COMPANY MANAGEMENT

DIRECTOR

Legal position
Qualification & Disqualification
DIN
Appointment
 Legal position of Director

Agent

Trustee
Officer of the company
Employee
Managing partner
Agent
Company act through directors
Principal agent relation
No personal liability, if they act within their authority.
Fergusan Vs. Wilson (1866)
F had a option to subscribe for some of the company’s shares.
Accordingly he applied for the shares.The directors allotted
the whole of its authorized capital to other persons, including
themselves. Consequently the option given to F became
worthless. F sued W , one of the directors of the company,
Claiming that W should transfer some of his own shares to
F and pay damages. It was held that F’s claim failed on
the ground that the directors of a company acting in the
normal course of their duties are agents for their
company and incur no personal liability.
Personal liability in the following cases:
They contract in their own names
They use the company’s name incorrectly
Directors exceed their power
Trustees
Trustee of Company’s money or property
Trustee of powers conferred upon them

Piercy Vs. S Mills Co. Ltd. (1920)

A company was in no need of further capital but the

directors made a fresh issue to themselves and their
supporters in order to control the majority of the voting
power and to defeat the wishes of the existing majority
majority shareholders. It was held that the directors had
abused their fiduciary powers and the allotment was
invalid.
Powers as Trustee
The power of employing the funds of the company;
The power to declare dividend in the general meeting;
The power to make call;
The power of forfeiting shares;
The power of receiving payment of call in advance;
The power of approving the transfer of shares;
The power of accepting the surrender of shares;
The power of issuing the unissued shares of the company
and making allotments thereof
Officers
Section 2 (59)- Officer includes any director ,
manager or KMP or any person in accordance
with whose direction or instruction the BOD or
any one or more directors is or are accustomed to
act.
Qualifications of a Director

A director must be a person of sound mind.

A director must hold share qualification, if the article of

association provides such.

A director must be an individual.

A director should be a solvent person.

A director should not be convicted by the Court for any

offence, etc.
Disqualifications of a director: Section 164
1) A person shall not be capable of being appointed director
of a company, if the director is

(a) Of unsound mind by a court of competent jurisdiction

and the finding is in force;

(b) An undischarged insolvent;

(c) Has applied to be adjudicated as an insolvent and his

application is pending;
• (d) Has been convicted by a court of any offence
involving moral turpitude 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;
• (e) Has not paid any call in respect of 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; or
• (f) An order disqualifying him for appointment as
director has been passed by a court in pursuance
of section 203 and is in force, unless the leave of
the court has been obtained for his appointment in
pursuance of that section;
2) Such person is already a director of a public company
which:

(a) Has not filed the annual accounts and annual returns for
any continuous three financial years commencing on and
after the first day of April, 1999; or

(b) Has failed to repay its deposits or interest thereon on

due date or redeem its debentures on due date or pay
dividend and such failure continues for one year or more:
• Provided that such person shall not be eligible to be
appointed as a director of any other public company for a
period of five years from the date on which such public
company, in which he is a director, failed to file annual
accounts and annual returns under sub-clause (A) or has
failed to repay its deposit or interest or redeem its
debentures on due date or paid dividend referred to in
clause (B).
DIN
DIN is a unique Director identification number allotted
by the Central Government to any person intending to be
a Director or an existing director of a company.

It is an 8-digit unique identification number which has a

lifetime validity. Through DIN, details of the directors are
maintained in a database.
DIN is specific to a person, which means even if he is a
director in 2 or more companies, he has to obtain only 1
DIN and if he leaves a company and joins some other,
the same DIN would work in the other company as well.

Whenever a return, an application or any information

related to a company will be submitted under any law,
the director signing such return, application or
information will mention his DIN underneath his
signature.
Once the application fee is paid and the application is
submitted, the system will generate an application
number. Central Government will process the application
and decide the approval/ rejection.

If the DIN application is approved, the central

government will communicate the DIN to the applicant
within 1 month.
Within one month of receiving DIN from the central
government, the director has to intimate about his DIN to
all companies where he is a director.

The company will intimate RoC about DIN within 15

days from the date when the director intimates his DIN to
the company.

Failure of the director to intimate DIN to the company or

failure of the company to intimate RoC about DIN will
result in penalties.
Appointment of Directors
By the articles as regard first directors -sec. 152
By the directors -sec.161
By the company in general meeting -sec. 152 and 160
By third parties -sec. 152
By the principle of proportional representation - sec.163
By the central government
By the articles as regard first directors -sec. 152

The first directors are usually named in the articles. The

articles may also provide that both the number and the
names of the first directors shall be determined in writing
by the subscribers of the memorandum.
Where the company has no articles or the articles are
silent regarding the appointment of directors, the
subscribers to the memorandum who are individuals
shall be deemed to be first director until the directors are
appointed at first annual general meeting.
If all the subscribers to the memorandum happen to be
bodies corporate , none of the subscribers can be deemed to
be directors and the company will have no directors until
the first directors are appointed under section 152 (2).

Where the person named in the list of first directors do not

assume the office , for any reason for example , death, then
it is the duty of the subscribers of the memorandum to hold
a meeting for appointment of directors.
By the directors -sec.161

Additional director

The board of director may appoint additional directors from

time to time if so authorized by the articles.

The number of directors and additional directors must not

exceed the maximum strength fixed for the board by the
articles.

The additional directors shall hold office only upto the date
of next annual general meeting.
Alternate director
The board of directors may appoint an alternate director if
authorized
-By the articles
-By a resolution of the company at general meeting
An alternate director acts in the place of a director who is
absent for more than three months from the state in which
board meetings are held.
He must vacate the office on the return of the original
director.
Casual Vacancy
Where the office of any director appointed by the company
in general meeting is vacated before the expiry of his term
the director may fill up the vacancy at the meeting of board.

Any vacancy other than one caused by retirement of a

director by rotation is a casual vacancy.

Such a vacancy may occur by reason of death , resignation ,

bankruptcy , or disqualification.

The director so appointed will hold office till the end of the
term of the director in whose place he is appointed.
By the company in general meeting -sec. 152 and
160

Appointment of subsequent directors is made at every

annual general meeting of the company.

Section 152 (2) provides that not less than two third of the
total number of directors of a public company or a private
company must be appointed by the company in general
meeting.
These directors must be subject to the retirement by
rotation.

Eg: A company has 6 directors . It can appoint only 2

directors (1/3 of 6) as permanent directors . The remaining 4
directors shall be liable for retire by rotation.

Directors to retire by rotation at every AGM (in the course

of 3 years) must be those who have been longest in office
since their last appointment.
By third parties -sec. 152
Section 152 permits that one third of the total number of
directors of a public company or a private company which
is subsidiary of a public company to be appointed by
parties other than share holders on a non-rotational basis.

The articles may give right to debenture holders , financial

corporations or banking companies who have advanced
loans to the company to nominate directors on the board of
company.
The number of directors so nominated should not exceed
one third of the total strength of the board.
They are not liable to retire by rotation.
By the principle of proportional representation - sec.163
Directors of the company are generally appointed by a
simple majority of shareholders and a substantial
minority cannot succeed in in placing even a single
director on the board.

Section 163 intends to protect the interests of minority

shareholders by giving them an opportunity to place
their nominees on the board.
The articles of the company may provide that the
appointment of not less than 2/3 of the total number of
directors of the public company shall be according to the
principle of proportional representation.

Either by single transferable vote or by a system of

cumulative voting
By the central government
The central government has the power to appoint directors
on an order passed by the tribunal (earlier company law
board) to effectively safeguard the interest of the company
or its shareholders or the public interest to prevent
mismanagement.

Such directors shall hold office for a period not exceeding

three years on any one occasion.
Powers of board
General powers as per articles
Powers u/s 179 (3)- Exercised only at board meeting
Powers under Rule 8
Other matters
Powers u/s 179 (3)- Exercised only at board meeting
To make call
To borrow monies
To issue securities

To invest the funds of the company

To give loans or grant guarantee

To approve amalgamation

To diversify the business of the company

Powers under Rule 8- Companies (Meeting of the Board and its
powers) Rules 2014
To make political contribution
To appoint or remove KMP
To appoint internal auditors and secretarial auditors
To take note of the disclosure of director’s interest and
shareholding
To accept or renew public deposits and related matters
To approve quarterly , half yearly and annual financial
statements or financial results
Other matters
Appointment of directors and MD/Whole time director
Consideration of annual accounts
Approval of interim dividend and recommendation of final
dividend
Issue of bonus shares
Appointment of auditors in casual vacancy caused otherwise
than by resignation.
Appointment of whole time secretary for issuance of
compliance certificate.
Duties of Directors

Fiduciary duties
Duty of care and skill
Duty to attend board meeting
Duty not to delegate

Duty to disclose interest

Statutory duties
Fiduciary duties
Cook Vs. Deeks (1916)
The directors of company carrying on the business of railway
construction contract obtained a contract in their own name to
the exclusion of the company. The directors also procured a
resolution of the company ratifying their conduct. On an
action brought by a shareholder the Privy Council held that it
was a breach of trust on the part of the directors and that the
benefit of the contract belonged to the company and they
were bound to account to the company for it.
Duty of care and skill
Perform their duties with care and skill
Liable for negligence in carrying out of his duties
Not liable for mere error of judgement if he acts honestly
with reasonable care.
Duty to attend board meeting
Section 164 provides that the office of director becomes
vacant if he absents himself from
a) Three consecutive meetings of the board, or

b) From all meetings of the board, for a continuous period

of three months whichever is longer, without obtaining
leave of absence from the board.
Duty not to delegate

Perform their duties personally, should not delegate their

office
May delegate , if the Act or the Articles specifically
authorise them to do so

In case of business emergency, they may distribute the

work among themselves and other officials.
Duty to disclose interest
Interest of the director and his duty do not conflict.
Section 184- A director who is interested in any
transaction of the company is bound to disclose his
interest to the board.

An interested director can not take part in the discussion

or vote on any contract in which he is directly or
indirectly interested.
Statutory duties

Duty not to allot shares until minimum subscription is

raised- Section 39
Duty to sign annual return and the certificate attached
thereto- Section-92

Duty to call an AGM every year within the proper

time-Section 96

Duty to call EGM on a valid requisition- Section 100

Duty to take share qualification
By shareholders- Section 169
By the Tribunal- Section 242
By shareholders- Section 169
By ordinary resolution
Special notice is required of any resolution to remove a
director or to appoint another in his place
On receipt of notice, company will send a copy thereof to
the director and shall be entitled to be heard.

Reasons for removal is not necessary to be mentioned in

the notice.
Exceptions:

A director appointed by Tribunal u/s 242

A nominee director of a public financial institution which
is by its charter empowered to nominate a person as a
director or to remove him notwithstanding any power
contained in any other Act

A director appointed under proportional representation.

Filling of vacancy –Section 169 (5) , (6) and (7)
Vacancy created by removal
At the meeting at which director is removed, provided
special notice of the proposed appointment was also given

Shall hold office till the date the director removed would
otherwise have held office
By the Tribunal- Section 242
On an application to Tribunal for prevention of
oppression and mismanagement
On such termination, director can not serve the company
in a managerial capacity for a period of 5 years from the
date of the order of termination, without the permission
of the Tribunal.
Can not sue the company for damages or compensation.
KMP (Section 2 (51)
The members of the BOD do not necessarily get involved
in the day to day operations of the company. Their job is
to supervise the company as a whole, not micromanage.
The Board of Directors sets goals and objectives for the
company. The key managerial personnel is the one who
actually works on these goals and objectives to be
achieved.
Chief Executive Officer/Managing Director

The managing director or chief executive officer is

responsible for running the whole company. Also, the
managing director has authority over all operations and
has the more power in a managerial hierarchy.

He is also responsible for innovating and ensuring the

growth of the company to a larger scale. In many
countries, a managing director is also called a Chief
Executive Officer (CEO).
Whole Time Director
A Whole Time Director is simply a director who devotes
the whole of his working hours to the company. He is
different from independent directors in the sense that he
has a significant stake in the company and is part of the
daily operation. A managing director may also be a
whole time director.
Chief Financial Officer

Chief Financial Officer (CFO) is a senior level executive

responsible for handling the financial status of the
company. The CFO keeps tabs on cash flow operations,
does financial planning, and creates contingency plans
for possible financial crises.
Company Secretary

A company secretary is a senior level employee in a company

who is responsible for the looking after the efficient
administration of the company. The company secretary takes
care of all the compliances with statutory and regulatory
requirements.

He also ensures that the targets and instructions of the board

are successfully implemented. However, in some countries, a
company secretary is also called a corporate secretary.