Role, duties, responsibilities, liabilities of directors and board of directors under the provisions of companies Act 2013

1. DIRECTORS
Role, Responsibility, Duties & Liabilities
THE COMPANIES ACT 2013

2. ROLE
 A Director is an appointed or elected
member of the Board.
 He should Determine and implement the
Company’s Policies.
 Derives his/ her powers emanating from
Board resolutions.
 Cannot absolve himself of his
responsibilities for the delegated duties.
 Responsible for the superintendence,
control and direction of the affairs of the
company.

3. ROLE
 To act as agent of the company.
 To exercise power in good faith and
honesty.
 To ensure due compliance with the
provisions of all laws governing the
corporate sector.
 To avoid direct/ indirect personal
involvement in any transaction of the
company.
 Not to make any secret profit in
derogation of his fiduciary position towards
the company.

4. Management Responsibilities
Framework
Encompassing
by Directors
Formulation and
Documentation
of Systems,
Processes &
Controls
Continuous
Evaluation of
Systems,
Processes &
Controls
Continuous
Improvement of
Systems,
Processes &
Controls

5. The Directors responsibility statement under section 134(5) provides for
stating the following :
 Adherence with the accounting standards in preparation of
accounts,
 Selection and application of accounting policies that are reasonable.
 Care and maintenance of adequate accounting records and
safeguarding the assets and preventing/ detecting fraud and other
irregularities
 Preparation of annual accounts on going concern basis
 “internal financial controls” for listed companies and
 compliance of “all applicable laws”

6. The Board report, as per section 134 (3)(n), should contain a
statement indicating development and implementation of a RISK
MANAGEMENT POLICY of the company where the elements of
risks are identified which may threaten the existence of the
company.

7. Accounting Requirements
Adhere with
the accounting
standards in
preparation of
annual
accounts
Selection and
application of
accounting policies
and making
judgments/
estimations that are
reasonable to give
the true and fair
view of the affairs
of the company
Preparation of
annual
accounts on
going concern
basis
Proper and
sufficient care and
maintenance of
adequate
accounting records,
safeguarding the
assets and
preventing/
detecting fraud and
other irregularities
in the company

8. Compliances of All Laws
THE DIRECTORS NEED TO
ENSURE THAT THERE BE A
SYSTEM IN THE COMPANY
TO ENSURE THAT ALL THE
LAWS THAT ARE
APPLICABLE TO THE
COMPANY ARE COMPLIED
WITH IN ALL RESPECT.

9. Internal Financial Control
FORMULATION AND REVIEW
OF AN EFFECTIVE INTERNAL
FINANCIAL CONTROL
SYSTEM OF THE COMPANY
IS THE RESPONSIBILITY OF
THE DIRECTORS COMPANY.
As per section 143 (3)(i) the auditors of the company have to in the Audit report comment on the
adequacy of internal financial control system and operating effectiveness of the controls. Thus the
directors of the company will have to formulate an INTERNAL FINANCIAL CONTROL system.

10. Risk Management System
A RISK MANAGEMENT
SYSTEM SHOULD BE
FORMULATED BY THE
DIRECTORS IN ORDER TO
IDENTIFY THE RISKS THAT
THE COMPANY FACES AND
SHALL BE MINIMIZED TO
THE MAXIMUM EXTENT
POSSIBLE.

12. DUTIES
The companies
act 2013 has
prescribed the
duties that
every director
needs to
perform on day
to day basis to
ensure healthy
working of the
Company.
 In view of the fiduciary position held by
directors, explicit provisions prescribing
directors duties have been added to the
new Act.
 These amendments, though not
substantial, have tried to shift the onus
of the loss/ liability suffered by the
company on the director due to their
lack of discipline by increasing the
penalty and clearly codifying the role and
duties.

13. A director should act in accordance with the AOA of the company.
A director should act in good faith in order to promote the objects of
the company for the benefit of the members as a whole and in the best
interest of the company, employees, shareholders, the community and
for the protection of the environment.
A director to exercise his duties with due and reasonable care,
skill and diligence and shall exercise independent judgment. He
should not assign his office and any assignment.
A director not to get involved in a situation where he may have direct/
indirect interest that conflicts/ may conflict with the interest of
the company.
A director not to achieve or attempt to achieve any undue gain/
advantage either to himself/ to his relative/ partners/ associates. If
found guilty he shall be liable to pay the amount equal to the gain to
the company.
DUTIES

14. PENALTY
The companies
act 2013 has
prescribed the
duties that
every director
needs to
perform on day
to day basis to
ensure healthy
working of the
Company.
Any Director who contravenes the provisions of
section 166 and does not diligently perform his
duties will be punishable with a fine not less than
1 lakh rupees , which may extend to 5 Lakh
rupees.

15. Disqualifications of directors:
 Person is of unsound mind,
 Undischarged insolvent,
 Disqualified by order of tribunal/ court,
 Non payment of calls in respect of shares of the company
held by him,
 Person has been convicted for offence dealing with
related party transactions anytime during the previous 5
years.

16.  Person has not obtained DIN
 Person has been convicted for any offence and has been
sentenced for an imprisonment extending to 7 years or
more.
 Person who is a director of a company which :
has not filed financial statements/ Annual Return for a
continuous period of 3 F.Y.
Has failed to repay the deposits accepted by it or
interest thereon or redeem debentures or pay dividend
declared for 1 year or more.

17. Automatic Vacation of office :
 If he incurs any disqualification of section 164.
 If he fails to attend all board meetings for a consecutive period of 12
months.
 Contravention of section 184 Relating to entering into contracts in which
he is interested.
 Failure to disclose interest in any contract/ arrangement, section 184.
 Disqualified by order of tribunal/ court.
 Imprisonment not less than 6 months for moral turpitude or otherwise.
 If he has been appointed a director by virtue of his holding office/
employment in the holding/ subsidiary/ associate company and such
employment in that company ceases.

18. Di rectors should disclose to the company informat ion
regarding:
 Di rectorships in al l other compani es whether in India or
abroad ( cur rent & l ast 3 years)
 Shareholding/ int erest / concern in al l ent i t ies whether in
india or abroad
 Det ai l s of Rel at i ves
 Di sclosure regarding resident i al st atus of the di rector

19. Liability of di rectors
extends to di rectors as:
 Cr iminal l iabi l i ty
 “Of f icer ”
 “Of f icer in defaul t ”
 Civi l l iabi l i ty, and,
 For f raud

20. Liability as an “OFFICER”
Director as an “Officer”
“Officer” includes:
 any director,
 manager or
 key managerial personnel or
 any person
in accordance with whose directions or instructions the Board of
Directors or any one or more of the directors is or are accustomed to
act.

21. Liability as an “OFFICER”
Liabilities as an “officer” on contravention of the provisions of the
following sections:
1. Section 66 - Reduction of Capital
2. Section 105 - Appointment of Proxies
3. Section 207 - Conduct of Inspection and Enquiry
4. Section 204 - Secretarial Audit
5. Section 274 - Directions for filing statement of Affairs – Winding Up by
Tribunal
6. Section 212 - Inspection by SFIO
7. Section 173 - Meetings of Board
In case of default of compliances with regard to
calling of a General Meeting of the Company

22. Liability as an “OFFICER in Default”
“Officer in Default”
An officer of the company who is in default shall be liable to any penalty or
punishment by way of imprisonment, fine or otherwise, means any of the
following officers of a company, namely:—
(i) whole-time director;
(ii) key managerial personnel;
(iii) where there is no key managerial personnel, such director or
directors as specified by the Board in this behalf and who has or have
given his or their consent in writing to the Board to such specification,
or all the directors, if no director is so specified;

23. Liability as an “OFFICER in Default”
(iv) any person who, under the immediate authority of the Board or any key
managerial personnel, is charged with any responsibility including maintenance,
filing or distribution of accounts or records, authorises, actively participates in,
knowingly permits, or knowingly fails to take active steps to prevent, any default;
(v) any person in accordance with whose advice, directions or instructions the
Board of Directors of the company is accustomed to act, other than a person who
gives advice to the Board in a professional capacity;
(vi) every director, in respect of a contravention of any of the provisions of this
Act, who is aware of such contravention by virtue of the receipt by him of any
proceedings of the Board or participation in such proceedings without objecting to
the same, or where such contravention had taken place with his consent or
connivance;
(vii) in respect of the issue or transfer of any shares of a company, the share
transfer agents, registrars and merchant bankers to the issue or transfer

24. Liability as an “OFFICER in Default”
 Directors are liable as officers in default under all sections
where specific penalty is provided for each officer in
default.
 Where no specific penalty is provided under the Act, they
are liable under Section 450 “punishment where no specific
penalty or punishment is provided”.

25. CIVIL Liabi l ity
Section 75
Damages for
Fraud
(DEPOSITS)
Section 245
Class Action Suits
Section 339
Liability for
fraudulent
conduct of
business
Section 35
Civil Liability for
mis-statement in
prospectus
CIVIL Liability under the following sections:

26. CLASS ACTION SUITS
A class action suit may be filed against the following authorities by the
requisite number of members/ depositors :
A company Directors
An auditor including audit firm of a company for any improper or
misleading statement of particulars made in the audit report or for
any unlawful or fraudulent conduct.
Expert or advisor or consultant for an incorrect or misleading
statement made to the company.
for any fraudulent, unlawful
or wrongful act or omission

27. Liability for “FRAUD”
“Fraud” in relation to affairs of a company or any body corporate, includes:
 any act,
 omission,
 concealment of any fact or
 abuse of position committed by any person or any other person with
the connivance in any manner, with intent
 to deceive,
 to gain undue advantage from, or
 to injure the interests of, the company or its shareholders or its
creditors or any other person, whether or not there is any
wrongful gain or wrongful loss.
Any person who is found to be guilty of fraud, shall be punishable with:
 imprisonment for a term not be less than 6 months but may extend to
10 years and
 shall also be liable to fine which shall not be less than the amount
involved in the fraud, but which may extend to 3 times the amount
involved in the fraud.

28. The Act otherwise provides some relief to the non- executive &
Independent Directors as follows:
A non – executive director (not being a promoter/ KMP) is liable only for such
acts of omission or commission by the company which occur:
 with his knowledge or
 attributable through board processes, and
 with his consent or connivance or
 where he had not acted diligently.

29. Arun Gupta
managing counsel
factum legal ,
advocates & sol ici tors
Tel : (O) 011-41066313
(M) 9810275571
www. factumlegal .com
arun@factumlegal .com