Directors- Powers, Duties, and Position in India
A company in the eyes of the law is an artificial person. It has no physical existence. It has neither soul nor a body of its own. As such, it cannot act in its own person.
The directors are the brain of a company. They occupy a pivotal position in the structure of the company. They are in fact the mainspring of the company.
‘Director’ includes any person occupying the position of director, by whatever name called. The important factor to determine whether a person is or not a director is to refer to the nature of the office and its duties. Thus a director may be defined as a person having control over the direction, conduct, management, or superintendence of the affairs of the company.
Only individuals can be a directors-no body corporate, association, or firm can be appointed directors of a company. Only an individual can be so appointed.
Position of directors
- Directors as agents–a company, as an artificial person, acts through directors who are elected representatives of the shareholders. They are, in the eyes of the law, agents of the company for which they act-Ferguson v Wilson. The general principles of the law of principal and agent regulate in most respects the relationship between the company and its directors.
- Directors as servants–they are not servants of the company. A director may, however, become a servant in a different capacity. For example, the creator and controller of an air farming company was also working as its pilot. He died in an accident. His widow was allowed workman’s compensation –Lee v Lee’s Farming Ltd.
- Directors as officers– a director is an officer of the company. As such they are liable to certain penalties if the provisions of the Companies Act are not strictly complied with.
- Director as trustees–
(a) Directors as trustees of the company’s money and property in the sense that they must account for all the company’s money and property over which they exercise control.
Directors are, however, not trustees in the real sense of the world because they are not vested with the ownership of the company’s property. It is only as regards some of their obligations to the company and certain powers that they are regarded as trustees of the company.
(b) Directors as trustees of the power entrusted to them in the sense that they must exercise their powers honestly and in the interest of the company and the shareholders and not in their own interest.
Trustees of the company- directors are trustees for the company and not for the third party who have made contracts with the company or for the individual shareholders.
Quasi-trustees-directors are only quasi-trustees because-
- (i) they are not vested with ownership of the company’s property
- (ii) their functions are not the same as those of trustees
- (iii) their duties of care are not as onerous as those of trustees.
Powers of directors
General Powers of the Board (Section 291)
The powers of the Board of directors are co-extensive with those of the company. This proposition is, however, subject to two conditions:
First, the Board shall not do any act which is to be done by the company in a general meeting
Second, the Board shall exercise its powers subject to the provisions contained in the Companies Act, or in the Memorandum or the Articles of the company or in any regulations made by the company in general meeting.
Powers to be exercised at Board meetings (Section 292)
The Board of directors of a company shall exercise the following powers on behalf of the company by means of resolutions passed at the meetings of the Board, viz, the power to-
- (a) make calls on shareholders in respect of money unpaid on their shares
- (b) issue debentures
- (c) borrow money otherwise than on debentures
- (d) invest the funds of the company
- (e) make loans
Powers to be exercised with the approval of company in general meeting
- (a) sale or lease of the company’s undertaking
- (b) extension of the time for payment of a debt due by a director
- (c) investment of compensation received on the acquisition of the company’s assets in securities other than trust securities
- (d) borrowing of money beyond the paid-up capital of the company
- (e) contributions to any charitable fund beyond Rs.50,000 in one financial year or 5% of the average et profits during the preceding three financial years, whichever is greater.
Duties of the Directors
- Fiduciary duties-as fiduciaries, the directors must-
(a) exercise their powers honestly and bona fide for the benefit of the company as a whole; and
(b) not place themselves in a position in which there is a conflict between their duties to the company and their personal interests. They must not make any secret profit out of their position. If they do, they have to account for it to the company.
- Duties of care, skill and diligence– directors should carry out their duties with reasonable care and exercise such degree of skill and diligence as is reasonably expected of persons of their knowledge and status. He is not bound to bring any special qualifications to his office.
Standard of the care-the standard of care, skill, and diligence depends upon the nature of the company’s business and the circumstances of the case. They are various standards of the care depending upon:
- (a) the type and nature of work
- (b) division of powers between directors and other officers
- (c) general usages and customs in that type of business; and
- (d) whether directors work gratuitously or remuneratively
- Duty to disclose interest–where a director is personally interested in a transaction of the company, he is required to disclose his interest to the board. An interested director is neither to vote on the matter of his interest nor his presence shall count for the purposes of quorum.
- Duty to attend board meetings–the Act only says that the office of a director is automatically vacated if he fails to attend three consecutive meetings of the board or all meetings for a period of 3 months, whichever is longer. Moreover, a director’s habitual absence may become evidence of negligence.
- Duty not to delegate– a director should not delegate his functions to another person. But a delegation of functions may be made to the extent to which it is authorized by the Act or the constitution of the company.
Quorum (Section 174)
‘Quorum’ means the minimum number of members who must be present in order to constitute a valid meeting and transact busies thereat. The quorum is generally fixed by the Articles. If the Articles of a company do not provide for a large quorum, the following rules apply:
1.) Quorum for public company-5 members personally present
The quorum for other companies-2
For the purpose of quorum, a person may be counted as 2 or more members if he holds shares in different capacities.
2. if within half an hour a quorum is not present, the meeting, if called upon the requisition of members, shall stand dissolved. In any other case, it shall stand adjourned to the same day, place and time in the next week. The Board of Directors may adjourn the meeting to be convened on any particular day, time and place to b fixed on the date of the meeting itself or at least before the commencement of the same in the next week. Where the Board of directors fails to do so, the meeting stands statutorily adjourned to the same day in the next week.
The Articles may provide for a large quorum-The Articles cannot provide for a quorum smaller than the statutory minimum. For the purpose of quorum, only members present in person and not proxies are to be counted.
When quorum should be present-Article 49(1) of Table A requires the quorum to be present at the time when the meeting proceeds to transact business. It need not be present throughout or at the time of taking a vote on any resolution.
Keywords: Directors, Kinds of Directors in India, Directors under Companies Act, Type and powers of Directors, Duties of Directors.
Click here to read the Bare Act of Companies Act 2013