POWERS, DUTIES & LIABILITIES OF BOARD OF DIRECTOR

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(b) the power to issue debentures. and(e) the power to make loan.(c) the power to borrow moneys otherwise than on debentures.. 1956 provides that the Board of directors of accompany shall exercise the following powers on behalf of the company and it shall do soon by means of resolution passed at meeting of the Board:(a) the power to make calls on shareholders in respect of money unpaid on their shares. POWERS • Section 292(1) of the Companies Act. .(d) the power to invest funds of the company.

DUTIES • Duties of the directors are mainly divided into two parts. General Duties . Statutory Duties • 2. They are:• 1.

Otherwise. • (C) To disclose interest (Section 299-300): In respect of contracts with Director. Section299 casts an obligation on a Director to disclose the nature of his concern or interest (direct or indirect). 319): Any money received by the director from the transferee in connection with the transfer of the company’s property or undertaking must be disclosed to the members of the company and approved by the company in general meeting.Statutory Duties(A) • (A) To file return of allotment: Section 75 of the Companies Act. 1996. at a meeting of the Board of directors. • (D) To disclose receipt from transfer of property (sec. 1956 requires a company to file with the Registrar. within a period of 30 days • (B) Not to issue irredeemable preference share or shares or share redeemable after 20years: Section 80. as amended by Amendment Act. if any. the amount shall be held by the directors in trust for the company . forbids a company to issue irredeemable preference shares or preference shares redeemable beyond 20years.

. (K) To appoint cost auditor of the company (Section 233B). (L) To make a declaration of solvency in the case of Members’ voluntary winding up (Section 488). • • • • • • • . (J) To appoint first auditor of the company (Section 224). Annual General meeting (AGM) and also extraordinary general meetings [ Section 165. Statutory Duties • (E) To disclose receipt of compensation from transferee of shares (Sec. 210 & 217). (F) Duty to attend Board meetings.320): If the loss of office results from the transfer (under certain conditions) of all or any of the shares of the company. (I) To authenticate and approve annual financial statement (Section 215). [Section 283(1)(g)] (G) To convene statutory. its directors would not receive any compensation from the transferee unless the same has been approved by the company in general meeting before the transfer takes place.166 &169] (H) To prepare and place at the AGM along with the balance sheet and profit & loss account a report on the company’s affairs including the report of the Board of Directors (Section 173.

However. He is. however.General Duties • (A) Duty of good faith: The directors must act in the best interest of the company. he may delegate his in certain conditions. which means a delegate can not further delegate. • (C) Duty not to delegate: Director being an agent is bound by the maxim. The company cannot even indemnify the directors against such liability. Interest of the company implies the interest of the present and future members of the company on the footing that company would be continued as going concern. misfeasance. is void. • (B) Duty of care: A director must display care in performance of work assigned to him. Delegate us non-voters delegate. a director must perform his functions personally. breach of duty or breach of trust. . default. Any provision in the company’s Articles or in any agreement that excludes the liability of the directors for negligence. not expected to display an extraordinary care but that much care which a man of ordinary prudence would take in his own case. Thus.

Most of the powers of directors are .powers in trust. should be exercised in the interest of the company and not in the interest of the directors or any section of members. Memorandum and Articles of Association. since these lay down the limits to the activities of the company and consequently to the powers of the Board of directors.LIABILITES • Liability to the company: • (A) Breach of fiduciary duty: where a director acts dishonestly to the interest of the company. he will be held liable for breach of fiduciary duty. and therefore. . • (B) Ultra vires acts: Directors are supposed to act within the parameters of the provisions of the Companies Act.

.Contd. • (C) Negligence: As long as the directors act within their powers with reasonable skill and care as expected of them as prudent businessman. they discharge their duties to the company. But where they fail to exercise reasonable care. they shall be deemed to have acted negligently in discharge of their duties and consequently shall be liable for any loss or damage resulting there from. exercise their powers and perform their duties. • (D) Mala fide acts: Directors are the trustee for the moneys and property of the company handled by them. as well as exercise of the powers vested in them. skill and diligence. If they dishonestly or in a mala fide manner. they will be liable for breach of trust and may be required to make good the loss or damage suffered by the company by reason of such mala fide acts.

e. if any such money is not repaid within eight days after the company becomes liable to repay . (c) Failure to repay application monies when application for listing of securities are not made or is refused: Under section 73(2) . where the permission for listing of the shares of the company has not been applied or such permission having been applied for. i.. in case moneys are not repaid within 130 days. or without filing a copy of the statement in lieu of prospectus Section 70) . the company shall forthwith repay without interest all monies received from the applicants in pursuance of the prospectus. Liability to third parties: (A) Prospectus: Failure to state any particulars as per the requirement of the section56 and Schedule II of the act or mis-statement of facts in prospectus renders a Director personally liable for damages to the third party.[Section 71(3)] • (b) For failure to repay application monies in case of minimum subscription having not been received within 120 days of the opening of the issue: Under section 69(5) read with SEBI guidelines. Section 62 provides that a Director shall be liable to pay compensation (B) With regard to allotment: Directors may also incur personal liability for: • (a) Irregular allotment.LIABILITES • . has not been granted. allotment before minimum subscription is received Section 69). and.

e. or manager unlimited • (D) Fraudulent trading: Directors may also be made personally liable for the debts or liabilities of a company by an order of the court under section 542. Section 542(1) .e.. vide alterations of Memorandum by passing special resolution). By virtue of section 322.. vide Memorandum) or section 323(i.LIABILITES • (C) Unlimited liability: Directors will also be held personally liable to the third parties where their liability is made unlimited in pursuance of section 322(i. the Memorandum of a company may make the liability of any or all directors. Such an order shall be made by the court where the directors have been found guilty of fraudulent trading.

Liability for acts of co-directors: A director is the agent of the company except for matters to be dealt with by the company in general meeting and not of the other members of the Board. Thus. ultra vires the company or ultra vires the articles. The various statutory penalties which directors may incur by reason of non-compliance with the requirements of Companies Act are referred to in their appropriate places. Accordingly. Default in compliance of these duties attract penal consequences. Liability for breach of warranty: Directors are supposed to function within the scope of their authority. where they transact any business in resects of matters. . Liability for breach of statutory duties: The Companies Act. 2.LIABILITES • 1. 3. they may be proceeded against personally for any loss sustained by any third party. nothing done by the Board can impose liability on a director who did not participate in the Board's action or did not know about it. 1956 imposes numerous statutory duties on the directors under various sections of the Act.

Jaipur. vs Arun Bansal on 10 May. By this petition it is prayed that Criminal Complaint No. Case Study • Rajasthan High Court Herdillia Unimers Ltd. Rajasthan. 1994 Equivalent citations: 1999 96 CompCas 521 Raj Bench: Y Meena JUDGMENT • 13. be quashed and set aside . 59 of 1993 as also the proceedings taken thereon by the trial court Special Court of Judicial Magistrate (Economic Offences).11.

Case Study • Case facts The petitioner-company. any person could apply for shares and/or debentures. 200 per debenture. being the earliest scheduled date of closing. for the purpose of increasing its capital came out with a public issue of shares and debentures in the year 1992. The public issue having been oversubscribed it was duly closed on June 4. 10 per equity share and a sum of Rs. 1992. The said public issue was to commence on June 1. as the case may be . Herdillia Unimers Ltd.1992. Under the terms and conditions of the aforesaid allotment. and scheduled to close on June 11.. Every applicant was required to pay a sum of Rs. 1992.

3000 each.allotment. • Arun Bansal and his wife Vimlesh Bansal. certificates were sent and in the case of non.Rs. .• Later the company refunded their money.3000 each. however. examined and considered at at the office of the herdillia at bombay. by Cheques. were disappointed applicants who had not been alloted shares or debentures. American Express Bank Ltd. the cheques were not encashed which was discovered by company on an reconciliation of its accounts with the bankers. From its Bombay office.• The company refunded their money RS. by cheques however the cheques were not encashed.• In the event of allotment of shares/debentures.• as the public issue was oversubscribed the applications for allotments of the shares/debentures were processed. the money was refunded by herdillia ltd.

rate ranges bet.claiming a violation of section 73.3.• The company contends that as Bansal’s were not share holders. including the interest on the sum sent by applicants. there fore company had not committed any offence. jaipur . . the demand drafts were sent by registered post.(8 days from the day company become liable to pay) as the time period was long over and the Bansals had not actually got their money. • The company fulfilled all its duties even by paying the interest for the time duration.• The company sent a demand draft for Rs. 0415%).it should be deemed that he was a share holder.but the Bansal’s argued that once a person applied for an allotment of shares of a company and no information was received by him. (int.• This time.675 each. they were not eligible to file a complaint (U section621-631). they filed a complaint before the special court of judicial magistrate (economic offences).• section 73 prescribes a time period for refund.

R. . as such they are not competent to file the complaint in any court and no court shall take cognizance on such complaints. Further. on the facts of this case is not covered in the category of offences enumerated under section 545 of the companies act. states as below:. judge Y. Meena.• Judgement given by the Hon. the alleged offence. admittedly.When the share/debenture has not been allotted to the respodent and his wife and the money has been refunded then there is no question of treating them as shareholders.

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