MODULE 1:

S. 2(10): "Board of Directors" or "Board", in relation to a company, means the collective

body of the directors of the company;

S. 2(34): "director" means a director appointed to the Board of a company; Directors are
the individuals appointed to manage the affairs of a company.

S. 149: Company to have Body:

(1) Every company shall have a Board of Directors consisting of individuals as directors and
shall have--
(a) a minimum number of three directors in the case of a public company, two directors in the
case of a private company, and one director in the case of a One Person Company; and
(b) a maximum of fifteen directors:
Provided that a company may appoint more than fifteen directors after passing a special
resolution:
Provided further that such class or classes of companies as may be prescribed, shall have at
least one-woman director.
(3) Every company shall have at least one director who stays in India for a total period of not
less than one hundred and eighty-two days during the financial year:
Provided that in case of a newly incorporated company the requirement under this sub-
section shall apply proportionately at the end of the financial year in which it is incorporated;
(4) Every listed public company shall have at least one-third of the total number of directors
as independent directors and the Central Government may prescribe the minimum number of
independent directors in case of any class or classes of public companies.
Explanation. -- For the purposes of this sub-section, any fraction contained in such one-third
number shall be rounded off as one.
(6) An independent director in relation to a company, means a director other than a managing
director-- or a whole-time director or a nominee director,
(a) who, in the opinion of the Board, is a person of integrity and possesses relevant expertise
and experience;
(b) (i) who is or was not a promoter of the company or its holding, subsidiary or associate
company;
(ii) who is not related to promoters or directors in the company, its holding, subsidiary or
associate company;
(c) who has or had no pecuniary relationship, other than remuneration as such director or
having transaction not exceeding ten per cent. of his total income or such amount as may be
prescribed, with the company, its holding, subsidiary or associate company, or their
promoters, or directors, during the two immediately preceding financial years or during the
current financial year;
(d) none of whose relatives--
(i) is holding any security of or interest in the company, its holding, subsidiary or associate
company during the two immediately preceding financial years or during the current financial
year:
Provided that the relative may hold security or interest in the company of face value not
exceeding fifty lakh rupees or two per cent. of the paid-up capital of the company, its holding,
subsidiary or associate company or such higher sum as may be prescribed;
(ii) is indebted to the company, its holding, subsidiary or associate company or their
promoters, or directors, in excess of such amount as may be prescribed during the two
immediately preceding financial years or during the current financial year;
(iii) has given a guarantee or provided any security in connection with the indebtedness of
any third person to the company, its holding, subsidiary or associate company or their
promoters, or directors of such holding company, for such amount as may be prescribed
during the two immediately preceding financial years or during the current financial year; or
(iv) has any other pecuniary transaction or relationship with the company, or its subsidiary, or
its holding or associate company amounting to two per cent. or more of its gross turnover or
total income singly or in combination with the transactions referred to in sub-clause (i), (ii) or
(iii);
(e) who, neither himself nor any of his relatives
(i) holds or has held the position of a key managerial personnel or is or has been employee of
the company or its holding, subsidiary or associate company in any of the three financial
years immediately preceding the financial year in which he is proposed to be appointed;
[Provided that in case of a relative who is an employee, the restriction under this clause shall
not apply for his employment during preceding three financial years.]
(ii) is or has been an employee or proprietor or a partner, in any of the three financial years
immediately preceding the financial year in which he is proposed to be appointed, of
(A) a firm of auditors or company secretaries in practice or cost auditors of the company or
its holding, subsidiary or associate company; or
(B) any legal or a consulting firm that has or had any transaction with the company, its
holding, subsidiary or associate company amounting to ten per cent. or more of the gross
turnover of such firm;
(iii) holds together with his relatives two per cent. or more of the total voting power of the
company; or
(iv) is a Chief Executive or director, by whatever name called, of any nonprofit organisation
that receives twenty-five per cent. or more of its receipts from the company, any of its
promoters, directors or its holding, subsidiary or associate company or that holds two per
cent. or more of the total voting power of the company; or
(f) who possesses such other qualifications as may be prescribed.
(7) Every independent director shall at the first meeting of the Board in which he participates
as a director and thereafter at the first meeting of the Board in every financial year or
whenever there is any change in the circumstances which may affect his status as an
independent director, give a declaration that he meets the criteria of independence as provided
in sub-section (6).
Explanation. -- For the purposes of this section, nominee director means a director nominated
by any financial institution in pursuance of the provisions of any law for the time being in
force, or of any agreement, or appointed by any Government, or any other person to represent
its interests.
(9) Notwithstanding anything contained in any other provision of this Act, but subject to the
provisions of sections 197 and 198, an independent director shall not be entitled to any stock
option and may receive remuneration by way of fee provided under sub-section (5) of section
197, reimbursement of expenses for participation in the Board and other meetings and profit
related commission as may be approved by the members.
[Provided that if a company has no profits or its profits are inadequate, an independent
director may receive remuneration, exclusive of any fees payable under sub-section (5) of
section 197, in accordance with the provisions of Schedule V.]
(10) Subject to the provisions of section 152, an independent director shall hold office for a
term up to five consecutive years on the Board of a company, but shall be eligible for
reappointment on passing of a special resolution by the company and disclosure of such
appointment in the Board's report.
(11) Notwithstanding anything contained in sub-section (10), no independent director shall
hold office for more than two consecutive terms, but such independent director shall be
eligible for appointment after the expiration of three years of ceasing to become an
independent director:
Provided that an independent director shall not, during the said period of three years, be
appointed in or be associated with the company in any other capacity, either directly or
indirectly.
Explanation. -- For the purposes of sub-sections (10) and (11), any tenure of an independent
director on the date of commencement of this Act shall not be counted as a term under those
sub-sections.
(12) Notwithstanding anything contained in this Act, --
(i) an independent director;
(ii) a non-executive director not being promoter or key managerial 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 through Board processes, and with his consent or
connivance or where he had not acted diligently.
(13) The provisions of sub-sections (6) and (7) of section 152 in respect of retirement of
directors by rotation shall not be applicable to appointment of independent directors.
S. 203: Appointment of KMP

(1) Every company belonging to such class or classes of companies as may be

prescribed shall have the following whole-time key managerial personnel, —

i. managing director, or Chief Executive Officer or manager and in their absence,

a whole-time director;
ii. Company Secretary; and
iii. Chief Financial Officer:

Provided that an individual shall not be appointed or reappointed as the chairperson of the
company, in pursuance of the articles of the company, as well as the managing director or
Chief Executive Officer of the company at the same time after the date of commencement of
this Act unless, —

(a) the articles of such a company provide otherwise; or (b) the company does not carry
multiple businesses:

Provided further that nothing contained in the first proviso shall apply to such class
of companies engaged in multiple businesses and which has appointed one or more
Chief Executive Officers for each such business as may be notified by the Central
Government.

(2) Every whole-time key managerial personnel of a company shall be appointed by means of
a resolution of the Board containing the terms and conditions of the appointment including
the remuneration.

(3) Whole-time key managerial personnel shall not hold office in more than one company
except in its subsidiary company at the same time:

Provided that nothing contained in this sub-section shall disentitle key managerial personnel
from being a director of any company with the permission of the Board:

Provided further that whole-time key managerial personnel holding office in more than one
company at the same time on the date of commencement of this Act, shall, within a period of
six months from such commencement, choose one company, in which he wishes to continue
to hold the office of key managerial personnel:
Provided also that a company may appoint or employ a person as its managing director, if he
is the managing director or manager of one, and of not more than one, other company and
such appointment or employment is made or approved by a resolution passed at a meeting of
the Board with the consent of all the directors present at the meeting and of which meeting,
and of the resolution to be moved thereat, specific notice has been given to all the directors
then in India.

(4) If the office of any whole-time key managerial personnel is vacated, the resulting vacancy
shall be filled-up by the Board at a meeting of the Board within a period of six months from
the date of such vacancy.

(4A) The provisions of sub-sections (1), (2), (3) and (4) of this section shall not apply to a
managing director or Chief Executive Officer or manager and in their absence, a wholetime
director of the Government Company.

(5) If any company makes any default in complying with the provisions of this section, such
company shall be liable to a penalty of five lakh rupees and every director and key
managerial personnel of the company who is in default shall be liable to a penalty of fifty
thousand rupees and where the default is a continuing one, with a further penalty of one
thousand rupees for each day after the first during which such default continues but not
exceeding five lakh rupees.
Key Roles and Responsibilities of BoD:

A. Strategic Direction

 Section 166: Directors have a duty to act in good faith in promoting the company's
objectives and to exercise independent judgment.

 Section 173: The Board ensures regular meetings to discuss and approve key business
strategies.

B. Supervision and Oversight: Section 179: The Board has the authority to exercise
powers.

C. Financial Oversight

 Section 134: The Board must ensure the preparation and approval of the Board’s
Report, which includes financial performance, risk management policies, and
corporate social responsibility (CSR) details.

 Section 177: The Audit Committee, formed by the Board, supervises financial
reporting and internal controls.

D. Governance and Compliance

 Section 135: The Board oversees CSR compliance.

 Section 178: It establishes Nomination and Remuneration Committees to ensure fair

director appointments and appropriate remuneration policies.

 Regulation 17 (SEBI LODR Regulations, 2015): Applicable for listed entities,

requiring the Board to uphold governance principles, including risk management and
ensuring transparency.
Types of Directors:

 Executive Directors: Actively involved in the day-to-day management of the

company.
 Non-Executive Directors: Provide oversight and strategic guidance without being
involved in daily operations.
 Whole-time directors: Same as Executive directors.
 Women Directors: All listed companies must have a women director, public
companies with Paid up capital of Rs. 100cr and more or with TO of Rs. 300cr or
more.
 Resident Directors: Director must have stayed in India for at least a period of 182
days during the financial year.
 Independent Directors: Serve on the board to provide unbiased opinions, often
required in listed companies.
 Alternate Directors: Temporarily replace a director during their absence.
 Nominee Directors: Represent specific stakeholders, such as investors or creditors.
 Shadow Directors: Not officially appointed but whose directions the board acts
upon.
The Companies Act, 2013 defines various types of directors, each with specific roles,
responsibilities, and statutory provisions.

1. Executive Director: An executive director is a full-time employee responsible for the day-
to-day management of the company. Section 2(94): Defines "Whole-Time Director" as an
employee entrusted with substantial powers of management. Appointed by the Board or
shareholders as per Section 196.

2. Non-Executive Director: A non-executive director does not partake in the company’s day-
to-day operations but contributes to policymaking and governance. Regulated by general
provisions of the Act.

3. Managing Director: A managing director has substantial management powers and is

entrusted with overseeing the company’s operations.

 Section 2(54): Defines "Managing Director" as one with substantial powers of

management, subject to shareholder or board control.

 Section 196-197: Appointment, term, and remuneration are governed by these

sections.

 Section 203: Appointment as Key Managerial Personnel (KMP) in specified

companies.

4. Independent Director: Independent directors ensure impartial oversight, prevent conflicts

of interest, and uphold corporate governance.

 Section 149(6): Provides criteria for independence, including: No pecuniary

relationship with the company. Not a promoter or significant shareholder.

 Section 149(7): Requires a declaration of independence.

 Schedule IV: Prescribes a code of conduct and responsibilities.

 Regulation 16(1)(b) (SEBI LODR Regulations, 2015): Adds further governance

requirements for listed companies.
5. Additional Director: An additional director is appointed by the Board to hold office until
the next AGM. Section 161(1): Governs their appointment and tenure. Can only be appointed
if authorized by the Articles of Association (AoA).

6. Alternate Director: An alternate director acts in place of a director who is absent from
India for more than three months. Section 161(2): Governs their appointment. Can be
appointed by the Board if authorized by the AoA.

7. Nominee Director: A nominee director represents a specific stakeholder (e.g., financial

institutions or government). Section 161(3): Allows their appointment if authorized by the
AoA or under specific agreements. Often appointed to protect the interests of lenders or
creditors.

8. Small Shareholders’ Director: A small shareholders’ director is elected by small

shareholders in listed companies to represent their interests. Section 151: Provides for their
election in a company having a certain number of small shareholders (as prescribed by rules).

9. Resident Director: A resident director ensures the company maintains a local presence in
India. Section 149(3): Mandates at least one director to have stayed in India for at least 182
days in the previous calendar year.

10. Women Director: Certain classes of companies must appoint at least one-woman
director. Section 149(1): Requires listed companies and other prescribed companies to
appoint a woman director. Rule 3 of Companies (Appointment and Qualification of
Directors) Rules, 2014: Specifies applicability.

11. Shadow Director: A person who is not formally appointed as a director but whose
directions are followed by the Board or company. Not specifically defined under the Act,
but recognized under corporate governance principles.

12. Key Managerial Personnel (KMP): Includes managing director, CEO, CFO, company
secretary, and whole-time directors. Section 203: Specifies the requirement for KMP in
certain classes of companies.

Liabilities and Compliance

 Section 166: Duties of directors, including acting in good faith and avoiding conflicts
of interest.

 Section 164: Disqualification criteria for directors.

 Section 170: Maintenance of a register of directors.