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¶Director· includes any person occupying the position of director, A person having control over the direction, conduct, management of the affairs of a company. Any person in accordance with whose directions or instructions, the Board of a company is accustomed to act, is deemed to be a director of the company. Only individuals can be directors Number of directors Every public company have at least 3 directors Every other company have at least 2 directors. A public company having-
(a) A paid-up capital of Rs. 5 crore or more; (b) One thousand or more small shareholders; shall have at least one director elected by such small shareholders Sanction by the central government. Where the increase in number does not make the total number of directors more than 12, no approval of the central government is Needed.
APPOINTMENT OF DIRECTORS 1. First directors. (a) The articles of a company usually name the first directors by their respective names or prescribe the method of appointing them. (b) If the first directors are not named shall be determined in writing by the subscribers of the memorandum. (c) If the first directors are not appointed in the above manner, the subscribers become directors of the company. 2. Appointment of directors by the company Directors must be appointed by shareholders in general meeting. In the case of a public company or a subsidiary of a public company, at least 1/3rds of the total number of directors shall be liable to retire by rotation.
Ascertainment of directors retiring by rotation and filling of vacancies (1) At the annual general meeting of a public company or 1/3rd (or the number nearest to 1/3rd) of the rotational directors shall retire from office. (2) The directors to retire by rotation at every annual general meeting shall be those who have been longest in the office since their last appointment. (3) At the annual general meeting the company may fill up the vacancy by appointing the retiring director or some other person. (4) If at the meeting the place of retiring director is not filled up, nor is there a resolution not to fill the vacancy, the retiring director shall be deemed to have been re-appointed at the adjourned meeting.
3. Appointment of directors by directors. The directors of a company may appoint directors(1) As additional directors. Any additional directors appointed by the directors shall hold office only up to the date of the next annual general meeting of the company. (2) In a casual vacancy. 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. (3) As alternate director. An alternate director can be appointed by the board if it is so authorised by
(i) The articles of the company, or (ii) A resolution passed by the company in the general meeting. He shall act for a director, called ¶the original director· during his absence for a period of at least 3 months from the state in which Board meetings are ordinarily held. 4. Appointment of directors by third parties. The debenture-holders or other, creditors, e.g., a banking company or financial corporation, who have advanced loans to the company to appoint their nominees to the Board. The number of directors so appointed shall not exceed 1/3rd of the total number of directors, and they are not liable to retire by rotation.
Appointment by proportional representation. Appointment of directors by the central government. The purpose of the appointment is to prevent the affairs of the company from being conducted either in the manner(a) Which is oppressive to any members of the company ; or (b) Which is prejudicial to the interests of the company or to public interest. The tribunal may pass the above order on a reference made to it by the central Government or on the application(i) Of not less than 100 members of the company, or (ii) Of members of the company holding not less than 1/10th of the total voting power. 5. 6.
POSITION OF DIRECTORS (1) Directors as agents. A company, as an artifical person, acts through directors who are elected representatives of the shareholders. They are, in the eyes of the law, agents of the company for which they act, (2) Directors as employees. (3) Directors as officers. The directors are treated as officers of the company. As such they are liable to certain penalties if the provisions of the companies act are not strictly complied with.
(4) Directors as trustees. Directors are treated as trustees Of the company·s money and property ; and Of the powers entrusted to them. Removal of directors Directors may be removed by1. Shareholders : The shareholders may remove a director before the expiry of his period of office by passing an ordinary resolution. This does not (a) Apply to the case of a director appointed by the Central Government (b) authorise, in the case of a private company, removal of a director holding office for life on April 1, 1952 (c) Apply to the case of a company which has adopted the system of electing 2/3rds of its directors by the principle of proportional representation.
Central Government. The central government may, in certain circumstances, remove managerial personnel from office on the recommendation of the tribunal. (a) Any person concerned has been guilty of fraud, persistent negligence or default in carrying out his obligations and functions under the law, or breach of trust ; or (b) The business of the company has not been conducted and managed by such person in accordance with sound business principles (c) The company is or has been conducted and managed by the person concerned in a manner which is likely to cause, or has caused, serious injury or damage to the interest of the trade,
(d) The business of the company is or has been conducted and managed by the person concerned with intent to defraud its creditors, members or any other person The person against whom a case is presented shall be joined as a respondent to the application. 3. Removal by tribunal. where, on an application to the tribunal for prevention of oppression or mismanagement the tribunal finds that the relief ought to be granted, it may terminate, set aside or modify any agreement between the company and the managing director or any other director or the manager.
I. (1) (2)
(a) (b) (c)
POWERS OF DIRECTORS General powers to the Board The Board shall not do any act which is to be done by the company in general meeting. The board shall exercise its powers subject to the provisions , contained in the Companies Act, or in the Memorandum or the Articles of the company in general meeting. Powers to be exercised at Board meetings Directors of a company shall exercise the following powers by means of resolutions passed at the meetings of the Board, the power toMake calls on shareholders in respect of money unpaid on their shares: Issue debentures ; Borrow moneys otherwise than on debentures (say through public deposits) ;
(b) Invest the funds of the company ; and (c) Make loans. III. Powers to be exercised with the approval of company in general meeting The board of directors shall exercise the following powers only with the consent of the company in general meeting : (a) To sell, lease or otherwise dispose of (say under amalgamation scheme the whole, or substantially the whole, of the undertaking of the company.) (b) To remit or give time for repayment of any debt due to the company by a director except in the case of renewal or continuance of an advance made by a banking company to its director in the ordinary course of business. (c) To invest (excluding trust securities) the amount of compensation received by the company in respect of the compulsory acquisition of any undertaking or property of the company.
To borrow moneys where the moneys to be borrowed are more than the paid-up capital of the company and its free reserves To contribute to charitable and other funds not directly relating to the business of the company or the welfare of its employees, amounts exceeding in any financial year Rs. 50,000 or 5 per cent of the average net profits of the three preceding financial years, whichever is greater. Political contributions. Sec. 293-a allows companies to make contributions to political purposes to any person, directly or indirectly out of their profits. Sec. 293-a however prohibits political contributions
(a) Government companies and (b) Companies which have been in existence for less than 3 financial years. Any other company may contribute any amount or amounts, directly or indirectly, (a) To any political party, or (b) For any political purpose to any person. This is however subject to the following conditions : 1. The amount shall not exceed 5 per cent of its average net profits during the three immediately preceding financial years. 2. The company shall disclose in its profit and loss account the amount or amounts giving (a) Particulars of the total amount contributed, and (b) The name of the party or person to which or to whom such amount has been contributed.
DUTIES OF DIRECTORS 1. Fiduciary duties, and The directors must(a) Exercise their powers honestly and bona fide for the benefit of the company as a whole ;and (b) Not place themselves in a position in which there is a conflict between their duties to the company and their personal interests. They must not make any secret profit out of their position. 2. Duties of care, skill and diligence. Directors should carry out their duties with reasonable care and exercise such degree of skill and diligence as is reasonably expected of persons of their knowledge and status. Standard of care. There are various standards of the care depending upon :
(a) The type and nature of work ; (b) Division of powers between directors and other officers ; (c) General usages and customs in that of business ; and (d) Whether directors work gratutiously or remuneratively. Other duties of directors. (1) To attend Board meetings. (2) Not to delegate his functions except to the extent authorised by the Act or the constitution of the company, and (3) To disclose his interest.
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