UNIT III

COMPANY MANAGEMENT

Introduction

To successfully manage a company that does not have a brain of its own, we need a
living person to make decisions and implement them. That is where the need for directors comes
in. According to section 2(34)[1] “director means a director appointed to the Board of a
company” hence this definition is not very exhaustive or illustrative. Whereas section 2(10)[2]
defines― “Board of Directors, about a company, means the collective body of the directors of
the company” The directors can only be individual and not a body corporate as per section 149.
[3]

Position of Directors

Directors have been described as agents, organs and trustees of a company. Trustees as
they handle property and money of the company

Types of Directors

1. First Director: Section 152[7] states that in case there is no provision in the AoA for
first directors, the subscribers shall be deemed to be the directors.
2. Resident Director: As per section 149(3)[8] there shall be one director who has stayed
in India for at least 182 days during the financial year.
3. Woman Director: A company with paid up capital over 100 Cr. or turnover of 300 Cr.
shall have at least 1 woman director as per section 149(1).[9]
4. Small Shareholders Director: Small shareholders may elect a director under section
151[10].
5. Independent Director: As per section 149(4)[11] listed public companies must have at
least 1/3rd of their total directors as independent and other public companies,
companies with paid up capital over Rs. 10 Cr., or with a turnover of Rs. 100 Cr. or
more, or with outstanding loans/debentures and deposits of Rs. 50 Cr. or more shall
have at least 2 independent directors. They must not  have any material or pecuniary
relationship with the company/directors.
6. Alternate director: This is defined under section 161(2)[12]
7. Nominee Director: As per section 161(3)[13] any institution like the government may
nominate a director subject to the articles.
Disqualifications of a Director

These are defined under section 164(1)[14]

“(a) He is of unsound mind and stands so declared by a competent court

 (b) He is an undischarged insolvent;

 (c) He has applied to be adjudicated as an insolvent and his application is pending;

(d) He has been convicted by a court of any offence, whether involving moral turpitude or
otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a
period of five years has not elapsed from the date of expiry of the sentence. Provided that if a
person has been convicted of any offence and sentenced in respect thereof to imprisonment for a
period of seven years or more, he shall not be eligible to be appointed as a director in any
company.

 (e) An order disqualifying him for appointment as a director has been passed by a court or
Tribunal and the order is in force;

(f) He has not paid any calls in respect of any shares of the company held by him, whether alone
or jointly with others, and six 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 under section
188[15] at any time during the last preceding five years; or

 (h) He has not complied with sub-section (3) of section 152.[16]

(i) if he accepts directorships exceeding the maximum number of directorships provided in

section 165[17].

Duties of Director in a Company

The Board of Directors functions as the Company’s agent. However, when acting for the
Company, the Director must fulfill the following responsibilities:
 Act in good faith and in accordance with the Company’s Articles of Association
 To act in the best interests of the Company and its stakeholders in order to promote the
Company Act’s objectives.
 Exercise due and reasonable care when performing obligations.
  To make independent decisions.
 Not to get engaged in a situation where his interests are at odds with the Companies.
 He is unable to delegate his duties to anyone else.
 To avoid gaining an unfair advantage or profit.

RIGHTS OF A DIRECTOR

 Director’s Individual Rights

1. Inspection of books of accounts.
2. Right to receive board meeting notices.
3. The right to obtain circular resolution draft.
4. The right to a sitting fee.
5. The right to speak in General Meetings.
6. Inspection of board meeting minutes is a legal right.
7. He has the right to record his dissent.
8. Right to vote and participate in Board meetings.
9. The ability to claim travel, lodging, and other expenditures.
10. The right to call board meetings.
11. Right to request an alternate director from the board of directors.
 Collective Rights in a Company
1. Right to prohibit share transfers
2. The right to choose a Chairman
3. Right to nominate a Managing Director and make dividend recommendations
4. Investment approval authority.

 MANAGING DIRECTOR

"Managing director" means a director who, by virtue of an agreement with the company or
of a resolution passed by the company in general meeting or by its Board of directors or, by
virtue of its memorandum or articles of association, is entrusted with any powers of management
which would not otherwise be exercisable by him, and includes a director occupying the position
of a managing director, by whatever name called – Section 02(26)

If a company wants to appoint a person as Managing Director, who is not a director of company,
he has first to appointed as an additional director in accordance with Section 260

Section 317 restricts the period for which Managing Director be appointed at a time upto five
years.
Obtain qualification shares prescribed by Articles within a period of two months from date of
appointment – Section 270

Managing Director may be appointed:-

 By virtue of an agreement with the Company

 By virtue of resolution passed by company
 By virtue of resolution passed by Board of Directors
 By virtue of MOA and AOA.

WHOLE- TIME DIRECTOR/ EXECUTIVE DIRECTOR

Whole time Director is virtually Managing Director

 The terms whole- time director and executive directors are not specifically defined in
Companies Act except saying that he is in whole time employment.

 Appointment is subject to Section 274

 No restriction of Section 317

 Remuneration – Section 387

MANAGER

 "Manager" means an individual (not being the managing agent) who, subject to the
superintendence, control and direction of the Board of Directors, has the management of
the whole, or substantially the whole, of the affairs of a company, and includes a director
or any other person occupying the position of a manager, by whatever name called, and
whether under a contract of service or not - Section 02(24)

 Section 197A - No company shall appoint or employ at the same time a managing
director and manager.

 No company shall appoint or employ any firm, body corporate or association as its
manager – Section 384. A manager must be individual.

CHAIRMAN

Unless the articles of the company otherwise provide, the members personally present at the
meeting shall elect one of themselves to be the chairman thereof on a show of hands – Section
175
  The Chairman must ascertain that a quorum to constitute the meeting prescribed is
present.
 Proceedings are conducted in a proper manner
 Observe strict impartially.
 To ensure that all the participating directors get equal opportunity to express their views.
 May allow any additional business to be transacted either with the consent of the meeting
or at his own discretion

Women director

Appointment of a woman director

According to Section 149(1) of the Companies Act read with Rule 3 of the Companies
Appointment and Qualification of Director) Rules 2014, the appointment of a woman director
has been made mandatory for the following companies:

1. Listed companies.
2. A public company having a paid-up share capital of ₹100 crores or more or having a
turnover of ₹300 crores or more.

When should the woman director be appointed

There are multiple scenarios and time limits that have been prescribed for the appointment of a
woman director. These scenarios have been enumerated below:

Scenario The time limit for an appointment

6 months from the date of incorporation of the

If the company is a listed company
company

If it is a public company having a paid-up share capital

6 months from the date of incorporation of the
of ₹100 crores or more or having a turnover of ₹300
company
crores or more

If the Company existed before the commencement of 1 year from the date of commencement of the
the Companies Act Companies Act 2013

Intermittent vacancy for the position of a woman Within three months from the date of the
director vacancy or in the next board meeting,
 whichever is later.

Duties of a woman director

The duties of a woman director are similar to the general duties and responsibilities of the other
directors that have been provided under Section 166 of the Companies Act. Some of the duties
have been enumerated below:

1. The director should act in accordance with the article of the company.
2. The director should act in accordance with the best interests of the company and all
the stakeholders.
3. The director should take due care and perform their duties with diligence.
4. The director should not try and gain any undue advantage due to their position in the
company.
5. The director is prohibited from assigning their office to any person.
If the director acts in contravention of any of these duties then the director can be punished with
a fine of ₹1,00,000 (one lakh) which may extend to ₹5,00,000 (five lakh).

Penalty in case of non-appointment of a woman director within the specified time

It is pertinent to note that there is no specific provision that provides punishment for the non-
appointment of a woman director. Therefore, the general penal provisions under the chapter will
be applicable in this case.

Section 172 of the Companies Act states that both the company and every officer of the company
can be punished with a fine of at least ₹50,000 (fifty thousand) which may extend to ₹5,00,000
(five lakhs) in case of any contravention of the provisions regarding appointment of directors.

In Soumag Electronics Limited vs. the Deputy Registrar of Companies (2016), the Madras High
Court while dealing with a petition regarding the failure to appoint a woman director within the
specified time limit held that the failure of the company to appoint a woman director attracts the
penalty under Section 172 of the Companies Act and imposed a fine of ₹50,000 on the company
and its officers.
Conclusion
The world today is shifting from the age-old patriarchal approach. The inclusion of women in
top-level management, political roles, armed forces, etc is a bold statement in this regard. There
are multiple dimensions that women will bring to the board. This includes aspects of emotional
intelligence, a self-branding attitude, confidence, etc. The inclusion of women will not only pave
the way for better corporate governance in the organisation but also promotes the ideology of
gender diversity.

Duties of a company’s directors under the Companies Act, 2013

Section 166 of the Companies Act 2013 stipulates the following duties of the directors of a
Company:

1. A director must function in line with the company’s Articles of Association.

2. A director must act in the best interests of the company’s stakeholders, in good faith
and promote the company’s objectives. 
3. A director shall use independent judgment in carrying out his responsibilities with due
care, skill and diligence.
4. A director should constantly be aware of potential conflicts of interest and endeavour
to avoid them in the best interests of the firm.
5. Before authorizing related party transactions, the director must verify that appropriate
considerations have taken place and that the transactions are in the company’s best
interests.
6. To assure that the company’s vigilance mechanism and users are not prejudicially
affected on such use.
5. Removal of Director

Section 169 governs removal of a Director. A company may, by ordinary resolution, remove a
director, after giving him a reasonable opportunity of being heard, Such resolution, to remove a
director under this section, or to appoint somebody in place of a director so removed, at the
meeting at which he is removed shall have an attachment as a Special Notice which shall lay
down the reasons for removal and any written representations made by the Director. The Board/
shareholders calling the meeting shall provide the Director, proposed to be removed, an
opportunity to be heard on the matter.

Qualification For Appointment of Directors

The Act has a dedicated provision which is Section 162 that underlines the reasons for which a
person may not appoint as a director. There is no such provision regarding the qualification
under the Act. However, requirements can be listed as below:

1. The person must have completed the age of eighteen or above.

2. Nationality can be that of Indian or otherwise.
The person should have his own Digital Signature Certificate (DSC) through which Director’s
Identification Number (DIN)

3.  shall be obtained.
4. The person has to furnish a written declaration expressing his consent to act in the
position of Director and he is not a person who falls under the category of disqualified
members.
5. There is no academic qualification that needs to be held by the person who is desirous of
obtaining the directorship of a company.
Other Disqualifications

i. Section 165 of the Act prohibits persons from holding the position of a director in more
than twenty companies.
ii. If the e-form DIR-3 KYC of the person who is a director is not filed the directorship of
such person will be disqualified.[14]
iii. If the e-form ACTIVE is not filed by the prescribed company then the Directors of such
company will be categorized as Director of ACTIVE non-compliant company.[15]
iv. Rule 7(8) of the Rules states that “No person shall hold the position of small
shareholders’ director in more than two companies at the same time” [16]. The second
company must not be such that it is in a position to cause conflict with the
first company or is a competitor of the first company.