Explaining the role of directors & their impact on company...

1. TECHNICAL SESSION I:
DIRECTORS
RESPONSIBILTY
BY MVSK RUTHVIK

2. TOPICS TO BE DISCUSSED
• INTRODUCTION
• BASIC TERMS
• BREIF DISCUSSION ABOUT THE DIRECTORS
• DIRECTORS REPORT
• DIRECTORS RESPONSIBILTY STATEMENT
• CONCLUSION

3. TOPICS TO BE DISCUSSED
• INTRODUCTION
• BASIC TERMS
• BREIF DISCUSSION ABOUT THE DIRECTORS
• DIRECTORS REPORT
• DIRECTORS RESPONSIBILTY STATEMENT
• CONCLUSION

4. INTRODUCTION
• Companies Act, 2013 is enacted to gradually replace the
old Act of 1956, with the objective to bring more
accountability and good corporate governance. The Act
appears to place a higher degree of responsibility on the
Board members for good corporate compliance.
• In the Act, the Section 160 to 170 speaks about
provisions related to director like appointment, role,
duties and removal of directors. In the context of the
Board of a company, the legislators have focused on the
role of independent directors and have codified the
duties of directors, which were missing in the old Act.

5. Continued…….
• Stipulation and clarification of the duties and
responsibilities of the directors of a company, especially
the public limited companies, are welcome and great
contribution in the Companies Act of 2013, for better
corporate governance and security. The Companies Act
of 1956, was disgustingly deficient in this respect.
• Before we Get into the topic lets discuss some basic
definitions so that we all are on the same path………

6. TOPICS TO BE DISCUSSED
• INTRODUCTION
• BASIC TERMS
• BREIF DISCUSSION ABOUT THE DIRECTORS
• DIRECTORS REPORT
• DIRECTORS RESPONSIBILTY STATEMENT
• CONCLUSION

7. BASIC TERMS
WHO IS A DIRECTOR????
• Section 2(34) of the Companies Act, 2013 defines a
director as – “director” means a director appointed to
the Board of a company.
• An appointed or elected member of the board of
directors of a company.
• He has the responsibility for determining and
implementing the company’s policy.
• Directors derive their powers emanating from board
resolutions
• Unlike shareholders, directors cannot participate
through proxy.

8. • A company director need not
to be a shareholder or
an employee, and
May hold only the office of director under the
provisions of the Act.
• Directors are regarded as being the Key Managerial
Persons of a company, with special importance to the
listed companies.
• They hold multiple positions in a company like
Managing director, Manager, Whole time director and
Independent Director.

9. DISQUALIFICATIONS FOR APPOINTMENT AS
DIRECTOR UNDER SECTION 164

10. DUTIES OF DIRECTORS UNDER THE
COMPANIES ACT 2013
• The following duties and liabilities have been imposed
on the directors of companies under Section 166: -
– A director of a company shall act in accordance with the
Articles of Association (AOA) of the company.
– He 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.
– He shall exercise his duties with due and reasonable care,
skill and diligence and shall exercise independent
judgment.
– He shall not involve in a situation in which he may have a
direct or indirect interest that conflicts, or possibly may

11. • He 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.
• 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 Lac Rupees.

12. INDEPENDENT DIRECTOR
• An Independent Director is that member of the board of
a company, who does not possess any financial
relationship with the company (except the sitting
fees), nor can own shares in the company.
• The Companies Act 2013 dictates that every listed
company must contain at least one-third of the total
directors, as the independent directors and it also
empowers the Government of India to include other
categories of companies within the scope of this
provision or requirement (Section 149 of the CA-2013).

13. Continued…..
• Public limited companies composited as per the former
CA-1956, are granted a transition period of one year for
making strict compliance with this mandatory provision.
Again, the independent directors are not permitted to
hold office for more than two consecutive terms of five-
year periods.

14. LEGAL POSTION OF DIRECTOR

15. PERSONAL LIABILITY OF DIRECTORS
• Directors can be made personally liable
– When the directors enter into contract in their own
name.
– When they enter into contracts on behalf of company
but fails to use “LTD. Or PVT LTD.”
– When directors exceeds their powers.
– The BOD should act an agent of company, not of a
single director. Therefore a single director cannot
enter into a contract on behalf of company unless the
BOD authorizes.

16. Sections which cover Personal Liability
of Directors
Section 35 – Civil Liability for Mis-statement in
prospectus
• If it is proved that a prospectus has been issued with
intent to defraud the applicants for the securities of a
company or for any fraudulent purpose, every person
concerned shall be personally responsible, without
any limitation of liability.
Section 75 – Damages for Fraud
• Where a company fails to repay the deposit or part of
them along with the interest and if it proved that the
deposits had been accepted with intent to defraud the

17. Section 339 – Liability for fraudulent conduct of
business
• If in the course of the winding up of a company, it
appears that any business of the company has been
carried on with intent to defraud creditors of the
company or any other persons or for any fraudulent
purpose, every person concerned shall be personally
responsible, without any limitation of liability.

18. TOPICS TO BE DISCUSSED
• INTRODUCTION
• BASIC TERMS
• BREIF DISCUSSION ABOUT THE DIRECTORS
• DIRECTORS REPORT
• DIRECTORS RESPONSIBILTY STATEMENT
• CONCLUSION

19. DIRECTORS REPORT
• The Directors Report is the part of Annual Report in
which the details of Company has been mentioned.
There is no restriction to put any matter in the Directors
Report if the Directors have intention to mention there
apart from legal provisions.
• Generally various companies put a lot of matters, issues
and publications which are not mandatory for putting in
the Directors Report but if directors do, they may.

20. Section No’s DESCRIPTION
SECTION
67
RESTRICTIONS ON PURCHASE BY COMPANY OR
GIVING OF LOANS BY IT FOR PURCHASE OF ITS
SHARES.
SECTION
92
ANNUAL RETURN
SECTION
131
VOLUNTARY REVISION OF FINANCIAL STATEMENT OR
BOARD REPORT
SECTION
149
COMPANIES TO HAVE BOARD OF DIRECTORS
SECTION
177
AUDIT COMMITTEE
SECTION
188
RELATED PARTY TRANSACTIONS
SECTION
197
REMUNERATION RELATED
SECTION
204
SECRETARIAL AUDIT FOR BIGGER COMPANIES

21. SECTION 67 -RESTRICTIONS ON PURCHASE BY
COMPANY
• The disclosers in the Board Report shall be required in
case of the voting rights not exercised directly by the
employees in respect of shares to which the any scheme
relates. The manner of reporting in the Board Reports
shall be prescribed.
• If the company or its officer shall not disclose the matter
in the Board Report or violate the provisions of this
section, they shall be penalized a sum of Rs. 5 lacs which
is extended up to 25 lacs along with imprisonment for a
term which is extended to three years.

22. SECTION 92 ANNUAL RETURN
• For every company, it is mandatory to prepare Annual
Return for the previous financial years as per detailed in
the Section 92 of the Act.
• Under subsection (3) of this Section, it is also
mandatory to enclose the extract of the Annual Return
with Director Report. The extract of the Annual Return
shall be prescribed and it is the part of Director Report.

23. SECTION 131 VOLUNTARY REVISION OF
FINANCIAL STATEMENT OR BOARD REPORT
• Financial statement of the company or report of director
shall be revised for period at least preceding three
years, in any case, with the permission of Tribunal. In
this connection, the revision shall be disclosed in the
director report for the current year also.
• The section specially force that the Director Report must
disclose the composition of Corporate Social
Responsibility Committee.

24. SECTION 149 COMPANIES TO HAVE BOARD
OF DIRECTORS
• Independent Director shall be appointed for a term of 5
years but they shall be re-appointed by passing of
Special Resolution. In this regard, the company must
disclose the appointment or re-appointment of
Independent Director in the Board Report.

25. SECTION 177 AUDIT COMMITTEE
• The Board of Directors report shall disclose the
composition of an Audit Committee. In case of the board
has not accepted any recommendation of audit
committee, the same shall also disclose in the Board
Report with reason.
• Apart from above, every listed company or prescribed
companies shall establish a vigil mechanism for
directors and employs to report genius concern in such
matter as may be prescribed.
• Such mechanism shall be disclosed by the company on
its website, if any, and in the directors report.

26. SECTION 188 RELATED PARTY
TRANSACTIONS
• The directors Report shall also include the related party
transaction. Whatever transaction which is mentioned
under this section, if the company transact, the
disclosure shall be mandatory in the Director Reports
along with the justification about each transactions. So
that shareholder of the Company may be aware such
transactions.

27. SECTION 197 REMUNERATION RELATED
• Every listed company shall disclose in the Board’s
report, the ratio of the remuneration of each director to
the median employee’s remuneration and such other
details as may be prescribed.
• Apart from above, if any director who is managing
director or whole time director of the company receive
any commission from company, in that case, such
director shall not be disqualified to take commission or
remuneration from holding or subsidiary of its company.
• In that case the disclosure in the Board Report shall also
be mandatory.

28. SECTION 204 SECRETARIAL AUDIT FOR
BIGGER COMPANIES
• The Board of Directors shall be contained any
qualification or observation or other remarks made by
the company secretary in practice in his secretarial
report.

29. TOPICS TO BE DISCUSSED
• INTRODUCTION
• BASIC TERMS
• BREIF DISCUSSION ABOUT THE DIRECTORS
• DIRECTORS REPORT
• DIRECTORS RESPONSIBILTY STATEMENT
• CONCLUSION

30. DIRECTORS RESPONSIBILITY STATEMENT
• Sub section (5) of section 134 of the companies’ act
2013 provides the provision/contents of the director
responsibility statement have to be included in the
board report of the company.
• The scope of the responsibilities of the directors of a
company be it private or public have been expanded to
include also in its preview the areas mentioned in for
director responsibility statement ultimately aiming at
safeguarding the interest of the shareholders.

31. The Directors' Responsibility Statement states
the following:
1. In the preparation of the annual accounts, the
applicable accounting standards had been followed
along with proper explanation relating to material
departures.
2. The directors have selected such accounting policies
and applied them consistently and made judgments
and estimates that are reasonable and prudent so as to
give a true and fair view of the state of affairs of the
company at the end of the financial year and of the
profit and loss of the company for that period.
3. The directors had prepared the annual accounts on a
going concern basis.

32. Continued…….
4. The directors had taken proper and sufficient care for
the maintenance of adequate accounting records in
accordance with the provisions of this Act for
safeguarding the assets of the company and for
preventing and detecting fraud and other irregularities.
5. The directors, in the case of a listed company, had laid
down internal financial controls to be followed by the
company and that such internal financial controls are
adequate and were operating effectively.
6. The directors had devised proper systems to ensure
compliance with the provisions of all applicable laws
and that such systems were adequate and operating
effectively.

33. CONCLUSION
• Thus, the new Indian Companies Act of 2013 is certainly
a very innovative and landmark legislation in respect of
the duties and responsibilities of the directors (of
companies) also.
• Both broad categories of directors, namely, the directors
having pecuniary relationship with the company, and
the independent directors, have been properly
considered under this mature legislation for directors.
• It is quite obvious now that the CA-2013 sincerely seeks
to make the corporate management and governance in

34. efficient, fully accountable, transparent, and maximally
beneficial to all stakeholders and related professionals,
through this intelligent legislation over duties and
responsibilities of directors in Indian companies.

35. ENOUGH OF LECTURE
LETS HAVE SOME HUMOUR

36. • Banner in front of the Institute of Chartered
Accountants of India …. “Drive slowly, don’t kill our
students….. leave them to us……”
• Are you-
– Emotionally Numb?
– Romantically Starved?
– Creatively Challenged?
– Artistically Void?
– Socially Outcast?
– Congratulations You are a CA Student!!!!!!!!!!!!

37. • AUDITOR
– A-accounting and others
– U-underlying
– D-data and
– I-information
– T-to give an
– O-opinion in
– R-the audit report

38. Irritating audits, Fighting on stupid issues,
Everyday classes, unknown Office Hours
More expenditure, Less stipend,
People call it ARTICLESHIP, We call it LIFE
Nevertheless ………………………………… We
got to be Proud of something……………….

39. • 5 Years
• 50 Laws
• 500 Lectures
• 5,000 Hours of Office Work
• 50,000 Sections
• 5,00,000 Rules
A normal human being can’t bear it.
The remaining are called
CHARTERED ACCOUNTANTS…………………..