Meaning of Director? Duties, Types, power, all concept.

 MEANING  OF DIRECTOR

According to Sec. 2 (13) of the Companies Act., “Director includes any person occupying the position of director by whatever name called.” This definition given by the Companies Act does not give the clear meaning of the word director, but it means that a person who performs the duties of a director will be deemed to be a director irrespective of the name by which he is called.

According to Sec. 2(30), “A director is the officer of the company.”

Definition :- As per Section 2(34) of Companies Act 2013 Director means a director appointed to the Board of a Company. 

Who is a Director?

·        An appointed or elected member of the board of directors of a company.

·        He has the responsibility for determining and implementing the company’s policy.

·         A company director need not

-to be a shareholder or

-an employee, and

-may hold only the office of director under the provisions of the Act.

·         Directors derive their powers emanating from board resolutions

·        Unlike shareholders, directors cannot participate through proxy.

·        Unlike employees, cannot absolve themselves of their responsibility for the delegated duties.

Section 2(34) of the Companies Act, 2013 defines a director as – “director” means a director appointed to the Board of a company.

Disqualifications for appointment as director

A person shall not be eligible for appointment as a director of a company, if —

•He is of unsound mind and stands so declared by a competent court

•He is an undischarged insolvent

•He has applied to be adjudicated as an insolvent and his application is pending

•He has been convicted and sentenced to imprisonment for atleast 6 months and 5 years from expiry of sentence have not got over•He has been convicted and sentenced for a period of 7 years or more

•An order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force

•He has not paid any calls in respect of any shares of the company held by him & 6 months have elapsed from the last day fixed for the payment of the call

•He has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years

•He has not obtained DIN

•A person who is director of a company which has not filed financial statements or annual returns for 5 continuous yrs, till expiry of 5 yrs from date of default

•A person who is director of company which has failed to repay deposits, debentures or distribute dividend for a period of one year, till expiry of 5 years from date of default

•Private Companies can provide for additional disqualifications in their Articles

ROLE OF DIRECTORS IN A COMPANY

A Director is part of a collective body of Directors called the Board, responsible for the superintendence, control and direction of the affairs of the Company.

Director as “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.

Director as “Key Managerial Personnel”

“key managerial personnel”, in relation to a company, means—

(i) the Chief Executive Officer or the managing director or the manager;

(ii) the company secretary;

(iii) the whole-time director;

(iv) the Chief Financial Officer; and

(v) such other officer as may be prescribed;

Director as “Officer in default”

“officer who is in default”, for the purpose of any provision in this Act which enacts that 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;

   (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

 

DUTIES OF DIRECTORS

·        Director to act in accordance with AOA.

·        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.

·        A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.

·        A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.

·        A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates

·        A director of a company shall not assign his office and any assignment so made shall be void.

 

 

Responsibility :- The board of directors of a company is primarily responsible for:

·        determining the company’s strategic objectives and policies;

·        monitoring progress towards achieving the objectives and policies;

·        appointing senior management;

·        accounting for the company’s activities to relevant parties, e.g. shareholders.

 

Types of Directors

1. Residential Director:- As per Section 149(3) of Companies Act,2013 every company shall at one director who has stayed in India for a total Period of not less than 182 days in the Previous calendar year.

2. Independent Director:- As per section 149(6) an independent director in relation to a company, means a director other than a Managing Director, Whole Time Director Or Nominee Director. Companies which have to appoint Independent Director:- As per Rule 4 of Companies (Appointment and Qualification of Directors) Rules,2013 the following class of companies have to appoint atleast two independent directors:-

A} Public Companies having Paidup Share Capital-Rs.10 Crores or More;

B} Public Compnies having Turnover- Rs.100 Crores or More;

C} Public Companies have total outstanding loans, debenture and deposits of Rs. 50 Crores or More.

Person Qualified for Independent Directorship:-

A) Who, in the opinion of the Board , is a person of integrity and possesses relevant experties & experience;

B) i) Who is or was not a promoter of the Company or its Holding, Subsidiary or Associate Company(HSA Companies);

ii) Who is not related to Promoters or directors in the company, its HSA companies;

C) Who has or had no Pecuniary (relating to Money) relationship with Company and its HSA company or their promoters, directors during the 2 immediately preceding financial years or during the current financial year;

D) none of whose relatives has or had pecuniary relationship with company, its HSA company or their Promoters, directors -amounting to 2% or more of its gross turnover or total income; -or fifty lakhs or such higher amount as may be prescibed, whichever is lower. During the 2 immediately preceding financial years or during current financial year.

E) Who neither himself nor any of his relative-

1. holds or has held the position of KMP or has been employee of the Company or its HSA companies in any of the 3 financial years;

2.he or his relative  has 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- as a auditor firm, Company Secretary in practice, Cost Auditor, Legal Consultant of the company or its HSA companies;

3. Holds with relaives 2% or more of the total voting power of the Company;

4. he or his has not be Chief Executive or Director of any Non Profit Organization that receive 25% of its receipt from the Company or HSA Companies or its Promoters or directors or that NGO holds 2% or more of the total voting power of the Company.

F) Who possesses such other qualification as may be prescribed. Tenure of Director:- an independent director hold office for a term up to 5 consecutive years, -Also eligible for reappointment by passing Special Resolution and also require its reappointment in Boards Report. -He shall not hold office for more than 2 Consecutive terms, but shall not be eligible to appoint after expiration of 3 Years of ceasing to become an independent director. Remuneration to Independent Director:- An independent director shall not be eligible for any stock option as per section 149(9) of Act. But they may receive remuneration by way of fee provided under section 197(5) of the Act. Sitting fees for Board meeting and other committee meeting shall not be exceed Rs. 1,00,000 per meeting.

3. Small Shareholders Directors:- A listed Company may have one director elected by small shareholders. May appoint upon notice of not less than 1000 Shareholders or 1/10th of the total shareholders, whichever is lower have a small shareholder director which elected form small shareholder.  

4. Women Director:- As per Section 149 (1) (a) second proviso requires certain categories of companies to have At Least One Woman director on the board. Such companies are any listed company, and any public company having-

1.    Paid Up Capital of Rs. 100 crore or more, or

2.    Turnover of Rs. 300 crore or more.

5. Additional Directors: Any Individual can be appointed as Additional Directors by a company under section 161(1) of the New Act.

6. Alternate Directors:- As per Section 161(2) A company May appoint, if the articles confer such power on company or a resolution is passed (if an Director is absent from India for atleast three months).

·         An alternate Director cannot hold the office longer than the term of the Director in whose place he has been appointed.

·        Additionally, he will have to vacate the office, if and when the original Director returns to India.

·        Any alteration in the term of office made during the absence of the original Director will apply to the original Director and not to the Alternate Director.

7. Shadow Director:- A person, who is not appointed to the Board, but on whose directions the Board is accustomed to act, is liable as a Director of the company, unless he or she is giving advice in his or her professional capacity.

8. Nominee Directors:- They can be appointed by certain shareholders, third parties through contracts, lending public financial institutions or banks, or by the Central Government in case of oppression or mismanagement.

9. Difference Between Executive and Non-Executive Director:- An Executive Director can be either a Whole-time Director of the company (i.e., one who devotes his whole time of working hours to the company and has a significant personal interest in the company as his source of income), or a Managing Director (i.e., one who is employed by the company as such and has substantial powers of management over the affairs of the company subject to the superintendence, direction and control of the Board). In contrast, a non-executive Director is a Director who is neither a Whole-time Director nor a Managing Director.

Powers of Directors

According to Companies Act 2013, the Board of Directors of a Company has the following powers in the Company.

·        Power to make calls in respect of money unpaid on shares

·        Call meetings on suo moto basis.

·        Issue shares, debentures, or any other instruments in respect of the Company.

·        Borrow and invest funds for the Company

·        Approve Financial Statements and Board Report

·        Approve bonus to employees

·        Declare dividend in the Company

·        Power to grant loans or give guarantee in respect of loans

·        Authorize buy back of securities

·        Approve Amalgamation/Merger/ Takeover

·        Diversify the business of the Company

What documents are required for Appointment of a Director?

·        Obtain DSC.

·        A person must have Director Identification Number(DIN) which can be obtained by filing DIR-3C on MCA.

·        DOCUMENT PREPARATION:

o   A letter stating his consent as director and disclosure of interest in other companies

o   A declaration that he is not disqualified to become director

o   Notice to call a meeting with an explanatory statement

o   Resolution to be passed at a meeting for appointment of a director

o   Appointment letter is to be issued by the company to the director

·        FILING OF FORM DIR-12:

o   File DIR-12 along with documents such as consent/approval letter

o   Written consent of director for his appointment in DIR-2

o   The interest of director if any in other entity in Form MBP-1

o   Notice with a certified copy of a resolution of meeting to be filed within 30 days

 

RESIGNATION OF DIRECTORS

A person can hold a maximum 20 number of directorships including any alternate directorship. A number of directorships in public companies/private companies that are either holding/subsidiary company of public companies shall be limited to 10.

The directors of a company are its eyes, ears, brain and nerves upon whose efficient functioning depend the success of the company. However due to personal or unavoidable reasons, a director may resign from his position. The provision related to Resignation of Director have been provided in Section 169 of Companies Act read with Rule 15 and 16 of Companies (Appointment and Qualification of Director) Rules,2014.

Mentioned below are the statutory requirements to be mandatorily followed by the resigning director as well as the company:

OBLIGATION ON THE PART OF DIRECTOR WHO IS RESIGNING

1. A director may resign from his office by giving a notice in writing to the company i.e. the Board of Directors of the company. E-mail communication or letter addressed to the company is a valid mode of communication

2. The director shall also forward a copy of the resignation along with a detailed reason for the resignation to the Registrar in Form DIR-11 along with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 within 30 days from the date of resignation.

(Effective date of resignation: The resignation of a director shall take effect from the date on which the notice of resignation is received by the company or the date, if any, specified by the director in the notice, whichever is later OR The effective date of resignation shall be same as the date of cessation entered in eForm DIR-12 if already filed by the company)

3. While submitting DIR-11, the director is required to attach the following documents:

·        Notice of resignation filed with the company (Resignation Letter can be attached)

·        Proof of dispatch

·        Acknowledgement received from company if any and is mandatory if yes selected in Form DIR-11 (Resignation Acceptance Letter by the Company can be attached)

·        Any other information can be provided as an optional attachment(s)

 

 

OBLIGATION ON THE PART OF THE COMPANY

1. The Board of Directors shall take note of the receipt of the notice of resignation which can be considered in the meeting of the Board of Directors. Accordingly, the resolution is passed by the Board of Directors for accepting the resignation and the minutes of the meeting of the Board of Directors shall be drafted.

2. The Board of Directors shall within 30 days from the date of receipt of notice of resignation from a director, intimate the Registrar in Form DIR-12 [Rule 15 of the Companies (Appointment and Qualification of Directors) Rules, 2014].

3. The Board of Directors shall also place the fact of resignation in the Director’s Report of the subsequent annual general meeting of the company and also it must be reflected in the website of the company.

4. While filing DIR-1, the company is required to attach the following documents:

·        Notice of resignation is mandatory (Resignation Letter can be attached)

·        Evidence of cessation is mandatory (BOARD RESOLUTION OR RESIGNATION ACCEPTANCE LETTER can be attached)

 

Resignation or Vacation of all the Directors

As per section 168(3) of Companies Act 2013, Where all the directors of a company resign from their offices or vacate their offices under section 167, the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in general meeting.

 

MANAGING DIRECTOR

Appointment and remuneration of managing director and whole-time director under companies act 2013

A Managing Director and Whole-time Director have been categorised as Key Managerial Personnel under Section 203 of Companies Act 2013. Apart from playing a key role in the overall growth and administration of the company, the Companies Act 2013 contains elaborate provisions relating to their appointment, remuneration, duties and liabilities.

Following is a concise note on the procedure for Appointment, Tenure, Disqualification, and Remuneration of Managing Directors (MD) and Whole-time Directors (WTD).

I. Schedule V

Applicable Provisions Section 196, Section 203 Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014

II. Definitions

MD( 2(54)):

Managing Director” means a Director who, by virtue of the articles of a company or an agreement with the Company or a resolution passed in its General Meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.

WTD (Section 2(94):

Whole-time Director” includes a director in the whole-time employment of the company.

Appointment

a) Appoint as Additional Director in BM.

b) Appoint as MD/ WTD in same or subsequent BM.

c) Resolution appointing as MD/ WTD to contain terms & conditions of appointment & remuneration.

d) File following e-forms.

e-form	Time Period
DIR-12	Within 30 days of apt. as Additional Director
DIR-12	Within 30 days of apt. as MD/ WTD
MGT-14	Within 30 days of apt. as MD (Not applicable to WTD)
MR-1	Within 60 days of apt. as MD/ WTD
MR-2 (CG approval)	Within 90 days of apt. as MD/ WTD, if apt. invariance to Section 196 & Schedule V

e) Approve terms & conditions of appointment & remuneration in GM.

f) Notice convening BM & GM shall contain terms & conditions of appointment & interests of other directors in the said appointment

g) If appointment not approved at GM, prior act not deemed invalid.

Ineligibility for appointment or continuance of appointment

1. Age less than 21 years or more than 70 years

Note: Person aged more than 70 years may be appointed bypassing SR & explanatory statement accompanying notice states justification for an appointment or,

Bypassing OR and obtaining CG approval

2. is an undischarged insolvent or has at any time been adjudged as an insolvent.

3. has at any time suspended payment to his creditors or makes, or has at any time made, a composition with them.

4. has at any time been convicted by a court of an offense and sentenced for a period of more than six months.

5. been sentenced to imprisonment for any period, or to a fine exceeding one thousand rupees, for the conviction of an offense under any of the laws enumerated under Schedule V Part I. (Approx. 14 to 18 laws have been specified)

6. been detained for any period under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.

7. He is not a resident of India.

Additional grounds

(as per Section 164)

1. is of unsound mind

2. an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force

3. 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

4. has been convicted of the offence dealing with related party transactions at any time during the last preceding five years

5. has not obtained DIN

6. directorships exceed the prescribed limits

 

REMUNERATION

Applicable Provisions:

            Section 197

            Section 198

            Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014

            Schedule V

 

Applicable to

Payment of remuneration to directors of a Public Company including MD, WTD, Manager

III. Limits

a) Overall limit- 11% of Net Profits

(includes Managing Director, Wholetime Directors, Managers)

b) Sub limits

Executive Directors

(i) 1 Executive Director (MD/ WTD/ Manager)- 5% of net profits

(ii) More than 1 Executive Director (MD/ WTD/ Manager)- 10% of net profits, to all taken together

              Non -Executive Directors

(i) 1% of net profits, if company has MD/ WTD/ Manager

(ii) 3% of net profits- in all other cases

C) Payment of Remuneration beyond aforementioned Limits

The company can pass SR in GM to:

1. Pay beyond 11% of net profit. (subject to Schedule V)

2. Supercede internal limits for different classes of directors

D) Preconditions for breaching limits

Default in payment of dues to bank/ public financial institution/ non-convertible debenture holder/ secured creditor- prior consent required

E) Matters not included in aforesaid limits

1. Fees paid for attending Board/ Committee meetings.

2. Premium for Insurance taken by the company for MD/ WTD/ CEO/ CFO/ Manager for indemnifying against liability in respect of any negligence, default, misfeasance, breach of duty, or breach of trust

3. Premium part of the remuneration if director/ CFO/CEO/ CS convicted of any offense.

F) Remuneration drawn in excess of limits

If remuneration drawn in excess of limits without approval:

1. Director to refund excess sum drawn within 2 years of receipt or within such lesser period as allowed by the company.

2. Director to hold sum in trust for the company till amount refunded.

G) Waiver of refund o of refund of excess remuneration paid

1. Company can’t waive such refund except by SR.

2. SR shall be passed within 2 years of the sum becoming refundable.

3. If a company has committed default in payment of dues to bank/ public financial institution/ non-convertible debenture holder/ secured creditor- their prior consent required.

IV. Disclosure in Auditors’ report

1. Statement whether remuneration paid to the directors is in accordance with Section 197.

2. Whether remuneration is paid in excess of limits to any director.

V) Sitting Fees

A) Not included in limits of Section 197.

B) Not to exceed Rs. 1 lakh per Board/ Committee meeting.

C) Sum to be decided by Board of Directors.

D) Fees to Id/ Women Director not less than fees to other directors.

Author comment

As a convention and as part of better Governance, sitting fees are not paid to Managing Directors and Whole-time directors, as they being whole-time employees of the company, attending Board and Committee meetings is a part of their obligations discharged towards the company, for which they are remunerated by the company. Moreover, under the erstwhile Companies Act 1956, when Central Government approval was obtained, the CG specifically restricted payment of sitting fees to Managing Directors.

VI. Disclosure in Board’s report

1. All Companies:

a) Names of top 10 employees in terms of remuneration drawn during the financial year.

b) Names of employees drawing aggregate remuneration not less than:

(i) One crore and two lakhs, if employed throughout the year.

(ii) Eight lakh and fifty thousand per month, if employed for part of the year.

(iii) Draws remuneration in excess of the amount drawn by the MD/ WTD/ Manager and holds either individually or together with spouse & dependent children, not less than 2% of equity shares of the company.

c) Contents of the statement:

(i) Designation of the employee;

(ii) Remuneration received;

(iii) Nature of employment, whether contractual or otherwise;

(iv) Qualifications and experience of the employee;

(v) Date of commencement of employment;

(vi) The age of such employee;

(vii) The last employment held by such employee before joining the company;

(viii) The percentage of equity shares held by the employee in the company and

(ix) Whether any such employee is a relative of any director or manager of the company and if so, name of such director or manager

d) If employees other than directors or their relatives posted in foreign countries, drawing more than 60 lakhs p.a or Rs. 5 lakhs p.m, not included in Board report circulated to the members but filed with ROC.

e) If any shareholder requests for the information stated in clause 2 before the AGM, the same is to be provided in 3 days of such request.

f) If the request is made after AGM, information is to be provided in 7 days.

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