay application money if the minimum subscription is not
subscribed.
● Failure to repay application money if allotment of shares and debentures is
not dealt in on the stock exchange as provided in the prospectus.
2. Liability to company:
The directors shall be liable to the company for the following:
a. Where they have acted ultra-vires the company:​ It is not necessary to prove
fraud in such cases or that they acted bonafide. For example, where they
apply the funds of the company to objects not specified in the memorandum
of association or when they pay dividends out of capital.
b. When they have acted negligently:​ Negligence may give rise to liability; there
need not be fraud. But they will not be liable where they have acted bonafide
and for the benefit of the company.
c. Where there is a breach of trust:​ Directors being the trusted of the company,
they should discharge their duties in the best interest of the company; they
should discharge their duties in the best interest of the company. Where they
commit a breach of trust resulting in a loss to the company. Where they
commit a breach of trust resulting in a loss to the company, they are bound
to make god the loss. For example, where the directors apply company
property of their own benefit they are guilty of breach of trust.
d. Misfeasance:​ Directors are liable to the company for misfeasance. The word
misfeasance covers willful negligence. Mere failure on the part of the director
to take necessary steps for recovery of debts due to the company does not
constitute misfeasance. If the company is in the course of winding up, the
court may, on the application of the liquidator, creditor or contributory
examine in to the conduct of a director for any misfeasance or breach of trust
in relation to the company.
3. Criminal liabilities of directors:​ So far we have dealt with the civil liability of
directors. For act of fraud, default in discharging their duties and misdemeanor, the
act provides penalties by way of fine or imprisonment. Section 75, 95, 113,115, 143,
162, 168, 303, etc. impose penalties upon the directors for omitting to company with
or contravening certain provisions of the act.

Ms. Anchal Chaudhary

Assistant Professor
St. Andrews Institute of Technology & Management
Corporate governance:​ Corporate governance is the combination of rules, processes or laws
by which businesses are operated, regulated or controlled. The term encompasses the
internal and external factors that affect the interests of a company’s stakeholders, including
shareholders, customers, suppliers, government regulators and management. The board of
directors is responsible for creating the framework for corporate governance that best
aligns business conduct with objectives.

Principles of corporate governance:

While corporate governance structure may vary, most organizations incorporate the
following key elements:
● All shareholders should be treated equally and fairly. Part of this is making sure
shareholders are aware of their rights and how to exercise them.
● Legal, contractual and social obligations to non-shareholder stakeholders must be
upheld. This includes always communicating pertinent information to employees,
investors, vendors and members of the community.
● The board of directors must maintain a commitment to ensure accountability,
fairness, diversity and transparency within corporate governance. Board members
must also possess the adequate skills necessary to review management practices.
● Organizations should define a code of conduct for board members and executives,
only appointing new individuals if they meet that standard.
● All corporate governance policies and procedures should be transparent or disclosed
to relevant stakeholders.
Need for Corporate Governance:

The need for corporate governance is highlighted by the following factors:

(i) Wide Spread of Shareholders:​ Today a company has a very large number of
shareholders spread all over the nation and even the world; and a majority of
shareholders being unorganised and having an indifferent attitude towards
corporate affairs. The idea of shareholders’ democracy remains confined only to
the law and the Articles of Association; which requires a practical
implementation through a code of conduct of corporate governance.

(ii) Changing Ownership Structure:​ The pattern of corporate ownership has changed
considerably, in the present-day-times; with institutional investors (foreign as
well Indian) and mutual funds becoming largest shareholders in large corporate
private sector. These investors have become the greatest challenge to corporate
managements, forcing the latter to abide by some established code of corporate
governance to build up its image in society.

(iii) Corporate Scams or Scandals:​ Corporate scams (or frauds) in the recent years of
the past have shaken public confidence in corporate management. The event of
Harshad Mehta scandal, which is perhaps, one biggest scandal, is in the heart and
Ms. Anchal Chaudhary
Assistant Professor
St. Andrews Institute of Technology & Management
 mind of all, connected with corporate shareholding or otherwise being educated
and socially conscious.

(iv) Greater Expectations of Society of the Corporate Sector:​ Society of today holds
greater expectations of the corporate sector in terms of reasonable price, better
quality, pollution control, best utilisation of resources etc. To meet social
expectations, there is a need for a code of corporate governance, for the best
management of company in economic and social terms.

(v) Hostile Take-Overs:​ Hostile take-overs of corporations witnessed in several

countries, put a question mark on the efficiency of managements of take-over
companies. This factors also points out to the need for corporate governance, in
the form of an efficient code of conduct for corporate managements.

(vi) Huge Increase in Top Management Compensation:​ It has been observed in both
developing and developed economies that there has been a great increase in the
monetary payments (compensation) packages of top level corporate executives.
There is no justification for exorbitant payments to top ranking managers, out of
corporate funds, which are a property of shareholders and society.

(vii) Globalisation:​ Desire of more and more Indian companies to get listed on
international stock exchanges also focuses on a need for corporate governance.
In fact, corporate governance has become a buzzword in the corporate sector.
There is no doubt that international capital market recognises only companies
well-managed according to standard codes of corporate governance.
Importance of Corporate Governance:

● Corporate governance is the structures and processes for the direction and control
of companies. It is also about the relationships among the management, Board of
Directors, controlling shareholders, minority shareholders and other stakeholders.
Open to public Information disclosure, high transparency and accountability are
basic important elements of best corporate governance that strives the sustainability
of corporations and society. To avoid mismanagement, good corporate governance
is necessary to enable companies operate more efficiently, to improve access to
capital, mitigate risk and safeguard stakeholders. It also makes companies more
accountable and transparent to investors so as to minimize expropriation and
unfairness for shareholders.
● Corporate governance makes companies more accountable and transparent to
investors and gives them the tools to respond to legitimate stakeholder concerns
such as sustainable environmental and social development. It contributes to
development and increased access to capital encourages new investments, boosts
economic growth, and provides employment opportunities.
● A lack of corporate governance can lead to profit loss, corruption and a tarnished
image, not only to the corporation, but to the society, or even worse will influence

Ms. Anchal Chaudhary

Assistant Professor
St. Andrews Institute of Technology & Management
 global as a whole. This form of corporate governance management is also designed
to limit risk and eliminate corrosive elements within an organization.
● One principle of corporate governance is shareholder recognition, which is a policy
that ensures that all shareholders have a say in the inner workings of a company.
Shareholder recognition also secures the value of a company’s stock. The rules and
responsibilities of board members must also be made clear to make sure that
everyone shares a uniform vision of the company’s future. Stakeholder interest
addresses the needs of participants who are not shareholders. Reaching out to
non-members thus fosters better communication and relationships with members of
the press and the community. Ethical guidelines of corporate governance are also
crucial to secure higher profit and keep the company out of legal trouble. These rules
apply to employees and board members. Transparency must be apparent, which
should take the form of record keeping and reports on income.
● Poor corporate governance can create potential conflicts of interests, expropriation
and unfair of minority shareholders. It only benefits the parties involved but do not
affect value to other stakeholders, small shareholders with little impact on the stock
price are brushed aside to make way for the interests of majority shareholders and
the executive board. It can greatly eroded public confidence and tarnished society,
or worldwide as a whole.
● Through education, through tighten controls over accounting, corporate governance,
transparency and disclosure are some of the areas of improvement and ways
countries sustains their leading position in the financial markets, so that they can
encourage minorities and outside shareholders/foreign countries to invest and
exercise more oversight over the corporations.

Minutes of meeting:​ Also known as protocol or note, minutes are the live written record of
a meeting. They include the list of attendees, issues raised, related responses, and final
decisions taken to address the issues. Their purpose is to record what actions have been
assigned to whom, along with the achievements and the deadlines.
Format of Minutes of Meeting:

A minutes of meeting normally includes the following elements −

● Name of the company​ − to the top-left of the page.
● Date ​− to the top-right of the page.
● Topic ​− after two return keys; Center-aligned.
● Attendees ​− Name and designation (2 columns of a table).
● Absentees​ − name, roles, reasons for absenteeism. (3 columns)
● Agenda at hand​ − topic to be discussed.
● Issues raised​ − along with the names of the speakers.
● Suggestions​ − made along with the names of the speakers.
● Decision ​− the outcome of the meeting.
● Task List​ − task allotted and the respective allottee.
● Future Meetings​ − the date and topic of the next meeting.

PROXIES (SECTION 105):

Ms. Anchal Chaudhary
Assistant Professor
St. Andrews Institute of Technology & Management
Any member of a company entitled to attend and vote at a meeting of the company shall be
entitled to appoint another person as a proxy to attend and vote at the meeting on his
behalf. A proxy shall not have the right to speak at such meeting and shall not be entitled to
vote except on a poll.
A member of a company not having a share capital shall not be entitled to appoint proxy
unless articles provide so. Central Government may also specify companies whose members
shall not be entitle to appoint a proxy.
A person appointed as proxy shall not act as proxy for more than fifty members or for more
than prescribed number of shares.
Voting Rights:​ The votes cast by the shareholders play decisive role in the business
proposed in General Meetings of a Company. An equity shareholder has the right to vote for
every motion. However, as per the Section 47 of the Companies Act, 2013 preference
shareholder is entitled to vote only for a resolution pertaining to his rights.
Method of Voting:
The various modes through which a shareholder can cast his vote are mentioned below:-

By attending the General Meeting:

1. Show of Hands
As per Section 107, a resolution put to the vote of the meeting shall, unless a poll is
demanded under section 109 or the voting is carried out electronically, be decided on a
show of hands.
Further, through MCA’s General Circular no. 20/2014 dated 17/06/2014, it has been
precisely clarified that in case of Companies falling under Section 108 read with rule 20
(voting by electronic means), provisions of Section 107 (voting by show of hands) will not
apply.

2. Poll
As per Section 109 a poll may be demanded by such number of members holding, shares
worth minimum value of Rs. Five Lakh or 10% voting power in the Company.
Further, MCA vide its aforesaid General Circular has clarified that in case of Companies
falling under Section 108 read with rule 20 the concept of demand for poll is redundant.
By voting electronically:
As per Section 108 read with rule 20, every listed company and companies having more than
1000 shareholders are required to give e-voting option to their shareholders.

Ms. Anchal Chaudhary

Assistant Professor
St. Andrews Institute of Technology & Management
Further, as per revised Clause 35B (2) of listing agreement applicable from 17th April, 2014
every listed company agrees to provide to its shareholders who do not have access to
e-voting facility, option to vote through postal ballot.
Who is an Auditor?
Any individual trained to review and verify accounting data and recognized as a Chartered
Accountant (CA) under the Chartered Accountant Act 1949 is deemed to be an auditor.

Appointment of Auditor In First Annual General Meeting (AGM):

Ms. Anchal Chaudhary

Assistant Professor
St. Andrews Institute of Technology & Management
Power and Duties of an Auditor:
1. Every auditor has a right of access to the books of account and vouchers of the
company at all times, whether they are at the registered office of the company or at
any other place.
2. The auditor of a holding company also has a right of access to the records of the
subsidiary company if they are necessary for the purposes of the consolidation.
3. An auditor also has a right to receive notice of any general meeting. He may attend it
himself or through his authorized representative who is also qualified to be an
auditor. He also has a right to be heard on any part of the business which concerns
him.
4. The auditor also has a right to receive information and explanation regarding the
matters which are necessary for the performance of his duties. He needs to know
whether:
5. The company makes loans and advances against proper security and the terms of
these are prejudicial to the interests of the company.

Ms. Anchal Chaudhary

Assistant Professor
St. Andrews Institute of Technology & Management
 6. Transactions that merely represent a book entry are prejudicial to the interests of
the company.
7. In the case of a company which is not an investment or banking company, it sells the
assets. They are in the form of shares, debentures, and other securities at a price
less than their purchase price.
8. The company shows the loans and advances that it makes as deposits.
9. It charges the personal expenses to revenue account.
10. It states in the books and documents that where it has allotted the shares in cash, it
has received the cash or not. Also, whether the position in the books and Balance
Sheet is correct and not misleading.
Rights of Company Auditor; The Companies Act, 2013.
● Rights to access the books and records.
● Right to get explanations from company staff.
● Right to receive notice of general meetings.
● Right to visit branches.
● Right to seek legal and technical advises.
● Right to claim remuneration.
● Right to refuse to commence the audit.
● Right to question the board.
● Right to qualify his report.
● Right of indemnity.

Ms. Anchal Chaudhary

Assistant Professor
St. Andrews Institute of Technology & Management