Directors' Position, Powers and Duties under Companies Act 2013

Saurabh Agarwal (SPM- PDPU)’16
SCHOOL OF PETROLEUM MANAGEMENT
GANDHINAGAR
Assignment on :
LEGAL ASPECTS OF BUSINESS
Topic:
As a Company Secretary of a newly started Petroleum Refinery advice
the Management about the Position, Powers and Duties of Directors
under the Companies Act, 2013
Submitted to:
Prof. D.G.Shukla
Submitted By:
Saurabh Agarwal
MBA in Energy & Infrastructure Management
School of Petroleum Management
Roll No- 20161048

INDEX
1. Introduction
2. Director & Board in Companies Act
3. Independent Directors
4. Appointment of Directors
5. Position of Directors in a Company
6. Duties of Director
7. Liability of Directors
8. Powers of the Board of Directors

1. Introduction:
The Companies Act 2013 has ensured this balance of Power vis-à-vis responsibilities are
maintained to benefit most to the Shareholders and ensure corporate governance to the maximum
extent possible. It utilizes both regulatory measures as well as penal measures including stringent
judicial measures to ensure the regulations are properly followed and to avoid any mishap in
corporate governance and to maintain the legal sanctity of the organization.
2. Director & Board in Companies Act:
The term ―director‖ in Companies Act 2013 under Section 2 (34) is defined as ―a director
appointed to the Board of a company‖., wherein ―Board of Directors‖ or ―Board‖, in relation to
a company, means the collective body of the directors of the company. As per Chapter XI,
Section 149 of the Companies Act 2013, it is mandatory for every company to have a Board of
Directors, the composition should be as follows:
1. Public Company: Minimum 3 and maximum 15 nos. of Directors; at least 1/3 rd
number of Independent Directors
2. Private Company: Minimum 2 and maximum 15 nos. of Directors
3. One person Company: minimum 1 director
4. At least 1 woman director
5. At least 1 Director who has stayed in India for minimum 182 days in the previous
calendar year.
The Companies Act 2013 gives recognition to the idea of Independent Director, which was
earlier part of the listing agreement only. It means a director other than a whole time director or
the Managing Director or a nominee director who fulfills the criteria’s mentioned in Section 149.
As per section 266A and 266B of the Companies Act, 1956 Director Identification Number
(DIN) is a unique identification number issued to existing and/or potential directors of any
incorporated company. As per Companies Act provisions every director shall be appointed by
the company in general meeting, provided they have been allotted the Director Identification

Number (DIN) and on submission of a declaration that he/she is not disqualified to become a
director.
An additional director is appointed by the Board of Directors through the Boards vested power to
hold office till next general meeting. An alternate director may be appointed by the Board of
Directors to act as a Director in absence for a period of not less than 3 months and not more than
the allotted period for the director for whom the replacement is.
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 any government regulation or shareholdings,
such directors are known as Nominated Directors.
As per Principle of Proportional representation the articles of a company may provide for the
appointment of not less than two-thirds of the total number of the directors of a company, and
such appointments may be made once in every three years and casual vacancies of such directors
shall be filled as provided in sub-section (4) of section 161.
People of unsound mind, undischarged insolvent, convicted by a court of any offence and either /
or imprisoned for a period of 7 years or more, convicted of the offence dealing with related party
transactions under section 188.
 It is also provided that atleast one of the directors shall be a person who has stayed in
India for 182 days or more in the previous calendar year.
 The Rule also provides that in every other public company where paid up Share Capital is
Rs.100 cr. or more or turnover is Rs.300 cr. or more, a Woman Director shall be
appointed within 3 years from the date on which this section comes into force.
The concept of ―one person company ― (OPC) is now introduced in the new Act. This term is
defined in Section 2 (62) to mean a company which has only one person as a Member. In such a
company the minimum number of directors can be only one person who is a resident in India.

3. Independent Directors:
Section 149 recognizes the concept of an ―Independent Director‖. This term is defined to mean a
person –
 person of integrity and possesses relevant expertise and experience.
 possess such other qualifications as may be prescribed.
 not related to promoters or directors of the company or any of its group companies.
 has or had no pecuniary relationship with any of the above persons/companies during the
current or two immediately preceding financial years.
 None of his relatives has or had pecuniary relationship or transaction with the above
persons amounting to 2% or more of its gross turnover or total income or Rs.50 lacs (or
such higher amount which is prescribed) – which ever is lower during the current or two
preceding financial years.
Every listed Company will be required to have at least 1/3rd of the total number of directors as
Independent Directors. The Government may prescribe the minimum number of independent
directors in any class or classes of public Companies.
Draft Rule 11.2 provides that a public company having paid-up capital of Rs.100 crore more, or
having turnover of Rs.300 cr. or more or having aggregate outstanding Loans, Borrowings,
Debentures, or Deposits exceeding Rs.200 cr. shall also have 1/3rd of the total number of
directors as Independent Directors.
An Independent Director can, subject of provisions of section 152, hold office for a term of 5
consecutive years. He can be appointed as such for a further term, not exceeding 5 years, if the

members pass a special resolution and disclosure of such appointment is made in the Board
Report. After the expiry of 10 years period he cannot be reappointed as an Independent Director.
Section 149 (12) provides that (i) an Independent Director and (ii) a non executive Director
(other than a promoter or key management personnel) shall be held liable only in respect of such
acts of omission or commission by a company which had occurred with his knowledge,
attributable by the Board process.
4. Appointment of Directors:
Provisions relating to appointment of Directors are contained in Sections 151 to 172 of the new
Act. These provisions are more or less on the same lines as provisions of sections 254 to 267,
274, 275, 283, 284, 303, 307 and 313 of the existing Act. It may be noted that some of the
Sections out of 151 to 172 are also applicable to Private Companies. Briefly stated these
provisions are as under.
 Every director will be appointed by the company at the General Meeting.
 The person to be appointed as a director has to give his consent in the prescribed form
which is to be filed by the company with ROC within 30 days.
 Atleast 2/3rd of the directors on the Board of a public company shall be such that they are
liable to retire by rotation. At every AGM 1/3rd of such directors shall retire by rotation.
 A person other than a retiring director shall be eligible to contest election for directorship
of a public company if a shareholder proposes his name for such position and deposits
Rs.1 Lac or such higher amount as may be prescribed with the company. This amount

will be refunded by the company if such person is elected as director or he gets atleast
25% of votes at the AGM.
 A nominee of any Institution or any State/Central Government can be appointed as a
director. He will be called a ―Nominee Director.‖
 Any person holding directorship in more than the number specified U/s. 165 has to
regularize the position in one year after the commencement of the new Act.
5. Position of Directors in a Company:
A director is not a servant of any master. He is the controller of the company’s affairs. Director
of a company is neither an employee nor a servant to the company. They are professional people
who were hired by the company to direct its affairs. However there is no restriction under the
Act, that a director cannot be an employee to the company.
1. Directors as Agents : A company as an artificial person, acts through directors who
are elected representatives of the shareholders and who execute decision making for the benefit
of shareholders.
Like agents, directors have to disclose their personal interest, if any, in any transaction of the
company. In Ray Cylinders & Containers v. Hindustan General Industries Ltd9, held that, the
directors are the agents of the institution and not of its individual members, except when that
relationship arises due to the special facts of the case. Also granted permission to file a suit
against a company was not allowed to be treated as permission against directors as well.

Directors are the agents of a company. They are acting on behalf of the company. So the
directors cannot be held personally liable for any default of the company. It was held that, for a
loan taken by a company, the directors, who had not given any personal guarantee to the creditor,
could not be made liable merely because they were directors.
2. Directors as Employees: When the director is appointed as whole time employee of the
company then that particular directors shall be considered as employee director or whole time
director.
`
3. Directors as officers: Director treated as officers of a company. They are liable to certain
penalties if the provisions of the companies act are not strictly complied with.
4. Director as Key Managerial Personnel: ―Key managerial personnel‖, in relation to a
company, means—
 the Chief Executive Officer or the managing director or the manager;
 the company secretary;
 the whole-time director;
 the Chief Financial Officer; and
 such other officer as may be prescribed;
5. Director as Trustees: Directors are the trusties of the company’s money, property and
their powers and such must account for all the moneys over which they exercise control and shall
refund any moneys improperly paid away, and shall exercise their powers honestly in the interest
of the company and all the shareholders, and not their own sectional interest.

Directors are those persons selected to manage the affairs of the company for the benefit of
shareholders. It is an office of trust, which if they undertake, it is their duty to perform fully and
entirely. This peculiar nature of their office is one of the reason why the directors been described
as trusties.
To whom the directors are trustee? This principle was laid down in 1902 in Percival v. Wright13,
and still holds ground as a basic proposition. In this case the court held that, directors have no
duty towards individual shareholders. From this it is very clear that, the directors are trustees to
the company and not of individual shareholders.
6. Duties of Director:
The Duties of the Directors has been ensemble under Section 166 of the 2013 Act and applies to
all types of Directors including Independent Directors. The Duties and Responsibilities can be
broadly classified into two categories:
1. 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 decision making to avoid unnecessary
risks to the corporate entity and its shareholders.
2. Keeping the interests of company and its stakeholders ahead of personal interests:
Now let us delve into the section 166 of the 2013 act that stipulates the duties of the directors as
follows:
 A director must act in accordance with the Articles of Association of the company

 A director must pursue the best interests of the stake holders of the company, in good
faith and to promote the objects of the company.
 A director shall use independent judgement to exercise his duties with due and reasonable
care, skill and diligence.
 A director should always be aware of conflict of interest situations and should try and
avoid such conflicts for the interest of the company.
 Before approving related party transactions the Director must ensure that adequate
deliberations are held and such transactions are in interest of the company.
 To ensure vigil mechanism of the company and the users are not prejudicially affected on
account of such use.
 Confidentiality of sensitive proprietary information, commercial secrets, technologies,
unpublished price to be maintained and should not be disclosed unless approved by the
board or required by law.
 A Director of a Company shall not assign his office and any assignment so made shall be
void.
 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.
To ensure independence and equitableness of the Board, the Companies Act 2013 also casts
various responsibilities on the Independent Directors. An Independent Director is a member of
the Board of Directors, but doesn’t owns any share of the company nor does have any financial
relationship with the company other the sitting fees it receives. As per Schedule IV of the
Companies Act 2013
 Protecting and promoting interests of all and specially for Minority Stakeholders
 Acting as a mediator in case of Conflict of Interest amongst the stakeholders
 Assistance in forwarding independent and equitable judgement to the Board of Directors
 Adequate attention towards related party transactions

 Honest and impartial reporting of any unethical behavior, violation of code of conduct or
any suspected fraud in the company.
7. Liability of Directors:
The Liability of the Directors can be both joint or collective for any and every act prejudicial to
the interests of the company. Though the Director and the Company are separate entities, under
the following cases the Director may be held liable on behalf of the Company:
 Tax Liability: Unless a Director or any Past Director can prove that the non-recovery or
non-payment of Taxes are attributable as gross neglect or breach of duty, then any
present or past Director (pertaining to the time period of defaulter) will be liable to pay
the shortfall in tax amount and any penalty associated.
 Refunding of share application or excess in share application money
 To pay for qualification shares
 Civil Liability in case of misstatement in Prospectus
 Fraudulent Business Conduct and all associated debts and contracts executed
 Failure in making disclosures as stipulated SEBI (Acquisition of Shares & Takeovers)
Regulations, 1997 and SEBI (Prohibition of Insider Trading) Regulations, 1992 by the
directors may attract legal proceedings by SEBI
Directors and the company would also be liable if the conduct of the majority of the shareholders
constitutes a ―fraud on minority‖, i.e., a discriminatory action. To safeguard the interests of the
company, any member or members may bring a derivative action.

The Liability of any or all the Directors of a limited company can be unlimited if so specified in
the Memorandum or approved through a Special resolution authorized by Articles of association.
Any and all provisions provided in Article of Association to indemnify directors against default,
negligence, breach of duty or trust is void as per Companies Act. However in case innocence of
the director is proven such indemnity can be enforced. Hence this is a very important clause for
Directors and one should always be aware of and try to utilize this to the maximum benefit
possible.
8. Powers of the Board of Directors:
The Board of Directors of a company shall be entitled to exercise all powers, and to do all acts
and things, as the company is authorised to exercise and do. The Board shall be subject to
restrictions imposed under this Act or in Memorandum or Articles or any regulation of the
Company. The Board shall not exercise any power which is required to be exercised by the
company in general meeting.
No regulation made by the company in general meeting shall invalidate any act of the Board
done prior to these regulations come into existence and effect.
Powers to be exercise in Board Meeting (Section 179, Sub – Section 3):
The Board shall exercise following powers only by means of resolution passed in its meeting:
(a) to make calls on shareholders in respect of money unpaid on their shares;
(b) to authorise buy-back of securities under section 68;
(c) to issue securities, including debentures, whether in or outside India;

(d) to borrow monies;
(e) to invest the funds of the company;
(f) to grant loans or give guarantee or provide security in respect of loans;
(g) to approve financial statement and the Board’s report;
(h) to diversify the business of the company;
(i) to approve amalgamation, merger or reconstruction;
(j) to take over a company or acquire a controlling or substantial stake in another company;
(k) any other matter which may be prescribed.
The Board may, by a resolution passed at a meeting, delegate to any committee of directors, the
managing director, the manager or any other principal officer of the company or in the case of a
branch office of the company, the principal officer of the branch office, the powers specified in
clauses (d) to (f) on such conditions as it may specify.
Clause (d) which deals with power to borrow money needs many explanations. Nothing in this
clause (d) shall apply to borrowings by a banking company from other banking companies or
from the Reserve Bank of India, the State Bank of India or any other banks established by or
under any Act. In respect of dealings between a company and its bankers, the exercise by the
company of the power specified in clause (d) shall mean the arrangement made by the company
with its bankers for the borrowing of money by way of overdraft or cash credit or otherwise and
not the actual day-to-day operation on overdraft, cash credit or other accounts by means of which
the arrangement so made is actually availed of.

Company to restrict power of Board (Section 179, Sub – Section 4):
The company in general meeting has power to impose restrictions and conditions on the exercise
by the Board of any of the powers specified in this section.
Restrictions on Power of Board (Section 180):
The Board of Directors may exercise particular powers only with the consent of the company
given by way of special resolution passed in general meeting of the company.
These are:
(a) To sell, lease or otherwise dispose of the undertaking;
(b) To invest otherwise in trust securities the amount of compensation received by it as a result
of any merger or amalgamation;
(c) To borrow money; and
(d) To remit, or give time for the repayment of, any debt due from a director.
New sections 181 to 183 provide for contribution which the Board of any Public or Private
Company can make subject to certain restrictions, to following institutions. These sections are
similar to section 293(1) (e), 293A and 293B of the existing Act. These Sections have come into
force on 12.9.2013.
 Contributions to bona fide charitable and other funds: Prior permission of the
company in General Meeting will be required if such 16 amount exceeds 5% of average net
profits for the preceding 3 financial years.

 Contributions to recognised Political Parties: Such contribution cannot be made by a
Government Company or by a company which is in existence for less than 3 financial years.
Such contribution cannot exceed 7.5% of the average net profits of proceeding 3 financial years.
It may be noted that U/s.293A of the existing Act the limit is 5% of such average net profits of 3
earlier years. The other procedural provisions explaining how to determine direct and indirect
contributions, disclosure in the financial statement etc.are on the same lines as in section 293A of
the existing Act. In the event of contravention of this section, the company will be punishable
with a fine which may extend to 5 times the amount wrongly contributed. Further, every officer
in default will be punishable with imprisonment for a term which may extend to 6 months and
with a fine which may extend to 5 times the amount wrongly contributed.
 Contribution to National Defense Fund or any other fund approved by the Central
government for the purpose of national defense. The company has to disclose details of such
contribution in its profit & loss account.
Reference:
 https://blog.ipleaders.in/directors-duties/
 https://taxguru.in/company-law/roles-responsibilities-directors-companies-act-
2013.html
 http://www.caa-ahm.org/Pdf/Legal/Legal-155.pdf
 https://aishmghrana.me/2013/05/31/power-of-board-under-companies-
act-2013/

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