DIRECTORS UNDER THE COMPANIES ACT, 2013

By: Amrita Sachidanandan, Advocate

Introduction

A Company is a legal person that can only operate through a natural person and has no physical existence of its own. The individuals who operate on behalf of the Company are known as directors because the Company employs experts to manage its business.

Directors are those elected to supervise and manage the affairs of a business. Directors are given the authority to regulate the company’s business. The team of directors of the company is collectively known as its Board of Directors, and it has the ultimate executive power over its administration and operations. In reality, the Board of Directors is responsible for overseeing management and safeguarding the interests of all Company stakeholders.

The Board of Directors is essentially a group of trustworthy and respectable individuals who look out for the interests of the shareholders who are not actively involved in the operation of the company.

The director is defined under section 2(34) of the Companies Act, 2013 as “a director appointed to the board of a company”. A director is a natural person appointed by the company to make decisions for and on behalf of the Company. These directors are also known as officers of the company.

Minimum/Maximum Number of Directors in a Company

A public company must have a minimum of three (3) directors, a private company must have a minimum of two (2) directors, and a one-person company must have one (1) director, according to Section 149(1) of the Companies Act, 2013. A company can appoint a maximum of fifteen (15) directors. However, after passing a special resolution at the general meeting, a company may appoint more than fifteen directors, and Central Government’s approval is not necessary.

Residence of a director in India

Every company must have at least one director who is an Indian Resident i.e. who has spent a total of at least 182 days in India during the immediately preceding calendar year, as per Section 149(3) of the Companies Act, 2013.

Duties of directors- Section 166

For the first time, the duties of directors have been defined in the Act.

A director of a company shall:

Act in accordance with the articles of the company.
Act in good faith in order to promote the objects of the company for the benefit of its members as a whole and in the best interests of the company, its employees, the shareholders, the community and for the protection of the environment.
Exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
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.
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.
Not assign his office, and any assignment so made shall be void.

Power of Director

A board of directors is the biggest authority of the company and is vested with various powers under section 179 of the companies act 2013. Directors can make any and all of the decisions and can exercise the power to which the company has the authority or is entitled. Directors appointed have all the control over the operations of the company.

All of the powers are not absolute; directors can act autonomously as long as they abide by the memorandum and articles, and the board of directors is not qualified to carry out the actions that the shareholders’ general meetings have mandated.

There are certain powers that can be exercised only when the resolution has been passed at the board meeting.

Those powers include the power to:

To make calls
To borrow money
Issue funds of the company
To grant loans are give guarantees
To approve financial statements
To diversify the business of the company
To apply for amalgamation, merger or reconstruction.
To take over a company or to acquire a controlling interest in another company.
Shareholders may impose restrictions on the exercise of these powers.

Powers to be exercised with General Meeting approval.

Section 180 of the Companies Act 2013 provides those powers which can be exercised only if they approved in a general meeting

To sell, lease or otherwise dispose of the whole or any part of the company’s undertakings
To invest otherwise in trust securities
To borrow money for the purpose of the company
To give time or refrain the director from repayment of any debt.

Disqualifications for appointment of director

Section 164 of the Companies Act, 2013 talks about the grounds for disqualification of the appointment of the Director.

A person shall not be eligible for appointment as a director of a company, if —

he is of unsound mind and stands so declared by a competent court;
he is an undischarged insolvent;
he has applied to be adjudicated as insolvent, and his application is pending;
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 elapsed 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;
an order disqualifying him for appointment as a director has been passed by a court or Tribunal, and the order is in force;
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;
he has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years.

Conclusion

In the operations of the organisation, directors play a crucial role. The corporation appoints directors, each of whom performs in a unique way. They have been granted various powers since they play a crucial role in the efficient operation of the organisation, but there are also some constraints to preventing the abuse of such rights. The directors are an integral part of any company. There are certain responsibilities in the Company which only a director can perform. The Act dealing with matters related to directors is the Companies Act, of 2013. Shareholders of the Company appoint these directors, and the qualification and disqualification of directors are mentioned in the AOA of the Company. A strict bar of five years is given to allow a person of appropriate qualifications to represent the Company.