Table of Contents

QUALIFICATIONS, POWERS AND DUTIES OF DIRECTORS...............................2

INTRODUCTION:............................................................................................................2
OBJECT OF RESEARCH................................................................................................2
HYPOTHESIS....................................................................................................................2
LIMITATIONS...................................................................................................................2
REVIEW OF LITERATURE............................................................................................3
CHAPTERIZATION.........................................................................................................3
CONCEPT OF DIRECTORS...........................................................................................3
QUALIFICATION OF DIRECTORS..................................................................................4
DISQUALIFICATIONS....................................................................................................5
POWERS OF DIRECTORS................................................................................................6
GENERAL POWERS: [Section: 179]...........................................................................7
RESTRICTIONS ON POWERS....................................................................................8
AUDIT COMMITTEE [ Sec.177 ]..............................................................................10
NOMINATION AND REMUNERATION COMMITTEE..........................................11
CONTRIBUTION TO CHARITABLE AND OTHER FUNDS [ Sec.181 ]...............12
POWER TO MAKE POLITICAL CONTRIBUTIONS [ Sec. 182 ]...........................13
POWER TO CONTRIBUTE TO NATIONAL DEFENCE FUND [ Sec. 183 ]..........14
DUTIES OF DIRECTORS................................................................................................14
STATUTORY DUTIES................................................................................................14
FIDUCIARY OBLIGATIONS [Sec.166(2)]................................................................15
DUTY OF CARE, DILIGENCE AND SKILL............................................................17
DUTY TO ATTEND BOARD MEETINGS................................................................19
DUTY NOT TO DELEGATE......................................................................................20

 DUTY TO DISCLOSE INTEREST.............................................................................21

ANALYSIS........................................................................................................................22
RESEARCH METHODOLOGY...................................................................................22
CONCLUSION.................................................................................................................22
BIBLIOGRAPHY............................................................................................................23

CHAPTERIZATION
CONCEPT OF DIRECTORS
QUALIFICATION OF DIRECTORS
DISQUALIFICATIONS
POWERS OF DIRECTORS
GENERAL POWERS: [Section: 179]
RESTRICTIONS ON POWERS
AUDIT COMMITTEE [ Sec.177 ]
NOMINATION AND REMUNERATION COMMITTEE
CONTRIBUTION TO CHARITABLE AND OTHER FUNDS [ Sec.181 ]
POWER TO MAKE POLITICAL CONTRIBUTIONS [ Sec. 182 ]
POWER TO CONTRIBUTE TO NATIONAL DEFENCE FUND [ Sec. 183 ]
DUTIES OF DIRECTORS
STATUTORY DUTIES
FIDUCIARY OBLIGATIONS [Sec.166(2)]
DUTY OF CARE, DILIGENCE AND SKILL
DUTY TO ATTEND BOARD MEETINGS
DUTY NOT TO DELEGATE.

QUALIFICATIONS, POWERS AND DUTIES OF DIRECTORS

INTRODUCTION:
The company is an artificial person and is managed by the human beings. The humans
who run it are known as board of directors. Directors acting collectively are known as Board.
The director plays a very important role in the day to day functioning of the company. It is
the board, who is responsible for the companys overall performance. To attain the objectives
prescribed in the Memorandum of Association of the company, the company depends on
Board of Directors (collectively) and directors (individually). Directors of a company are its
eyes, ears and organs of corporate theory. Section 2(34) of Companies Act, 2013 defines
directors as a director means a director appointed to the board of a company. The position that
the directors occupy in a corporate enterprise is not easy to explain. 1 They are the
professional men hired by the company to direct its affairs. Yet they are not the servants of
the company. They are rather the officers of the company. A director is in fact a director or
controller of the companys affairs. He is not a servant.2

OBJECT OF RESEARCH
The corporate executives are today possessed of immense power which must be regulated
not only for the public good, but also for the protection of those whose investments are
involved. Hence, it is necessary to demarcate the extent to which the power can be exercised
and its limits.

HYPOTHESIS
There may be misuse of power and authority which have been conferred upon the
directors and there may be willful non-compliance of certain duties conferred upon the
directors.

1 Ram chand & Sons sugar mills (p) ltd v. Kanhayalal Bhargava, AIR 1966 SC
1899.
2 Moriarty v Regents Garage Co, (1921) 1 KB 423, Lush J, 431.

LIMITATIONS
This research paper is done relying mostly on articles, journals, and essays published
by authors online few on books written on the Indian Companies Act. Though such books are
referred they do not contribute to the bulk of the research. The area of research is restrained
only to the chapter qualification, powers and duties of directors.

REVIEW OF LITERATURE
The existing literature on this research work mainly revolves around the published
works of foreign as well as Indian authors pertaining to the subject matter, well decided cases
cited in Indian journals, American cases and cases cited from other countries, and the articles
published in the websites.

CHAPTERIZATION

CONCEPT OF DIRECTORS
A Director refers to a Person who leads, manages or supervises an organization,
program or project.3 A companies director is An appointed or elected member of the board
of directors of a company who, with other directors, has the responsibility for determining
and implementing the companys policy. A company director does not have to be a
stockholder (shareholder) or an employee of the firm, and may only hold the office of
director. Directors act on the basis of resolution made at directors' meetings, and they derive
their powers from the corporate legislation and from the companys articles of association.
The 1956 Act prescribes minimum 2 directors for private and 3 directors for a public
company. This criterion is retained in the Act, but the maximum directors on the Board have
been raised from 12 to 15 by the Companies Act, 2013 and the Act has also dispensed with
the approval from Central Government for raising the number of directors above the
prescribed limit. The Act requires the Board to devise mechanisms to ensure compliance with
the applicable laws which should be effective and adequate. The Board may consist of several
categories of directors including whole-time directors, managing directors, independent
directors, nominee directors and women directors. Under the Act, there is a mandatory
3 http://www.businessdictionary.com/definition/director.html

requirement that one-third of the Board should consist of independent directors for listed
companies and public companies with a paid-up capital of INR 1,000 million or debt of INR
2,000 million4. This Independent Director is different from the ordinary directors as discussed
in this research. Independent directors are expected to be completely unrelated to the
company or its shareholders. The companies Act, 2013 also created position for Resident
Director and Women Director.

QUALIFICATION OF DIRECTORS
The earlier concept of Share Qualification under Companies Act, 1957 has been removed
from this new Companies Act, 2013. The other concepts are as follows:
RESIDENT DIRECTOR:
Companies Act, 2013 introduced the requirement of appointing a resident director,
i.e., a person who has stayed in India for a total period of not less than 182 (one hundred and
eighty two) days in the previous calendar year.
The requirement to have a resident director on the board of companies has been viewed as
a move to ensure that boards of Indian companies do not comprise entirely of non-resident
directors.
INDEPENDENT DIRECTORS
Under Companies Act 2013, the following companies are required to appoint independent
directors:
1. Public listed company: Atleast one third of the board to be comprised of
4 Section 149, Companies Act, 2013.

independent directors; and

2. Certain specified companies that meet the criteria listed below are required to have
atleast 2 (two) independent directors:

Public companies which have paid up share capital of INR 100,000,000

(Rupees one hundred million only);

Public companies which have a turnover of 1,000,000,000 (Rupees one billion

only); and

Public companies which have, in the aggregate, outstanding loans, debentures

and deposits exceeding INR 500,000,000 (Rupees five hundred million only)

b) Qualification criteria:
Companies Act 2013 prescribes detailed qualifications for the appointment of an
independent director on the board of a company. Some important qualifications include:
1. he / she should be a person of integrity, relevant expertise and experience;
2. he / she is not or was not a promoter of, or related to the promoter or director of the
company or its holding, subsidiary or associate company;
3. he / she has or had no pecuniary relationship with the company, its holding, subsidiary
or associate company, or their promoters, or directors during the 2 (two) immediately
preceding financial years or during the current financial year;
4. a person, none of whose relatives have or had pecuniary relationship or transaction with
the company, its holding, subsidiary or associate company, or their promoters, or
directors amounting to 2 (two) percent or more of its gross turnover or total income or
INR 5,000,000 (Rupees five million only), whichever is lower, during the 2 (two)
immediately preceding financial years or during the current financial year.
It is evident from provisions of Companies Act 2013 that much emphasis has been placed
on ensuring greater independence of independent directors. The overall intent behind these
provisions is to ensure that an independent director has no pecuniary relationship with,
nor is he provided any incentives (other than the sitting fee for board meetings) by it in any
manner, which may compromise his / her independence.

DISQUALIFICATIONS
Section 1645 lays down the minimum eligibility requirements. A person is not capable
of being appointed a director in the following cases:
1. Where he is of unsound mind, provided that the fact has been certified by a court
of competent jurisdiction;
2. Where he is an un-discharged insolvent;6
3. Where he has applied to be adjudicated as an insolvent and his application is
pending;
4. Where he has been sentenced to atleast 6 months imprisonment for an offence
involving moral turpitude or otherwise and 5 years has not been lapsed from the
date of expiry of sentence;
5. If a person has been convicted for any offence and sentenced for imprisonment
for 7 years or more, he shall not be eligible for appointment as a director in any
company;7
6. An order disqualifying him for appointment of director has been passed a court or
the tribunal and the order is in force;
7. If he has not paid his calls in respect of shares held by him, either jointly or alone
and 6 months have lapsed from the date fixed for payment;
8. If he has been convicted of an offence under Section 188 at any time during the
last preceding 5 years;
9. He has not complied with the requirement of Director Identification Number8;
10. A private company may by its articles provide for additional disqualifications9.

POWERS OF DIRECTORS
A director has following powers which he enjoys while carrying out its functions effectively:-

5 Companies Act, 2013.

6 Jayesh Ramniklal Doshi v Carbon Corpn Ltd, (1993) 96 Comp Cas 748 (Bom).
7 Proviso to Section 164, Companies Act, 2013.
8 Under section 152(3), Companies Act, 2013.
9 Under section 164(3), Companies Act, 2013.

GENERAL POWERS: [Section: 179]

Section 179 declares that, the board of directors of a company shall be entitled to
exercise all such powers and do all such acts and things as the company is authorized to
exercise and do subject to the provisions of the Memorandum and Articles of Association of
the Company and the applicable regulations and except those that require the specific consent
of the shareholders. A director therefore cannot be deprived of his right by the other
directors and this was held in Pulbrook v Richmond Consolidated mining company.10 In
metallurgical & Engg Consultants (India) Ltd v Mecon Executive Assn, 11 it was said that
the board of directors have the power to regulate the working hours of the companys
employees.
The powers of the directors are coextensive with those of the company itself. However,
there are two important limitations upon their powers:

The board is not competent to do what the act, memorandum and articles requires to

be done by the shareholders in general meeting,

In the exercise of their powers the directors are subject to the provisions of the act,
memorandum and articles and other regulations made in the general meeting.

The Act tries to demarcate the area of proper management control and proper
shareholders control, but however precise the demarcation may be, there will always be a
scope for clash between the two basic organs of the company viz. Shareholders and Directors
as to their respective powers. In Automatic Self Cleansing Filter Syndicate co Ltd v.
Cuninghame12
A company had power under its memorandum of association to sell its undertaking to
another company having similar objects. By its articles the general management and control
of the company were vested in the directors subject to such regulations as might from time to
time be made by extraordinary resolution. Particularly important was the provision in the
articles by which directors were empowered to sell or otherwise deal with the property of the
company on such terms as they thought fit. The shareholders passed a simple resolution for
10 (1878) LR 9 Ch D 610
11 (1998) 28 CLA 381 (MP).
12 (1906) 2 Ch 34.

the sale of the companys assets on certain terms and requited the directors to carry the sale
into effect. The directors refused to do so. It was held that directors are agents not of
majority of the shareholders, but of the company, of the whole entity made up of all the
shareholders. And if the whole entity has entrusted the directors with a particular power a
simple majority could not interfere in exercise of it.
RESTRICTIONS ON POWERS
Powers exercisable by resolution at board meetings [Sec.179(3)]
The Board of Directors of a company shall exercise the powers on behalf of the
company by means of resolutions passed at meetings of the Board:

To make calls on shareholders in respect of money unpaid on their shares;

To authorise buy-back of securities under section 68;
To issue securities, including debentures, whether in or outside India;
To borrow moneys;
To invest the funds of the company;
To grant loans or give guarantee or provide security in respect of loans;
To approve financial statements and the Board's report;
To diversify the business of the company; and to approve amalgamation, merger

or reconstruction;
To take over a company or acquire a controlling or substantial stake in another

company;
Any other matter which may be prescribed:

Powers exercisable with general meeting approval [sec.180]

Section 180 of the companies act, 2013 covers both public and private companies. Earlier
under section 293 of the Companies Act 1956, only public companies were covered so,
private companies were able to borrow any sum of money without any approvals from the
members of the company.
With the motive to expand the coverage, modifications have been made in such a way
that even private companies have to seek the shareholder approval if they are intending to
borrow money in excess of their paid up share capital and free reserves.
Following powers of board can be exercised only after special resolution in the
general meeting:

Sale of undertaking:

To sell, lease or otherwise dispose off 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.
Explanations:
1. Undertaking shall mean an undertaking in which the investment of the company exceeds
20% of its net worth as per the audited balance sheet of the preceding financial year or an
undertaking which generates 20% of the total income of the company during the previous
financial year,
2. Substantially the whole of the undertaking in any financial year shall mean 20% or more
of the value of the undertaking, as per the audited balance sheet of the preceding financial
year.
3. Non applicability of section 180 (1) if the title of a buyer or other person who buys or
takes on lease any property, investment or undertaking in good faith or the sale or lease of
any property of the company where the ordinary business of the company consists of
selling or leasing.
4. General meeting resolution may specify conditions for use, disposal or investment of the
sale proceeds. A listed company shall, instead of passing a resolution in the general
meeting, pass the resolution by postal ballot.

Investment of compensation:
To invest otherwise in Trust securities, the amount of compensation received by it as a

result of any merger or amalgamation.

Borrowings:
1. To borrow money, where the money to be borrowed, together with the money already
borrowed by the company will exceed an aggregate of its paid-up share capital and free
reserves except temporary loans obtained from the companys bankers in the ordinary
course of business.
2. Temporary loans mean loans repayable on demand or within 6 months from the date of
loan like cash credit arrangements, discounting of bills and issue of other short term loans
of seasonal character. However, it does not include loans raised for the purpose of
financing capital expenditures
3. The acceptance by a banking company in the ordinary course of its business like deposits
of money from the public, repayable on demand, withdrawal by cheque, draft, order or

otherwise, shall not be deemed to be a borrowing of money within the meaning of this
clause
4. Every special resolution passed by the company in general meeting in relation to the
exercise of the borrowing powers, shall specify the total amount up to which the money
may be borrowed by the board of directors. if special resolution passed by the members
does not specify the maximum amount which can be borrowed by the board then the
resolution passed shall be considered void.
5. If the board borrows in excess of the limits imposed, then members can ratify such excess
borrowings.
6. Any borrowing in excess of the limit imposed shall not be valid and effectual against the
company unless the lender proves that he lent the money in good faith and without having
any knowledge that the limit has been exceeded.

To remit or give time for the repayment of any debt due from director:
Remitting or giving for the repayment of any debt due by a director requires special

resolution except in case of renewal or continuance of an advance made by a banking

company to its director in the ordinary course of business.

AUDIT COMMITTEE [ Sec.177 ]

Section 177 of the Companies Act,2013 and Rule 6 and 7 of Companies (Meetings of
Board and its Powers) Rules,2014 deals with the Audit Committee.

Applicability of Audit Committee:

The Board of directors of every listed companies and the following classes of
companies, as prescribed under Rule 6 of Companies (Meetings of Board and its powers)
Rules, 2014 shall constitute an Audit Committee:

All public companies with a paid up capital of Rs.10 Crores or more;

All public companies having turnover of Rs.100 Crores or more;
All public companies, having in aggregate, outstanding loans or borrowings or
debentures or deposits exceeding Rs.50 Crores or more.
The paid up share capital or turnover or outstanding loans, or borrowings or

debentures or deposits, as the case may be, as existing on the date of last audited Financial
Statements shall be taken into account for the purposes of this rule.

Composition:
The Audit Committee shall consist of a minimum of 3 directors with independent
directors forming a majority.
The majority of members of Audit Committee including its Chairperson shall be
persons with ability to read and understand the financial statement13.
The Boards report under section 134(3) shall disclose the composition of an Audit
committee and where the Board had not accepted any recommendation of the Audit
Committee, the same shall be disclosed in such report along with the reasons there for.

NOMINATION AND REMUNERATION COMMITTEE

Subsection 1 of Section 178 of the new Companies Act, 2013 (the Act) read with relevant
draft rules stipulates that the Board of Directors of:
1. Every listed company and;
2. Every other public company
o Having paid up capital of One Hundred Crore rupees or more; or
o Having in aggregate, outstanding loans or borrowings or debentures or
deposits exceeding Two Hundred Crore rupees;
Have to constitute a Nomination and Remuneration Committee. The Act further lays
down the structure and role of the Committee:

This Committee shall consist of three or more nonexecutive directors out of which

not less than one half shall be independent directors.

It further provides that the chairperson of the company, irrespective of his/her
status i.e. whether executive or nonexecutive may become a member of the

Nomination and Remuneration Committee but shall not chair the Committee.
Furthermore, the chairperson of this committee or, in his absence, any other
member of the committee authorized by him in this behalf will be required to
attend the general meetings of the Company

13http://taxguru.in/company-law/audit-committee-section-177-companiesact2013.html#sthash.6v3piYyX.dpuf

The role of the Nomination and Remuneration Committee shall be to identify persons
having the desired qualifications for becoming directors or for appointment into the senior
management level and to recommend their appointment and/or removal to the Board and also
to carry out evaluation of every directors performance. The act further defines the expression
senior management which means personnel of the company who are members of its core
management team excluding Board of Directors comprising all members of management one
level below the executive directors, including the functional head.
It has also been delegated the task of formulating the criteria for determining the
qualifications, positive attributes and independence of a director and recommending to the
Board a policy, which is to be disclosed in the Board's report, relating to the remuneration for
the directors, key managerial personnel and other employees.
CONTRIBUTION TO CHARITABLE AND OTHER FUNDS [ Sec.181 ]

As per Companies Act, 2013 various restrictions are imposed on directors power to
contribute towards charity, political contribution or defence funds. These restrictions are
backed by necessary approvals and resolutions to be passed by directors. The objective to
impose various restrictions on board power is to avoid mis-utilization of the shareholders
fund and protect the interest of stakeholders.
SECTION 181 OF COMPANIES ACT 2013 CONTRIBUTION TO CHARITABLE
FUNDS:

This section applies to both public and private companies.

Board of Directors of a Company can contribute to bonafide charitable funds up to 5% of
Average Net Profits for the 3 immediately preceding financial years.

Donations above 5% Limit requires prior permission of the shareholders in general

meeting through special resolution.

Donations to charitable and other funds directly relating to the business of the company or
the welfare of its employees are not excluded in new act although these exclusions were
provided in Companies Act 1956

POWER TO MAKE POLITICAL CONTRIBUTIONS [ Sec. 182 ]

Political contribution means the expenditure incurred directly or indirectly by a Company

on an advertisement in any publication, being a publication in the nature of a souvenir,
brochure, tract, pamphlet where such publication is by or on behalf of a political party or
any contribution of an amount to such Political Party and where such publication is not by
or on behalf of, but for the advantage of a Political Party, shall be deemed to be a

contribution for a political purpose.

Restrictions are imposed on contributing directly or indirectly to any political parties on

following:
1. A Government Company
2. A Company which has been in existence for less than 3 financial years.
Maximum Amount of Donations can be 7.5% of Average Net Profits during the 3

immediately preceding financial years.

Board resolution is required for political contribution and disclosures are also required to
be made in P/L account for total amount contributed and name of the party to which such

amount is contributed.
If the Company makes any contribution, in contravention of the provisions of the law
then Company will be punishable with fine up to 5 times the amount contributed and
every Officer in default will be punishable with imprisonment up to 6 months and with

fine up to 5 times the amount contributed.

Companies contributing any amount to Electoral Trust Companies for contributing to a
political party are not required to make disclosures as required under section 182(3) of the
Companies Act,2013 only amount contributed to trust need to be mentioned in accounts
of the company. Electoral Trust Companies will be required to disclose all amounts
received by companies and contributed to political party.

POWER TO CONTRIBUTE TO NATIONAL DEFENCE FUND [ Sec. 183 ]

It means Contribution by Company to National Defence Fund or any other Fund

approved by the Central Government for the purpose of National Defence.

Power to make contribution can be exercised by the Board of Directors or Any person or

authority exercising the powers of the Board of Directors.

Disclosure is required in the P&L A/C for the amount contributed to National Defence

fund.
Sec 183 has Overriding effect as the company has the power to make contribution under
this section notwithstanding anything contained in Companies Act, Memorandum or
articles of association

DUTIES OF DIRECTORS
The corporate executives are today possessed of immense power which must be
regulated not only for the public good, but also for the protection of those whose investments
are involved. Hence, Companies Act 2013 imposes certain duties and obligations which are
to be followed by the persons holding the position of directorship for the common good.
Some of the duties imposed upon the directors are as follows:STATUTORY DUTIES
The duties of directors are set forth in section 166 of the 2013 Act, and are principally
as follows:

A director of a company shall act in accordance with the Articles of Association

(AOA) of the company.

A director of the company shall act in good faith, in order to promote the objects of
the company, for the benefits of the company as a whole, and in the best interests of
the stakeholders of the company.

A director of a company shall exercise his duties with due and reasonable care, skill
and diligence and shall exercise independent judgment.

A director of a company shall not involve in a situation in which he may have a direct
or indirect interest that conflicts, or possibly may conflict, with the interest of the
company.

A director of a company shall not achieve or attempt to achieve any undue gain or
advantage either to himself or to his relatives, partners, or associates and if such

director is found guilty of making any undue gain, he shall be liable to pay an amount
equal to that gain to the company.

A director of a company shall not assign his office and any assignment so made shall
be void.

If a director of the company contravenes the provisions of this section such director
shall be punishable with fine which shall not be less than one Lakh Rupees but which
may extend to five Lakh Rupees.

FIDUCIARY OBLIGATIONS [Sec.166(2)]

The directors of a company have to act in good faith in order to promote companys
objects for the benefits of its members as a whole. They have to act in the best interest of the
company, shareholders, its employees, community and also for protection of environment.
Liability for breach of Trust:
Traditionally the duties of directors were non-statutory. The first and the most obvious
obligation of persons in fiduciary position is to act with honesty. Greatest good faith is
expected in the discharge of their duties.14The directors of the company were held personally
liable to account for money received by them on companys behalf. The court conceded that
it could look behind the corporate curtain for imposing such liability on the directors15.
A Director owes fiduciary duties towards the company, and not to individual
shareholders, creditors (other than during winding up when their interest has to be taken care
of) or fellow Directors. These generally consist of the following:
Good faith and bona fide Acts
Directors must act honestly, without negligence and in good faith in the bona fide best
interests of the company. While applying this rule, Directors are not expected to act purely for
the economic advantages of the company, disregarding the interests of the members,
employees or creditors. The presumption is that a Director, acting within his or her authority,
14 Bank of poona ltd v narayandas sriman somani, AIR 1961 Bom 252,253.
15 Saurabh exports v Blaze Finllease & credits (p) ltd, (2006) 89 DRJ 372.

has acted in good faith, though the act may have been foolish or wrong, unless proved
otherwise. The Courts usually refuse to substitute their judgment for the commercial
judgment of the Director.
Proper use of powers
Directors must not exercise the powers conferred upon them for purposes different
from those for which they were conferred. Notwithstanding that Directors have acted in
honest belief for what they believe to be for the benefit of the company, they may
nevertheless be liable for improper use of their powers, especially for purposes collateral to
what they have been conferred for, for instance, furthering the Director's own interests or
diluting the majority shareholding. A breach occurs when the dominant purpose of the act is
improper.
Unfettered Discretion
Directors must not fetter their discretion for any reason whatsoever. They cannot
validly contract or act pursuant to any arrangement either with one another or with third
parties as to how they shall vote at board meetings or otherwise conduct themselves in the
future. However, this does not include contracting to take further action to give effect to a
contract entered into in a bona fide exercise of such discretion. Nominee Directors must be
particularly careful not to act only in the interests of their nominators, but must act in the best
interests of the company and of its shareholders as a whole.
Lack of Conflicting Interests
Directors must not, without the informed consent of the company, place themselves in
a position in which their personal interests or duties to other persons are liable to conflict with
their duties to the company or where there is a real and distinct possibility of conflict. This
requirement covers the following aspects:

Directors have to make continuous disclosures of their interests in the various transactions
of, and with, the company. A Director cannot enter into a contract with the company
without its informed consent, even if there is no unfair advantage to be gained, or abuse
of position, by such Director.

Directors cannot use, without the consent of the company, the company's properties,
opportunities or information for their own profit. In order to establish a breach of this
duty, it must be shown: (1) that what the Directors did was so related to the affairs of the
company that it can be said to have been done in the course of their management and in
utilization of their opportunities and special knowledge as Directors, and (2) that what
they did resulted in a profit to themselves. The English Courts, adopting a strict approach,
have held directors to be in breach of this fiduciary duty, even if the opportunity was not
one which would have been of use to the company. Indian courts generally follow this

strict English law approach.

Directors have a duty not to compete with the company, which is in many respects a
corollary of the immediately preceding rule.

DUTY OF CARE, DILIGENCE AND SKILL

A director of a company shall exercise his duties with due and reasonable care, skill and
diligence and shall exercise independent judgment. The Supreme Court has described it as a
failure of corporate governance on the part of directors if they fail to exercise due care and
diligence thereby allowing fabrication of figures and a false disclosure. They would be liable
for such commissions and omissions16.
In carrying out their obligations, directors of not-for-profit corporations must use an
appropriate degree of skill. The common law holds that what is known as a "subjective"
standard applies to directors of not-for-profit corporations incorporated under the Canada
Corporations Act or under provincial incorporation statutes, unless those statutes set out a
different standard.
The standard is subjective in the sense that it incorporates a reference to the particular
abilities of the particular director. Since the standard is subjective, it can be applied
differently among board members of a given corporation. For instance, a lawyer or an
individual with business experience will be held to a higher standard of care than someone
with less education or experience.
In contrast, under an objective standard of care all board members - regardless of
background or experience - are assessed against the same benchmark. The most commonly
used objective standard is the conduct that might be expected of a reasonably prudent person.
16 N. Narayanan v SEBI, (2013) 12 SCC 152.

A higher objective standard, which has never been applied by a court, is the conduct that
might be expected of a reasonable director.
Even when the subjective standard of care applies, this does not mean that a director
with few skills or little experience will escape liability. The conventional wisdom is that such
a director is required to act in accordance with conduct expected of a reasonably prudent
person. This means that a director without the skills required to meet that standard is obliged
to acquire them, or some of them. A director must become informed if he or she is not already
knowledgeable.
The common law has imposed some reasonable limitations on what can be expected
of directors:

a director is not liable for mere errors in business judgement (e.g., considered
decisions to pursue a particular commercial course made after honest and good faith
evaluation);

directors are justified in entrusting certain matters of business to officers of the

corporation; and,

directors are justified, in the absence of grounds for suspicion, in trusting that officers
of the corporation will perform their duties.
In practical terms, the following applies:

Directors should make decisions affecting the corporation based on full consideration
of all appropriate material and on the advice of professionals where required.

Directors should oversee all aspects of the corporation's operations.

Directors may delegate certain functions to key senior management, but must
maintain a supervisory role.
The board of directors is responsible for regularly reviewing the performance of senior

staff to which they are entrusting the implementation of the corporation's mandate on a daily
basis.
Liability for negligence:

Fidelity alone is not enough. A director has to perform his functions with reasonable
care. He has to attend with due diligence and caution the work assigned to him. In city
equitable fire insurance co, re17
One B was a director of the city equitable fire insurance co. the company was ordered to be
wound up. A searching investigation of the affairs of the company was then made and this
investigation showed a shortage in the funds which the company should have been possessed
of over 12 lakhs pounds. The collapse of the company was due to bad investments, bad debts
and misappropriation. All the losses were due to this instrumentality. He was accordingly
convicted for these frauds.
DUTY TO ATTEND BOARD MEETINGS
Directors are vested with a number of administrative responsibilities in order to
enable them to manage and administer the company. These administrative responsibilities
include, amongst others, the following:
Filing returns with the Registrar of Companies
Directors must file a return of allotment of shares within thirty (30) days with the
Registrar, stating the number and nominal amount of shares comprising the allotment, the
names, addresses and occupations of the allottees, and the amount, if any, paid or due and
payable on each share.
Convening Shareholders' Meetings
Directors must convene the different kinds of shareholders' meetings provided for in
the Companies Act, within their stipulated periods.
For example:

A statutory meeting should be convened after one (1) month but within six (6) months
from the date on which a public company is entitled to commence its business;

The first AGM should be convened within eighteen (18) months from the date of
incorporation; and

17 1925 Ch 407

An extraordinary general meeting must be convened by the Directors on a requisition

by members holding at least ten percent (10%) of the paid up capital of the company.

Approval of Company's Documents

Directors must approve the balance sheet and profit and loss account of the company
before it is signed on their behalf.
Audit Requirements
In cases of winding up or liquidation, the Directors must ensure that the books of
account of the company are completed and audited up to the date of winding up order issued
by the Company Court.
Attending Board Meetings
Directors are under an obligation to attend the board meetings as prescribed by the
Articles, or such as may be called by the chairman (if any) of the Board, otherwise any
absenteeism for three (3) consecutive meetings or for a period of three (3) months, whichever
is longer, without obtaining leave of absence, will result in that Director or Directors vacating
their respective offices.
DUTY NOT TO DELEGATE
A director must not delegate his or her general responsibility for governing the
corporation. In certain circumstances it is permissible to delegate particular tasks related to
management of the corporation, provided there is proper supervision of the party to which
the task is delegated.
Directors are entitled to delegate some of their responsibilities to committees, officers,
or members of the corporation. In Qubec, directors of Companies Act corporations may not
delegate powers to any committee other than an executive committee composed exclusively
of directors and created by a bylaw adopted by 2/3 of the members present at a special
meeting. In other jursidictions delegation powers are not so prescribed, however wholesale
delegation - most obviously, where a director purports to give over all his or her
responsibilities as a director to another person - is never permitted. Such an action would
usurp the role of the corporation's members in electing directors.

The fact that directors have delegated a particular task does not relieve them from
responsibility, and they should always supervise the carrying out of the task. Directors should
remember that they are ultimately accountable for the overall management of the
organization.
Delegation of core responsibilities, such as giving an executive committee authority to
bind the corporation, should be contemplated in the bye laws. If such delegation is not
addressed in the bye laws, or alternatively in an explicit resolution of the full board setting
out the terms of the delegation, actions or decisions taken by the body to whom the
delegation was made may be subject to challenge. Generally, the broader the delegation, the
stronger the argument to be made that it needs to be contemplated in the bylaws.
The line between governance and operational matters is often unclear. As a general
rule, it is best to limit delegation of core functions to board commit-tees authorized by the
bylaws. Other matters may be delegated by way of board resolution.
The terms of reference of any delegation, whether found in the bylaws, resolutions or
both should set out the scope and duration of the delegation, the requirements for reporting
back to the full board, and the relationship between the board and the body to which the
matter is delegated.
Where directors of charitable corporations may be considered to be trustees, their
ability to delegate decisions with respect to treatment of charitable property may be even
more constrained. At common law, trustees may not delegate any such decisions. In certain
jurisdictions, delegation by trustees of some aspects of their responsibility is permitted,
subject to prescribed restrictions, under provincial trust legislation or regulations.
DUTY TO DISCLOSE INTEREST
The Companies Act has prescribed and / or supplemented the common law duties
with certain other obligations on Directors that relate to their position, including the
following:
Declaration of Interest
Directors, who are concerned or interested in a proposed contract or arrangement with
the company in any way, must disclose the nature of their concern or interest to the Board.
Receipt of Compensation

Directors must not receive, in connection with a transfer of property or shares of the
company, any payment as compensation for loss of profit or in consideration for retirement
from office. If they do so, they must hold such an amount in trust for the company.

ANALYSIS
Restrictions have been imposed on powers of Board of Directors to exercise specified
powers with general meeting approval of shareholders and by passing special resolutions. The
Companies Act 2013 Act will facilitate better corporate norms, corporate governance,
accountability, transparency and protect the interests of investors. Non-compliance would
attract the liability clause which helps to maintain a check upon the directors for proper
functioning. In addition to enjoyment of the powers, law mandates fulfillment of certain
duties for a achieving a proper balance in the system.

RESEARCH METHODOLOGY
The research methodology is doctrinal. I have used secondary sources for this project.
I have referred bare acts and other sources mentioned in the bibliography given at the end of
the project. These sources have been used for establishing the various powers enjoyed by the
directors and the duties which they are obliged to perform while carrying out their course of
business.

CONCLUSION
Thus, the Director holds a key position in the management of the affairs of the
company and the law obliges the directors to carry out their duties effectively while
exercising its powers. Misuse of its powers and official capacity makes him liable for penalty.
At times, the position of directors is misused for fraudulent purpose, gaining unfair
advantage, insider trading and other such activities. The companies act, 2013 aims for
complete disclosure to ensure transparency, good governance and to ensure social
responsibility. By this way the parliamentarians have taken best of its efforts so as to provide
flexibility as well as genuine rigid measures of control by codifying certain obligations and
corresponding powers of directors.

RECOMMENDATIONS:
1. There should be an effective implementation agencies to make sure that the violations
are dealt with effectively and suitable penalties are imposed
2. The proceedings of National Company Law Tribunal (NCLT) shall ensure timely
action and avoid huge pendency of cases
3. The personnel other than those managing the affairs of the company should be well
aware of the rights and duties of directors and act accordingly.
4. The directors and other personnel should function properly, keeping in mind the
principle of Corporate Social Responsibility.

SOURCES
WEBSITE:
1. http://indiacorplaw.blogspot.in/2014/05/codification-of-directors-duties-is.html
2. http://www.legalserviceindia.com/article/l250-Directors-of-a-Company.html
3. http://www.mondaq.com/india/x/153824/Directors+Officers+Executives+Shareholde
rs/Duties+to+be+Discharged+by+Directors
4. http://www.companylawclub.co.uk/topics/who_can_be_a_director.shtml
5. http://www.businessdictionary.com/definition/director.html
6. http://investments.ifmr.co.in/wp-content/uploads/2014/06/Fintelligence-15-InductionDuties-Powers-Liabilities-of-Directors.pdf
7. http://www.slideshare.net/corporateprofessionals/role-of-directors-under-companiesact-2013l
8. https://www.icsi.edu/portals/70/416102013.pdf

BOOKS:
1. Company Law, Dr. Avatar Singh, Eastern Book Company, 16th Edn, 2014.
2. Elements of Company Law 1956, N. D. Kapoor, Sultan Chand & Sons, 28 th Edn,
2008.
3. Companies Act, 2013 Bare Act
4. Companies Act, 1956 Bare Act

CASES:
1.
2.
3.
4.
5.

Automatic Self Cleansing Filter Syndicate co Ltd v. Cuninghame,(1906) 2 Ch 34.

Bank of poona ltd v narayandas sriman somani, AIR 1961 Bom 252,253.
City equitable fire insurance co, re, 1925 Ch 407.
Jayesh Ramniklal Doshi v Carbon Corpn Ltd, (1993) 96 Comp Cas 748 (Bom).
Metallurgical & Engg Consultants (India) Ltd v Mecon Executive Assn, (1998) 28

CLA 381 (MP).

6. Moriarty v Regents Garage Co, (1921) 1 KB 423, Lush J, 431.
7. N. Narayanan v SEBI, (2013) 12 SCC 152.
8. Pulbrook v Richmond Consolidated mining company, (1878) LR 9 Ch D 610.
9. Ram chand & Sons sugar mills (p) ltd v. Kanhayalal Bhargava, AIR 1966 SC 1899.
10. Saurabh exports v Blaze Finllease & credits (p) ltd, (2006) 89 DRJ 372.