Unit-3
MANAGEMENT
Executive directors
H/she is that the full-time working director of the company. They have a higher responsibility towards the organization. The company and its employees expect them to be efficient and careful altogether the dealings.
Non-Executive Directors
H/she are non- working directors and aren't involved within the everyday working of the company. They might take part within the planning or policy-making process. They challenge the executive directors to return up with decisions and solutions that are within the best interest of the company.
Women Directors
According to Companies Act 2013, some companies shall compulsory have at least 1 women director. Those Companies are -
A listed company-
Any Public company having-.Turnover of Rs 300 crore or more
Paid up capital of Rs 100 crore or more.
Independent Directors
Manner of selection of independent directors and maintenance of databank of independent directors
(1) Subject to the provisions contained in sub-section (6) of section 149, an independent director could also be selected from a data bank containing names, addresses and qualifications of persons who are eligible and willing to act as independent directors, maintained by any body, institute or association, as may by notified by the Central Government, having expertise in creation and maintenance of such data bank and placed on their website for the utilization by the company making the appointment of such directors:
Provided that responsibility of exercising due diligence before selecting an individual from the info bank mentioned above, as an independent director shall roll in the hay the company making such appointment.
(2) The appointment of independent director shall be approved by the company generally meeting as provided in sub-section (2) of section 152 and therefore the explanatory statement annexed to the notice of the overall meeting called to think about the said appointment shall indicate the justification for selecting the appointee for appointment as independent director.
(3) the data bank mentioned in sub-section (1), shall create and maintain data of persons willing to act as independent director in accordance with such rules as could also be prescribed.
(4) The Central Government may prescribe the way and procedure of selection of independent directors who fulfil the qualifications and requirements specified under section149.
Additional Directors
Appointment of additional director, alternate director and nominee director
(1) The articles of a company may confer on its Board of Directors the facility to appoint a person , aside from an individual who fails to urge appointed as a director during a general meeting, as a further director at any time who shall hold office up to the date of subsequent annual general meeting or the last date on which the annual general meeting should are held, whichever is earlier.
(2) The Board of Directors of a company may, if so authorised by its articles or by a resolution passed by the company generally meeting, appoint an individual , not being a person holding any alternate directorship for any other director within the company, to act as an alternate director for a director during his absence for a period of not but three months from India:
Provided that no person shall be appointed as an alternate director for an independent director unless he's qualified to be appointed as an independent director under the provisions of this Act:
Provided further that an alternate director shall not hold office for a period longer than that permissible to the director in whose place he has been appointed and shall vacate the office if and when the director in whose place he has been appointed returns to India:
Provided also that if the term of office of the original director is determined before he so returns to India, any provision for the automatic re-appointment of retiring directors in default of another appointment shall apply to the first , and to not the alternate director.
(3) Subject to the articles of a company, the Board may appoint any person as a director nominated by any institution in pursuance of the provisions of any law for the time being in force or of any agreement or by the Central Government or the government by virtue of its shareholding during a Government company.
(4) within the case of a public company, if the office of any director appointed by the company in general meeting is vacated before his term of office expires within the normal course, the resulting casual vacancy may, in default of and subject to any regulations within the articles of the company, be filled by the Board of Directors at a meeting of the Board:
Provided that any person so appointed shall hold office only up to the date up to which the director in whose place he is appointed would have held office if it had not been vacated.
Alternate Directors
When a director is absent for quite three months; an alternate director comes on board on his behalf. He acts as a director for a temporary period. And can only hold office as permissible to the director whose office this director holds.
Interested Directors
(1) Every director shall at the first meeting of the Board during which he participates as a director and thereafter at the first meeting of the Board in every fiscal year or whenever there's any change within the disclosures already made, then at the first board meeting held after such change, disclose his concern or interest in any company or companies or bodies corporate, firms, or other association of individuals which shall include the shareholding, in such manner as could also be prescribed.
(2) Every director of a company who is in any way, whether directly or indirectly, concerned or curious about a contract or arrangement or proposed contract or arrangement entered into or to be entered into—
(a) with a body corporate during which such director or such director in association with the other director, holds quite two per cent. Shareholding of that body corporate, or may be a promoter, manager, Chief executive officer of that body corporate; or
(b) with a firm or other entity during which , such director may be a partner, owner or member, because the case could also be , shall disclose the character of his concern or interest at the meeting of the Board during which the contract or arrangement is discussed and shall not participate in such meeting:
Provided that where any director who isn't so concerned or interested at the time of getting into such contract or arrangement, he shall, if he becomes concerned or interested after the contract or arrangement is entered into, disclose his concern or interest forthwith when he becomes concerned or interested or at the first meeting of the Board held after he becomes so concerned or interested.
(3) A contract or arrangement entered into by the company without disclosure under sub-section (2) or with participation by a director who is concerned or interested in any way, directly or indirectly, within the contract or arrangement, shall be voidable at the option of the company.
(4) If a director of the company contravenes the provisions of sub-section (1) or subsection (2), such director shall be punishable with imprisonment for a term which can reach one year or with fine which shall not be but fifty thousand rupees but which can reach one lakh rupees, or with both.
(5) Nothing during this section—
(a) shall be taken to prejudice the operation of any rule of law restricting a director of a company from having any concern or interest in any contract or arrangement with the company;
(b) shall apply to any contract or arrangement entered into or to be entered into between two companies where any of the directors of the one company or two or more of them together holds or hold less than two per cent. Of the paid-up share capital within the other company.
Nominee Directors
Shareholders, central government or third parties appoint them. Nominee directors come on board when there's grave mismanagement or the board members abuse their powers.
Disqualification of directors
The circumstances in which a person can't be appointed as a director of a company are enumerated in Section 274. According to this section, an individual can't be appointed as a director of company, if—
(i) He has been found to be of unsound mind by a competent court and the finding is in force;
(ii) he's an undercharged insolvent;
(iii) He has applied to be adjudicated as an insolvent and his application is pending;
(iv) He has been convicted of an offence involving moral turpitude and sentenced to imprisonment for not but six months and a period of 5 years has not elapsed since the expiry of his sentence;
(v) He has not paid any call in respect of shares of the company held by him for a period of six months from the last day fixed for the payment;
(vi) He has been disqualified by an order of the Court under Sec. 203 of an offence in relation to promotion, formation or management of the company or or fraud or misfeasance in relation to the company.
The Central Government may by notification within the Official Gazette remove the disqualifications enumerated in clause (iv) and (v) above. [Sec.274(2)]
In addition to the disqualifications mentioned above, there's another disqualification, namely, the person ‘should not be a minor or older person under disability’ but should be one competent to contract.
A private company which isn't a subsidiary of public company may by its Articles provide for extra grounds for disqualification.
Restriction of Number of Directorship:
According to Secs. 275 to 279, a person can't be appointed as a director for quite 20 companies at a time. If any person holds office for 20 companies as a director of a company, then no appointment are often made in the other company unless he vacates his office within fifteen days.
If he doesn't vacate within fifteen days, new appointment shall be void. (Sec. 277) In calculating the number 20, the subsequent shall be excluded.
DIN- Directors Identification Number
Director identification number is a prerequisite for appointment as director during a company in India. Same time Register of Directors and Key Managerial personnel serve the aim of Record of interests of those persons in company and otherwise.
Directors’ IdentificationNumber (SECTIONS 153 – 159)
(Section 153)
Every individual intending to be appointed appointed as director of a company shall make an application for allotment for Director Identification number (DIN) to the Central government.
(Section 154)
The Central government shall within one month from the receipt of the appliance allot a Director number to the applicant.
(Section 155)
No person who already has a Director Identification number shall apply for another Director Identification number.
(Section 156)
Every existing director, within one month of the receipt of Director Number from Central Government, shall intimate the number to all or any the companies where he/she may be a director.
(Section 157)
Every company, within fifteen days of the receipt of intimation from the director, shall furnish the Director Identification number to the registrar. If a company fail to furnish Director identification within a period specified under Section 403, the company shall be punishable with fine which shall not be but twenty-five thousand rupees but which can reach one lakh rupees and each officer of the company who is in default shall be punishable with fine which shall not be but twenty-five thousand rupees but which can reach one lakh rupees.
(Section 158)
Every person or company, while furnishing any return, information or particulars as are required to be furnished under this Act, shall mention the Director identification number in such return, information or particulars just in case such return, information or particulars relate to the director or contain any reference of any director. Where a replica of such resolution is to be furnished somewhere, DIN should be mentioned. Simply, this is often prudent to say DIN in all resolutions.
(Section 159)
If any individual or director of a company, contravenes any of the provisions of section 152, section 155 and section 156, such individual or director of the company shall be punishable with imprisonment for a term which can reach six months or with fine which may extend to fifty thousand rupees and where the contravention may be a continuing one, with an extra fine which may reach five hundred rupees for each day after the first during which the contravention continues.
Appointment of directors
(1) Where no provision is formed within the articles of a company for the appointment of the first director, the subscribers to the memorandum who are individuals shall be deemed to be the first directors of the company until the directors are duly appointed and just in case of a 1 Person Company a private being member shall be deemed to be its first director until the director or directors are duly appointed by the member in accordance with the provisions of this section.
(2) Save as otherwise expressly provided during this Act, every director shall be appointed by the company generally meeting.
(3) nobody shall be appointed as a director of a company unless he has been allotted the Director number under section 154.
(4) every one proposed to be appointed as a director by the company generally meeting or otherwise, shall furnish his Director number and a declaration that he's not disqualified to become a director under this Act.
(5) an individual appointed as a director shall not act as a director unless he gives his consent to carry the office as director and such consent has been filed with the Registrar within thirty days of his appointment in such manner as could also be prescribed:
Provided that within the case of appointment of an independent director within the general meeting, an explanatory statement for such appointment, annexed to the notice for the overall meeting, shall include a statement that within the opinion of the Board, he fulfils the conditions laid out in this Act for such an appointment.
(6) (a) Unless the articles provide for the retirement of all directors at every annual general meeting, not but two-thirds of the entire number of directors of a public company shall
(i) be persons whose period of office is liable to determination by retirement of directors by rotation; and
(ii) save as otherwise expressly provided during this Act, be appointed by the corporate generally meeting.
(b) The remaining directors within the case of any such company shall, in default of, and subject to any regulations within the articles of the company, even be appointed by the company generally meeting.
(c) At the first annual general meeting of a public company held next after the date of the overall meeting at which the primary directors are appointed in accordance with clauses (a) and (b) and at every subsequent annual general meeting, one-third of such of the directors for the nonce as are susceptible to retire by rotation, or if their number is neither three nor nor a multiple of three, then, the amount nearest to one-third, shall retire from office.
(d) the directors to retire by rotation at every annual general meeting shall be those that are longest in office since their last appointment, but as between persons who became directors on an equivalent day, those that are to retire shall, in default of and subject to any agreement among themselves, be determined by lot.
(e) At the annual general meeting at which a director retires as aforesaid, the company may refill the vacancy by appointing the retiring director or another person thereto.
Explanation.—For the needs of this sub-section, ―total number of directors‖ shall not include independent directors, whether appointed under this Act or the other law for the nonce effective , on the Board of a company.
(7) (a) If the vacancy of the retiring director isn't so filled-up and therefore the meeting has not expressly resolved to not fill the vacancy, the meeting shall stand adjourned till an equivalent day within the next week, at the same time and place, or if that day is a national holiday, till subsequent succeeding day which isn't a holiday, at an equivalent time and place.
(b) If at the adjourned meeting also, the vacancy of the retiring director isn't filled up which meeting also has not expressly resolved to not fill the vacancy, the retiring director shall be deemed to have been re-appointed at the adjourned meeting, unless—
(i) at that meeting or at the previous meeting a resolution for the re-appointment of such director has been put to the meeting and lost;
(ii) the retiring director has, by a notice in writing addressed to the company or its Board of directors, expressed his unwillingness to be so re-appointed;
(iii) he is not qualified or is disqualified for appointment;
(iv) a resolution, whether special or ordinary, is required for his appointment or re-appointment by virtue of any provisions of this Act; or
(v) section 162 is applicable to the case.
Explanation.—For the needs of this section and section 160, the expression ―retiring director‖ means a director retiring by rotation.
Powers Of Directors
STATUTORY POWERS OF DIRECTORS
- Powers must be excised by board of directors in the general meeting of the company by passing a resolution.
- The power to make call on shares in respect of unpaid money.
- The power to authorized lack of shares.
- The power to issue debentures, whether in or outside India.
- The power to invest in funds.
- The power to borrow money otherwise on debentures.
- The power to make loans or give guarantee in respect of loans. But a banking company does not requires any resolution by the board.
OTHER POWERS
- To fill casual vacancy.
- Appoint the first auditor of the company.
- To make political contribution.
- Appoint additional directors.
- Appoint alternate director.
- To declare interim dividend.
Duties Of Directors
Major Corporate Debacles of recent times like Kingfisher, Sahara, Satyam etc has again and again proved the lack of Company Act1956 to be ineffective in upholding Corporate Governance. Whenever it's the directors who are responsible in breaking Shareholders expectation and sometimes betraying the emotions of stakeholders under a false veil of charisma, while using the company mechanism to satisfy personal welfare. To satisfy this challenge Companies Act 2013 has been enacted almost 50 years after the last amendment. It's built on the principles of responsibility of the Board, protection of interests of the Shareholders, self- regulation and openness through disclosures. The 2013 amendment has ensured several effective measures through clearly defining liabilities and responsibilities of the directors and penal actions on failure to follow an equivalent .
The Duties of the directors has been ensemble under Section 166 of the 2013 Act and applies to all or any sorts of Directors including Independent Directors. The Duties and Responsibilities are often broadly classified into two categories:
The duties, liabilities and responsibilities which promotes corporate governance through the sincerest efforts of directors in efficient management and swift resolution of critical corporate issues and sincere and mature deciding to avoid unnecessary risks to the corporate entity and its shareholders.
Keeping the interests of company and its stakeholders ahead of personal interests
1. A director must act in accordance with the Articles of Association of the company
2. A director must pursue the best interests of the stake holders of the company, in straightness and to market the objects of the company.
3. A director shall use independent judgement to exercise his duties with due and due care , skill and diligence.
4. A director should remember of conflict of interest situations and will attempt to avoid such conflicts for the interest of the company.
5. Before approving related party transactions the Director must make sure that adequate deliberations are held and such transactions are in interest of the company.
6. To make sure vigil mechanism of the company and the users are not prejudicially affected on account of such use.
7. Confidentiality of sensitive proprietary information, commercial secrets, technologies, unpublished price to be maintained and will not be disclosed unless approved by the board or required by law.
8. A Director of a company shall not assign his office and any assignment so made shall be void.
Removal of Directors
(1) A company may, by ordinary resolution, remove a director, not being a director appointed by the Tribunal under section 242, before the expiry of the period of his office after giving him a reasonable opportunity of being heard:
Provided that nothing contained in this sub-section shall apply where the company has availed itself of the option given to it under section 163 to appoint not less than two thirds of the total number of directors according to the principle of proportional representation.
(2) A special notice shall be required of any resolution, to remove a director under this section, or to appoint somebody in place of a director so removed, at the meeting at which he is removed.
(3) On receipt of notice of a resolution to to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director, whether or not he is a member of the company, shall be entitled to be heard on the resolution at the meeting.
(4) Where notice has been given of a resolution to remove a director under this section and the director concerned makes with respect thereto representation in writing to the company and requests its notification to members of the company, the company shall, if the time permits permits it to do so,—
(a) in any notice of the resolution given to members of the company, state the fact of the representation having been made; and
(b) send a copy of the representation to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representation by the company), and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company’s default, the director may without prejudice to his right to be heard orally require that the representation shall be read out at the meeting:
Provided that copy of the representation need not be sent out and the representation need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the Tribunal is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory matter; and the Tribunal may order the company’s costs on the application to be paid in whole or in part by the director notwithstanding that he is not a party to it.
(5) A vacancy created by the removal of a director under this section may, if he had been appointed by the company in general meeting or by the Board, be filled by the appointment of another director in his place at the meeting at which he is is removed, provided special notice of the intended appointment has been given under sub-section (2).
(6) A director so appointed shall hold office till the date up to which his predecessor would have held office if he had not been removed.
(7) If the vacancy is not filled under sub-section (5), it may be filled as a casual vacancy in accordance with the provisions of this Act:
Provided that the director who was removed from office shall not be re-appointed as a director by the Board of Directors.
(8) Nothing in this section shall be taken—
(a) as depriving a person removed under this section of any compensation or damages payable to him in respect of the termination of his appointment as director as per the terms of contract or terms of his appointment as director, or of any other appointment terminating with that as director; or
(b) as derogating from any power to remove a director under other provisions of this Act.
Managing Directors
They have a considerable ability to form decisions, manage and direct other members of the company. A Public Company or a subsidiary of a Public Company that has a share capital of more than Five Crore rupees must have a managing director.
It is a common practice that the Board of Directors appoints one of its members to manage the affairs of the company as a whole time officer and calls him the managing director.
He acts as the chief executive. He occupies a position of dual authority and responsibility. As a director, he attends the Board meetings and, as a manager, he performs the managerial functions.
Managing Director—as defined by the Companies Act—means a director who—by virtue of an agreement with the company or of a resolution gone by the company in general meeting or by its Board of Directors or by virtue of its Memorandum or Articles of Association—is entrusted with substantial powers of management which might not otherwise be exercisable by him and includes a director occupying the position of a Managing Director, by whatever name called.
Shareholders Meeting
The shareholders’ meeting is that the body that passes resolutions for joint-stock companies. The shareholders’ meeting has such important tasks as approving the financial statements and therefore the appointment of the board of directors. Basically the shareholders’ meeting represents ownership claims, i.e. the company’s shareholders.
Board meeting
The board of directors is that the supreme authority during a company and that they have the powers to require all major actions and decisions for the company. The board is also liable for managing the affairs of the entire company.
For the effective functioning and management, it's imperative that board meetings be held at frequent intervals. For this, Section 173 of Companies Act, 2013 provides –
In the case of a Public limited company, the first board meeting has got to be held within the first 30 days, since the incorporation date. Additionally, a minimum of 4 board meetings must be held during a span of 1 year. Also, there can't be a niche of quite 120 days between two meetings.
In the case of small companies or one person company, a minimum of two meetings must be conducted, one in each half the financial year. Additionally, the gap between the 2 meetings must be a minimum of 90 days. During a situation where the meeting is held at a brief notice, a minimum of one independent director must be attending the meeting.
The Various Types/ Kinds Shareholders’ Meetings
There are three types of shareholders’ meetings: the ordinary shareholders’ meeting, the extraordinary shareholders’ meeting, and the special shareholders’ meeting. This distinction isn't based on a different shareholders’ meeting composition, which always consists of the company’s shareholders or their representatives, but on the issues on which the shareholders pass resolutions.
1. The ordinary shareholders’ meeting approves the financial statements and appoints the directors, the statutory auditors, and the chairman of the board of statutory auditors. This shareholders’ meeting also decides on compensation for these office holders (when not set within the bylaws) and examines other issues attributed thereto as per the bylaws or upon the proposal of the directors. The standard shareholders’ meeting must be called a minimum of once a year, within four months of the top of the company’s company’s financial year.
2. The extraordinary shareholders’ meeting decides on changes to the memorandum of association, the issuance of bonds, and the appointment and powers of liquidators.
3. The special shareholders’ meeting is called to pass resolutions on cases where the shareholders’ resolutions affect classes of shares with voting-rights restrictions (such as savings shares).
Types Of/ Kinds Of Board Meetings
1. Member’s Meeting :
This meeting is merely for the members of the company. Members and also directors discuss on the matters related to company.
Following are the types of member’s meeting:
A. Statutory Meeting.
B. Annual General Meeting.
C. Extra Ordinary General Meeting.
A. Statutory Meeting :
Statutory meeting is that the first meeting which company conducts afters its commencement. Conduction of statutory meeting is compulsory. Public Ltd. Is required to carry such meeting within a period not but one month and less than six months from the date of commencement. The directors of company also got to make statutory report. Every members also must be given a copy of report a minimum of 21 days before the date of the meeting and a replica is also to be sent to the Registrar for registration.
Section 165(3) provides that the Statutory Report must contain the following particulars:
(i) the total number of fully paid-up and partly paid-up shares allotted;
(ii) the total amount of cash received ;
(iii) the receipts, classifying them and also the expenses incurred for commission, also brokerage etc.
(iv) The names, addresses and also occupations of directors, auditors, managers and secretaries and also changes of the names, address etc.
(v) Particulars of contracts with proposed modifications presented at meeting for approval;
(vi) The arrears of calls;
(vii) Commissions and brokerages paid to directors and managers.
Every director or any other officer of the company who is in default shall be punishable with a fine which can reach Rs. 500.
B. Annual General Meeting (AGM)
Under Section 96 of the companies act, every company shall hold a general meeting as annual general meeting per annum . Except one person company. There shouldn't be a gap of quite fifteen months between two AGM.
Notice of AGM are often either in writing or also in electronic form. The member should get the notice a minimum of fore 21 clear days. . The notice should consist of place, day, date and therefore the proper hour of the meeting. It should also contain agenda of meeting. Every member of the company, legal representative of deceased and assignee of insolvent member, auditor and each director of the company should get notice. Section 101 of the companies act 2013, deals with the provision of Notice for the AGM.
C. Extra ordinary meeting (EGM)
Every meeting which isn't a AGM or statutory meeting meeting is EGM. An EGM is held for a few special business which may not be transacted at AGM. It's also held to transact some urgent business. This meeting could also be called by the directors or by the member’s according to Sec.169 of the companies Act, 1956.
• Meeting of Creditors: Meeting is when directors of company has any scheme for creditors. The Court may order a meeting of the creditors on the appliance of the company or of liquidator just in case of a company being wound-up.
• Meeting of Debenture Holders: Such meetings is held within the interest of debenture holder. The principles for appointment of Chairman, notice of the meeting, quorum etc. are there within the trust deed.
• Meeting of Creditors and Contributories: the most purpose is obtain consent of creditors and contributories to the scheme of rearrangement or compromise. It's to save the company from financial difficulties. Sometimes, the Court can also order to conduct meeting. The term “contributory” covers every one who is liable to contribute to the assets of the company when the company is being wound-up.
4. Meeting of the Board of Directors:
The Board of Directors controls the management of the company. Therefore, the directors are to meet frequently to decide both policy and also other related matters. It's conducted four times in a year.
Video Conferencing
Rule 3 of the companies (Meetings of Board and its Powers) Rules, 2014 defines Video conferencing or other audio-visual means. As per definition "Video conferencing or other audio-visual means audio-visual electronic communication facility employed which enables all the persons participating during a meeting to speak concurrently with each other without an intermediary and to participate effectively within the meeting.” Who can hold meeting through Video Conferencing (VC) under the Act? As per Section 173(2) of Companies Act, 2013 (the Act) read with Rule 3 of the companies (Meetings of Board and its Powers) Rules, 2014 (the Rules), every Company can hold a board meeting through video conferencing or other audio-visual means, which are capable of recording and recognizing the participation of the directors and of recording and storing the proceedings of such meetings along side date and time.
The complete process for conducting of board meeting through video conferencing is prescribed under Rule 3 of the companies (Meetings of Board and its Powers) Rules, 2014 read with Secretarial Standard - 1 (SS-1).
Matters to not be dealt with during a meeting through vc –
a) the approval of the annual financial statements;
b) the approval of the Board's report; the approval of the prospectus;
c) the Audit Committee Meetings for consideration of financial statement including consolidated budget if any, to be approved by the board under sub-section (1) of section 134 of the Act; and
d) the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.
Who can participate in meeting through video conferencing or other audio-visual
• Chairperson,
• Directors,
• Company Secretary;
• Any other person whose presence is required by the Board.
Legal Position of Directors
The Act doesn't define the position/status of directors, and it's difficult to define the exact legal position of the directors of a company.
Although, the administrators are referred as the trustees, or the managing partners of the company, but in real sense they're none of them. Directors could also be considered as the agent, trustees or managing partner for a specific moment and for the particular purpose.
Bowen, L.J. Observed, “Directors are described sometimes as managing partners. But each of these expressions is used not as exhaustive of their powers and responsibilities, but as indicating useful points of view from which they'll for the moment and for the particular purpose be considered.”
The legal position of directors can be better explained in the following manner:
1. Position of Directors as Trustees:
(i) Legally a director is not the trustee:
Legally speaking, a director isn't the trustee of the company. Within the case Smith vs. Anderson, James L.J. Observed, “A trustee is a man who is the owner of property and deals with it as principal, as owner and as master, subject only to an equitable obligation to account to some persons to whom he stands in relation of a trustee. The office of director is that of a paid servant of the company. A director never enters into a contract for himself, but he enters into a contract for his principal i.e., for the company of which he is a director or for whom he is acting.”
From this point of view, directors are not the trustees of the company, because they From this point of view, directors are not the trustees of the company, because they are not the legal owners of the properties of the company.
(ii) Directors as trustees of the company’s property and money:
Although the directors aren't , properly speaking, the trustees, yet they're trustees of the company’s money and property and that they are sure to affect capital under their control as a trust. They need to act in good faith and exercise their powers within the interest and benefit of the company.
(iii) Directors as trustees to the powers entrusted to them:
The directors are the trustees in respect of powers entrusted to them. They must exercise these powers bonafide and for the benefit of the company as a whole.
Examples of such powers are as follows:
(a) the power of employing the funds of the company;
(b) the power to declare dividend in the general meeting;
(c) the power to make call;
(d) the power of forfeiting shares;
(e) the power of receiving payment of call in advance;
(f) the power of approving the transfer of shares;
(g) the power of accepting the surrender of shares;
(h) the power of issuing the unissued shares of the company and making allotments thereof.
(iv)Directors not as trustees to the shareholders:
It should be noted that directors occupy a fiduciary relationship only in relation to the company and not in relation to an individual shareholder. They are not trustees for any particular shareholder.
In case of Percival vs Wright, “The Directors purchased shares from a shareholder when negotiations were being held by them for sale of the company at a very high price. They did not disclose this fact to the shareholder. It was held that the shareholder could not repudiate the contract on that ground.”
(v) Directors not as trustees to the outsiders: the directors aren't as trustees to other persons getting into any contract with the corporate . The position of directors as Trustee is often briefly stated as under:
(i) they're not trustees within the legal sense of the term.
(ii) They occupy a fiduciary position in reference to the company and that they are considered trustees with respect to the company’s property and money.
(iii) They're also trustees as regards powers entrusted to them. They need to exercise these powers bonafide within the interest of the corporate and that they are in charge of secret profits made by them, if any.
(iv) They're not trusted of individual shareholders.
2. Position of Directors as Agents:
The company being a man-made person cannot manage its affairs itself but the management of the company is entrusted to some human agency referred to as directors. They're the selected representatives of the shareholders. They run run the business on behalf of the shareholders and may be termed as the agent of the company.
In the case of Forguson vs. Wislon, Cairns L.J. Stated the position of the directors as, “They are merely agents of the company. The company itself cannot act in its own persons for it's no person, it can act ‘only through directors’ and therefore the case is, as regards those directors, merely the ordinary case of principal and agent, for whenever an agent is liable, those directors would be liable. Where the liability would attach to the principal and therefore the principal only, the liability is that the liability of the company.”
In Great Eastern Railway vs. Turner, it had been held that the directors are agents within the transaction which they enter into on behalf of the company.
The directors must act within the name of the company and within the scope of their authority. If the directors enter into a contract which is beyond their powers but within the powers of the company, the company, like all other principal, may ratify it.
Where the directors enter into a contract which is ultra virus the company, the company cannot ratify it and neither the company nor the directors are liable thereon . However the directors could also be held responsible for breach of implied warranty of authority.
It is ‘however’ not correct to mention that directors are the agents of the company because agents aren't elected but appointed and second thing that agents haven't any independent power while the administrators have independent powers on certain matters.
3. Position of Directors as Managing Partner:
Directors are described because the managing partners because, on the one hand, they're entrusted with management and control of the affairs of the company, and on the opposite hand, they're usually important shareholders of the company.
However, directors aren't partners within the ordinary partnership law sense in as much as the liability of a partner is unlimited whereas the liability of a director as a member is restricted to the worth of shares held by him (except within the case of unlimited companies). Further unlike a partner, director has no authority to bind the opposite directors and shareholders.
4. Position of Directors as Officers:
Under Sec. 2 (30) of the companies Act, the directors are the officers of the company. As officers, they'll by held liable if the provisions of the companies Act have not been fully complied with by them.
5. Position of Directors as Employees:
The directors could also be considered because the employees of the company also, because they work under a special contract of service with the company and are paid remuneration accordingly.
6. Position of Directors as Organs of the Company:
Directors have also been treated, in judicial decisions, organs of the company for whose action the company is to be held liable even as a natural person is responsible for the actions of his limbs.
In Bath vs. Standard Land Co., Neville J. Stated, “The board of directors are the brain and therefore the refore the only brain of the company which is that the body and the company can and does act only through them.”
Considering the above discussion, Gessel said: “Directors are described as trustees, agents or managing partners, not as exhausting their powers or responsibilities, but as indicating useful points of view.”
According to L.J. Bowen, “Directors are described sometimes as agents, sometimes as trustees and sometimes as managing partners but each of this expression is employed not as exhausting of their powers and irresponsibility’s, but as indicating useful points of view which they'll for the moment and for the actual purpose be considered.”
Thus, it's clear from the above discussion that directors are neither the agents, nor the trustees, nor managing partners, nor officers, nor employees of the company but they substitute a fiduciary position towards the company for the powers and company’s property under their control.
Voting
Restriction on voting rights
(1) Notwithstanding anything contained during this Act, the articles of a company may provide that no member shall exercise any voting right in respect of any shares registered in his name on which any calls or other sums presently payable by him haven't been paid, or in reference to which the company has exercised any right of lien.
(2) a corporation shall not, except on the grounds laid out in sub-section (1), prohibit any member from exercising his right on the other ground.
(3) On a poll taken at a gathering of a company, a member entitled to quite one vote, or his proxy, where allowed, or other person entitled to vote for him, because the case could also be , need not, if he votes, use all his votes or cast within the same way all the votes he uses.
Voting by show of hands
(1) At any general meeting, a resolution put to the vote of the meeting shall, unless a poll is demanded under section 109 or the voting is carried out electronically, be selected a show of hands.
(2) A declaration by the Chairman of the meeting of the passing of a resolution or otherwise by show of hands under sub-section (1) and an entry thereto effect within the books containing the minutes of the meeting of the company shall be conclusive evidence of the very fact of passing of such resolution resolution or otherwise.
Voting through electronic means
The Central Government may prescribe the class or classes of companies and manner during which a member may exercise his right to vote by the electronic means.
Demand for poll
(1) Before or on the declaration of the results of the voting on any resolution on show of hands, a poll could also be ordered to be taken by the Chairman of the meeting on his own motion, and shall be ordered to be taken by him on a demand made therein behalf,—
(a) within the case a company having a share capital, by the members present in person or by proxy,
Where allowed, and having not but one-tenth of the total voting power or holding shares on which an aggregate sum of not but five lakh rupees or such higher amount as could also be prescribed has been paid-up; and
(b) within the case of the other company, by any member or members present in person or by proxy, where allowed, and having not but one-tenth of the total voting power.
(2) The demand for a poll could also be withdrawn at any time by the persons who made the demand.
3) A poll demanded for adjournment of the meeting or appointment of Chairman of the meeting shall be taken forthwith.
(4) A poll demanded on any question other than adjournment of the meeting or appointment of Chairman shall be taken at such time, not being later than forty-eight hours from the time when the demand was made, as the Chairman of the meeting may direct.
(5) Where a poll is to be taken, the Chairman of the meeting shall appoint such number of persons, as he deems necessary, to scrutinize the poll process and votes given on the poll and to report thereon to him within the manner as could also be prescribed.
(6) Subject to the provisions of this section, the Chairman of the meeting shall have power to regulate the way during which the poll shall be taken.
(7) The results of the poll shall be deemed to be the decision of the meeting on the resolution on which the poll was taken.
Audit Committee
[177. (1) The Board of Directors of 5[every listed public company] and such other class or classes of companies, as may be prescribed, shall constitute an Audit Committee.
(2) The Audit Committee shall consist of a minimum of three directors 2[with independent directors forming a majority]:
Provided that majority of members of Audit Committee including its Chairperson shall be persons with ability to read and understand, the financial statement.
(3) Every Audit Committee of a company existing immediately before the commencement of this Act shall, within one year of such commencement, be reconstituted in accordance with sub-section (2).
(4) Every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board which shall, inter alia, include,—
[(i) the recommendation for appointment, remuneration and terms of appointment of auditors of the company;]
(ii) review and monitor the auditor’s independence and performance, and effectiveness of audit process;
(iii) examination of the financial statement and the auditors’ report thereon;
(iv) approval or any subsequent modification of transactions of the company with related parties;
[Provided that the Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the company subject to such conditions as may be prescribed;]
[Provided further that in case of transaction, other than transactions referred to in section 188, and where Audit Committee does not approve the transaction, it shall make its recommendations to the Board:
Provided also that in case any transaction involving any amount not exceeding one crore rupees is entered into by a director or officer of the company without obtaining the approval of the Audit Committee and it is not ratified by the Audit Committee within three months months from the date of the transaction, such transaction shall be voidable at the option of the Audit Committee and if the transaction is with the related party to any director or is authorised by any other director, the director concerned shall indemnify the company against any loss incurred by it:
Provided also that the provisions of this clause shall not apply to a transaction, other than a transaction referred to in section 188, between a holding company and its wholly owned subsidiary company.]
(v) scrutiny of inter-corporate loans and investments;
(vi) valuation of undertakings or assets of the company, wherever it is necessary;
(vii) evaluation of internal financial controls and risk management systems;
(viii) monitoring the end use of funds raised through public offers and related matters.
(5) The Audit Committee may call for the comments of the auditors about internal control systems, the scope of audit, including the observations of the auditors and review of financial statement before their submission to the Board and may also discuss any related issues with the internal and statutory auditors and the management of the company.
(6) The Audit Committee shall have authority to investigate into any matter in relation to the items specified in sub-section (4) or referred to it by the Board and for this purpose shall have power to obtain professional advice from external sources and have have full access to information contained in the records of the company.
(7) The auditors of a company and the key managerial personnel shall have a right to be heard in the meetings of the Audit Committee when it considers the auditor’s report but shall not have the right to vote.
(8) The Board’s report under sub-section (3) of section 134 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 therefore.
(9) Every listed company or such class or classes of companies, as may be prescribed, shall establish a vigil mechanism for directors and employees to report genuine concerns in such manner as may be prescribed.
(10) The vigil mechanism under sub-section (9) shall provide for adequate safeguards against victimisation of persons who use such mechanism and make provision for direct access to the chairperson of the Audit Committee in appropriate or exceptional cases:
Provided that the details of establishment establishment of such mechanism shall be disclosed by the company on its website, if any, and in the Board’s report.
(1) The Board of Directors of[every listed public company] and such other class or classes of companies, as may be prescribed shall constitute the Nomination and Remuneration Committee consisting of three or more non-executive directors out of which not less than one-half shall be independent directors:
Provided that the chairperson of the company (whether executive or non-executive) may be appointed as a member of the Nomination and Remuneration Committee but shall not chair such Committee.
(2) The Nomination and Remuneration Committee shall identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, recommend to the Board their appointment and removal and 5[shall specify the manner for effective evaluation of performance of Board, its committees and individual directors to be carried out either by the Board, by the Nomination and Remuneration Committee or by an independent external agency and review its implementation and compliance].
(3) The Nomination and Remuneration Committee shall formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees.
(4) The Nomination and Remuneration Committee shall, while formulating the policy under sub-section (3) ensure that—
(a) the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of the quality required to run the company successfully;
(b) relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and
(c) remuneration to directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goals.
(1) The Board of Directors of a company which consists of more than one thousand shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee consisting of a chairperson who shall be a non-executive director and such other members as may be decided by the Board.
(2) The Stakeholders Relationship Committe shall consider and resolve the grievances of security holders of the company.
(3) The chairperson of each of the committees constituted under this section or, in his absence, any other member of the committee authorised by him in this behalf shall attend the general meetings of the company.
(4) In case of any contravention of the provisions of section 177 and this section, the company shall be 8[liable to a penalty of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of one lakh rupees.]
CSR Committee:
Every Company on which CSR is applicable is required to constitute a CSR Committee of the Board:
• Consisting of three or more directors, out of which at least one director shall be an independent director. However, if a company isn't required to appoint an independent director, then it shall have in 2 or more directors within the Committee.
• Consisting of two directors just in case of a private company having only two directors on its Board
• Consisting of a minimum of 2 persons just in case of a foreign Company of which one person shall be its authorised person resident in India and another nominated by the foreign company.
References:
- ‘Company Law’ by Brenda Hannigan
- ‘Elements of Company’ Law by N. D. Kapoor
