ARJUN CHHABRA TUTORIAL

Of Arjun Chhabra
(CS LLB LLM)
Law Maven

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Need for directors
1. Company is an artificial person
• On incorporation, a company becomes a legal person.

• A company is not a natural person, i.e. it has no mind or body of its own, it has no eyes to see,

no ears to hear, no hands to sign and no brain to think and take decisions. Therefore, a company

cannot act by itself and consequently it has to depend upon some human agency to act in its

name.

• The two human agencies, through which a company acts, are the members of the company and

the Board of directors. In other words, the decision-making powers of a company are vested

in its two organs, viz. the members of the company and the Board of directors. The Board is

the managerial body to whom is entrusted the whole of the management of the company. It is

constituted by the members. Directors are accountable to the members in as much as

members are empowered to appoint them and remove them.

2. Separation of ownership from management

• The members have no inherent right to participate in the management of the company. They

generally lack the expertise to manage the affairs of a company.

• Therefore, a specialised body of persons, called as directors are appointed by the members

to manage the affairs of the company.

3. Statutory requirement to have directors

• As per section 149(1), every public company shall have a minimum of 3 directors,

• every private company shall have a minimum of 2 directors and

• every one Person Company shall have a minimum of 1 director.

• The maximum number of directors shall be fifteen. A company may appoint more than 15

directors after passing a special resolution.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

Meaning of 'director' and 'Board of directors' [Section 2(34)

and Section 2(10)]
As per Clause (34) of Section 2 of the Companies Act, 2013, 'director' means a director appointed
to the Board of a company.

Here Appointed means:

1. A resolution has been passed to appoint a director.
2. Proposed person has consented to become director.
3. He has assumed the office of director i.e he is acting as director.

It means that a person shall be regarded as a director only if he is appointed as a director by the
company. In other words, if a person occupies the position of a director (i.e. he functions as a
director), but is not appointed as a director, he shall not be regarded as a director.

Mere designation of director does not satisfy the term ‘’appointed’’

As per Clause (10) of Section 2 of the Companies Act, 2013, 'Board of Directors' or 'Board', in
relation to a company, means the collective body of the directors of the company.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
All the powers vested in the Board of directors are exercisable by the directors collectively, i.e. by
the Board. An individual director has no authority to act on behalf of the company, unless he is so
authorised by the Act, articles, a resolution of the Board of directors or a resolution of the members.
Meaning of executive directors' and 'non-executive directors'
Executive directors Non-executive directors

• The directors who are in the employment of • Directors who are not in the employment of the

the company are called as executive company are called as non-executive directors or

directors or inside directors. part time directors or outside directors.

• A whole time director and managing director • This category includes professional directors and

are covered in this category of directors. nominee directors.

• They take active interest in the day-to-day • They are not intimately connected with the

affairs of the company. company except through attending the Board

meetings. They have an unbiased attitude

towards the working of the company.

Managing Director
Section 2(54) defines the term ‘Managing Director’
• as a director,
• who by virtue of
• the articles of a company or
• an agreement with the company or
• a resolution passed in its general meeting, or
• by its Board of Directors,
• is entrusted with substantial powers of management of the affairs of the company
• and includes a director occupying the position of Managing director, by whatever name called.

Nominee Director Section 161 (3)

A ‘nominee director’ means a director nominated by any financial institution in pursuance of the
provisions of any law for the time being in force, or of any agreement, or appointed by the Government
or any other person to represent its interests.

Whole time director [Section 2(94)]

'Whole-time director' includes a director in the whole-time employment of the company.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Only individuals to be directors (Sections 149)
• The Board of directors of every company shall consist of individuals only. Thus, no body corporate,

association, firm or Limited Liability Partnership (LLP) shall be appointed as a director.

• The reason behind the provision is that the office of a director is similar to a trust. So, there

should be somebody readily available who can be held responsible for the failure to carry out

obligations of such an office.

Question 1:
Write short notes on Director Identification Number [5 Marks – Dec 19] [5 Marks – Dec 17]

Answer:
1. Director Identification Number is allotted by the central government to every individual who is
to be appointed as director of a company after receiving the application form in prescribed Form
No. DIR-3 along with the fees for the same.
2. The form shall be attested by a chartered accountant in practice or a company secretary in
practice or a cost accountant in practice.
3. The central government shall process the application form within one month of receiving the
same and allot the Director Identification Number to the applicant after approving the
application or give intimation of rejection of the application.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
4. The DIN once allotted shall remain valid for the life time of the director and it will not be
allotted to any other person.
5. The director on allotment of DIN is to intimate the company.
6. Every company shall within 15 days of the receipt of intimation furnish the same with the
Registrar.
7. If any company fails to furnish the Director Identification Number under sub-section (1), such
company shall be liable to a penalty of twenty-five thousand rupees and in case of continuing
failure, with further penalty of one hundred rupees for each day after the first during which
such failure continues, subject to a maximum of one lakh rupees, and every officer of the
company who is in default shall be liable to a penalty of not less than twenty-five thousand rupees
and in case of continuing failure, with further penalty of one hundred rupees for each day after
the first during which such failure continues, subject to a maximum of one lakh rupees.

Prohibition of assignment of office (Section 166)

• No director shall assign his office to any other person. Any assignment of office made by a

director shall be void.

• If a director of the company contravenes the provisions of section 166, he shall be punishable

with fine which shall not be less than Rs. 1 lakh but which may extend to Rs. 5 lakh.

X' was appointed as a director for life by the articles of association of a private company

incorporated on 1st June, 2014. The articles also empowered 'X' to appoint a successor. 'X'

appointed, by will, 'G' to succeed him after his death. Can 'G' succeed 'X' as a director after the

death of 'X'?

Ans. No director shall assign his office to any other person. If he does, the assignment shall be void

(Section 166).

In the given case, the articles of a company empowered its director to appoint a successor. The

director appointed, by his will, Mr. G to succeed him as a director after his death. The Court observed

that a director is prohibited from assigning his office. The word 'his' used in section 166 indicates

that the prohibition applies only when an office held by a director is assigned to any other person.

Where a director dies, the office held by him becomes vacant and therefore, such office cannot be

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
assigned to any other person. Therefore, appointment of a new person in such office does not amount

to an assignment within the meaning of section 166 [Oriental Metal Pressing Pvt. Ltd. v B.K. Thakoor

(1961) 31 Comp Cas 143].

The facts of the given case are identical to the facts discussed in the above case. Accordingly, it can

be said that appointment of 'G' is valid and it does not amount to an assignment of office by 'X'.

Question 2:
Enumerate the provisions of the Companies Act, 2013 relating to women director in a company. [5

Marks – Dec 18]

Answer:
Second proviso to Section 149(1) of the Companies Act, 2013 read with Rule 3 of Companies
(Appointment and Qualification of Directors) Rules, 2014 provides that the following classes of
companies shall appoint at least one-woman director

• Every listed company;

• every other public company having
• paid up share capital Rs. 100 crores or more;
or
• turnover of Rs. 300 crores or more.

For this purpose the paid capital or turnover as on the last date of latest audited financial statements
shall be taken into account.

A company incorporated under the Companies Act 2013 shall comply with such appointment of woman
director within a period of six months from the date of its incorporation.

Any intermittent vacancy of a woman director shall be filed up by the Board at the earliest
• but not later than
• immediate next Board meeting
or
• three months from the date of such vacancy
• whichever is later.
Test Yourself:
The Board of Directors of MNP Ltd. appointed Neha as a women director in the board meeting held
on 10th September, 2014. The said appointment was made to fill the vacancy of the woman director,
which had occurred as a result of resignation of Sheela on 30th June, 2014. Will your answer differ
if the board meeting of the company was held on 8th November, 2014?

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Answer:
As per Rule 3 of the Companies (Appointment & Qualification of Directors) Rule, 2014 any
intermittent vacancy of a woman director shall be filled up by the Board at the earliest but not later
than immediate next Board meeting or three months from the date of such vacancy, whichever is
later.
As per the above provisions, the appointment of Neha is valid. The vacancy of a woman director of
MNP Ltd. which arose on 30th June 2014, due to the resignation of Ms. Sheela, should be filled up
latest by 29th September 2014 or the day of the next board meeting, whichever is later. Since, Neha
was appointed in the next board meeting after the vacancy arose, i.e. on 10th September 2014, her
appointment is valid.
The answer will remain the same, even if MNP Ltd. appoints Neha in the board meeting held on 8th
November 2014, provided the said meeting is the first meeting of the Board after 30th June 2014
i.e. after the resignation of Sheela.
Question 3:
What are the disqualifications of a person for the appointment as a director under the Companies

Act, 2013? [8 Marks – Dec 19] [10 Marks – June 18]

Answer:
Grounds of disqualification [Sec. 164(1)]
A person who/against
(a) Unsound mind: Declared by a Court
(b) Undischarged insolvent
(c) Applied to be adjudicated as an insolvent + Application is pending
(d) Convicted by a Court for any offence (whether involving moral turpitude or otherwise)
+
Imprisonment (6 months or more)
✓ Disqualified for 5 years (from the expiry of sentence)
Convicted by a Court for any offence (whether involving moral turpitude or otherwise)
+
Imprisonment (7 years or more)
✓ Disqualified for lifetime.
(e) an order disqualifying him for appointment as a director has been passed by the 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
at any time during the last preceding five years.
(h) he has not obtain DIN.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
(i) Not complied with Sec. 165(1) [i.e. his directorships exceed the limit specified u/s 165(1)]

Provided that the disqualifications referred to in clauses (d), (e) and (g) of sub-section (1) shall
continue to apply even if the appeal or petition has been filed against the order of conviction or
disqualification.

(2) No person who is or has been a director of a company which—

(a) has not filed
➢ financial statements
or
➢ annual returns
➢ for any continuous period of three financial years; or
(b) 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
and
suchfailure to pay or redeem continues for one year or more, shall be eligible to be
re-appointed as a director of that company or appointed in other company for a period of five
years from the date on which the said company fails to do so.

Provided that where a person is appointed as a director of a company which is in default of clause (a)
or clause (b), he shall not incur the disqualification for a period of six months from the date of his
appointment.

(3) A private company may by its articles provide for any disqualifications for appointment as a

director in addition to those specified in sub-sections (1) and (2).

Test Yourself:
State with reference to the relevant provisions of the Companies Act, 2013 whether the following
persons can be appointed as a director of a public company:
(i) Mr. A, who has huge personal liabilities far in excess of his assets and properties, has applied
to the Court for adjudicating him as an insolvent and such application is pending.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
(ii) Mr. B, who was caught red-handed in a shop lifting case 2 years ago, was convicted by a Court and
sentenced to imprisonment for a period of 8 weeks.
(iii) Mr. C, former bank executive, was convicted by a Court 8 years ago for embezzlement of funds
and sentenced to imprisonment for a period of 1 year.
(iv) Mr. D is a director of DLT Ltd., which has not filed its annual returns pertaining to the annual
general meetings held in the calendar years 2014, 2015 and 2016.

Answer:
(i) As per Section 164(1), Since, Mr. A has himself applied to the Court for adjudicating himself as
an insolvent, he is disqualified to be appointed as director, even if his application is pending.
(ii) As per Section 164(1), In the present case Mr. B was caught red-handed in a shop lifting case
and was sentenced to imprisonment for a period of 8 weeks i.e. less than 6 months, he is not
disqualified and can be appointed as director.
(iii) As per Section 164(1), if any person has been convicted by a Court of any offence, whether
involving moral turpitude or otherwise, and sentenced to imprisonment for 6 months or more, he is
disqualified to be appointed as director for next 5 years from the date of expiry of the sentence.
Since, more than 5 years has been elapsed form the date of expiry of the sentence, Mr. C can be
appointed as a director.
(iv) As per Section 164(2); a person who is or has been a director of a company shall not be eligible
to be re-appointed as a director of that company or appointed in other company for a period of 5
years which has not filed financial statements or annual returns for any continuous period of 3
financial years. Since, Mr. D has not filed annual returns for continuous period of 3 financial years;
he is disqualified to be appointed as director for next 5 years.

Question 4:
“Office of a Director shall become vacant in case”. Comment [RTP-Dec 2018]
(1) The 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 under sub-section (2) of section 164, the 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 twelve
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;

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
(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 the Tribunal;

(f) he is 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:

Provided that the office shall not be vacated by the director in case of orders referred to in clauses
(e) and (f)-
(i) for thirty 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 seven 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 seven days,
until such further appeal or petition is disposed of.]

(g) he is removed in pursuance of the provisions of this Act;

(h) he, having been appointed a director by virtue of his holding any office or other employment in
the holding, subsidiary or associate company, ceases to hold such office or other employment in that
company.

(2) If a person, functions as a director even when he knows that the office of director held by him
has become vacant on account of any of the disqualifications specified in subsection (1), he shall be
punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh
rupees.

(3) Where all the Directors of a company vacate their offices under any of the disqualifications
specified in sub-section (1), the promoter or, in his absence, the Central Government shall appoint
the required number of Directors who shall hold office till the Directors are appointed by
the company in the general meeting.

(4) A private company may, by its articles, provide any other ground for the vacation of the office
of a director in addition to those specified in sub-section (1).

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

Test Yourself:
Nalin is a director of ABC Ltd. which has failed to repay matured deposit from 1st April, 2014 onwards
and the default continues. But ABC Ltd. is regular in filing annual accounts and annual returns. Nalin
is also director of PQR Ltd. and XYZ Ltd.
Answer the following question with reference to the relevant provisions of the Companies Act, 2013:
(i) Whether Nalin is disqualified and if so, whether he is required to vacate his office of director in
PQR Ltd. and XYZ Ltd.?
(ii) Is it possible for the board of director of DEF Ltd. to appoint Nalin as an additional director at
the board meeting to be held on 15th May 2015? Would your answer be different if Nalin ceased to
be director of ABC Ltd. by resignation on 1st March 2015?

Answer:
As per Section 164(2), a person who is or has been a director of a company shall not be eligible to be
re-appointed as a director of that company or appointed in other company for a period of 5 years
which 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 and such failure
to pay or redeem continues for 1 year or more.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
In the given case ABC Ltd. has failed to repay its deposits on the due date i.e. 1.4.2014 and such
default continues for more than 1 year i.e. beyond 31.3.2015.
Therefore -

- Nalin shall not be eligible to appointed as director in any other company after 31.3.2015 for a
period of 5 years. Thus, DEF Ltd. cannot appoint Nalin as an additional director on 15.5.2015.

- As per Section 167(l)(a), due disqualification under Section 164, Nairn's office of director in
ABC Ltd, PQR Ltd. & XYZ Ltd. shall become vacant on the expiry of 31.3.2015.
If Nalin had ceased to be director of ABC Ltd. by resignation on 1.3.2015, he would have escaped the
disqualification specified in Section 164(2) and thus, DEF Ltd. could appoint Nalin as an additional
director on 15.5.2015.
Question 5:
What are the qualification of independent directors? [5 Marks – MTP June 20] [RTP-Dec 2018] [RTP-
Dec 2018] [June 2017 – 6 Marks]

Section 149 (4) provides that

• every listed company
• is required to appoint at least one third of the total number of directors as independent director.
• Any fraction contained in such one third numbers shall be rounded off as one.
• In case the Board contains total 10 directors in a company, the company is required to appoint 4
independent directors (10/3=3.1; fraction is rounded off to 4).
• Rule 4 provides that the following class or classes of companies shall have at least 2 directors as
independent directors-
• the Public companies having paid up share capital of Rs.10 crores or more; or
• the Public companies having turnover of Rs.100 crores or more; or
• the Public companies which have, in aggregate, outstanding loans, debentures and deposits
exceeding Rs.50 crores.
The term ‘independent director’ is defined under Section 149(6) of the Act as a director other than
a Managing Director or a whole-time director or a nominee director-

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ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

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ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

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ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

Question 6
Discuss the procedure for Rotation of Directors and re-appointment of directors. [8 Marks – MTP
June 20]

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ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

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ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

Total Directors 3 4 5 6 7 8 9 10 11 12 13 14

Rotational Directors Total Director x 2/3 (rounded 2 3 4 4 5 6 6 7 8 8 9 10

up to next)

Non-Rotational Directors Total Director - 1 1 1 2 2, 2 3 3 3 4 4 4

Rotational directors

Director that retire at AGM Rotational Directors * 1 1 1 1 2 2 2 2 3 3 3 3

1/3 (rounded to nearest)

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ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

Test yourself:
X, a director of a company, was appointed at the AGM. X resigned and casual vacancy was filled by
the appointment of Y at a meeting of the Board. Later on, Y resigned and the directors again invited
X to fill the vacancy created by the resignation of Y. Is the action of the Board in appointing X, in
the second instance, in accordance with the provisions of the Companies Act, 2013?
Answer:
As per Section 164(4), in the case of a public company, if the office of any director appointed by the
company in general meeting is vacated before his term of office expires in the normal course, the
resulting casual vacancy may be filled by the board of directors at a meeting of the Board.

Thus, casual vacancy created by the resignation of Y cannot be filled by the board of director. In
such case X can be appointed as additional director and in next AGM he can be appointed as regular
director by complying provisions of Section 160.
Question 7:
Discuss the rules of appointment of director elected by small shareholders in a company. [5 Marks –
June 19]
Answer:
Appointment of director elected by small shareholders. [Section 151]

A listed company may have one director elected by such small shareholders in such manner and with
such terms and conditions as may be prescribed.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

Explanation. —For the purposes of this section “small shareholders” means a shareholder holding
shares of nominal value of not more than twenty thousand rupees or such other sum as may be
prescribed.

(1) A listed company, may upon notice of

• not less than one thousand small shareholders
or
• one-tenth of the total number of such shareholders,
• whichever is lower,
have a small shareholders’ director elected by the small shareholders:

Provided that nothing in this sub-rule shall prevent a listed company to opt to have a director
representing small shareholders suo motu and in such a case the provisions of sub-rule (2) shall not
apply for appointment of such director.

(2) The small shareholders

• intending to propose a person as a candidate for the post of small shareholders’ director
• shall leave a notice of their intention with the company
• at least fourteen days before the meeting
• under their signatures
• specifying the
✓ name, address, shares held and folio number of the person whose name is being proposed
for the post of director
and
✓ of the small shareholders who are proposing such person for the office of director:

Provided that if the person being proposed does not hold any shares in the company, the details of
shares held and folio number need not be specified in the notice:

(3) The notice shall be accompanied by a statement signed by the person whose name is being
proposed for the post of small shareholders’ director stating -

(a) his Director Identification Number;

(b) that he is not disqualified to become a director under the Act; and

(c) his consent to act as a director of the company

(4) Such director shall be considered as an independent director subject to, his being eligible under
sub-section (6) of section 149 and his giving a declaration of his independence in accordance with
sub-section (7) of section 149 of the Act.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
(5) The appointment of small shareholders’ director shall be subject to the provisions of section 152
except that-

(a) such director shall not be liable to retire by rotation;

(b) such director’s tenure as small shareholders’ director shall not exceed a period of three
consecutive years; and

(c) on the expiry of the tenure, such director shall not be eligible for re-appointment.

(6) A person shall not be appointed as small shareholders’ director of a company, if the person is not
eligible for appointment in terms of section 164.

(7) A person appointed as small shareholders’ director shall vacate the office if -

(a) the director incurs any of the disqualifications specified in section 164;

(b) the office of the director becomes vacant in pursuance of section 167;

(c) the director ceases to meet the criteria of independence as provided in sub-section (6) of section
149.

(8) No person shall hold the position of small shareholders’ director in more than two companies at
the same time:

Provided that the second company in which he has been appointed shall not be in a business which is
competing or is in conflict with the business of the first company.

(9) A small shareholders’ director shall not, for a period of three 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 or indirectly.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

Question 8:
Can a director be removed? If so give the procedure in detail. [10 Marks – MTP June 20] [Dec 22 –
10 Marks]
Answer:

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(CS LLB LLM)
Law Maven

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

Question 9:
Describe the procedure for the resignation of Director under the Companies Act, 2013. [10 Marks –
June 19] [9 Marks – June 17]
Answer:
(1) A director may resign from his office
• by giving a notice in writing to the company
and
• the Board shall on receipt of such notice take note of the same
and
• the company shall within thirty days from the date of receipt of notice of resignation from a
director intimate the Registrar in Form DIR-12
and
• post the information on its website, if any.

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 ARJUN CHHABRA TUTORIAL
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(CS LLB LLM)
Law Maven
and
• shall also place the fact of such resignation in the report of Directors laid in the immediately
following general meeting by the company:

Provided that a director may also forward a copy of his resignation along with detailed reasons for
the resignation to the Registrar within thirty days of resignation in Form DIR-11

Provided that in case a company has already filed Form DIR-12 with the Registrar, a foreign director
of such company resigning from his office may authorise in writing a practising chartered accountant
or cost accountant in practice or company secretary in practice or any other resident director of the
company to sign Form DIR-11 and file the same on his behalf intimating the reasons for the
resignation

(2) The 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:

Provided that the director who has resigned shall be liable even after his resignation for the offences
which occurred during his tenure.

(3) Where all the Directors of a company resign from their offices, or vacate their offices under
section 167, the promoter or, in his absence, the Central Government shall appoint the required
number of Directors who shall hold office till the Directors are appointed by the company in general
meeting.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Question 10:
Discuss the powers of the Board of Directors of a company as per the Companies Act, 2013. [10 Marks
– Dec 18]
Answer:
Powers of the Board: Section 179

Section 179 of the Act deals with the powers of the board; all powers to do such acts and things for
which the company is authorised is vested with board of directors.

But the board can act or do the things for which powers are vested with them and not with general
meeting.

The following (section 179(3) read with Rule 8 of Companies (Management & Administration) Rules,
2014 powers of the Board of directors shall be exercised only by means of resolutions passed at
meetings of the Board, namely:-

(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 and the Board’s report;
(8) to diversify the business of the company;
(9) to approve amalgamation, merger or reconstruction;
(10) to take over a company or 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 and secretarial auditor;

The Board may, by a resolution passed at a meeting, delegate to any committee of directors, the
managing director, the manager or any other principal officer of the company or in the case of a branch
office of the company, the principal officer of the branch office, the powers specified in (4) to (6)
above on such conditions as it may specify.

The banking company is not covered under the purview of this section.
The company may impose restriction and conditions on the powers of the Board.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

Question 11:
Enumerate the provisions relating to Restrictions on powers of Board. [Dec 17 – 7 Marks]
Answer:
Section 180 of the Companies Act 2013: Restrictions on powers of Board
The board can exercise the following powers only with the consent of the company by special
resolution, namely –

(a) to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of
the company or where the company owns more than one undertaking, of the whole or substantially the
whole of any of such undertakings.

(b) to invest otherwise in trust securities the amount of compensation received by it as a result of any
merger or amalgamation;

(c) 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 and free reserves, apart from
temporary loans obtained from the company's bankers in the ordinary course of business;

(d) to remit, or give time for the repayment of, any debt due from a director.

The special resolution relating to borrowing money exceeding paid up capital and free reserves specify
the total amount up to which the money may be borrowed by Board.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
The title of buyer or the person 'who takes on lease any property, investment or undertaking on good
faith cannot be affected and also in case if such sale or lease covered in the ordinary business of such
company.

The resolution may also stipulate the conditions of such sale and lease, but this doesn't authorise the
company to reduce its capital except the provisions contained in this Act.

The debt incurred by the company exceeding the paid capital and free reserves is not. Valid and
effectual, unless the lender proves that the loan was advanced on good faith and also having no
knowledge of limit imposed had been exceeded.

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Of Arjun Chhabra
(CS LLB LLM)
Law Maven

Refer module Page 401

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Of Arjun Chhabra
(CS LLB LLM)
Law Maven

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Of Arjun Chhabra
(CS LLB LLM)
Law Maven

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ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Section 181: Contributions to Charitable Funds and Political
Parties
The power of making contribution to ‘bona fide’ charitable and other funds is available to the
•
board subject to certain limits.
• Further, the permission of company in general meeting is required if such contribution exceeds
five percent of its average net profits for the three immediately preceding previous years
Question 12:
Discuss the prohibitions and restrictions regarding political contributions made by a company under
the companies Act,2013 [Dec 22 – 5 Marks] [June 20 MTP] [June 23 MTP]
Answer:
Section 182: Prohibitions and Restrictions Regarding Political Contributions
According to Section 182 of the Act, a company, other than a Government company and a company
which has been in existence for less than three financial years, may contribute any amount directly to
any political party.

The contribution must be authorised by Board in its meeting by resolution and such resolution shall be
deemed to be the justification in law for such contribution.

The 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. The
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 and loss account the total amount contributed by it under
this section during the financial year to which the account relates. The contribution under this section
shall not be made except by an account payee cheque drawn on a bank or an account payee bank draft
or use of electronic clearing system through a bank account.
Section 183: Power of Board and other Persons to make
Contributions to National Defence Fund, etc.
• The Board is authorised to contribute such amount as it thinks fit to the National Defence Fund or
any other fund approved by the Government for the purpose of national defence.
• The company is required to disclose in its profit and loss account the total amount or a mounts
contributed by it during the financial year.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

Question 13:
Mr. A, a national of Nepal, intends to be appointed as a Director of ABC Ltd., an Indian Company. He
is desirous of making an application to the Central Government for allotment of DIN (Director
Identification Number). State the procedure for Allotment or Rejection of DIN to Mr. A [MTP June
23 – 10 Marks]
Answer:
According to section 154, the Central Government shall allot a Director Identification Number (DIN)
to Mr. A in the prescribed manner within one month from the receipt of application.

Rule 10 of the Companies (Appointment and Qualifications of Directors) Rules, 2014 provides the
following procedure for rejection or allotment of DIN:

(i) Generation of application number- On the submission of the Form DIR-3 on the portal and on
payment of the requisite fees, an application number shall be generated by the system automatically.

Provided that no application number shall be generated in case of the person applying for Director
Identification Number is a national of a country which shares land border with India, unless necessary
security clearance from the Ministry of Home Affairs, Government of India has been attached along
with application for Director Identification Number.

(ii) Communication of issue of DIN- After generation of application number, the Central Government
shall process the applications received for allotment of DIN and decide on the approval or rejection
thereof and communicate the same to the applicant along with the DIN allotted in case of approval by

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
way of a letter by post or electronically or in any other mode, within a period of one month from the
receipt of such application.

(iii) In case of defective/incomplete application- If the Central Government, on examination, finds

such application to be defective or incomplete in any respect, it shall give intimation of such defect or
incompleteness, by placing it on the website and by email to the applicant who has filed such application.
The applicant shall be directed to rectify the defects or incompleteness by resubmitting the
application within a period of 15 days of such placing on the website and email.

It is provided that the Central Government shall –

(a) reject the application and direct the applicant to file fresh application with complete and correct
information, where the defect has been rectified partially or the information given is still found to be
defective;

(b) treat and label such application as invalid in the electronic record in case the defects are not
removed within the given time; and

(c) inform the applicant either by way of letter by post or electronically or in any other mode.

(iv) In case of rejection or invalidation of application, the fee so paid with the application shall neither
be refunded nor adjusted with any other application.

Note 1: All DINs allotted to individual(s) by the Central Government before the commencement of
these rules shall be deemed to have been allotted to them under these rules.

Note 2: The DIN so allotted under these rules is valid for the life-time of the applicant and shall not
be allotted to any other person.

Since Mr. A is a national of Nepal, which shares land border with India, necessary security clearance
from the Ministry of Home Affairs, Government of India needs to be attached along with application
for Director Identification Number for the generation of Application Number.
Question 14:
What are the different duties of a director in a company as per the Companies Act, 2013? [7 Marks –
Dec 19] [RTP-Dec 2018] [RTP-Dec 2018] [6 Marks – Dec 21] [8 Marks – Dec 17]
Answer:
To act
1. in accordance with the articles
2. in good faith
to promote the objects of the company for the benefit of its members
in the best interests of the company, its employees, the shareholders, the community and for the
protection of environment.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
3. To exercise his duties with due and reasonable care, skill and diligence and shall exercise
independent judgment.
4. Not to get involved in a situation where his interest may conflict with the interest of the company.
5. Not to achieve undue gain or advantage either to himself or to his relatives, partners, or
associates. If found guilty, then, liable to pay the amount of gain to the company.
6. Not to assign his office. Any assignment of office shall be void.
7. Contravention: Min Fine: 1 Lakh | Max Fine: 5 Lakhs.
Question 15:
"Directors are agents of the company." — Discuss. [5 Marks – June 18]
Answer:
The company can act only through Directors, and so the relationship between the company and the
Director is that of Principal and Agent. Contract entered into by a person as a director of a company,
will be binding on the Company. However, Directors are not Agents of Members of the company.

Directors have personal liability. They would be personally liable under the following circumstances:
• Director acts in his own name,
• Director enters into an agreement/ contract which does not state clearly as to whether the Director
signing in his personal capacity or in his representative capacity as an Agent of the Company.

Rights of the Company:

• Contract executed by the Director in excess of his authority, is binding on the Company. However,
the Company may claim damages from the Director for breach of implied warranty of authority.
• When Directors act properly on behalf of the Company, they do not incur personal liability; they do
not exceed their powers.

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