Directors

9
SUBJECT-MATTER
and Board of Directors
Meaning of Directors
Oualifications and Disqualifications of Directors
Appointment of Directors

Removal of Directors
Legal Position, Rights and Duties of Directors of a Company
Liabilities of Directors of a Company

.Meaning and Provisions Regarding Appointment of Managing

Director
INTRODUCTION
As we all know that the essential owners of the company are the
shareholders who are scattered all over the country to manage and
administer the company. The shareholders therefore transfer their right
to administer and manage the company to the company's directors.
The group of persons manages and administers the company affairs are
known as 'Board of Directors". A company's board of directors are the
supreme body for its management and administration. The board
appoints a managing director and a secretary. Under the Companies
Act, the board of cirectors are must for the management administration
of a company; and for other kinds of managerial personnel.
LONG ANSWER TYPE QUESTIONS

Q.1. Explain the term 'Directors' and 'Board of Direetors'

Or
Define Directo. Explain the Qualification and Disqualifications
of Directors in
respect of their appointment.
Ans. Meaning of Director: In terms of law a company is an artificial
person, not a natural person. It can therefore perform its actions through
gentis or the persons nominated by it to perform such actions. The
PErsOns who act on behalf ofa company are called its 'directors'. Director

127
128 DEEPAK Company L
to the board of the.
Law OreAo
means any person appOinted
company need
not neccesarily be
of the compan
y. The Drtn
The d.
ofa public experts in the direncuwymess
which company is promoting.
type oror busi
busi
A board ot directors
company's may however
consist
specialized in different branches of a business administra
ersons
accounts, finance, law, banking, management etc., includino ation ch
such aas
in the field of company's business. Board of directors are W expen a
directors ofa company. It is an elected group of individual that pgroup oof
shareholders. It is not possible to control/manage the activities of present
of cocompany
by a single person. So, we can say that every public company
a board of directors. must have
Definition:
According to Section 2 (10) of Companies Act, 2013, "Board f
directors or board in relation to a company means the collective body of
the directors of the company." Theretfore, according to
Companies Act, 2013
a group of
directors if formed which includes pre-determined directors
Section 165 of the Companies Act, 2013
provides that after the
commencement of this act no person shall hold office at one and at
the
same time as director of more than 20
public companies at a time. Where
a director already holding office in 20 companies is appointed, the
appointment shall not take effect and shall become void unless Within
one year of the commencement of this act he vacates his office in some
companies so as to bring down the number of
Section 165 of the twenty as provided0
Companies Act, 2013.
Section 165 provides that the
maximum no of directorship mai
individual can hold
including alternate directorship is twenty, O1which
not more than ten, can be public the limit of
public companies. In counting u
companies, directorship
of
holding or subsidiary company of aprivate companies whi
Qualification public company sha
of Directors:
its directors Normally the qualifican
the
are defined
in the articles of a
vCDing
ming
The rules govem
appointment of directors are as
company. 1*
mpany.
No person shall however follows:
be capable of being appointed as the
director of a
public company e has :
) having aa share
Director Identification share capital
capital unles
un allote
(Gi) Signed and Number( DIN)
IN) nas been
has
filed with the es, a Co a consent.

Registrar of Com
M.COM. 1st (SEMESTER
FIRST) K.U.K. 129
Wrung to act as such
manner as prescribed, director within 30 days of his appointmene ou
() le has signed the Memorandum of Association in respect bf
acqucquiring the qualification shares from the
iv) He signed and filed with the company and paid or agreed,
registrar a written undertaking to
ke gualification shares from the company, if any and pay,
() Filed an affidavit to the
registrar in respect of acquiring tne
aalificafion shares
qua
are
registered in his name. Only individual can be
appointed as director.

pisqualifications
Companies Act,
Companies
of Directors
According Section 164 of the
:
ct, 2013 specifies some situations under which a person
to

l not be capable of being appointed director of a

shall
company. These are
as follows :

( A person has been found to be of unsound mind by a court,

(i) A person is an undischarged insolvent,
(it) A person who has applied to be adjudicated as an insolvent and
is
his application pending,
(v) A person who has been convicted by a court of an offence
involving moral turptitude and sentenced to imprisonment of not less
than six months and a period of five years has not elapsed from the date
of expiry of the sentence,
(v)Ifa person has been convicted of an offence and sentenced to
imprisonment of period 7 years or more he shall not be eligible for
appointment,
A person has not
(vi) paid any call in respect of shares of the
Company and six months,
(vi)An order disqualifying him as a director has been passed by a
court or Tribunal and the order is in force
When director of a public company fails to file annual accounts
and returms for any continuous three financial years or has failed to repay
is deposits or interest thereon on due date or redeem its debentures on
dne date or pay dividend and such failure continues for one year or more
will not be eligible to be appointed as a director of a Public company for
a
period of five years.
92. How are Directors (K.UK. 2018
Appointed?
Or
What are the provisions regarding appointment of directors.
Or
130 DEEPAK Company Law
What restrictions
have been imposed by the oo
appointment of directors?
Directo
companies Act ir
respect of the
Ans. An individual who is appointed or elected
a company,
aa.

the memb
who, along with the. he mem
of directors of
ementing theherpoldirecto
the board
has the responsibility
for determining and implementingt direc icis
Director is an individual who directs, manaopolicie
the company.
controls the affairs of the company.
A director
is oversees
is a persor who OVersce or
and functions of a company in accordanpoin
to perform the duties
of the Company Act,
2013. As per Section 149 rdance with thethe
provisions
company shall have a board of ectors consisting of Indivi (1): Every
ualsanas
director. They play a very important role in managing the business
of directors is very cniciol hd
other affairs of company. Appointment forthe
of company.
growth and management
Provisions/Criteria Followed by Different Types of Comna
Regarding Appointment of Directors - Act, 2013 The provicio

regarding appointment of directors on the basis of types of company are

as follows
1. Public Company or a Private Company Subsidiary ofaPublic
Company
() 2/3 of the total directors are appointed by the shareholders,
(i) Remaining 1/3 appointment is made as per articles and failing

which, shareholders shall appoint the remaining, Publie

of a
2. Private Company Which is not a Subsidiary
Company: all the
) Articles prescribe manner of appointment of any or

directors, tne
(ii) In case, articles are silent, directors must be appointed by
shareholders
by a third party Dy
or
(ii) Nominee directors can be appointed
Central Government in the case of oppression or mismanagement.
Minimum Number of Directors:
) Private Limited Company : Minimum Two Directos
(i) Public Limited Company: Minimum Three Direct
Director
(ii) One Person Company: Minimum One afterpassing
A company may appoint more than fifteen Directors
special resolution. (i. Director
Resident
Further, every company should have one year financial
the
person who has lived at least 182 days in India during npanies

and

Director's appointment is covered under Sectionointmen n e n t

(Appointm
ies
Act, 2013 along with Rule 8 of the Companies
Qualification of Directors) Rules, 2014.
 Ma
ESTER FIRST) K.U.K. 131
Qualifications for Directors: According to the
no qualifications
for being the director of any Companies Act, 2013
The Companies Act does, company is
however, limit the specified share prescribed.
of directors which can be
prescribed by
qualitfication
company that is a subsidiary of a
a
public company or a private
rupees ( 5,000/-). public company, to be five thousand
Following Documents are Required for
Individual as Director [Rule 6(2) of Section 150:Appointment of an
() No person shall be
appointed as a director of a company unless
he has been allotted the Director Identification Number (DIN) under
Section 154 of the Companies Act, 2013.
i) So, foremost requirement is to have DIN i.e. Director
ldentification Number and to apply for DIN in Form DIR-3 there isa
reauirement of DSC i.e. Digital Signatures.
Step 1:Apply for DSC and most importantly associate the DSC as
Director on MCA portal
Step 2: Now, Fill form DIR-3 (application for DIN), affix DSC on
it and file it on MCA portal, along with fees of T 500. Documents include:
() Passport Size Photograph,
(i) ID Proof,
(üi) Copy of Passport, National ID where he is a national resident
and that attested by Indian Embassy/Consulate/High Commission/
Apostille, Person of Indian Origin (PIO) card : A foreign nation of Indian
Origin can produce POI issued by Government of India Copy of Overseas
Citizen of India (OCI) card issued by GOI,
(iv) Address Proof,
() Copy of Passport.
Other National ID attested by Indian
Embassy/Consulate/High
Commission/Apostille
5ank
account statement in country of residence, duly attested by
Indian Embassy/High Commission/Consulate/Apostille in the country
CTe applicant is Located Person of Indian Origin (PIO) card issued by
oovemment of India or NRE bank account statement Overseas Citizen
of India
(OCI) card issued by GOl.
inof foan Step
3: As now DIN is
individual allotted,
as the director of the prepare
company documents for appointment
and file these documents
orm DIR-12 Documents
) DIR-2 Include
(Consent tobyactDirector
and D ) DIR-8 (Intimation as Director
theinterest
aboutofhis Company),
in other entities
and
isqualification under Section 164 of the Companies.Act, 2013),
 DEEPAK Company Laww Orectorg
(ii) Letter of Appointment form the company
the company for his/her appointment. resoluti.
Sep4:File the e-fom DIR-12 with ROC along with passed bypa

documents within a period of 30 days from the date abov

of his/her
New Categories of Director: The new nttment
ioned
as follows
(a) Resident Director: This is
categories of
directointment.
one of the most
made in the new regime, particularly in importan
Directors under Section 149 of the
respect of the anno
Companies Act, 2013. It ent of shanges
changes
ment of
every company should have at least one resident states hat
has stayed in India for not less than 182 Director
i.e. a that
days in the previous person who
(6) Woman Director: Now the calendar
certain class of the company to legislature has made
appoint women as director. As
prescribes for the certain class of the company their per Section for
mandatory
the board should not be less women 149
listed companies and
than 1/3. Such
companies include eitherin strengthi
any public company
() Paid up capital of? 100 crore or having:
(ii) Turnover of 7 300 crore or more,
more.
Under Companies Act,
2013 there is no
foreign national as a director in Indian restriction to
appoint a
of Directors which Companies along with six types
appointed
are
Independent Director, Small
in a
company, i.e. Women Director,
Alternative and Nominee Shareholders Director, Additional Director,
Director. By
referred as complying
Act, 2013 (hereinafter with the Companies
Companies (Appointment and "The Act") read
along with the
(hereinafter referred as "The Qualifications of Directors) Rules, 2014
Restrietions on Number Rules")
of
prevents a director from
being
Directorships: The Companies Act
a director
fifteen at the same
oI
companies. For the
purposes of establishing this
time, in more tna
companies in which a person can maximum numoc
are excluded: be a director the following companie
)A "pure" private company;
(ii) An
association
that prohibits the not n g on
carrying
tnat
prohibits
the pavment
payment of
on its
its business for
dividen
for profit,
business
uSiness
profit, or
or one
one
proi,
) ii) companv
A
A of any dividends and
company in which he or she is
director. only appointed as an a*
ternate

Failure of the director

in to resulk
a fine comply with these
of fifty thousand rupees
Director of, after the for every
regulationshe is a
company that nc
first fifteen so
determined.
NA M.COM. 1st (SEMESTER
FIRST)
Q.3. Describe the K.U.K. 133

Ans. Legal PositionLegal Position of

Ans.
of Directors. [K.U.K.
legal ition
legal positi of
Position of
the
Directors.
Directors: Ittisi difficult to define
2017]
define the exa
the exact
afa company
directors ofa
have been company. Invarious
various judgments,directors
judgments,
1. Dire
irectors as an described following
as
Agents
: The
parts.
human agencycompany
has to act through some any being an artificial person,
and
agency. So the relationship between the directors act as that necessary
ofthe principaland agent. In the
case of
company and its directors is that
af directors Ferguson Vs.
was deseribed as
follows : In the case of Wilson, this position
hustice Lord Cairns observed while Ferguson Vs. Wilson,
directors. "They are merely agents of the commending on the position of
annot act in its own person, for it has no company. The company itself
cana
person; it can only act through
directors and the case is, as regards those
directors, merely the ordinary
case of principal and agent. wherever an
agent is liable, those directors
would be liable; where the liability would attach to the
principal and the
principal liability is the liability of the company."
rincipal only, the liai As
directors must conduct business with reasonable care abiding agents, by the
company's Memorandum of Association and Articles of Association.
Whatever they do, ultimately binds the company. They enter into contract
and wherever, they put their signatures, they do so only on behalf of the
company. But directors are not completely like agents. Agents are
appointed by the principal but the directors are elected by the shareholders.
Again agents get commission for the work done but the directors are
expended to work without reward. Further, an agent may not disclose the
Dame of his principal but a director has to do so. Thus, the directors are
not the agents in the true sense.
2.Directors as Trustees: In certain respects, the directors are the
trusteeofthe company. They are the guardians or custodians of the money
andproperties of the company. They stand in a fiduciary capacity to protect
lthe interests of the company. Moreover, almost all the powers of directors
de like powers in trust. The power to make call, to forfeit shares, to issue
urtner capital, the general powers of management and the power to accept
USe a transfer of shares are all powers of trustee which have to be
Cxercised in good faith for the benefit of the company as a whole. The
ectors are trustees of the company and not of individual shareholders
of the c
14de mpany.
Directors are not also trustees for third parties who have
of the
contracts with the company. They are not trustees for the creditors
the
ae company
ownership
But, directors are not trustees in the true sense because
of the
property held in trust by them does not vest in them
134 DEEPAK Company Law
DIrae
as in case of an ordinary trust.
contracts in the name of the company.
Further, unlike a trustee, Drecdons
they, ente
ents. into
In the case of York and North Midland Rail
a director isa person who is selected to Co.Vs.of Hudson,
manage the affairs
inthe interest of its shareholders. This selectionis a a

in case a person accepts such position, he must

accordingly"
position
accept it as oftsuchrSompany
ustandand aactnd
3. Directors as Managing Partners: The
the company, do so for themselves as well as for
directors,
who
They are also elected representatives. Thus, their position issimi
othen
manage
the benefitsge
that of a managing partner because they are appointed to t la t
an arrangement between them and all the shareholders. heir posts by
Being
shareholders, they are partners with shareholders. But their portant
restricted to the amount unpaid on their shares. Adirector iability is
another director like partners in a firm, unless he has
been exnre
expresly
cannot
bind
authorized to do so. There is no munual agency amongst
the case of partners. directors asiin
4. Directors as an Officers: According
a director is an officer of a
to the Companies Act Act,
company. They are liable to certain penaltie
if found guilty, he will be punishable with imprisonment or fine
or both
5. Directors as an Employee:
of
Directors work under a special
contract service with company.
To sum up, we can say that the directors are neither
agents nor
trustees or managing partners in the strict sense of the term. 1They combine
in themselves all these positions. They stand in a
fiduciary position
towarts
the company in respect of their powers and capital under their control.
Q.4. What are the provisions under the Companies Act relating
to the vacation of office and removal of directors?
Ans. Vacation of Office of Director (Section 167): The
office of
a director shall become vacant in case:
1 H e incurs any ofthe disqualifications specified in Section l64.
() He absents himself from all the meetings of the Board 0
Directors held during a period of twelve months with or without seekin
leave of absence of the board,
184 on
i )He acts in contravention of the provisions of Secno
entering into contracts or arrangements in which he is directiy or ndirectly
interested,
(iv) He fails to disclose his interest in any contract or arrangemen
ention ofthe
in which he is directly or indirectly interested, in contraye
provisions of Section 184,
 MCOM.1st MESTER FIRST) K.U.K
( Hebecomes
disqualified
(vi) He is convicted by an order of a court 135
by a court of any or the
alturpitudefor
mor or
otherwise and sentenced
Tribunal,
offence, whether involving
erisonment not less than
six in
months. The office respect thereof to
thedirector even if he has filed shall be
vi He is removed in an vacated by
appeal against the order of such
pursuance of the provisions of
(viit) He, having been appointed court,
this act,
office or other employment in the director by virtue of his holding
a
any
anV, Ceases to hold such office
comparn
holding, subsidiary or associate
or other
Provisions Related to the Removal employment
of
in that
company.
Director
company may by ordinary resolution, remove a (Section 169):
director,
irector appointed by the Tribunal) under Section 242, (not
irector appointed
direc being
before the
a

fion of the period of his

expiration office after giving him a
of feasonable
opportunity being heard. The provision relating to removal
shall not
eolvwhere
aply where the company has availed itself of the option to
appoint not
than two/thirds of the total number of directors according to the
principle of proportional representation.
A special notice shall be required of any resolution, to remove a
director, or to appoint somebody in place of a director so removed. On
receipt of notice of a resolution to remove a director, the company shall
immediately send a copy thereof to the director concerned and the director,
whether or not he is a member of the company, shall be entitled to be
heard on the resolution at the meeting.
The director concerned may make representation in writing to the
company and requests its notification to members of the company. The
company shall, ifthe time permits it to do so the following
I n any notice ofthe resolution given to members ofthe company
state the fact of the representation having been made.
() Send a copy of the representation to every member of the
company to whom notice of the meeting is sent. If, a copy of the
epresentation is not sent as aforesaid due to insufficient time or for the
Ompany's default, the director may without prejudice to his right to be
oally require that the representation shall be read out at the meeting.
5 . Describe the powers of directors and duties performed by
Company Directors. Or
Deline Director. Explain in detail the Rights and Duties of
Directors of a [K.U.K. 2016]
ta Ans. Powers Company.
Directors: The powers of directors are normally
set out in
the articles of the Once these are delegated to
company. powers
136 DEEPAK Companyary Law IDe
and vested in the board directors,
of only board
may
themDrewtcktircs
of the
Companies AC 2013exercise
Section 179
is laid in the Act,
Rights/Powers of Directors:The rights
ers of
follows
(The decision to increase the capitalal ofof the direciors are as
the company cors aea
oe

of further shares lies with the directors of such

company.
further issue of shares, if existing members decline ithby ththee isue.
With is u
the offer of new shares, the directors have the nou or do not respee
such shares in such manner as they deem fit. Directo to allo
allot an Subscribe to
authorized by the directors are to sign the circular which is to accom
an issue
shares under this Section.
any offer of new (Section
(i) An extra ordinary general meeting may be86) . ompany
for consideration of any matter lled at any
company in a general meeting. (Section 159)
requiring
ng appro
apDtoine e
(ii) The Chairman of the Board of Directors
at every general meeting of the company. Ifthere is presides
no such
as
cha chaiman
ifat any meeting he is not present within fifteen minutes after man, or
appointed for holding the meeting, or is unwilling to act as he time
one ofthe directors present may be elected to be
chairman.
chaimaan, any
(iv) The first directors have the right to hold office until(Section 160)
ofdirectors in the first annual general meeting. (Section 174)the ele election
(v)Any casual vacancy in the board of directors of a
filled up by the directors. (Section 180) ompany is
(vi) The directors in general meeting determine the
remuneraton
of a director for performing extra services,
including the holding of te
office of chairman. (Section 191)
(vi) The directors of the company have the right to obtain loan firom
the company subject to fulfillment of certain
requirements. (Section 195)
Section 196 : Powers of Directors with regard to managing the
business of the company:
) The business of a company is managed by the directors, wo
may pay all expenses incurred in promoting and registering tne
and may exercise all such
co
powers of the company as are not Dy
Ordinance, or by the articles, or by a special resolution, requireu
exercised by the company in
general meeting.
(i) The directors of a company exercise the following powe
behalf of the company and do so by means ofa resolution passe at ther

meeting, namely:
(a) To make calls on shareholders in
their shares, respect or
n
M.COM. 1st (SEMESTER FIRST) K.U.k. 13
(6) To issue shares,
(c) To issue debentures or any instrument in the natureO
capital,
(d) To borrow moneys otherwise than on debentures,
(e) To invest the funds of the company,
) To make loans,
(g) To authorize a director or the fim of which he is a partner or
any partner of such firm or a private company of which he is a member or
any
director to enter any
into with the company for making sale,
contract
aitrchase or supply of goods or rendering services with the company,
(h) To approve annual or half-yearly or other periodical accounts

as are required to be circulated to the members,

bonus to employees,
(i) To approve
()To incur capital expenditure on any single item or dispose of a
with the limits as prescribed by the Commission
fived asset in accordance
to time,
from time
k) Provided that the acceptance by company in the
a banking
course of its business of deposit of money
from the public
ordinary
on demand or otherwise
and withdrawable by cheque, draft,
repayable
order or otherwise, or placing of money
on deposit by a banking company
with another banking companion such conditions as the directors may
borrowing of money
be or, as the case
prescribe, shall not be deemed to
a

of loan by a banking company with the meeting of this

may be, a making
Section,
()To undertake obligations under leasing contracts exceeding
one

million rupees,
(m To declare interim dividend,
(n) Having regard to such amount as may be determined to be
material (as construed in Generally Accepted Accounting Principles) by
the board,
(o) To write off bad debts, advances and receivables,
P) To write off inventories and other assets of the company,
9) To determine the terms of and the circumstances in which a law
st
may be compromised and a claim or right in favour of a company
may be released,
extinguished or relinquished.
Ihe directors have the to appoint an individual to be the
ChiefuExecutive ofthe company and
rightdetermine the terms and conditions
of
pointment ofa articles
Section 198 and Chief Executive, if required by the company's
200).
198
DEEPAK Compary Law D
(v) The directors ofa
of the total
company by resolution
Dir
number of.directors passed by not
e
may rem
der
than three-fourth lesa
the expiration of his term of office a
executive before (Section
() The directors can decide to maintain books of 202).
chu

place other than the registered

office of the company, Junts at a
business hours, have the
(vi) The directors, during right inspec
the books of accounts and other books and papers of the com to
(vi) The directors shall from time-to-time determine whe yany
to what extent and at what time and places and under what sa
regulations the accounts and books or paperS of the companu AODS Or
or
them shall be open to the inspection of nembers (Section 230) any of
(vi)The dividend is always recommended by the directo
declared by the company in general meeting (Section 248).
directors and
(ix) The first auditors of a company are to be appointed by th
the
directors within sixty days of the date of incorporation of the com
The directors may fill in any causal vacancy in the office of auditon
Moreover, the directors fix the remuneration of the auditors, where te
auditors have been appointed by them (Section 252).
()Any director may apply to the court for a declaration that any
shares have been allotted for inadequate consideration (Section494).
Duties of a Director : Every company director has a personal
responsibility to ensure that all the statutory documents are filed with the
registrar and the commission as and when required under the ordinance
The directors of a company shall not refuse to transfer any shares or
debentures that are fully paid unless the transfer deed is for any reaso
defective or invalid.
1. Commencing Business : With respect to the procedure tor
commencement of business, the Chief Executive or one of the directos
and the secretary are to file with the registrar a declaration that the
conditions for commencement of business have been complied
w
2. Statutory Meeting ofthe
Company : With respect to the statitony
meeting of company the directors have the following duties
utive
A t least three directors, one ofwhom is to be theChiefExeu
shall certify the statutory
report.
) The statutory report is to be forwarded to every member fthe
company at least twenty one days before the meeting.
to
(ii) At least five certified copies of the statutory report are also
be delivered to the
registrar for registration.
 FIRST) K.U.K
M.COM. 1st (SEMESTER 139
(iw) At the commencement of the meeting and throughout its
duration, a list caused to be prepared by the directors showing the names,
durao
ations, nationality and address of the members and the number of
shares held by them respectively is to be produced
3. Retiring Directors Continue to Perform Functions:
The retiring
irectors shall continue to perform their functions until their successors
are elected. Moreover, the continuing directors are required to take
immediate step to hold the election of directors and in case of any
impediment report the circumstances of the case to the registrar within
ffteen days of the expiry of the term laid down in Section 180.
4. Election of Directors: The directors of a
company are required
to fix the number of elected directors of the company not later than
thirty
five days before the convening of the general meeting at which directors
areto be elected.
5. Register of Directors : The directors are required to furnish to
the company the particulars of their
appointment or any change therein,
as the case may b.
6.Maintaining Books of Accounts: The directors are responsible
for compliance with the
statutory requirements regarding preparation and
maintenance of proper books of account and
circulation of financial
statements that give a true and fair view.
7. Facilitating
Inspection of Books of Accounts: With respect to
inspection of books of accounts and books and papers of a company by
the registrar or
by any officer authorized in this behalf by
every director of the company is bound to: commission,
) Produce all such books of accounts and
custody or under his control. papers as are in his
i ) Furnish information,
the aftfairs of the statements and explanations relating to
company required by the above mentioned persons; and
ii) Provide reasonable assistance for such
3. Annual inspection.
Accounts and Balance Sheet: The directors of
Cmpany are required to lay before the every
company in annual general meeting
audited balance sheet and
profit & loss account etc.
attachDirectors
to
Report The directors are required to make out and
every balance sheet a report with respect to the state of the
company's affairs and other information
chairman of the directors or the chief and such report is signed by the
tne executive of the company on behalf
directors if authorized in that behalf.
140 DEEPAK Compary Law
Direr
shall apprOrecokve,on
10. Authenticatton of Balance Sheet: The directors shall
and the chief executive and at least one director shalt .
shall sign, the
sheet and profit
company.
& loss account or income and
expenditure balbalanceaccount ofe the
11. Furnishing Information, Documents ete,
Every director is bound to furnish to the bestofhis power.. egistraar
explanation or document as may be required by the registrar
ar.iníomation,
12. Declaration of Solvency in CaseofVoluntary
Winding-
In case of voluntary winding up its directors may make a declaration up:
t :
after a fullinquiry into the affairs fthe company, they are of
of the
that the company has no debts and it will be able to pay all its4
full within such period not exceeding twelve months fr
bts in
commencement of winding-up.
the
0.6. Explain in detail the liabilities of Directors of a
pany
[K.U.K. 2016
Ans. The directors may incure liability for the acts without the
authority of the company (ultra vires acts) and they may also be held
personally liable for the acts which are intra vires the company but beyond
the scope of their authority if they are not ratified by thecompany. The
liabilities of a company's directors are as follows
1. Liablities Towards Company: The liabilities of directors
towardscompany are as follows:
() Liablity for commiting breach of trust where the directors make
secret profit out of the business.
(i) An Utravires Act where the directors have entered into
an
ar
agreement or contract beyond their powers. In such case the directors
personally liable for the loss caused to the company.
duues
i) Liablity for the negligence for not performing their
honestly and carefully and put the company to loss.
ofis a
) Liablity for fraud/dishonest act to make personal
defraud the creditors. towars
2. LAiablities Towards Outsiders: The liablilityofdirectors
the outside parties are as follows:
companies
) For any liability at the time of winding up of the
thescope
(i) When the liability has been made unlimited or
"beyond

of Memorandum of Association.
 M.COM. Ts
FIRST) K.U.K. 141
(ii)
For any act
vires the company). which is beyond the powers of the
company (ultra
( Liablity
with respect of
subscription and allotment allotment without getting minimum
() ror any become void to repaing the same.
mis-statement in
directors held responsible to pay for theprospectus for acting fraudulentiy
to the shareholders. loss caused by wrong information
(vi) Failure to repay the
by the stock exchange. application money on refusal to list shares
(vii) For acting in his own
name without mentioning the name of
the company.
3. Criminal Liability : Directors will be liable with
fine of not
a
less than 7 50,000 or may be extended to 7 3,00,000 or
5,00,000 as the
casemay be and imprisonment of three yeasrs or more or both for
non-compliance of any statutory provision:
fraud of

For mis-statement in prospectus.

(i Failure to file the return on allotment with the
(iit) Failure to issue share certificate and
register.
debenture certificate.
(iv) Default in holding annual general meeting.
() Failure to give the notice to the registrar for conversion of shares
into stock.
(vi) Failure to maintain register of the members and
register of
debenture holders.
(vii) Failure to provide annual accounts and balance sheet
(vii) For holding the office of director in more than 15
companies.
Q.7. What do you mean by Managing Director ?
Explain the
provision regarding appointment of director. managing
Or
What are the different
powers and duties given to the Managing
Director of the
Company?
Ans. Managing Director: Under Companies Act, 2013, Section 2(54)
fines Managing Director as director who virtue of an
s Managing
with the a
by agreement
pany or of a
meeting or by its board of resolution passed by the company in general
directors or by virtue of its Memorandum or
ticles of
Association is entrusted with substantial powers of management
 DEEPAK Company Law t
142
which would not
otherwise be exercisablee by him and Cudes
and
ine udes aDrdieckrrecta
ofa managing director. by whatever
occupying
the position
must be an individual namemeGacaleckor
led
The managing director
member of the Board of
He must be a Director
(i) of an
an agreement
agreemes
be appointed by virtue of
(ii) He must with the
he
by the
company in
of a resolution passed
orandum meet ing or
npany or
or virtue of it
by memorandum or
of directors
by its board articles of
association,
with substantial power of managema
(iv) He is entrusted
entrusted with powers of rou-tine nature and
(v) He is not
subject to superintendenee
(vi Heshallexercise his powers control
Directors.
and direction of its Board of
Appointment of Managing Director : ACcording to Section 203.
the board directors suhiet the
of
203,a
managing director is appointed by
approval of the central government. He is appointed at the first instance
for the period of five years which can extend for a period of another fue

years.
The appointment of a person as managing director in a public or i
subsidiary private company shall not have effect.unless it is approved by
the central government. In case of a new company; the approval must be
made within three months of his appointment. The central govermment
shall not accord its approval unless it is satisfied that
) It is the interest of the company to have a managing director.
(i) The proposed incumbent is a fit and proper person for such
appointment.
(ii) His appointment is not against public the interest.
(iv) The terms and conditions of the appointment of the proposed
managing director is not against the public interest.
( I f his appointment is not approved by the central governmeny
ue
the incumbent must vacate his office from the date of receipt or
disapproval of the govenment.
Disqualifications of Managing Director: Accordingto Section.ao
no person can be appointed as a managing director if:
been
H e is an un discharged insolvent, or has at any u
adjudged an insolvent. his
n t to
(i) He suspends or has at any time suspended, payme with his
creditors and makes, or has at any-time made, a composit1
 cOM. 18t
M.CO
creditors, or he (SEMESTEnrinST) K.UK
is, or has 143
involving moral
oral turpitude.at any time, convicted by a court
turpiaany
Powers and of an offence
Duties of
of managing director are as Managiging Director: The powers and duties
()As
)As a follows
member of the board of directors he participates in
omulating objectives and
mulating the
the
directors he
naking functions ofpartica
(i) To execute policies policy-making the
the board.
board.
laid down by
(ii) He is the
liaison officer the board of directors.
between the board of directors
directors and the
rest of the organization, the
iv) To interpret and
communicate policies of the
gubordinate employees. company to
(To review the operations of the
company and
Lard periodically accounts and statistics showing the presentandto the
the
progress
present position of the company.
(v To formulate the employment and
compensation plan in
accordance with the accepted policies of the
company.
(vi) To appoint high officials of the company.
(vii To plan the development and expansion of business.
(ir) To organise meetings with department heads.
() To promote high morale among the employees of company by
creating a sense of belonging.
(x) To maintain contact with the govermment, chamber ofcommerce,
trade unions and community at large.

xi) To maintain a harmonious relationship between line and staff

managers.
the
cin) To approve or disapprove development plans submitted by
Senior executives and place before the board for final approval.
actual
rv) To establish a system of budgetary control by which the
the planned course
Omance of the company may be evaluated against
of action.
) To administer production and sales activities of the company.
which is ensured
10 give due attention to consumer satisfaction
bythe
th continued supply of goods and services to the market.
 DEEPAK Company Law
144
Dire
- SHORT ANSWERTYPE QUESTIC
between Managing Director and:
o.1. Difference hole Time
Director

Ans. The differences

between Managing Director and
Directors are as
follows Nhole-Time
Basis of
Managing Director
Whole-Time Director
Difference

1. Rights A managing director has

extensive overall rights to
A
an
whole-time director is
employee af
manage the company's company who does
business. not
any discretionary powers
to take decisions on
of the
mattar
company's polic
2. Appointment |The appointment of a Consent of olders

managing director does| are

mandatory for the
not require the consent of | appoOintment of whole Time
the shareholders. Director.
3. Conditions A managing director and A whole-time director
Governing a manager cannot exists may be appointed withal
Appointment |imuntaneously in any managing director or al
company. manager.
4. Number of According to Section 203, Awhole-timedirector, being
Companies a managing director can | a whole-time employee of
be a managing director of | the company.cannot bea
more than one company. whole-time directorin more|
than one company.
5. Tenure |A managing director is There is no restricriction
appointed in any public | on the period for which a
company for maximum 5 whole-time director may|
years or in Private Company | hold office.
which is subsidiary of a |
public company.
6. Powers Managing director has the Whole time directordoes
right to take all decisions. | not have any right to take|
decision becausethe posibon
of whole-time directoris
just like an employee.
 M.COM. 1st (SEME1ER FIRST)
K.U.K. 145

What do you mean by Qualification Shares?

Ans. A share of common stock that a candidate for a company s
Board ot LDirections (BOD) is required to own is known as
shares. The term does not reflect a difference in the qualitication
qualityingit share compared to common shares held by other properties of a
Instead, refers to the requirement that a member of the board shareholders.
must hold
vested interest in the operation of the enterprise in the form of company
stock.
Qualitication shares are those which are purchased by a person to
become the director of the company
)Any director of a company who is by its articles required to hold
a
snecified number of qualification shares and who does not hold such
alalification shares shall vacate his office if he does not obtain such
ualification shares within two months, or such shorter period as may be
nOvided in the articles of the company from the date of his appointment
pro
and shall not be capable of being reappointed until he has obtained such
qualification shares.
(i) For the purposes of any provision in the articles of a company
requiring a director to hold a specified number ofshares as qualification
shares, the bearer of a share warrant shall not be deemed to be the holder
of the shares specified in the warrant.
(ii) Any person who accepts an appointment or acts as a director of
a company contrary to any provision of subsection (1), shall be guilty of
an offence.
Q.3. What is the maximum remuneration of Managing Director
of a Company?
Ans. Total managerial remuneration payable by a public company,
to its directors, managing director and whole-time director and its
manager
in respect of any financial
year:
) Company with one managing director/whole time director/
manager, 5% of the net profits of the company,
(i) Company with more than one managing director/whole time
urector/manager, 10% of the net profits of the company,
un) 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,
ror directors who are neither managing director or whole-time
148 DEEPAK Company Law
[Direse
npany there
if there
directors, 1% of the net profits of the company if
is a
director/whole time director,
(vi) If there is a director who
is neither aa
managing
managing
ectorlwhole
time director, 3%ofthe net profits ofthe company if there is nhole
director/whole time director.
The percentages displayed above shall be exclusive nf
vanaging
of any fees
payable under Section 197(5).
Until now, any managerial remuneration in excess of 11.
%require
govemment approval. However, now a public company can pay its med

personnel remuneration in of 11% without prior

excess gerial
approval
Central Government. A special resolution approved by the of the
will be suficient. shareholder
Q.4. Write short notes on
Director Identification Number (DIN)
i) Loan to Director
Ans. ( Director Identification Number: Director ldentification
Number or DIN (MCA) is an 8-digit unique identification
number, which
is allotted by the central government to each individual who
wants to bea
director of any company or who already is a director of
any company.
DIN number has lifetime validity when it is allotted once to the
individual,
With this DIN number the government also make a database the
of entire
director. A person can have only one DIN but he can be the director
or more companies.
of two
DIN number (MCA) is always mentioned underneath the
of the director, whenever an
signature
important document, Information letter or a
return will be submitted under
any law. The central government and its
delegated authority process and authenticate the received Form DIR-3.
Among other things, they consider the rules given in Section 154 of the
Companies Act, 2013 and Rule 10 ofthe Companies Rules 2014(Appointnent
and Qualification of
Director) when considering DIN number allotment
to an applicant.

By considering these rules and provisions the form will be

and the din number will be
processeu
allotted within a month. The central
and its delegated authority to accept or reject the form and ingovermn same

mater, they communicate with the tne

applicant using electronics
the
other medium of communication. Central government com oted
icate the
allotted din of the applicant within one lotted

to an individual.
month. That's how the din is alloaected
If the Application form of DIN allotment has been.
 147
M.COM, 1st (SEMESTER FIRST)
K.U.K
information in the
due to the submission of any wrong or misleading information form.
rongor misleading
The central
The (i) Loan
govemment
to
govemmen permits a time limit of 15 days to rectify it.
) Loan to Directors : Section 185 of the Companies Act, 2013
lays down certain restrictions with regard to the granting of loans to
in order to monitor their amended in
directors
directo
working. This act again directors of
2017 which limits the prohibition on loans, advances, etc. to
2017 which
company or its holding director or
he company
the company or any partner of such
of suçh director or any firm in which such director or relative
any partner
any
is a partner.

Section 185 of Companies Amendment Act 2017 alows the

ompany to give a guarantee or provide security in connection

loan or

loan to any person/entity in whom any of the directors are

with any
to :
interested, subject
Passing of special resolution the company in a general
by
(
eeting which must need approval of at least 75% of the members.
( Utilization of loans by the borrowing company shall be solely
busiFess and commercial activities.
for its principal
Loans : There are some exemptions
Exemption with Regard to
that are given to loans to the managing director or
with regard to loans
be given only if the following conditions are
whole time director. It may
met with:
of service of the company to grant
Where it is part of the policy
loans to all employees.
Pursuant to any scheme which is duly approved by the members
(i)
resolution. In any case where Section 185 is not
by way of a special
complied with then
fine not less
punishable with a
(a) The lending company will be
than t 5 lakh which can be extended to ? 25 lakh (maximum).
with imprisonment
(6) Any officer in default will be punishable
for a term which may extend to 6 months or fine which shall not be less

than 5 lakh but which may extend to 25 lakh.

c)The recipient ofthe loan will be punishable with imprisonment
than
wnIch may extend to 6 months or with fine which shall not be less
lakhs but which may extend to 7 25 lakhs or with both.

O00