1.

1 COMPANY TO HAVE BOARD OF DIRECTORS (BOD)

◾ Every company shall have a Board consisting of individuals as directors [Sec 149(1)].
◾ ‘Director’ means a director appointed to the Board of a company. [Sec 2(34)]
◾ ‘Board’ or ‘Board of Directors’ means collective body of directors of company. [Sec 2(10)]

◾ Min. Directors - One Person Company: 1 Director

- Private company: 2 Directors
- Public company: 3 Directors

◾ Max. Directors 15 Directors. However, company may appoint more than 15 directors after passing SR.
PC Note: Govt. company & Section 8 company may have more than 15 directors without passing a SR.

◾ Requirements for Every company existing on or before the date of commencement of CA, 2013 shall within
Existing Co. 1 year appoint BODs with requisite no. (Min. & Max.) including 1 woman director.

1.2 APPOINTMENT OF DIRECTORS

◾ Appointment - Every director shall be appointed by the company in GM (save as otherwise expressly
provided in the Act).
◾ DIN - Every person to be appointed as director is required to obtain Director
Identification Number (DIN).
◾ Self-Declaration - A person to be appointed as director shall furnish his DIN & a declaration that he is
not disqualified to become a director under the Act. The said person is to give his
consent to act as a director in Form DIR -2.
◾ ROC Compliance - Company shall, within 30 days of appointment of director, file such consent with
ROC in Form – DIR-12 along with the fee prescribed.

1.3 DIRECTOR IDENTIFICATION NUMBER

◾ DIN Mandatory - Every individual, who intends be appointed as director of a company shall make an
[Section 152(3)] application electronically in DIR-3 to CG for allotment of DIN.
◾ DIN Portal - CG shall provide an electronic system to facilitate submission of application for
allotment of DIN through portal on website of the MCA.
◾ Filing Process - Applicant shall download Form DIR-3, fill in the required particulars, verify & sign
form & after attaching copies of following documents, scan & file electronically:
Photograph; proof of identity; proof of residence; Specimen signature duly verified
BR proposing his appointment as director in an existing company.
◾ Form Verification - Form DIR-3 shall be signed & submitted electronically by the applicant using his or
her own DSC & shall be verified digitally by a CS in full time employment of the
- company or by MD or director or CEO or CFO of the company in which the applicant
is intended to be appointed as director in an existing company.
◾ Application - On application, the system shall generate an application number. CG shall process the
Processing application & decide on approval or rejection & communicate the same to applicant
along with DIN allotted in case of approval by way of a letter by post or electronically
or in any other mode within 30 days from the receipt of such application.
◾ Defective - If any defect is found in the application the CG shall give intimation of such defect or
Application incompleteness to the applicant by placing it on its web site & by email to applicant
to rectify such defects within 15 days from the date of intimation.
- If the same has not been rectified, CG shall reject the application directing to file a
fresh application. In case of rejection or invalidation of application, fee so paid with
application shall neither be refunded nor adjusted with any other application.
◾ Transition - DIN allotted to a director before the commencement of this Act shall be deemed to
be the DIN allotted under the present Act.
- Every director, functioning as a director in 1 or more companies on or before 30th
June, 2007 & who has not yet intimated his DIN to such company or companies shall
within 1 month of the receipt of DIN from CG, intimate his DIN to the company or all
companies wherein he is a director as per Form DIR-3B [Section 156].
◾ Validity - DIN allotted shall be valid up to the lifetime of the Director.
- The said number shall not be allotted to any other person.
- Similarly, a person shall be allotted only one DIN [Section 155].
◾ ROC Compliance - Every company shall within 15 days of the receipt of intimation, furnish the same with
[Section 157] the Registrar in Form DIR-3C.

◾ Penalty Company: If company fail to furnish DIN, it shall be punishable with fine 25,000 – 1 Lac.
Director: Every officer who is in default shall be punishable with fine 25,000 – 1 Lac.
◾ Section 159 If any individual or director of a company, contravenes any of the provisions of
- Section 152 (dealing with the appointment of directors);
- Section 155 (dealing with prohibition to obtain more than one DIN) &
- Section 156 (Director to intimate DIN),
such individual or director shall be punishable with imprisonment for a term which may
extend to 6 months or with fine which may extend to Rs. 50,000.
If contravention is a continuing one, further fine will be imposed which may extend
to Rs. 500 for every day after the first during which the contravention continues.

1.4 DUTIES OF A DIRECTOR [Section 166]

(1) Duty to act as per the articles
A director of a company shall act in accordance with the articles of the company;
(2) Duty to act in good faith
A director of a company shall act in good faith in order to promote the objects of the company
for the benefit of its members as a whole, & in the best interests of the company, its employees,
the shareholders, the community & for the protection of environment;

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(3) Duty to exercise due care
A director of a company shall exercise his duties with due & reasonable care, skill & diligence &
shall exercise independent judgment;
(4) Duty to avoid conflict of interest
A director shall not involve in a situation in which he may have a direct or indirect interest that
conflicts, or possibly may conflict, with the interest of the company;
(5) Duty not to make any undue gain
A director of a company shall not achieve or attempt to achieve any undue gain or advantage
either to himself or to his relatives, partners, or associates & if such director is found guilty of
making any undue gain, he shall be liable to pay an amount equal to that gain to the company;
(6) Duty not to assign his office
A director of a company shall not assign his office & any assignment so made shall be void;

Punishment for contravention: If director of company contravenes provisions of Sec 166 such director shall
be punishable with fine which shall not be > Rs. 1 lakh but which may extend to Rs. 5 lakhs.

1.5 WOMAN DIRECTOR

◾ As per 2nd proviso to Section 149(1) r/w Rule 3 of Companies (Appointment & Qualification of Directors)
Rules, 2014, companies shall appoint at least 1 woman director.
◾ Applicability (a) Every Listed company;
(b) Every other public company having
✓ Paid up share capital ≥ Rs. 100 crores
✓ Turnover ≥ Rs. 300 crores
◾ Time Limit within 6 months from the date of its incorporation.
◾ Vacancy Any vacancy shall be filed up by the Board in -
(a) immediate Next Board meeting or whichever is later
(b) 3 months from the date of such vacancy

1.6 INDEPENDANT DIRECTOR [Sec 149(4)]

◾ Every listed company shall appoint at least 1/3rd of its total directors as independent directors.
◾ Rounding off - Any fraction in such 1/3rd numbers shall be rounded off as one.
Ex: If BODs contains 10 directors, company shall appoint 4 independent directors
◾ Minimum 2 - Public companies having paid up share capital ≥ Rs. 10 crores.
Independent - Public companies which have, in aggregate, outstanding loans, debentures &
Directors [Rule 4] deposits > Rs. 50 crores.
- Public companies having turnover ≥ Rs. 100 crores.

PC Note: Every listed company existing on or before the commencement of the Act shall appoint
independent director within 1 year from commencement of the Act. [Sec 149(5)]
◾ Definition of Independent Director [Sec 149(6)]
An independent director means a director other than a MD or a WTD or a Nominee director who:
(1) Qualities - who is a person of integrity & possesses relevant expertise & experience.
(2) Not a Promoter - who is or was not a promoter in company, its HC/SC/Associate.
- who is or was not related to promoters/directors in company, its HC/SC/ associate.
(3) No Pecuniary - who has or had no pecuniary relationship (other than remuneration as such director)
Relationship or having transaction not exceeding 10% of his total income with -
(a) Company, its HC/SC/Associate or (b) their promoters/directors
during 2 immediately preceding FY or during the current FY.

(4) Related Party None of whose relatives is -

Disqualification (i) holding any security of or interest in (a) Company; (b) HC; (c) SC; (d) Associate
during 2 immediately preceding FY or during the current FY.
Provided that relative may hold security or interest in the company of face value
≤ Rs. 50 lacs or 2% of paid-up capital of the company, its HC, SC or associate.
(ii) is indebted to (a) Company; (b) HC; (c) SC; (d) Associate; (e) their promoters/directors
in excess of Rs. 50 Lacs during 2 immediately preceding FY or during current FY.
(iii) has given a guarantee or provided any security in connection with indebtedness of
any 3rd person to (a) Company; (b) HC; (c) SC; (d) Associate; (e) their promoters;
(f) directors of such holding company for Rs. 50 Lacs
during 2 immediately preceding FY or during the current FY.
(iv) has any other pecuniary transaction or relationship with (a) Company; (b) HC;
(c) SC; (d) Associate Company amounting to 2% or more of its gross TO or total
income singly or in combination with transactions referred above [(i) – (iii) Above]

(5) neither he or any (i) holds or has held the position of a KMP or is or has been employee of -
of his relatives (a) Company; (b) HC; (c) SC; (d) Associate company
in any of 3 FY immediately preceding FY in which he is proposed to be appointed.
(ii) is or has been an employee or proprietor or partner, in any of the 3 FY immediately
preceding the FY in which he is proposed to be appointed, of -
- Firm of Auditors/Practicing CS/Cost Auditors of the company/HC/SC/Associate.
- Legal or consulting firm that has or had any transaction with the company or
HC/SC/Associate amounting to 10% or more of the gross T.O of such firm
(iii) holds together with his relatives 2% or more of total voting power of the company;
(iv) is a Chief Executive or Director of any non-profit organization that receives 25%
or more of its receipts from the company, any of its promoters, directors or its
HC/SC/Associate or that holds 2% or more of total voting power of company;

(6) Other Skills & An independent director shall possess appropriate skills, experience & knowledge in
Qualification one or more fields of finance, law, management, sales, marketing, administration,
[Rule 5] research, corporate governance, technical operations or other related disciplines.

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 Remuneration - He may receive remuneration by way of sitting fee & reimbursement of expenses
for participation in the Board & other meetings & profit related commission as may
be approved by the members. He shall not be entitled to any stock option.

Term - Independent director shall hold office for a term of office upto 5 consecutive years
on the Board of a company.
- No independent director shall hold office for more than 2 consecutive terms.

Reappointment - He shall be eligible for re-appointment on passing a SR by the company.

The Board’s report shall disclose the same.

Cooling Period - He shall be eligible for appointment after the expiration of 3 years of ceasing to
become an independent director.

Rotation – NA - Provisions for retirement of directors by rotation shall not be applicable to

independent directors.

Selection from - Independent directors may be selected from a data bank containing the details of
Database persons who are eligible & willing to act as independent directors maintained
by any agency as notified by the CG.
- Appointment of independent director shall be approved by the company in GM.

1.7 OTHER TYPES OF DIRECTORS

◾ Nominee - Subject to AOA, BODs may appoint any person as director nominated by any
Director institution in pursuance of the provisions of any law for the time being in force or of
[Sec 161(3)] any agreement or by CG/SG by virtue of its shareholding in Gov. Company.
- For the purposes of section 149 of Companies Act, 2013, a nominee director means a
director nominated by any financial institution.

◾ Resident - Every company shall have at least 1 director who has stayed in India for ≥ 182
Directors days during FY.

◾ Managing - Director, who by virtue of AOA or agreement with company or a resolution passed in
Director (MD) its GM or by BoD, is entrusted with substantial powers of management of affairs of
[Section 2(54)] company & includes a director occupying the position of MD, by whatever name called

◾ Whole time - Section 2(94) defines the term ‘whole time director’ including a director in the whole-
Director time employment of the company.
 ◾ First Directors - Where no provision is made in AOA of a company for the appointment of first director,
[Section 152(1)] subscribers to the memorandum who are individuals shall be deemed to the first
directors of the company until the directors are duly appointed.
- In OPC, an individual being member shall be deemed to be its first director until the
director(s) are duly appointed by the member.

◾ Additional - AOA may confer on its BoD the power to appoint any person, other than a person
Director who fails to get appointed as a director in GM, as an additional director at any time.
[Section 161(1)] - Such director shall hold office up to the date of next AGM or the last date on which
the AGM should have been held, whichever is earlier.

◾ Alternate - BODs of a company may, if so authorized by its articles or by a resolution passed

director by the company in general meeting, appoint a person not being a person holding any
[Section 161(2)] alternate directorship for any other director in the company or holding directorship
in the same company, to act as an alternate director for a director during
his absence for a period not less than 3 months from India.

1.8 SMALL SHAREHOLDERS DIRECTORS (SSD)

◾ Small - Shareholder holding shares of nominal value of not more than Rs. 20,000 or such
Shareholders other sum as may be prescribed.

◾ Provisions - Listed company may have one director elected by small shareholders.
applicable to - Listed company, may upon notice of -
Listed company (a) not less than 1000 small shareholders or (b) 1/10 th of such shareholders (Lower)
have a small shareholders’ director elected by small shareholders.

◾ Rotation - NA - Such director shall not be liable to retire by rotation.

◾ Tenure - Tenure of SSD shall not exceed a period of 3 consecutive years

- On expiry of the tenure, such director shall not be eligible for re-appointment.

◾ Disqualification - Disqualified person for the appointment of director shall not be eligible for such
appointment.
- No person shall hold the position of small shareholder’s director in more than two
companies at the same time.

◾ Cooling Period - Small shareholders’ director shall not, for a period of 3 years from the date on which
he ceases to hold office as a small shareholders’ director in a company, be appointed
in or be associated with such company in any other capacity either directly/indirectly

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 1.9 ROTATION OF DIRECTORS
◾ Retirement by - Unless AOA provide for the retirement of all directors at every AGM,
Rotation atleast 2/3rd of Total No. of Directors – Independent Directors (Upper Round off)
(Rotational shall be persons whose period of office is liable to determination by retirement of
Directors) directors by rotation &
- save as otherwise expressly provided in the Act, be appointed by the company in GM.
PC Note:
PC Note: Above provision is applicable only for Public Company.
◾ Calculation - At 1st AGM of a public company (held next after the date of GM at which the first
directors are appointed at every subsequent AGM), 1/3rd of such of directors
(Rounded to nearest multiple) for the time being as are liable to retire by rotation.
◾ Selection of - Directors to retire by rotation at every AGM shall be those who have been
Rotational longest in office since their last appointment (FIFO Basis).
Directors PC Note: Persons who became directors on same day shall subject to any mutual
agreement among themselves, be determined by lot.
◾ Vacancy - Company may fill up the vacancy by appointing the retired director or other person.

1.10 DISQUALIFICATIONS FOR APPOINTMENT OF DIRECTOR [Section 164]

A person shall not be eligible for appointment as a Director of a company, if:
(a) he is of unsound mind & stands so declared by a competent court;
(b) he is an undischarged insolvent;
(c) he has applied to be adjudicated as an insolvent & his application is pending;
(d) he has been convicted by a Court of any offence, whether involving moral turpitude or otherwise &
sentenced to imprisonment for not less than 6 months & a period of 5 years has not elapsed from the
date of expiry of the sentence;
PC Note: If a person has been convicted of any offence & sentenced to imprisonment for a period of
7 years or more, he shall not be eligible to be appointed as a director in any company;
(e) Order disqualifying him for appointment as director has been passed by Court/NCLT & order is in force.
(f) he has not paid any calls i.r.o. any shares of the company held by him, whether alone or jointly with
others & 6 months have elapsed from the last day fixed for the payment of the call;
(g) he has been convicted of the offence dealing with related party transactions u/s 188 at any time
during the last preceding 5 years; or
(h) he has not obtained DIN.

PC Note: Private company may by its AOA provide for any disqualifications for appointment as a
director in addition to the above disqualifications.
Disqualifications referred under (d), (e) & (g) above shall continue to apply even if the appeal or
petition has been filed against the order of conviction or disqualification.
1.11 RE-APPOINTMENT OF DIRECTOR
◾ A director liable to be retired may be re-appointed in the general meeting.
◾ Person who is or has been a director of a company which:
- has not filed financial statements or annual returns for any continuous period of 3 FYs; or
- has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures
on the due date or
- pay interest due thereon or pay any dividend declared & such failure to pay or redeem
continues for one year or more,
shall NOT be eligible to be re-appointed as director of that company or appointed in other company
for a period of 5 years from the date on which the said company fails to do so.

1.12 VACATION OF OFFICE OF A DIRECTOR [Section 167] [V. IMP]

Office of a Director shall become vacant in case:
(a) he incurs any of the disqualifications specified in Section 164;
Provided that where he incurs disqualification u/s 164(2), office of the director shall become vacant
in all the companies, other than the company which is in default under that sub-section.
(b) he absents himself from all the meetings of the Board of Directors held during a period of 12 months
with or without seeking leave of absence of the Board;
(c) he acts in contravention of the provisions of Section 184 relating to entering into contracts or
arrangements in which he is directly or indirectly interested.
(d) he fails to disclose his interest in any contract or arrangement in which he is directly or indirectly
interested, in contravention of the provisions of Section 184;
(e) he becomes disqualified by an order of a Court or Tribunal;
(f) he is convicted by a court of any offence, whether involving moral turpitude or otherwise &
sentenced in respect thereof to imprisonment for not less than 6 months.
Provided that office shall not be vacated by director in case of orders referred under (e) & (f):
(i) for 30 days from the date of conviction or order of disqualification;
(ii) where an appeal or petition is preferred within thirty days as aforesaid against the conviction
resulting in sentence or order, until expiry of 7 days from the date on which such appeal or
petition is disposed of; or
(iii) where any further appeal or petition is preferred against order or sentence within 7 days,
until such further appeal or petition is disposed of.
(g) he is removed in pursuance of the provisions of the Act;
(h) he, having been appointed a director by virtue of his holding any office or other employment in HC,
SC or associate company, ceases to hold such office or other employment in that company.
(i) he breaches the limits of maximum directorship allowed.
Private Co. Private co. may by its AOA provide any other ground for vacation of office of a director.
Appointment Where all the directors of a company vacate their offices under any of the
by CG disqualifications, the promoter or, in his absence, CG shall appoint required no.
of directors who shall hold office till directors are appointed by company in GM.

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1.13 RESIGNATION OF A DIRECTOR [Section 168]
◾ A director may resign from his office by giving a notice in writing to the company;
◾ He shall within 30 days from the date of resignation, forward to the Registrar a copy of his resignation
along with the reasons for the resignation, in Form No. DIR - 11 along with the fee.
◾ Foreign director may authorize in writing a practicing CA/CMA/CS or any other resident director
to sign Form No. DIR - 11 & file the same on his behalf intimating the reasons for the resignation;
◾ Board shall on receipt of such notice take notice of the same;
◾ Company shall intimate ROC in Form DIR-12 within one month from the date of receipt of such notice;
◾ The said information is to be posted on the website of the company;
◾ Fact of the resignation shall be included in the report of directors laid in immediately following GM
◾ Resignation of a director shall take effect from the date on which the notice is received by the
company or the date, if any, specified by the director in the notice, whichever is later.
◾ Director who has resigned shall be liable even after his resignation for the offences which occurred
during his tenure.
Where all directors resign from their offices, promoter or, in his absence, CG shall appoint required
No. of directors, who shall hold the office till the directors are appointed by the company in GM.

1.14 REMOVAL OF DIRECTORS [SECTION 169]

◾ Company may remove director by passing OR. Company cannot remove a director appointed by NCLT.
◾ Procedure to remove a director & to appoint another director in the place of removed director:
- Special notice of any resolution shall be sent for a meeting in which director is to be removed to company.
- On receipt of notice of a resolution to remove director, company shall send a copy of it to director.
- Director, whether he is a member or not, is entitled to be heard on the resolution at the meeting;
- Director concerned may make his representation in writing to the company;
- Director may request the company to send his representation to the members of the company;
- Company, shall if the time permits it to do so:
✓ in any notice of the resolution given to members of the 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, whether before or after receipt of the representation of the company.
◾ If a copy of the representation is not sent due to insufficient time or for the company’s default, the
director may require that the representation shall be read out at the meeting.
◾ Copy of representation need not be sent out & read out at meeting if, on the application either of
company or of any other person who claims to be aggrieved, Tribunal is satisfied that the rights
conferred by this section are being abused to secure needless publicity for defamatory matter.
◾ Tribunal may order the company’s costs on the application to be paid in whole or in part by the
director notwithstanding that he is not a party to it.
◾ Vacancy created by the removal of director may be filled by appointment of another director in his
place at the meeting at which he is removed. Special notice of intended appointment has been given.
 ◾ New director so appointed shall hold office till the date up to which his predecessor would have held
office if he had not been removed. If the vacancy is not filled, it may be filled as casual vacancy.
◾ Removed director shall not be re-appointed as director by BOD. Nothing in this section shall be taken
as depriving a person removed under this section of any compensation or damages payable for his
removal as director, as per T&Cs of contract or terms of his appointment as director or of any other
appointment terminating with that as director or as derogating from any power to remove a director.

1.15 REGISTER OF DIRECTORS & KEY MANAGERIAL PERSONNEL (KMPs) [TO BE READ ONCE]
Every company is to keep a register of directors & KMP at its registered office. It shall contain:
- DIN (optional for KMPs);
- Name & Surname; Father’s name, Mother’s name & Spouse’s name. Former name or surname in full (if any);
- Date of birth; Nationality; Occupation; Present & permanent residential address;
- Date of appointment & reappointment; Date of BR in which the appointment was made;
- Date of cessation of office & reasons thereof;
- office of director or KMP held or relinquished in any other body corporate;
- Membership number of ICSI (in case of CS) & PAN (mandatory for KMP if not having DIN).
In addition to the above details, company shall include details of securities held by them in
company, HC, SC, subsidiaries of company’s holding company & associate companies relating to:
- Number, description & nominal value of securities; Acquisition date & price or other consideration paid;
- Date of disposal & price & other consideration received;
- Cumulative balance & number of securities held after each transaction;
- Mode of acquisition of securities;
- Mode of holding-physical or in dematerialized form; &
- whether securities have been pledged or any encumbrance has been created in the securities.
Return containing the particulars of appointment of directors & KMP & changes therein shall be filed
with ROC in Form No. DIR – 12 along with fee within 30 days of such appointment/change by company.

1.16 INSPECTION OF REGISTER [Section 171]

(1) Register of directors & KMP shall be kept open for inspection during business hours.
- Members have right to take extracts & copies at free of cost, which shall be supplied within
30 days of the request made by the members
- The same shall be kept open at every annual general meeting of the company & made accessible
to any person attending the meeting.
(2) If inspection is refused or any copy is not sent, ROC shall, on an application to him, order immediate
inspection & supply of copies required.

Punishment:
If company contravenes any of the provisions of Chapter XI & for which no specific punishment is
provided, the company & every offices of company, who is in default, shall be punishable with fine,
which shall not be less than Rs. 50,000/- but which may be extend up to Rs. 5 lakhs.

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1.17 APPOINTMENT OF MANAGING DIRECTOR (MD), WHOLE TIME DIRECTOR (WTD) [Section 196]
◾ Section 196(1) - Company shall not appoint a MD & a manager at the same time.
- Company shall appoint or re-appoint a MD, WTD or manager for tenure of 5
years only at a time.

◾ Age Limit for - Minimum age for appointment of MD & WTD: 21 years; Maximum age: 70 years.
Appointment PC Note: Person above 70 years can be appointed by passing a SR.
- Explanatory statement annexed to notice shall indicate justification for appointing.

◾ Disqualification - He is undischarged insolvent or has at any time been adjudged as an insolvent;

[Section 196(3)] - has suspended payment to his creditors or has made, a composition with them;
- has been convicted by a court of an offence & sentenced for a more than 6 months.
◾ Approval by - A MD or a WTD shall be appointed, subject to T&Cs of such appointment &
Board remuneration payable, to be approved by BODs at a meeting which shall be subject
to approval by a resolution in the next general meeting of the company.
◾ Approval by CG - Approval of CG is required in case such appointment is varied to the conditions
specified in Part I of Schedule V.

◾ Additional - Part I of Schedule V imposed the following additional conditions to be fulfilled

conditions as for the appointment of a MD or a WTD without the approval of the CG:
per Part I of ✓ he had not been sentenced to imprisonment for any period or fine exceeding
Schedule V Rs. 1,000 for conviction of any offence under any of the following Acts:
Indian Stamps Act 1899; Central Excise Act, 1944; Essential Commodities Act, 1955;
Industries (Development & Regulation) Act, 1951; Wealth Tax Act, 1957;
Prevention of Food Adulteration Act, 1954; Income Tax Act, 1961; FEMA 1999;
Companies Act, 2013 or any previous Company Law; Customs Act, 1962;
Securities Contracts (Regulation) Act, 1956; Competition Act, 2002;
Sick Industrial Companies (Special Provisions) Act, 1985; SEBI Act 1992;
Foreign Trade (Development & Regulation) Act, 1922;
Prevention of Money-Laundering Act, 2002.
✓ He had not been detained for any period under the Conservation of
Foreign Exchange & Prevention of Smuggling Activities Act, 1974;
✓ Where he is a managerial person in more than 1 company, he draws remuneration
from one or more companies subject to ceiling provided in Part II of this schedule.
✓ He is resident of India.

◾ Validity of Act - Where an appointment of a MD or WTD is not approved by the company at a GM,
any act done by him before such approval shall not be deemed to be invalid.
◾ ROC - A return in Form No. MR-11 shall be filed indicating the appointment of a MD
Complaince or WTD within 60 days of such appointment along with the fee.
1.18 REMUNERATION OF DIRECTORS
◾ Section 197(1) - Total managerial remuneration payable by a public company to its directors,
Overall including MD & WTD i.r.o. of any FY shall not exceed 11% of net profits.
Remuneration PC Note: Company may authorize payment of remuneration exceeding 11% of net
profits of the company in GM.
- Where company has defaulted in payment to bank/PFI or NCD or any secured
creditor, prior approval of bank/PFI shall be obtained before SR.
◾ Refund of - If any director draws or receives remuneration in excess of prescribed limit or
excess Amount without approval required under this section, he shall refund such sums to the
company & until such sum is refunded hold it in trust for the company.
◾ Remuneration - 2nd proviso to Section 197(1) provides that remuneration payable to any one MD
to MD or WTD or WTD or manager shall not exceed 5% of net profits of the company.
- If there are more than one WTD, remuneration shall not be > 10% of net profits
to all such directors & manager taken together.
◾ Remuneration - If there is a MD/WTD/Manager → Remuneration payable to directors, who are
to directors neither MD nor WTD, shall not exceed 1% of net profits.
- In other case → It shall not exceed 3% of net profits.
◾ Remuneration - If, in any FY, a company has no profits or its profits are inadequate, company shall
when there is not pay to its directors including MD or WTD by way of remuneration any sum
No Profit exclusive of any fees payable. Remuneration may be payable in such a situation
Section 197(3) in accordance with the provisions of Schedule V.
◾ Sitting fees - Sitting fees for attending board meeting shall not exceed Rs. 1 Lac per meeting
- Independent directors & women directors may receive the fees not less than the fee
payable to other directors.
◾ Professional Fees - Any remuneration for services rendered by any such director in other capacity
shall not be included if services rendered are of a professional nature & in opinion
of the Nomination & Remuneration Committee or BODs, director possesses the
requisite qualification for the practice of the profession.
◾ Periodicity of - Director may be paid remuneration either by way of monthly payment or at a
Payment [197(6)] specified % of net profits of the company or partly by one way & partly by other.
◾ Insurance - Where any insurance is taken by company on behalf of its MD, WTD for indemnifying
premium any of them against any liability for negligence, default, misfeasance, breach of duty
[Sec 197(13)] or breach of trust for which they may be guilty in relation to company, premium paid
on insurance shall not be treated as part of remuneration payable to such director.
- If such person is proved to be guilty, premium paid shall be treated as remuneration.
◾ Recovery of - Where a company is required to re-state its financial statements due to fraud
remuneration - or non-compliance with any requirement, company shall recover from any past
[Section 199] or present MD/WTD, who during period for which financial statements are required
to be re-stated, received the remuneration, including stock option in excess of what
would have been payable to him as per the re-statement of financial statements.

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1.19 POWERS OF THE BOARD OF DIRECTORS
◾ Powers that can - BODs of a company shall be entitled to exercise all such powers, & to do all such
be exercised acts & things, as the company is authorised to Exercise
◾ Beyond the - Board shall not exercise any power or do any act or thing which is directed or
Power of Board required, whether under this Act or by MOA/AOA articles of the company or
otherwise, to be exercised or done by the company in general meeting.

◾ Need of Following [Sec. 179(3) r/w Rule 8 of Companies (Meetings of Board & its Power)
Resoultion at Rules, 2014] powers of BODs shall be exercised only resolutions passed at BR:
Board Meeting 1. to make calls on shareholders in respect of money unpaid on their shares;
2. to authorise buy-back of securities under section 68;
3. to issue securities, including debentures, whether in or outside India;
4. to borrow monies;
5. to invest the funds of the company;
6. to grant loans or give guarantee or provide security in respect of loans;
7. to approve financial statement & the Board's report;
8. to diversify the business of the company;
9. to approve amalgamation, merger or reconstruction;
10. to take-over/acquire a controlling or substantial stake in another company;
11. to make political contributions;
12. to appoint or remove key managerial personnel (KMP);
13. to appoint internal auditors & secretarial auditor;
◾ Delegation of - Board may, by a resolution passed at a meeting, delegate to any committee of
power by Board directors, MD, manager or any other principal officer of the company; or in the case
of a branch office of company, principal officer of the branch office, powers specified
in (4) to (6) above on such conditions as it may specify.
◾ Exception - Banking company is not covered under the purview of this section. Company may
impose restriction & conditions on the powers of the Board specifed in this section.
◾ Restrictions on Board can exercise following powers only with the consent of company by SR, namely
Powers of - to sell, lease or otherwise dispose of the whole or substantially the whole of
Board the undertaking of the company or where the company owns more than one
[Section 180] undertaking, of whole/substantially the whole of any of such undertakings;
- to invest otherwise in trust securities the amount of compensation received
by it as a result of any merger or amalgamation;
- to borrow money, where the money to be borrowed, together with the money
already borrowed by the company will exceed aggregate of its paid-up share
capital, free reserves & securities premium, apart from temporary loans
obtained from the company’s bankers in the ordinary course of business;
- to remit, or give time for the repayment of, any debt due from a director.
 SR relating to borrowing money exceeding paid up capital, free reserves & securities
premium shall specify total amount upto which the money may be borrowed by Board.
◾ Validity of Act - Debt incurred by the company exceeding paid-up capital, free reserves & securities
premium is not valid & effectual, unless lender proves that loan was advanced
in good faith & also having no knowledge that limit imposed had been exceeded.
- Title of buyer or other person who buys or takes on lease any property, investment
or undertaking in good faith cannot be affected & also in case if in the ordinary
business of the company comprises such selling or leasing.
- Resolution may also stipulate the conditions of such sale & lease, but this
doesn’t authorize the company to reduce its capital except in accordance
with the provisions contained in this Act.

1.20 CONTRIBUTIONS TO CHARITABLE FUNDS & POLITICAL PARTIES [SECTION 181]

◾ Power of making contribution to ‘bona fide’ charitable & other funds is available to the Board subject
to certain limits. Further, permission of company in general meeting is required if such contribution
in any FY exceeds 5% of its average net profits for the 3 immediately preceding FY.

1.21 PROHIBITIONS & RESTRICTIONS REGARDING POLITICAL CONTRIBUTIONS [SECTION 182]

◾ A company may contribute any amount directly to any political party.
Exception: Government company & a company which has been in existence for less than 3 FY.
◾ Contribution must be authorised by Board in its meeting by resolution & such resolution shall be
deemed to be the justification in law for such contribution.
◾ Donation may be directly or indirectly. If the contribution so made is likely to affect the public support
for a political party shall also be deemed to be the contribution for political purpose. Expenditure
incurred on advertisement in any publication souvenir, brochure, tract, pamphlet or the like is also
deemed as political contribution, if such publication is by or on behalf of political party or if not,
then for the advantage to such political party for a political purpose.
◾ Every company shall disclose in its profit & loss account the total amount contributed by it under
this section during the financial year to which the account relates. Contribution shall be made only
by A/c payee cheque or draft or use of electronic clearing system through a bank account.
◾ Penalty for Contravention: For contribution in contravention of the provisions of this section, the
company shall be punishable for an amount which may extend to 5 times of the amount so
contributed & every officer who is in default shall be punishable with imprisonment for a term which
may extend to 6 months & with fine which may extend to 5 times of the amount so contributed.

1.22 POWER OF BODs TO MAKE CONTRIBUTIONS TO NATIONAL DEFENCE FUND, ETC. [SEC. 183]
◾ Board is authorised to contribute such amount as it thinks fit to National Defence Fund or any
other fund approved by the Government for national defence.
◾ The company is required to disclose in its profit & loss account the total amount or amounts
contributed by it during the financial year to which the amount relates.