Introduction
To successfully manage a company that does not have a brain of its own, we need a living person to make decisions and implement them. That is where the need for directors comes in. According to section 2(34)[1] “director means a director appointed to the Board of a company” hence this definition is not very exhaustive or illustrative. Whereas section 2(10)[2] defines― “Board of Directors, about a company, means the collective body of the directors of the company” The directors can only be individual and not a body corporate as per section 149.[3]
Position of Directors
Directors have been described as agents, organs and trustees of a company. Trustees as they handle property and money of the company. Moreover, it was established in Percival v. Wright[4] that directors are not agents of the shareholders but of the company. Agents as they act on the behalf of the company as was established by the case of Ferguson v. Wilson[5]. They were called an organ of the company in Bath v. Standard land Co[6]: “the board of directors is the brain and only brain, of the company which is the body, and the company can and does not act only through them.”
Types of Directors
- First Director: Section 152[7] states that in case there is no provision in the AoA for first directors, the subscribers shall be deemed to be the directors.
- Resident Director: As per section 149(3)[8] there shall be one director who has stayed in India for at least 182 days during the financial year.
- Woman Director: A company with paid up capital over 100 Cr. or turnover of 300 Cr. shall have at least 1 woman director as per section 149(1).[9]
- Small Shareholders Director: Small shareholders may elect a director under section 151[10].
- Independent Director: As per section 149(4)[11] listed public companies must have at least 1/3rd of their total directors as independent and other public companies, companies with paid up capital over Rs. 10 Cr., or with a turnover of Rs. 100 Cr. or more, or with outstanding loans/debentures and deposits of Rs. 50 Cr. or more shall have at least 2 independent directors. They must not have any material or pecuniary relationship with the company/directors.
- Alternate director: This is defined under section 161(2)[12]
- Nominee Director: As per section 161(3)[13] any institution like the government may nominate a director subject to the articles.
Disqualifications of a Director
These are defined under section 164(1)[14]
“(a) He is of unsound mind and stands so declared by a competent court
(b) He is an undischarged insolvent;
(c) He has applied to be adjudicated as an insolvent and his application is pending;
(d) He has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence. Provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be appointed as a director in any company.
(e) An order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force;
(f) He has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;
(g) He has been convicted of the offence dealing with related party transactions under section 188[15] at any time during the last preceding five years; or
(h) He has not complied with sub-section (3) of section 152.[16]
(i) if he accepts directorships exceeding the maximum number of directorships provided in section 165[17].
Rights and Duties of a Director
Section 166[18] defines the rights and duties of a director
- Duty to act as per articles
- Duty to act in good faith
- Duty to avoid conflicts
- Duty to exercise due care
- Duty not to assign office
- Duty not to make undue gain
Conclusion
The directors are the brain of the company. They handle its management, make sure its functions run smoothly and help execute the goals. Without the directors a company cannot grow. The Companies Act 2013 has a comprehensive policy regarding appointing, resigning, removal etc. of directors and is easy to understand.
[1] Section 2(34) of The Companies Act 2013.
[2] Section 2(10) of The Companies Act 2013.
[3] Section 149 of The Companies Act 2013.
[4]Percival v Wright [1902] 2 Ch 401.
[5] Ferguson v. Wilson (1866) LR 2 Ch LR 77.
[6] Bath v. Standard land Co., (1910) 2 Ch. D. 408.
[7] Section 152 of The Companies Act 2013.
[8] Section 149(3) of The Companies Act 2013.
[9] Section 149(1) of The Companies Act 2013.
[10] Section 151 of The Companies Act 2013.
[11] Section 149(4) of The Companies Act 2013.
[12] Section 161(2) of The Companies Act 2013.
[13] Section 161(3) of The Companies Act 2013.
[14] Section 161(4) of The Companies Act 2013.
[15] Section 188 of The Companies Act 2013.
[16] Section 152(3) of The Companies Act 2013.
[17] Section 165 of The Companies Act 2013.
[18] Section 166 of The Companies Act 2013.
