DIRECTORS IN A COMPANY

POSITION, APPOINTMENT, QUALIFICATION, DISQUALIFICATION, RIGHTS,

DUTIES AND POWERS.

COMPANY LAW ASSIGNMENT

SUBMITTED IN THE PARTIAL FULFILLMENT OF REQUIREMENT FOR
DEGREE OF BACHELOR OF LAWS 2024-2025.

SUBMITTED TO SUBMITTED BY
DR. RAJNI BAGGA SUKHPREET KAUR GILL
ROLL NO. – 35/22
LLB 6TH SEMESTER
 1

ACKNOWLEDGEMENT

I wish to express our heartfelt gratitude to Dr. Rajni Bagga, my mentor and
supervisor for this assignment. It has been under her constant and sincere
guidance, auspices and motivation that we have been able to get through
with this assignment. She has lighted the path for us with her expertise and
attention throughout the course of this assignment and it would not have
been possible to have come through with the research if not for her
persistent counselling and persuasion. I feel highly indebted to her concern
and involvement in the realization of this study.
I would like to thank the staff of the library of University Institute of Laws,
Panjab University Regional Centre, Ludhiana for providing me all the
relevant books and material for the completion of my assignment. Lastly, I
would take an opportunity to thank family, friends and associates for
putting up and sticking up from end to end of the progression of this
research.

Sukhpreet Kaur Gill

Roll no. – 35/22
 2

TABLE OF AUTHORITIES

1 Agrawal Trading Corp. v. Collector of 5

Customs, 1972 SCR (3) 85.
2 Ram Chand & Sons Sugar Mills Pvt. Ltd. v. 5
Kanhayalal Bhargava, AIR 1966 SUPREME
COURT 1899, 1967 ALL. L. J. 102, 1967 BLJR
59
3 Ferguson v. Wilson, [1904] SLR 41_601 5

4 Ray Cylinders & Containers v. Hindustan 6

General Industries Limited, AIR 1998 DELHI
418
5 Kirlampudi Sugar Mills Ltd. v. G. Venkata Rao, 6
2003(2) ALT550,
6 H.P. State Electricity Board v. Shivalik Casting 6
(P.) Ltd., [2003]115COMPCAS310(HP),
7 Vineet Kumar Mathur v. Union of India, 6
AIRONLINE 1996 SC 526
8 V.N. Bhajekar vs K.M. Shinkar., 6
(1934)36BOMLR483
9 Dale & Carrington Investment (P.) Ltd. v. P.K. 7
Prathapan, 2004 AIR SCW 5143
10 V.S. Ramaswami Iyer v. Brahmayya and Co., 7
AIR1966MAD247
11 Percival v. Wright, (1902) 2 Ch. 421 7

12 Peskin v. Anderson, 2001 BCC 874. 7

13 Lee Behrens & Co., ChD 1932 8

14 R.R. Kothandaraman v. CIT, (1966)2MLJ473 8

 3

INDEX
S.NO. PARTICULARS PAGE NO.

1. INTRODUCTION 4-5
2. LEGAL POSITION OF DIRECTOR 5–9

• AS AN AGENT
• AS A TRUSTEE
• AS A MANAGING PARTNER
• AS AN EMPLOYEE

3. QUALIFICATION TO BE A DIRECTOR 9
4. DISQUALIFICATION 10
5. APPOINTMENT OF DIRECTORS 11 -14

• APPOINTMENT OF FIRST DIRECTORS

• APPOINTMENT BY PROPORTIONAL
REPRESENTATION (VOTING)
• APPOINTMENT BY THE BOARD
• APPOINTMENT BY TRIBUNAL
• ELECTION BY SMALL SHAREHOLDERS
• INDEPENDENT DIRECTORS AND THEIR
APPOINTMENT

6. RIGHTS OF DIRECTORS 15 -17

7. DUTIES OF DIRECTORS 17
8. POWERS OF DIRECTORS 18

• SPECIFIC POWERS
• GENERAL POWERS

9. CONCLUSION 19
10 BIBBLIOGRAPHY 20
 4

INTRODUCTION
A good director creates an environment, which gives the actor the
encouragement to fly - Kevin Bacon1

The supreme executive authority controlling the management and affairs of a

company vests in the team of directors of the company, collectively known as
its Board of Directors. At the core of the corporate governance practice is the
Board of Directors which oversees how the management serves and protects
the long term interests of all the stakeholders of the Company. The institution
of board of directors was based on the premise that a group of trustworthy
and respectable people should look after the interests of the large number of
shareholders who are not directly involved in the management of the
company.2
The Companies Act, 20133 does not contain an exhaustive definition of the term
“director”. Section 2 (34) of the Act prescribed that “director” means a director
appointed to the Board of a company. This section corresponds to Section 2(13)
of the Companies Act, 19564. It defines a director as "any person occupying the
position of director by whatever name called".
A company, though a legal entity in the eyes of law, is an artificial person,
existing only in contemplation of law. It has no physical existence. It has neither
soul nor body of its own. As such, it cannot act in its own person. It can do so
only through some human agency. The persons who are in charge of the
management of the affairs of a company are termed as directors. Directors take
the decision regarding the management of a company collectively in their
meetings known as Board Meetings or at the meetings of their committees
constituted for certain specific purposes.
Section 2 (10) of the Companies Act, 2013 defined that “Board of Directors” or
“Board”, in relation to a company, means the collective body of the directors of
the company.

1
Good Director Quotes, available at: https://www.brainyquote.com/topics/good-director-quotes
2
ICSI Study material, available at:
https://www.icsi.edu/media/portals/0/APPOINTMENT%20AND%20QUALIFICATIONS.pdf
3
Act No. 18 of 2013
4
Act No. 1 of 1956
 5

In the case of Agrawal Trading Corp. v. Collector of Customs (1972)5, it was held
by the Apex Court that the meaning of the term 'director' in relation to a firm
connotes to the partner of that firm.

LEGAL POSITION OF DIRECTORS

Describing the role of a director in a corporate enterprise can be challenging.
They don’t have a servant-master relationship with the company because they
have control over the company’s activities. As Bowen L.J. once pointed out,
directors are sometimes described as agents, sometimes as trustees, and
sometimes as managing partners. However, these descriptions don’t fully
encompass their powers and responsibilities. They are used to offer different
perspectives on how directors can be viewed depending on the specific context
and purpose.6
In the case of Ram Chand & Sons Sugar Mills Pvt. Ltd. v. Kanhayalal Bhargava
(1966)7, it was acknowledged that it’s indeed difficult to provide an exact legal
position of a director in a company. Judges have described it as a multi-
dimensional role, which can be viewed as that of an agent, trustee, or manager,
even though these terms may not have the same legal implications in a strict
legal sense.

1. DIRECTORS AS AGENTS
A company cannot independently take action in its own capacity and requires a
representative. This representative role is fulfilled by the directors, establishing
a principal-agent relationship.
In this relationship, directors possess the authority to act and make decisions on
the company’s behalf. Any contracts or transactions made on behalf of the
company render the company responsible, while the directors remain free from
personal liability. Directors merely sign and execute contracts on behalf of the
company.
In the case of Ferguson v. Wilson (1904)8, it was legally recognized the legal
position of directors as agents of the company. This acknowledgement stems
5
1972 SCR (3) 85.
6
Legal Position of Directors in a Company, available at: https://lawbhoomi.com/legal-position-of-directors-in-
a-company/#Who_is_a_Director_of_a_Company
7
AIR 1966 SUPREME COURT 1899, 1967 ALL. L. J. 102, 1967 BLJR 59
8
[1904]SLR 41_601.
 6

from the legal principle that a company, as an artificial entity, cannot function
independently; it necessitates an agent to act on its behalf.
Additionally, in the case of Ray Cylinders & Containers v. Hindustan General
Industries Limited (1998)9, it was clarified that directors act as agents of the
company, not of its individual members unless special circumstances dictate
otherwise. A company is legally distinct from its shareholders.
In the case of Kirlampudi Sugar Mills Ltd. v. G. Venkata Rao (2003)10, it was
observed that when a company’s CEO executes a promissory note and borrows
money for the company, the liability does not fall on the CEO personally. Even if
the company fails to repay the borrowed amount, the agent (CEO) does not
incur personal liability.
However, in the case of H.P. State Electricity Board v. Shivalik Casting (P.) Ltd.
(2003)11, it was established that if a director provides surety in their personal
capacity, and not on behalf of the company, the company cannot be held
responsible for the surety amount.
Certain circumstances were outlined in the case of Vineet Kumar Mathur v.
Union of India12 (1996) in which directors can become personally liable:
• When directors enter into contracts in their own names, rather than
on behalf of the company.
• When directors omit or incorrectly use the company’s name in
agreements.
• When directors sign contracts or agreements in a manner that is
unclear whether the company (as the principal) or the director (as the
agent) is signing and who will be liable for future obligations.
• When directors exceed the approved limits and borrow in excess of
authorized funds.
Unauthorized actions can sometimes be ratified. In Bhajekar v. Shinkar
(1933)13, it was noted that if a transaction made by a director exceeds their
authority but falls within the company’s overall powers, it can be validated
through a company resolution.However, if the company has been deregistered
and dissolved by the registrar, it cannot ratify actions because a non-existent
9
AIR 1998 DELHI 418
10
2003(2)ALT550.
11
[2003]115COMPCAS310(HP).
12
AIRONLINE 1996 SC 526
13
(1934)36BOMLR483
 7

entity cannot initiate legal actions. Hence, it can be stated that the legal
position of director in a company is similar to an agent.

2. DIRECTOR AS A TRUSTEE
Within a company, the legal position of director is also as a trustee. This trustee
role implies that directors manage the company’s assets and work in the best
interests of the company.
A trustee is someone who can be entrusted with the company’s resources and
acts to achieve the company’s objectives rather than for personal gain.
Furthermore, a trustee is granted certain powers, such as share allocation,
issuing calls, accepting or declining transfers, etc., which are referred to as
powers in trust.
In the case of Dale & Carrington Investment (P.) Ltd. v. P.K. Prathapan (2004)14,
it was emphasized that directors must act in a fiduciary capacity. This means
they have a duty to act on behalf of the company with the utmost care, skill,
good faith, and due diligence, primarily in the best interests of the company they
represent.
As highlighted by the madras high court in the landmark case of V.S.
Ramaswami Iyer v. Brahmayya and Co. (1966)15, directors can be held liable as
trustees in terms of their authority to manage the company’s funds. Directors
may potentially misuse these funds. Consequently, if legal action is taken against
a director for such offences, the cause of action persists even after the director’s
death and can be pursued against their legal representative.
However, it’s crucial to note that, as affirmed in the cases of Percival v. Wright
(1902)16 and Peskin v. Anderson (2001)17, directors owe their duty to the
company as a whole and are not trustees for individual shareholders. They do
not owe a fiduciary duty to shareholders solely by virtue of their positions.
Additionally, they can purchase company shares without disclosing ongoing
negotiations for the sale of the company’s business.
Hence, the legal position of director can be considered as a trustee.

3. DIRECTOR AS A MANAGING PARTNER

14
2004 AIR SCW 5143
15
AIR1966MAD247
16
(1902) 2 Ch. 421
17
2001 BCC 874.
 8

Directors of a company act as representatives of the shareholders, carrying out

their will and objectives. They work on behalf of the shareholders and their
interests, which grants them significant powers and the ability to perform
functions that are essentially proprietary in nature. The
company’s Memorandum of Association (MOA) and Articles of
Association (AOA) establish the board of directors as the highest authority for
policy-making and decision-making.18

4. DIRECTOR AS AN EMPLOYEE/OFFICER
Shareholders elect directors in a general meeting convened by the company.
Once a director is elected, they have rights and powers granted to them by the
law. These powers and rights cannot be revoked by the shareholders, and
shareholders cannot interfere in the decision-making processes of the directors.
Because directors possess these substantial powers and rights, they cannot be
classified as employees of the company. Employees typically have limited
authority and work under the direction of the employer without the ability to
interfere in decision-making. Hence, the legal position of director can be
considered as an employee.
In the case of Lee Behrens & Co., Re (1932)19, it was established that
shareholders elect representatives who then direct the company’s affairs on
their behalf, akin to acting in the capacity of agents. This ruling also clarified that
directors are not employees or servants of the company.
However, the Madras High Court, in the case of R.R. Kothandaraman v. CIT
(1957)20, held that in the absence of specific legal constraints, directors can
choose to enter into special contracts with the company to be considered
employees.
Directors are also regarded as officers in certain aspects of a company. They can
be held accountable for penalties if they fail to comply with the law. To
summarize the legal position of directors in a company, the statementof Jessel
M.R. from Forest of Dean Coal Mining Co., Re (1878)21 can be quoted:

18
Legal Position of Directors in a Company, available at: https://lawbhoomi.com/legal-position-of-directors-in-
a-company/#Who_is_a_Director_of_a_Company
19
ChD 1932.
20
(1966)2MLJ473
21
Re Forest of Dean Mining Co: 1878,available at: https://swarb.co.uk/re-forest-of-dean-mining-co-1878/
 9

“Directors have sometimes been called trustees or commercial trustees, and

sometimes they have been called managing partners.
It does not matter much what you call them as long as you understand the legal
position of director in a company, which is that they are essentially
businesspeople managing a trading entity for their own benefit and for the
benefit of all the shareholders. They hold a fiduciary position with respect to the
company, given their control over powers and capital.”

QUALIFICATIONS OF DIRECTORS
The Companies Act of 2013 does not prescribe specific educational or
professional qualifications of directors. Additionally, the Act does not enforce
any mandatory qualifications to directors. In the absence of relevant provisions
within a company’s articles of association, there is no obligatory requirement
for a director to hold shares in the company, unless they choose to do so
willingly. However, articles generally support a minor percentage of eligibility.
SHARE QUALIFICATION
The company’s articles provide that each director must hold a specific quantity
of shares, referred to as “qualification shares.” It is mandatory for a director to
acquire the required number of these shares within two months of their
appointment.
Failure to acquire the required qualification shares as directed can have
consequences for the director. He can suffer in two ways: The director post may
become vacant. He could get in trouble and have to pay a fine if he continues to
serve as a director. It’s mandatory for the director to hold the shares himself.22

22
Appointment and Qualification of Director, available at:
https://www.companysuggestion.com/appointment-and-qualification-of-director/
 10

DISQUALIFICATIONS FOR APPOINTMENT OF DIRECTOR

Section 164 of the Companies Act, 201323 provides that - A person shall not be
eligible for appointment as a director of a company, if24 —
• 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 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.
• 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; 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, whether alone or jointly with others, and six 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; or
• he has not got the DIN.
An additional disqualification is provided in sub section (2) of Section 164
relating to consequences of non filing of financial statements or annual
returns. Any person who is or has been director of any company which has not
filed any financial statements and Annual Return for 3 continuous financial
year or has defaulted in payment of debentures/deposit/dividend etc, shall
also not be eligible for appointment as director of any public company and for
reappointment in the same company for a period of five years from the date
on which the said company fails to do so.

23
Act No. 18 of 2013
24
Disqualification of director- Conditions, Consequences & Revival, available at:
https://vjmglobal.com/blog/disqualification-director-conditions-consequences-revival/
 11

APPOINTMENT OF DIRECTORS
The crucial role that the directors play in the management of the affairs of the
companies is unquestionable. Thus, the persons appointed to the post of
director hold desirable qualities and integrity. The 2013 Act has an ample body
of provisions that deal with the appointment of various directors in a very
elaborate manner.

According to Section 149 of the 2013 Act25, every company is required to have
a Board of Directors. The board shall have individuals as directors. Further, it
provides the minimum number of directors that a company is
required to have, i.e., for a public company, the minimum number is three, and
for a private company, the minimum number is two. In the case of a one-
person company, the minimum number is one. Furthermore, the provision also
provides for a maximum number of directors, i.e., fifteen.

The proviso clause provides that a company can also appoint more than fifteen
directors by passing a special resolution. Also, having one woman director is an
essential requirement.

Section 149(3)26 mandates the presence of at least one director who stays in
India for a total of 182 days during the financial year.
Whereas, sub-section 4 provides that every listed company is to have
at least one-third of the total independent directors. For public companies, the
Central Government may prescribe a limit on the minimum number of
independent directors.

Section 15227 provides for the appointment of directors. Let's have a brief
overview of how different classes of directors are appointed.

• APPOINTMENT OF THE FIRST DIRECTORS

Generally, the first directors are appointed by the subscribers of the

Memorandum of Association (Section 152(1) of the 2013 Act).
In case the appointments are not done in the aforementioned way, the
individual subscribers and signatories of the MOA become the directors.

25
The Companies Act, 2013 [Act no. 18 of 2013].
26
The Companies Act,2013, sec.149(3).
27
Ibid.
 12

Further, it is important to note that the first directors only hold the office until
the new ones are appointed in the first annual general meeting.
It is pertinent to note that no person shall be capable of being appointed as a
director of a public company (that has a share capital) unless he fulfils the
below-mentioned points:
1. Allotment of a Director Identification Number (DIN) as per the provisions
of Section 154 of the 2013 Act.
2. The First Director has signed and filed a consent in writing for the
appointment with the Registrar of Companies (ROC).
Provided this must be done within thirty days of the appointment of the
director.
3. He has signed the memorandum for his qualification shares, if any.
4. A written undertaking to the ROC if he has taken any qualification shares
from the company. He must also pay for that qualification share.
Further, an affidavit is also required to this effect, specifying that shares
have been registered in his name.
5. In cases of independent directors appointed in the general meeting, it is
mandatory that an explanatory statement by the board be provided for
such an appointment. The statement must mention that the director
fulfils the requirements as per the 2013 Act.28

• SECTION 162: VOTING ON THE APPOINTMENT OF DIRECTOR

It is important to note that the appointment of every director in a public

company or its subsidiary and the passing of an ordinary resolution in this
context in the general meeting are mandatory.

According to Section 162 of the 2013 Act, it is mandatory that each

candidate must be voted individually. Thus, if two or more directors are
appointed by a single resolution, then it will be invalid and void in the eyes
of the law. However, if in the meeting it has been unanimously decided,
more than one director can be appointed by a single resolution.

Further, if such an appointment is made, it is necessary that first a

resolution is passed which authorises such an appointment. One must note

28
Directors of a company, available at: https://www.legalserviceindia.com/legal/article-6448-rights-liabilities-
and-duties-of-directors-under-indian-companies-act-2013.html#google_vignette
 13

that this provision does not apply to private companies that are not
subsidiaries of public companies.29

• APPOINTMENT BY PROPORTIONAL REPRESENTATION

The basic or traditional method for appointment is an election by a simple
majority of the shareholders. However, it has been observed that this method
of appointment frequently fails to appoint even a single director on the board.
Thus, Section 163 of the Companies 2013 Act allows the minority to place their
representative and enables minority shareholders to appoint directors through
the method of proportional representation.
The very purpose of enumerating this provision of voting through proportional
representation is to amplify the method of minority voting. This method can be
followed by different methods, namely, a single transferable vote, voting by
way of cumulative voting or any other means. This system of appointment by
way of proportional representation is also called a 'cumulative voting system'.

Put simply, this provision allows companies to appoint directors through the
method of proportional representation. One must note that
this method can only be adopted if the Articles of Association (AOA)
provide for it.30

• APPOINTMENT OF DIRECTORS BY THE BOARD

As per the provisions of the 2013 Act, the board has the power to appoint any
person as director if he fulfils the requirements in a general meeting. As per
Section 162 of the 2013 Act, the following directors can be appointed by the
board, namely:
1. Additional director (Section 161(1) of the 2013 Act)
2. Alternate director (Section 161(2) of the 2013 Act)
3. Nominee director (Section 161(3) of the 2013 Act)
4. To fill in vacancies of directors (Section 161(4) of the 2013 Act)

• APPOINTMENT BY TRIBUNAL
The Company Law Tribunal has been given the power to appoint directors, and
the provision for the same has been enumerated under Section 242(j)
of the 2013 Act.

29
Ibid.
30
ICSI Study material, available at:
https://www.icsi.edu/media/portals/0/APPOINTMENT%20AND%20QUALIFICATIONS.pdf
 14

• APPOINTMENT OF DIRECTORS THROUGH ELECTION BY SMALL

SHAREHOLDERS
As enunciated under Section 151 of the 2013 Act, it is mandatory that at least
one director should be elected by small shareholders. The term 'small
shareholders' connotes those shareholders who possess a maximum of Rs.
20,000 shares in the company.

• INDEPENDENT DIRECTORS AND THEIR APPOINTMENTS

The provisions pertaining to the independent directors are laid down under
Section 149(4) of the 2013 Act. It enumerates that at least one-third of the
total number of directors in every listed company should be independent
directors. However, as far as the public companies are concerned, the central
government has the power to prescribe the minimum number of independent
directors.

Who is an independent director?

Section 149(6) of the 2013 Act31 provides for the definition of an independent
director. It states that an independent director is a director other than a
managing director, a whole-time director, or a nominee director. It further lays
down certain characteristics and other circumstances that must be fulfilled in
order to be an independent director. The following are the points that need
to be considered:
1. A person with integrity who has the desired expertise and experience.
2. A person who has never been a promoter of the company, its subsidiary
or any other holding company in the past or present.
3. A person who does not have a pecuniary relationship with the company,
its subsidiary, or any other holding company, directors, or promoters.
4. A person whose relative or he himself does not hold any post of key
managerial personnel. Further, he must also not be an employee of the
company.
It is pertinent to note that every independent director is required to clarify and
declare his independence at the very first board meeting and shall continue to
do so every year at the first board meeting of every financial year. 32It is to be
noted that an independent director holds the office of directorship for a period
of five years. Also, an independent director can be reappointed, provided the
same shall be done after the passing of a special resolution.

31
The Companies Act,2013 [act no 18 of 2013]
32
Directors in Company Law, available at: https://blog.ipleaders.in/director-companies-act-2013/
 15

RIGHTS OF DIRECTORS

1. Section 180 of the Companies Act 2013 states that the Board can only
exercise those powers if they are authorized by the general meeting:
• To sell, lease, or otherwise dispose of the company's undertakings in whole
or in part
• To invest in trust securities otherwise.
• To take out a loan for the company's needs.
• To allow the director time to repay any debt or to refrain from doing so
• Unless the director acted in good faith and with due care and diligence, the
title of lessee or purchaser is compromised when the director violates the
restrictions which are imposed under the sections.
• Provided, this section does not extend to companies whose primary activity
is the sale or leasing of real estate.33

2. Right to form an Audit Committee

Section 177 gives the board of directors the authority to form an audit
committee. It must have at least three directors, one of whom must be an
independent director. Independent directors must comprise the majority of
the committee. The audit committee's chairperson and members should be
capable of reading and comprehending financial statements.

The audit committee must function in compliance with the written terms of
reference adopted by the Board.34

3. Right to form Nomination and Remuneration Committees, as well as a

Stakeholder Relationship Committee
Section 178 allows the Board of Directors to form the Nomination and
Remuneration Committee and the Stakeholders Relationship Committee.
Three or more non-executive directors should make up the Nomination and
Remuneration Committee, with one-half of them to be independent directors.

The Stakeholders Relationship Committee may be formed by the Board of

Directors if there are more than 1,000 shareholders, debenture holders, or
other security holders on the board of directors. This committee is responsible
for considering and resolving shareholder complaints.35

33
Rights of Directors of a company, available at: https://www.legalserviceindia.com/legal/article-6448-rights-
liabilities-and-duties-of-directors-under-indian-companies-act-2013.html#google_vignette
34
Ibid.
35
Ibid.
 16

4. Rights that can be exercised at a Board meeting or by passing a resolution

by publication in accordance with u/s 289 provisions.
• Section 224(6) gives the board of directors the authority to select the
company's first auditor within 30 days of the company's incorporation
• Section 224(6) gives the Auditor the authority to fill a casual vacancy in
his or her office if the vacancy is not caused by resignation.
• Additional Directors can be appointed if the Articles allow [Section 260].
• Other rights granted by the articles include revocation of securities,
payment of interim dividends, preliminary expenditures, use of a foreign
seal, capitalization of earnings, and the issuance of bonus shares.
• Individual directors who act without being empowered by the Board
may be ratified by the Board by passing an effective resolution of
retrospective effect if the Board deems it necessary.36

5. Right to contribute to charitable or other funds.

The company's Board of Directors is authorized to donate to bona fide
charitable and other funds under section 181. When the total amount of
contribution, in any event, exceeds 5% of the company's average net profit for
the immediately preceding financial years, the company must first give
approval in a general meeting.

6. Right to contribute to the National Defence Fund

Under section 183 of the Companies Act 2013, the Board of Directors has the
authority to make contributions to the National Defence Fund or any other
fund authorized by the Central Government for the purpose of national
defence. The donation sum may be whatever you think is appropriate. This
cumulative amount of contribution should be included in the profit and loss
account for the financial year in effect.

7. Rights of Directors can also be categorized into individual rights and

collective rights
➢ INDIVIDUAL RIGHTS
• Individual privileges include the right to review books of accounts
(Section 209(4))
• The right to receive notices of board meetings (Section 285)
• The right to engage in proceedings and cast votes in favour or against
proposals (Section 300)

36
Rights of Directors of a company, available at: https://www.legalserviceindia.com/legal/article-6448-rights-
liabilities-and-duties-of-directors-under-indian-companies-act-2013.html#google_vignette
 17

• The right to receive draught circular resolutions (Under Section 289),

and the right to inspect minutes of board meetings.

➢ COLLECTIVE RIGHTS
• Right to refuse to transfer shares:
Under Section 111 of the Act, directors of private and deemed public
companies have the right to refuse to register a transfer of shares to
anyone they don't want to.
• Right to elect a Chairman:
The directors have the right to elect a chairman for board meetings
under Regulation 76(1).
• Right to appoint a Managing Director:
The Board of Directors has the authority to appoint the company's
managing director/manager (as specified in the Act).37

DUTIES OF DIRECTORS- SECTION 166

For the first time, duties of directors have been defined in the Act.
A director of a company shall :
• Act in accordance with the articles of the company. Appointment and
Qualifications of Directors 21
• 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.
• Exercise his duties with due and reasonable care, skill and diligence and
shall exercise independent judgment.
• 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.
• Not achieve or attempt to achieve any undue gain or advantage either to
himself or to his relatives, partners, or associates and if such director is
found guilty of making any undue gain, he shall be liable to pay an
amount equal to that gain to the company.
• Not assign his office and any assignment so made shall be void.

If a director of the company contravenes the provisions of this

section such director shall be punishable with fine which shall not be
less than Rs. 1,00,000 but which may extend to Rs. 5,00,000.
37
Rights of Directors of a company, available at: https://www.legalserviceindia.com/legal/article-6448-rights-
liabilities-and-duties-of-directors-under-indian-companies-act-2013.html#google_vignette
 18

POWERS OF DIRECTORS

1. GENERAL POWERS

Under the Companies Act 201338, the Board of Directors has been vested with
wide-ranging powers to manage the company's affairs. These powers are
subject to the provisions of the Act, the company's Memorandum of
Association (MOA), and Articles of Association (AOA). 39
Key powers include:
• Calling Meetings: The ability to call meetings on a suo moto basis,
ensuring timely decision-making and governance.
• Issuing Securities: The power to issue shares, debentures, or other
instruments for the company's benefit.
• Employee Bonuses: Approving bonuses to employees, recognizing their
contributions and motivating the workforce.
• Dividend Declaration: The authority to declare dividends, rewarding
shareholders for their investment in the company.
• Financial Management: Granting loans or giving guarantees regarding
loans, authorizing buybacks of securities, and approving mergers,
acquisitions, or takeovers.
• Business Strategy: Powers to diversify the business, borrow, and invest
funds, underlining the board's central role in strategic planning.
• Regulatory Compliance: Approving financial statements and board
reports, ensuring compliance with regulatory requirements.

2. SPECIFIC POWERS

Additionally, the board can exercise specific powers, including:

• Appointment and Management: Appointing secretaries, managers, or
filling up casual vacancies among directors or auditors.
• Contractual Authority: Entering into contracts on behalf of the company
with other parties, ensuring operational continuity and expansion.
• Contributions to National Defense Fund (NDF): Making contributions
without any limit, reflecting the company's social responsibility.40

38
Act no. 18 of 2013.
39
Directorships – Section 165 of Companies Act, 2013,available at: https://cleartax.in/s/directorships-section-
165-companies-act-2013
40
Ibid.
 19

CONCLUSION
Directors are a vital part of the company management. Every company needs
to appoint directors at the time of incorporation. One person company needs
to have at least one director. A private company needs to have at least two
directors, and a public company must have at least three directors. A company
can have a maximum of 15 directors.
A person appointed as a director will perform all the duties and functions of a
director as per the provisions of the Companies Act, 201341. A person is
appointed as a director for the Board of a company. The Board or Board of
Directors of a company means the collective body of directors of a company.
The company operates through the Board of Directors.
The appointment and removal of directors are critical processes governed by
the Companies Act 2013 to ensure effective corporate governance. The Act
provides a clear framework to maintain a balance between the powers of the
board and the rights of the shareholders, ensuring that directors are appointed
and removed in a transparent and fair manner.
Directors are appointed by shareholders during the Annual General Meeting
(AGM) or by the Board of Directors in the case of additional or alternate
directors. The Companies Act 2013 mandates obtaining a Director
Identification Number (DIN) and providing written consent. Independent
directors and women directors have specific appointment criteria to ensure
diversity and objectivity.42
Directors can be removed by shareholders through an ordinary resolution,
except those appointed by the Tribunal. The Board can also remove directors
under certain circumstances, such as non-attendance at meetings. Resignation
is another route for director removal, requiring written notice to the Board.
The legal position of directors in a company is multifaceted and includes roles
as agents, trustees, managing partners, and officers. Directors act as
representatives of shareholders, wielding substantial powers and making key
decisions.

41
ACT NO.18 0F 2013.
42
Legal Position of Directors in a Company, available at: https://lawbhoomi.com/legal-position-of-directors-in-
a-company/#Conclusion
 20

BIBBLIOGRAPHY
• BARE ACTS REFERRED
a. The Companies Act,2013 [act no. 18 of 2013].
b. The Companies Act, 1956 [act no. 1 of 1956].

• WEBSITES REFERRED
a) Legal Position of Directors in a Company, available at:
https://lawbhoomi.com/legal-position-of-directors-in-a-
company/#Conclusion
b) Directorships – Section 165 of Companies Act, 2013,available at:
https://cleartax.in/s/directorships-section-165-companies-act-2013

c) Rights of Directors of a company, available at:

https://www.legalserviceindia.com/legal/article-6448-rights-liabilities-
and-duties-of-directors-under-indian-companies-act-
2013.html#google_vignette

d) Directors in Company Law, available at:

https://blog.ipleaders.in/director-companies-act-2013/
e) ICSI Study material, available at:
https://www.icsi.edu/media/portals/0/APPOINTMENT%20AND%20QUA
LIFICATIONS.pdf

f) Disqualification of director- Conditions, Consequences & Revival,

available at: https://vjmglobal.com/blog/disqualification-director-
conditions-consequences-revival/

g) Re Forest of Dean Mining Co: 1878,available at: https://swarb.co.uk/re-

forest-of-dean-mining-co-1878/

h) Appointment and Qualification of Director, available at:

https://www.companysuggestion.com/appointment-and-qualification-
of-director/
i) Legal Position of Directors in a Company, available at:
https://lawbhoomi.com/legal-position-of-directors-in-a-
company/#Who_is_a_Director_of_a_Company
j) Good Director Quotes, available at:
https://www.brainyquote.com/topics/good-director-quotes