Introduction

 The company, though a legal entity in the eyes of law, is a juristic person
 The persons who are in charge of the management of the affairs of a company are termed as
Directors. The are collectively known as Board of Directors or the Board.
 The directors are the brain of a company. They occupy important position in the structure of the
company.
 Directors take the decision regarding the management of a company collectively in their meetings
known as Board Meetings or at the meetings of their committees constituted for certain specific
purposes or through general meetings – corporate governance

Need of the Director

 The company has no physical existence.

 Its Juristic Person.

Lennard’s Carrying Co Ltd V Asiatic Petroleum Co Ltd (1915) HL - a company is an idea; it has no mind of its
own, it has no body of its own; the directors represent the company

Director – Meaning

 The Companies Act 2013 does not contain an exhaustive definition of the term “director”.

Section 2(34) of the Act prescribed that “director” means a director appointed to the Board of a company.
 Section 2(10) of the Companies Act, 2013 defined that “Board of Directors” means the collective
body of the directors of the company.
 The term ‘Board of Directors’ means a group of those individuals elected by the shareholders of a
company to manage the business, the directors of the company.

Director- position

 the position of director defines from the functions and duties which s/he discharges and that
determine whether in fact he is a Director or not.
 So long as a person is duly, appointed by the company to control the company's business and,
authorized by the MOA/AOA in the company's name and, on its behalf, he functions as a Director.
 The Articles of a company may, therefore, designate its Directors, appoint, remove and authorize to
work.
 Represent the company

Who can be Appointed as a Director

 Sec. 149 provides that only individual can be appointed as directors in company. It simply means a
firm, company cannot be directors of company.
 Office of director is office of trust and in case of failure to carry out this trust assigned individual
should be held responsible.

Qualification for Directors

 The Company Act has not prescribed any specific educational qualification
 Qualification shares is not mandatory as per the Act, unless by wish he becomes shareholder by
purchasing shares.
 AOA may contain provision for Qualification shares
Disqualifications for appointment of Director

Section 164 (1)A person shall not be eligible for appointment as a director of a company, if —
(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 over from the date of expiry of the sentence.
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 at any
time during the last preceding five years;
A director or his relative (Relative means a member of the same HUF, husband, wife, father, stepfather,
mother, stepmother, son, stepson, son's wife, daughter, daughter's husband, brother, stepbrother, sister,
step-sister, Key managerial personnel or his relative)
Cannot enter into a contract unless approved by BOD
h) he has not got the DIN;
i) he has not complied with the provisions of the Sec. 165(1)[ permissible limit of the directorship]
No person, after the commencement of this Act, shall hold office as a director, including any alternate
directorship, in more than twenty companies at the same time: Provided that the maximum number of
public companies in which a person can be appointed as a director shall not exceed ten.

Appointment of the Directors

There are different methods to appoint various types of directors under the Companies Act, 2013
First directors u/s 152
 Generally AOA of the company provides for such directors.
 If the Articles are silent about it then subscribers of Memorandum are deemed to be first directors
of company. They shall hold office till first AGM when the directors are finally appointed.
 As the section 149 requires the directors to be appointed within one year of incorporation
 No person shall be appointed as a director of a company unless he has been allotted the Director
Identification Number under section 154
 A person appointed as a director shall not act as a director unless s/he gives consent to hold the
office as director and such consent has been filed with the Registrar within thirty days of his
appointment

Appointment by shareholders in the General Meeting

 Section 152 provides that every director shall be appointed by the company in general meeting.
 Rotational directors shall be appointed by the company in GM…not less than 2/3rd of the total
number
 The remaining 1/3rd may be non-rotational directors- appointed as per AOA for a period as per
period mentioned by AOA
 Section 152 provides that every director shall be appointed by the company in general meeting.
 Rotational directors shall be appointed by the company in GM‚Ķnot less than 2/3rd of the total
number
  The remaining 1/3rd may be non-rotational directors- appointed as per AOA for a period as per
period mentioned by AOA
 In public company every director is appointed by a single resolution, while in a private company all
directors may be appointed by a single resolution.
 If the vacancy of the retiring director is not so filled-up and the meeting has not expressly
resolved not to fill the vacancy,
a. the meeting shall stand adjourned till the same day in the next week, at the same time and place, or if
that day is a national holiday, till the next succeeding day which is not a holiday, at the same time and
place.
b. If at the adjourned meeting also, the vacancy of the retiring director is not filled up and that meeting
also has not expressly resolved not to fill the vacancy, the retiring director shall be deemed to have been
reappointed at the adjourned meeting till next meeting

Following director shall not be rotational director

Small shareholders director appointed u/s 151;
Director appointed u/s 242(1)k of this act by the NCLT;
Managing Director
Whole Time Director;
Nominee Director of certain Financial Institutions

Appointment by BODs
 Section 161- articles of a company may confer on its Board of Directors the power to appoint any
person, other than a person who fails to get appointed as a director in a general meeting, as an
‘Additional Director’ at any time
 Such director shall hold office up to the date of the next annual general meeting
 Can be appointed if requires
 For temporary absence of three months of a director from India can be filled by 'Alternate Director'.
 Sec 161(2)- If so authorized by AOA
 Alternate Director to act in absence of a original Director - can be appointed by passing a resolution
of the Board
 For temporary absence of three months of a director from India can be filled by 'Alternate Director'.
 Sec 161(2)- If so authorized by AOA
Alternate Director to act in absence of a original Director - can be appointed by passing a resolution
of the Board
 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, in that case the resulting casual vacancy may be filled by the
Board of Directors at a meeting of the Board,
 Such directors are termed as 'Casual Director'.
 Casual vacancy is created by- death, resignation, disqualification , removal of a director. holds office
only up to the term of the director in whose place he is appointed
 The provision of additional and alternate director is a periodic arrangement and cannot bypass the
general process of appointment by shareholders in general meetings in case of any credibility.

Appointment by Central Government/NCLT

 Nominee director- appointed by BOD- A nomination by a financial institution or any institution by
agreement or state/Central Govt
 Section 161(3) provides that subject to the articles of a company, the Board may appoint ;
 any person as a director nominated by any institution in pursuance of the provisions of any law for
the time being in force or of any agreement or
 by the Central Government or the State Government by virtue of its shareholding in a
Government company.
 In case of oppression and mismanagement section 242—NCLT will appoint
Appointment by third parties
 The Articles of the company may authorize the third parties to appoint persons on the Board of
Directors as their nominee to protect their interests.
 WHO ARE THESE 3rd Parties?- They can be directors nominated by creditors, foreign collaborators,
holding companies etc. the idea behind such directors is to ensure meticulous application of
money lent by creditors so the repayment can be secured.

Vacancy of Directorship Position/ Directors Office

Office of the Director shall be deemed vacated if;

(a) S/He incurs any of the disqualifications specified in section 164, for example unsoundness of mind,
insolvency, conviction for moral turpitude offences etc.
(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) S/He acts in contravention of the provisions of section 184 ( disclosure of interest by the directors)
relating to entering into contracts or arrangements in which he is directly or indirectly interested;
(d) S/He becomes disqualified by an order of a court or the Tribunal;

PUNISHMENT FOR CONTINUING TO BE A DIRECTOR-

 If a person, functions as a director even when s/he knows that the office of director held by him has
become vacant on account of any of the disqualifications specified in 167(1),
he shall be punishable with imprisonment for a term which may extend to one year or with fine which
shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both.

Resignation of director- Sec 168

 (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 intimate the Registrar
in such manner, within such time and in such form as may be prescribed 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 shall also forward a copy of his resignation along with detailed reasons
for the resignation to the Registrar within thirty days of resignation in such manner as may be
prescribed.

Removal of directors: Sec.169

 (1) A company may, by ordinary resolution, remove a director, not being a director appointed by the
Tribunal under section 242, before the expiry of the period of his office after giving him a
reasonable opportunity of being heard
 Provided that nothing contained in this sub-section shall apply where the company has availed
itself of the option given to it under section 163 to appoint not less than two-thirds of the total
number of directors according to the principle of proportional representation.
 (2) A special notice shall be required of any 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.
 (3) On receipt of notice of a resolution to remove a director under this section, the company shall
forthwith send a copy thereof to the director concerned, and the director, whether or not he is a
member of the company, shall be entitled to be heard on the resolution at the meeting.
  (4) Where notice has been given of a resolution to remove a director under this section and the
director concerned makes with respect thereto representation in writing to the company and
requests its notification to members of the company, the company shall, if the time permits it to do
so,-
(a) in any notice of the resolution given to members of the company, state the fact of the
representation having been made; and
(b) 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 by the company),
and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company's
default, the director may without prejudice to his right to be heard orally require that the representation
shall be read out at the meeting:

 Provided that;
 - copy of the representation need not be sent out and the representation need not be read out at
the meeting
 -if, on the application either of the company or of any other person who claims to be aggrieved,
the Tribunal is satisfied that the rights conferred by this sub-section are being abused to secure
needless publicity for defamatory matter;
 - the 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.
 5) A vacancy created by the removal of a director under this section may, if he had been appointed
by the company in general meeting or by the Board, be filled by the appointment of another
director in his place at the meeting at which he is removed, provided special notice of the intended
appointment has been given under sub-section (2).
 (6) A director so appointed shall hold office till the date up to which his predecessor would have
held office if he had not been removed.
 (7) If the vacancy is not filled under sub-section (5), it may be filled as a casual vacancy in
accordance with the provisions of this Act: Provided that the director who was removed from
office shall not be re-appointed as a director by the Board of Directors.
 (8) Nothing in this section shall be taken—
 (a) as depriving a person removed under this section of any compensation or damages payable to
him in respect of the termination of his appointment as director as per the terms of contract or
terms of his appointment as director, or of any other appointment terminating with that as director;
or
 (b) as derogating from any power to remove a director under other provisions of this Act.

Legal Position of Directors

 It is a difficult task to define the exact Legal Position of Directors

 Companies Act is silent on this point
 In several cases judicial interpretation has attempted to define the Legal Position of Directors like,
Agent, Trustee, Managing Partners, officers etc.
In Imperial Hydropathic Hotel Co Blackpool v. Hampson ((1883) 23 Ch D 1)
L.J. Bowen stated that “the director has a versatile position in a corporate body. Directors are described
as trustees, or as agents and sometimes even as managing partners. These phrases can not be used in
their original sense , but shall be considered to understand particular purpose”
Directors as Agent of Company

 In view of the director occupying the position of an agent the general principles of agency would
govern the relations of the director with the company and also govern the third parties who deal
with the company through its directors.
 This authority they get from memorandum and articles of the company and if their act is beyond it,
it is ultra vires. Directors can bind the company as agents only when they act collectively as a
Board of directors.
 However the directors do not fit in the role of agents as they are selected not employed with
authority and powers of directors are wide and independent in comparison to agents.
 In Ferguson v. Wilson (1866) LR 2 Ch LR 77, the court had held that the company has no person, it
can act only through directors and the case is, as regards those directors, merely the ordinary case
of principal and agent.
 In the case of Elkington & Co. v. Hurter {1892} 2CH 452
 it was held that where directors enter into contracts on behalf of the company, it is the company
and not the directors who are liable there under.
 Being in the position of agent, directors should display a degree of care, skill and diligence in the
exercise of their power and function.
 In the case of T R Pratt { Bombay } Ltd., v. M T Ltd., AIR 1938 PC 159
 it was held that notice to the directors amounts to notice to the company in the similar way a notice
to the agent in the ordinary course of business amounts to notice to the principal.

Directors as Trustees of Company

 In addition to the position of a director as an agent of his company, he is also considered as a

trustee although not in the strict sense of the position. Following court cases may be referred:-
 In Lands Allotment Co., Re, {1894} 1 Ch 616, 631, it was held by the court that although the
directors are not, properly speaking, trustees yet, they have always been considered and treated
 as trustees of money which comes to their hands or which are actually under their control and
directors are held liable to make good monies which they have misapplied upon the same footing
as if they were trustees.
 In Selangor United Rubber Estates v. Cradock (1968) 1 WLR 1555,
it was held that the directors were trustees of the money standing to the credit of the company's
bank account which they operated.
 In Percival v. Wright (1902) 2 Ch 421,
it was held that directors are trustees of the company and not of any individual shareholders.
 In Baket v. Gibbons [1972] 1 WLR 693
it was held that the position of trusteeship of directors also extended to trade secrets and other
items of intellectual property.
 In Ramaswamy Iyer v. Brahmayya & Co {1966} 1 Comp LJ, 107, Madras,
 it was held that the directors are trustees with reference to their power of applying funds of the
company and for misuse they could be liable, and on their death the cause of action survives
against their legal representatives.
 The Supreme Court had also recognized the fiduciary position of directors in companies in the case
of Chevalier I. I. Iyyappan v. Dharmodayan Co., Trichur , AIR 1966 SC 1017.

Directors as officers of the company

 In Gopal Khaitan v State AIR 1969 Cal 132

Court had observed that the Directors are limbs and organs of the company. Further Calcutta High
Court observed that, “We should treat certain officials as organs of the company, for whose action
the company is to be held liable just as a natural person is for the action of his limbs.”
 The companies Act 2013 in section 2(59) treats them as officer of company. It says that, “officer”
includes any director, manager or key managerial personnel or any person in accordance with
whose directions or instructions the Board of Directors or any one or more of the directors is or
are accustomed to act”.
 Section 2 (60) keeps the directors in category of “officer in default”. The Companies Act, 2013 at
several places punishes him as ‘officer in default’ for non-compliance of its provisions.
 Apart from being officer, they can serve to any post in official capacity so they can also be employee
of company. Lee v. Lee’s Air Farming Ltd., (1961) AC 1
 In Re Lee Brehens & Co., (1932) 2 Comp Cas 588
 Court observed that the directors are agents of the company but they are not employees or
servants of company. However there is nothing in law to prevent a director from accepting
employment under the company under a special contract which he may enter in to with the
company.
 In Ram Prashad v. CIT {1972} 86 ITR 122, 127 {SC}
 It was observed that a director of a company is not the servant of the company by reason of
holding the position of director. But he may work as a “director – employee” in the position of a
whole time director or managing director.
 In CIT v. Armstrong Smith {1946} 16 Comp Cas 172
 it was held that a director is not prevented from entering into contractual relationship with the
company so that apart from his office of director he becomes entitled to remuneration as an
employee of the company.