Directors of a Company

Duties of the Directors

1. General Duties

To establish the general objectives and to determine the business of the company;
To issue directions for the implementation of these policies and to review and check up the performance;
To delegate powers to any committee or the chief executive or others, if permitted by the Articles; and
To appoint officers and other employees, including managerial personnel, of the company.

2. Statutory Duties

To disclose interests in contracts or arrangements proposed to be entered into by the company (Sec.299).
To disclose particulars of shares held in other companies (Sec.308).
To disclose names, addresses, occupations etc. for entry in the Register of Directors.
To determine minimum subscription and issue prospectus.
To hold statutory and annual general meetings and lay before these meetings the reports, accounts, returns etc. required by the Act.
To convene extraordinary general meeting if requisitioned by members.
To circulate and file with the Registrar the resolutions, reports accounts etc. required by the Act.
To issue, allot, forfeit and transfer shares.
To recommend declaration and payment of dividends as per the Act.
To maintain books and registers required under the Act and the Articles.
To do all other acts required under the Act and the Articles.

3. Fiduciary Duties

As agents of the company, the directors hold a position of trust in relation to the company. They are duty bond (a) to exercise their powers honestly and bonafide for the benefit of the company as a whole; and (b) not to place themselves in a position where there is a conflict between their duties to the company and their personal interests.

Thus, the first duty of the directors is to act honestly and with utmost good faith. They exercise their powers bonafide for the benefit of the company and must not use it for their own personal interests. If they make any profit by the use of their powers, as directors, they must account for the same to the company.

Duty of Care and Skill: The directors have a common law duty to exercise reasonable care and skill in the discharge of their duties. If they fail to do so, they will be liable for damages under the common law.
Duty not to Delegate: Directors are expected to perform his functions personally and not to delegate them to someone else who is not a director.
Duty to Disclose Interest: Directors of a company are duty bound to disclose their interests in contracts or arrangements proposed to be entered into by the company. This safeguard is necessary to prevent any conflict between the personal interests of the director and his duty to the company.

Remuneration of Directors

The remuneration payable to the directors of a company, including any managing or whole-time director, is determined either by the Articles of the company, or by a resolution passed by the company in general meeting. The Articles may also require that a special resolution is to be passed for the purpose. The amount of remuneration and its mode of payment, must be in accordance with the provisions of Secs.198 and 309.

Overall Maximum Managerial Remuneration

The total managerial remuneration to the managing/ whole-time directors and/or manager of a public company or a private company which is a subsidiary of a public company in respect of any financial year must not exceed 11 per cent of the net profits of the company for that financial year. The percentage aforesaid shall be exclusive of any fees payable to directors for attending meetings of the Board of directors or any committee thereof.

Removal of Directors

Directors may be removed by:

1. Shareholders (Sec.284)

The shareholders may, by passing an ordinary resolution at their general meeting, remove a director before the expiry of his period of office.

2. Central Government (Secs.388-B to 388-E)

The Central Government may exercise this power where in its opinion there are circumstances suggesting:

That the director concerned in the conduct and management of the affairs of the company is or has been guilty of fraud, misfeasance, persistent negligence or default in carrying out his obligations and functions under the law, or breach of trust; or
That the business of the company is not or has not been conducted and managed by the director in accordance with sound business principles or prudent commercial practices; or
That the company is or has been conducted and managed by the director in a manner which is likely to cause, or has caused, serious injury or damage to the interest of the trade, industry or business to which such company pertains; or
That the business of the company is or has been conducted and managed by the director with intent to defraud its creditors, members or any other person or against public interest.

3. Company Law Board (Sec.402)

Where, on an application to the Company Law Board for prevention of oppression or mismanagement, the Company Law Board finds that the relief ought to be granted, it may by an order provide for the termination, setting aside or modification of any agreement between the company and the director. When the appointment of a director is so terminated or set aside he cannot sue the company for damages or compensation for loss of office.

Liabilities of Directors

The following are the liabilities of directors:

1. Liability to Third Parties

This may arise

Under the Act: Liability of directors to third parties may arise in connection with the issue of a prospectus which contains mis-statements. They may also incur such liability:
1. Where they fail to repay application money if minimum subscription has not been subscribed;
2. Where the allotment of shares has been irregular;
Independently of the Act: Directors are personally liable while signing a negotiable instrument without mentioning the company’s name and if they act in their own name.

2. Liability to the Company

Ultra vires acts: Directors are personally liable to the company in respect of ultra vires acts.
Negligence: A director may incur liability for negligence in the exercise of his duties.
Breach of trust: They must discharge their duties as trustees in the best interest of the company. They are liable to the company for any loss resulting from breach of trust.
Misfeasance: Directors arealso liable to the company for misfeasance which means ‘misconduct’ of directors for which they may be sued in a Law Court.

3. Liability for Breach of Statutory Duties

If directors fail to perform the statutory duties, they render themselves liable to penalties.

4. Criminal Liability

Apart from civil liability under the Act or under the general law, directors of a company may also incur criminal liability under common law, as well as under the Companies Act and other statutes.

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