Feasible Duties Of Director

PREVIOUS COMPANY ACT

In the previous Company Act, the duties and the interests of the directors were not focused. The Companies Act, 1956 contained no statement of statutory duties of directors, and acts of directors were usually reviewed in the context of their powers in terms of Section 291[1] of the Companies Act, 1956 which mainly use to deal with general powers of the board and other applicable laws and their established roles under common law as laid down in several judicial precedents. [2]

 

COMPANIES ACT, 2013

The Companies Act, 2013 for the first time has laid down the duties of directors in unequivocal terms in section 166. As per the Companies Act, 1956 legislation the, major problem was that up to which extent the stakeholders interests are to be the directors of the company.  These all queries were cleared when companies act, 2013 came into force as under this act the directors has to given attention not only to the shareholders but also to the employees and event the community so that there is peace and workful environment in the company.[3]

Section 166(2)[4] of the Companies Act states that a director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment. There is a great contribution as the duties and responsibilities have been assigned to the directors of a company. This has been done to maintain better corporate governance. This will lead to a better security for sure and better growth rate in the corporate world of India.

 

CASE LAWS

In the case of Bank of Poona Ltd v. Narayandas,[5] it was stated that the good faith would require that all the endeavours of the directors must be directed to the benefit of the company. In the case of Cook v. Deeks,[6] it was held that a director should not exploit to his own use the corporate opportunities.

In the case of Walchandnagar Industries v Ratanchand,[7] it was stated that the director’s duty is to disclose interest to the company and to ensure that his personal interest as an agent of the company and the interest of the company which is the principal, do not conflict. As stated above the former company law of India, the Companies Act of 1956 did not focus on the duties of directors. The new Companies Act, 2013 section 166 (2) focuses on the duties of directors which will bring harmony in the company and this will lead to a better growth rate.  Section 166(2) does not only provide greater certainty to the directors regarding their conducts and responsibilities but also ensure better and impeccable corporate sector in India.

This lead to redefining the stakeholder principal in corporate law as this provision promotes the objects of a company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment. As there are many advantages of section 166(2), it also leads to many issues in India such as there is a chance of a conflict between shareholders and stakeholders related to the interest of a Company. Let’s say a decision made by a company lead to a benefit of either customers or employees; this will lead to the breach of duty of Shareholders. The problem which will arise is- should a company breached the duties of shareholders which will for sure give rise to legal claim by shareholders to the Company. Moreover, the pluralist approach which is adopted by India recognises both stakeholders and shareholders without stating the preference; therefore, it is not possible for the directors to determine the level of interest between them.[8]

 

CONFLICTS

The conflict may even rise between the stakeholders too. As the interests of the shareholders are homogeneous, the stakeholders can posses difference in the interest which may lead the priority among themselves. This may add responsibilities on boards. The issue related to the shareholders may arise as the interests of the shareholders are more tangible than stakeholder’s interest.[9] The interests of the shareholders help in determining the corporate performance which indicates the corporate governance. Whereas the stakeholder makes it difficult for the board in decision making as the interests of the stakeholders are intangible and subjective in nature. Another issue under this section is that there are no remedies against the breach of duties of directors.[10] Generally if there is breach of duties of directors, the companies file a legal claim against the directors and if they fail to so the shareholders have the right on the behalf of the company to file a legal claim where as these rights are not with stakeholders. At the end I would like to state that as under section 166(2) the directors have to work in the interest of employees, the shareholders, the community and for the protection of environment but the hierarchy is not stated. It should be clearly stated by the legislature whether there is any hierarchy between employees, the shareholders, the community and environment, so that the above issues can be resolved.[11]

 

 [1] General powers of Board.

(1) Subject to the provisions of this Act, the Board of directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to exercise and do: Provided that the Board shall not exercise any power or do any act or thing which is directed or required, whether by this or any other Act or by the memorandum or articles of the company or otherwise, to be exercised or done by the company in general meeting: Provided further that in exercising any such power or doing any such act or thing, the Board shall be subject to the provisions con- tained in that behalf in this or any other Act, or in the memorandum or articles of the company, or in any regulations not inconsistent therewith and duly made there under, including regulation made by the company in general meeting.

(2) No regulation made by the company in general meeting shall invalidate any prior act of the Board which would have been valid if that regulation had not been made.

[2] Suresh Prasad, Duties of a CompaniesDuties of a Companies, http://www.aubsp.com/section-166-duties-of-directors/ (last visited Mar 28, 2017).

[3] Duties and Responsibilities of Independent Directors under the Companies Act, 2013, http://www.aiftponline.org/journal/Journal_Mar2014/duties.htm (last visited Mar 28, 2017).

[4]  A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment.

[5] Bank of Poona Ltd v. Narayandas, AIR 1961 Bom 252.

[6] Cook v Deeks [1916] UKPC 10.

[7] Walchandnagar Industries v Ratanchand, AIR 1953 Bom 285.

[8] Roles and Responsibilities Of Directors Under Companies Act, 2013, http://taxguru.in/company-law/roles-responsibilities-directors-companies-act-2013.html (last visited Mar 28, 2017).

[9] Corporate governance – directors’ duties and liabilities under Companies Act, 2013, Corporate governance – directors’ duties and liabilities under Companies Act, 2013, http://www.lexology.com/library/detail.aspx?g=aabc1dae-ab94-4f58-893d-f8f68b51c731 (last visited Mar 28, 2017).

[10] India: Roles And Responsibilities Of A Director Under Companies Act, 2013 – Pitfalls And Safeguards, India: Roles And Responsibilities Of A Director Under Companies Act, 2013 – Pitfalls And Safeguards, http://www.mondaq.com/india/x/510724/Directors Officers/Roles And Responsibilities Of A Director Under Companies Act 2013 Pitfalls And Safeguards (last visited Mar 28, 2017).

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