UNIT IV
Directors
Directors:
A director is not a servant of any master, they are rather the officers of the company. A director is, in fact, a director or controller of a company and he manages all the affairs of the company. However, a director can work as an employee in a different capacity.
Directors are basically registered under the companies act and are duly appointed by the company to direct and manage the business of the company. They are sometimes described as agents, as trustees and sometimes as managing partners.
Appointment
A casual vacancy occurs when the director’s office is vacated before the expiry of the term of the director. Such a vacancy can be filled by the procedure or the process prescribed by the articles. If any clause is absent in the articles then the power is given to the directors so that he can fill the vacancy at the board meeting. The person who has been appointed by this procedure, hold the office until the expiry of the period for which the outgoing director would have held the office.
2. Additional directors :
Considering the powers of the directors, additional directors can be appointed by the board. There can be an addition to directors but total members of the directors should not exceed the maximum limit as mentioned in the articles. If the strength of directors is below the minimum limit of the members then the addition of directors is valid.
However, the additional directors can hold the office only up to the date of the next meeting which is held annually. The additional director is exempted to fulfill the requirement of consent under Section 264.
3. Appointment by Central Government:
The central government has the power to appoint directors for the purpose to prevent mismanagement under Section 408. This power is applied when a petition has been filed to the National Company Law Tribunal to prevent mismanagement.
Consent to act as directors -
Every person who has appointed as director shall furnish a consent in writing to the company as such in Form DIR-2. The director must submit such consent with the registrar in Form DIR-12 within thirty days(30 days) of the appointment of the director.
Qualifications of directors
Share qualification:
The articles of the company provide that every director should hold a certain number of shares. Such shares are known as qualification shares. A director must obtain the required number within two months of the appointment. If a director is not appointed as a director he cannot be compelled to obtain qualification shares. Also within a period shorter than two months of the appointment, he cannot be compelled to obtain the qualification of shares. The value of the qualification shares cannot be more than five thousand rupees except when the nominal value of the share is more than the amount of the share. A director can hold only shares and not share warrants. A director may suffer if he fails to obtain his qualification shares as advised. He can suffer in two ways:
Key Takeaways:
Board to meet once in every three months
In the case of every company, a meeting of its Board of directors shall be held at least once every three months and at least four such meetings must be held every year.
Notice of meetings
Notice of every meeting of the Board of directors of a company shall be given in writing to ever director for the time being in India, and at his usual address in India to every other director.
Every officer of the company whose duty it is to give notice as aforesaid and who fails to do so shall be punishable with fine which may extend to one hundred rupees.
Quorum for meetings
The quorum for a meeting of the Board of directors of a company shall be one-third of its total strength (any fraction contained in that one-third being rounded off as one), or two directors, whichever is higher.
Provided that where at any time the number of interested directors exceeds or is equal to two-thirds of the total strength, the number of the remaining directors, that is to say, the number of the directors who are not interested, present at the meeting being not less than 2 shall be the quorum during such time.
Interested director means any director whose presence cannot, by reason of his being interested in some manner in the subject matter of discussion be counted for the purpose of forming a quorum at a meeting of the Board, at the time of the discussion or vote on any matter.
Procedure where meeting adjourned for want of quorum
If a meeting of the Board could not be held for wand of quorum, then, unless the articles otherwise provide, the meeting shall automatically stand adjourned till the same day in the next week, at the same time and place, or if that day is a public holiday, till the next succeeding day which is not a public holiday, at the same time and place.
Passing of resolutions by circulation
No resolution shall be deemed to have been duly passed by the Board or by a committee thereof by circulation, unless the resolution has been circulated in draft, together with the necessary papers, if any, to all the directors, or to all the members of the committee, then in India (not being less in number than the quorum fixed for a meeting of the Board of committee, as the case may be), and to all other directors or members at their usual address in India, and has been approved by such of the directors as are then in India, or by a majority of such of them, as are entitled to vote on the resolution.
Validity of acts of directors
Acts done by a person as a director shall be valid, notwithstanding that it may afterwards be discovered that his appointment was invalid by reason of any defect or disqualification or had terminated by virtue of any provision contained in this Act or in the articles.
Board's powers and restrictions thereon
General powers of Board
Subject to the provisions of this Act, the Board of directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to exercise and do.
However, the Board shall not exercise any power or do any act or thing which is directed or required, whether by this or any other Act or by the memorandum or articles of the company or otherwise, to be exercised or done by the company in general meeting.
Certain powers to be exercised by Board only at meeting
The Board of directors of a company shall exercise the following powers on behalf of the company, and it shall do so only by means of resolutions passed at meetings of the Board:-
A. OPPRESSION:
Lord Cooper explained the meaning of oppression in the case Elder v. Watson Ltd[1], “Oppression is a misdemeanour committed by majority shareholders who under colour of their majority power, wrongfully inflict upon the minority shareholder or minority shareholders any harm of injury” was also cited with approval by WANCHOO J (afterwards CJ) of the Supreme Court of India in Shanti Prasad Jain V. Kalinga Tubes Ltd[2],
The grounds on which an application can be made under section 241 are : (a) that the affair of the company are being conducted in a manner which prejudicial or oppressive to a member or some members or in a manner which is prejudicial to the public interest or in a manner prejudicial to the interests of the company; (b) a material change has taken place in the management or control of the company, whether by an alteration in the Board of directors, or manager, or in the ownership of the company’s shares or its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of members.
B. MISMANAGEMENT:
Mismanagement means the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interest of the company. It is also said to mismanagement where a material change has taken place in the ownership of the company’s share or if it has no share capital in its membership or in any other manner whatsoever and that by reason of that change it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interest of the company. Palmer explains that a proper balance of majority and minority rights is necessary to run a smooth functioning of the company.
PROVISIONS UNDER COMPANIES ACT, 2013
In providing the remedies to the minorities the tribunal plays an important role.
Key Takeaways:
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