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multifarious duties to be performed by them; while some are collective duties, there are others which are individual. This article recapitulates the whole lot of duties of directors under Company Law. INTRODUCTION 1. Directors occupy a key-position in the management and administration of the company. They are given wide powers. They owe certain duties to the company. These duties are partly statutory, partly regulatory and partly dependent on the law of agents and trustees or persons in a fiduciary position. Duties of directors vary from company to company depending on the size and its business activities, division of work between the directors and officials of the company. Generally speaking, duties of directors, include—(i) to manage the business of the company well; (ii) to look after the property of the company properly; and (iii) to invest the funds of the company properly. For the sake of convenience, the various duties of directors under the Company Law can be classified under the following broad heads: 1. STATUTORY duties of directors under Company Law; 2. GENERAL duties of directors under Company Law. Directors are sometimes described as quasi-agents and sometimes as constructive trustees of the company. They may be regarded as agents in the transactions which they enter into with third parties on behalf of the company and the normal rules of agency apply to them. Hence, a director may not make a secret profit. Directors are trustees of the company’s money and property. They are trustees of the powers entrusted to them.
They should invest the funds of the company by following section 292 of the Act. contains certain specific provisions with regard to the duties to be performed by the directors collectively as a Board. 5. etc. Register of charges. 4. Register of Directors’ shareholdings. The Companies Act. 143. 151. 6. Issue share certificates . Deposit share application money in bank .Directors should ensure that the application money received for shares issued to the public is deposited in a scheduled bank and is not withdrawn until the company obtains certificate of commencement of business or until it becomes repayable to applicants as provided in section 69. 10. To comply with requirement for commencement of business . 160 and 161). as required under various sections of the Act (sections 49. Register of Debenture holders.Directors should file with the Registrar in Form No. Filing certain resolutions . Note : The provisions relating to statutory report and meeting do not apply to private limited companies. 11. Return of allotment . Investment of funds . 3. Explanatory statement . 14. all special resolutions and certain ordinary2006] COMPANIES ACT 71 resolutions. To sign the prospectus . and make investment in the company’s name and fulfil the other requirements of these sections. Register of contracts.Directors of public companies should append an explanatory statement in report of special business included in the agenda of annual general meeting and for all business placed before the extraordinary general meeting to the notice of the meeting [section 173(2)]. 301. Statutory report and meeting . 152. directors should pay it to members within 30 days (section 207). 1956. Pay dividend within 30 days . 12. 7.). Not to issue irredeemable preference shares or shares redeemable after 20 years . read with section 372A.Director should file the annual return every year with the Registrar within 60 days from the date of holding the annual general meeting (sections 159. Register of Members.In the case of a public company.Directors should not issue irredeemable preference shares or preference shares redeemable after 20 years (section 80). 372A.Directors should file the return of allotment of shares in Form No.STATUTORY DUTIES UNDER COMPANY LAW 2. Keep statutory books .An important duty of the directors is to see that funds of the company are properly invested and section 49 of the Act throws heavy responsibility on the shoulders of directors. 193.Directors should issue the share certificates to members within prescribed time after allotment of shares is made or registration of transfer is effected (section 113) 8. Annual return .If the company declares dividend at the annual general meeting. No mis-statement in prospectus . 9. 150. The most important of such duties are given below: 1. 2 with the Registrar within 30 days from the date of allotment of shares (section 75). Minute Books.Directors should keep certain statutory registers like Register of Investments. 23..All directors should sign the prospectus issued by a public limited company (section 60). directors should see that no mis-statement is made in the prospectus (section 56). 15. etc. . 307.Directors should pay for the shares subscribed for by them before the company commences business. Annual general meeting . A director/secretary should file with the Registrar a duly verified declaration stating that the requirements relating to commencement of business have been complied with (section 149).Directors should hold annual general meeting every year within prescribed time (section 166). 2.Director of public limited companies should file the statutory report with the Registrar and send copies thereof to the members and hold the statutory meeting within the time prescribed (section 165). within 30 days from the passing of the relevant resolutions (section 192). 13.
28.If the company accepts deposits from the public. To appoint cost auditor . There are 29 Accounting Standards at present.Directors should arrange for keeping proper books of account on double entry system of accounting and on annual basis as required by the Act (section 209). Declaration of solvency . 24.Directors should prepare the balance sheet following the Accounting Standards formulated by the Institute of Chartered Accountants of India and notified by the Central Government. if the company’s paid up capital is Rs.Directors should assist the Central Government in connection with prosecution of office who have committed fraud. 1975 or the relevant direction issued by the Reserve Bank of India and comply with the relevant Rules (section 58A). Board meetings . a declaration of solvency in Form 4A verified by an affidavit to the effect that the directors have made a full enquiry into the affairs of the company as a result of which they have formed an opinion that the company is capable of meeting its liabilities and will not be rendered insolvent within one year from the date of declaration.Directors should file a declaration of solvency if the company goes into voluntary winding-up by members (section 488). 21. directors have to appoint a cost auditor at a Board meeting within the time prescribed and get the Central Government’s approval for the cost auditor’s appointment (section 233B). 16. Appoint managing director . 30.Directors should hold at least one board meeting in every 3 months as required by section 285 of the Act (section 285). get them audited and place them before the annual general meeting (section 210). File accounts with the registrar . Such declaration should be signed by at least two directors one of whom should be the managing director.Directors should furnish to the Court. 20. 26.Directors should attach their report on the affairs of the company to the balance sheet (section 217). Produce books and paper for inspection . if the company has a managing director [section 77A(6)].Directors should produce books and papers of the company to the inspector if investigation of the company is ordered by the Government (section 240).Directors should file 3 copies of balance sheet and profit and loss account within 30 days of holding the annual general meeting with the Registrar (section 220). To appoint first auditors . Extraordinary general meeting . 22. Directors’ report . 23.Holding of extraordinary general meeting on the requisition of prescribed number of members (section 169). 29. 25.Directors should prepare balance sheet and profit and loss account every year. Assist Government in prosecution .The Board has to appoint a managing or whole-time director. 19. the directors should file with the Registrar and in the case of a public listed company should file also with the SEBI.Directors should appoint the first auditors of the company within 30 days from the date of incorporation of the company (section 224). Annual accounts . To accept deposits within the prescribed limits . (section 242). statement of affairs if the company is wound up by court (section 454). 18. . Accounting standards . They should authenticate the balance sheet and profit and loss account in the manner prescribed by law (section 215). 17.Further.If the Central Government orders cost audit of the accounts of the company. Keep accounts . Where a company has passed special resolution to buy back its shares or other securities. Statement of affairs . 5 crores and above and supervise and direct the managing director (section 269). 27. the dividend should be deposited in a scheduled bank within 5 days from the date of declaration [section 205(1A)]. directors should see that the deposits accepted are within the limits prescribed by the Companies (Acceptance of Deposits) Rules.
The irregular nature of the advances was concealed by means of fraudulent balance sheets. unless the prior sanction of the board of directors has been taken as provided in section 297 of the Act. in the absence of circumstances of suspicion. he is not absolved of his duty to take care. as he was not. In such circumstances. the director should file his consent in Form No. his vote should not be counted. City Equitable Insurance Company Ltd. 3. Important among such GENERAL duties are as under: 3.Since the directors are the agents of the company. he may grant a power of attorney to a co-director to sign the prospectus for the issue of shares. if a director is unable to attend a board meeting owing to illness. It follows from this that if a director has an interest in a contract with the company. His duties are of an intermittent nature to be performed at periodical board meetings.Before accepting the appointment as a director.3 DUTY TO FILE FORM DD-A . Section 300 further prohibits an interested director from participating in the discussions and in voting on any contract or arrangement in which he is directly or indirectly concerned or interested. Even if a director delegates some of his powers which he is allowed by the Act and the articles of association to delegate. and provides that his presence shall not count for the purpose of forming a quorum at the time of voting and that if he votes. acting as an agent. 3. certain functions can be delegated to other officers of the company.Many powers of the company are generally exercised by the board of directors at board meetings held periodically as required by section 285. The House of Lords held that a co-director was not liable for not having discovered the frauds. competence and skill of the officers to whom the work was delegated. however. Since section 275 of the Act allows an individual to become director of public companies. Each director is expected to attend such meetings. the work of manager and the chairman.Every director should give a declaration in Form DD-A prescribed under the Companies [Disqualification of2006] COMPANIES ACT 73 Directors under section 274(1)(g)] Rules to the effect that he does not suffer from any disqualification to act as a director every year. whichever is longer. Cory. the company can avoid the contract.). the directors should perform their duties personally and should not delegate their duties. a director is not bound to give continuous attention to the affairs of each company in which he is a director (Re. without obtaining leave of absence from the Board. 29 to act as a director with the company and the Registrar of Companies [section 264(1) and (2) and section 266(1)(a)].5 DUTY TO DISCLOSE INTEREST . He is not bound to attend all the meetings of the board though he ought to attend whenever he is reasonably able to do so. In Dovey v.4 DUTY TO ATTEND DUTIES PERSONALLY . A director may. For example. (ii) Having regard to the exigencies of business.GENERAL DUTIES OF DIRECTORS 3. delegate in the following two cases: (i) where such delegation is permitted by the Companies Act and the Articles of the company. the principle delegates non-potest delegare applies to them. bound to examine entries in the company’s books to see that the balance sheets were correct. Section 283(1)(g) lays down that the office of a director will become vacant if he absents himself from three consecutive meetings of the board or from all meetings of the board for a continuous period of 3 months. The Companies Act imposes certain duties and obligations on every director individually.2 DUTY TO FILE HIS CONSENT . But having regard to the exigencies of the business. will be allowed to put himself in a position in which his interest and his duty will be in conflict.1 DUTY TO ATTEND BOARD MEETINGS . the directors may distribute the work among themselves and may leave some work for their subordinate officers. . a banking company sustained heavy losses by reason of advances made to customers improperly. 3. That is to say. the director will not be liable for the fraud of the co-director or of such subordinate officers if he had no reason to suspect the integrity. 3. A director who is in any way interested in a contract or proposed contract with the company is under a statutory duty to disclose the nature of his interest at a meeting of the board of directors.No man.
3.A director cannot throw up his responsibility and say: "I know nothing and believed that everything was all right". A director shall at all times act honestly and use reasonable diligence in the discharge of the duties of his office.10 TO ABSTAIN FROM DISCUSSION AND VOTING . 3. of the Kerala High Court in Palai Central Bank Ltd.9 DUTY TO KNOW CERTAIN BASIC THINGS . and subsequently by showing interest. the prescribed particulars. Sometimes he has a duty to know. Section 305 imposes an obligation on each director to disclose and furnish such particulars to the company. an improper advantage for himself or to cause detriment to the company. 3. The length of time by itself was a sufficient proof of the deliberateness of the falsification. but made to appear firstly by fictitious entries. from 1936 to 1958) on profits not really earned. Section 124 of the Uniform Companies Act of Australia states that: 1.T. 2. An Officer (which term includes a director) of the company shall not make use of any information acquired by virtue of his position as an officer to gain directly or indirectly.. .It is the duty of every director of a public company who is required by the company’sarticles to hold a specific share qualification and who does not already hold the requisite number of shares in the company to obtain his shares within 2 months from the date of his appointment as director (This requirement does not apply to the director of a private limited company).Every company is required by section 303 of the Act to maintain a Register of Directors and enter therein. Hon’ble P." The court rejected the directors’ plea that they had relied on competent staff and auditors who always certified the accounts as true. which there was no prospect of even realizing. directors should promptly notify the company of any changes in their particulars. 3. a director cannot close his eyes to what must be obvious to everyone.. J. To enable the company to maintain the Register and update it.8 DUTY TO DISCLOSE SHAREHOLDING . So.The Act requires each director to disclose his shareholdings in the company to enable the company to keep and maintain the Register of Directors’ shareholdings.7 DUTY TO DISCLOSE PARTICULARS .e. Joseph Augusta observed to the effect relying on one observation of Lord Simonds in Morris v. 3. DIRECTORS’ DUTIES UNDER AUSTRALIAN COMPANIESACT 4. Directors of listed companies should disclose to the company number of shares or voting rights held by them in the company within 4 days from the date of becoming directors [Regulation 13(2) of the SEBI (Prohibition of Insider Trading) Regulations.At the meetings of the Board. Kanssen:— that "the account of a company in liquidation showed that taxes and dividends were paid for as many as twenty-two years (i. Raman Nair.6 DUTY TO TAKE QUALIFICATION SHARES . 1992]. v. on the bad and irrecoverable advances. the director should abstain from discussion and voting on any contract or arrangement in which he is or may be deemed to be directly or indirectly concerned or interested (section 300).
that they were not negligent in their duties and they ought fairly to be excused. call and conduct annual general meeting every year. they should as far as2006] COMPANIES ACT 75 possible attend board meetings. An example is payment of dividend out of capital. If they fail to perform their duties or fail to comply with certain requirements of the Act. that director will be an officer in default as provided in section 5 of the Act and such director will be primarily liable to penalty or prosecution if the company does not comply with certain provisions of the Act. statutory registers and other records are kept at the Registered Office or at such other place as required by the Act. For example. directors may be asked to compensate the company for such loss.CONCLUSION 5. . If the company has no managing director or whole-time director or manager (as defined in the Act). Directors should see that the duties and obligations imposed on them as well as on the company by various sections of the Companies Act. Section 621A of the Act lays down that the Company Law Board and the Regional Director can compound certain offences punishable with fine by imposing penalty in lieu of prosecution. if they can show to the Court that they have not wilfully committed the offence. If there is any breach of duty by directors and the company thereby suffers loss. they are liable to penalty or prosecution as provided in the Act. directors may apply to the Court for granting them relief as provided in section 633 of the Act. file with the Register of Companies balance sheet. are carried out properly and in time. and the board of directors have charged a particular director with the responsibility of complying with the provisions of the Companies Act. see that proper accounts. profit and loss account which should be prepared as per the Accounting Standards and the other documents and returns prescribed by various sections of the Act within the time prescribed therefor. If the directors are prosecuted for certain offences under the Companies Act.
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