Role of Company Directors

8/14/2019 Role of Company Directors

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5 DECEMBER 09 www.afterschool.tk 1

ROLE OF COMPANY DIRECTORS

by :

DR. T.K. JAIN

AFTERSCHOOL

centre for social entrepreneurship

sivakamu veterinary hospital road

bikaner 334001 rajasthan, indiaFOR PGPSE PARTICIPANTS

mobile : 91+9414430763


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WHO IS A DIRECTOR?

SEC 2(13) : ANY PERSON WHO OCCUPIESTHE POSITION OF A DIRECTOR BY

WHATEVER NAME CALLED


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CASE STUDY : FERGUSON

V.S WILSON

Truely speaking the director of a company isan agent of the company


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Case study : Smith v/s Anderson

Directors are truely the trustees of the propertyfo the company


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DEEMED DIRECTOR ???

As per sec. 5 , 303, 372A : if directors act on

advice of a person, that person is calleddeemed director.

Sec. 7 : if that person is giving professional

advice that person will not be called deemeddirector.


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Managing Director ???

Sec 2(26) : a person who has been givensubstantial powers of management is calledmanaging director - he can be appointed by

- board resolution / articles / AGM /

agreements


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Minimum number of directors

Sec. 252 : public company : 3, private

company : 2no maximum limit in law

these limits can be set in articles of association

sec. 259- when the number of direcors increasebeyond 12, it may require Govt. Permission


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Directors representing small

shareholders(only on public companies with Rs. 5 crore or

more)

As per Companies (appointment of smallshareholders' director) rules 2001 there

should director / s representing small

shareholders.Small shareholders : holding upto Rs. 20000

nominal value (face value) of shares.


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First directors (sec. 254)

May be appointed by articles of association.Regulation 64 of Table A of schedule I : thefirst directors are appointed by subscribers of

MOA & AOA .


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Subsequent Directors (sec. 255,

256)

They are appointed by AGM2/3rd directors are retiring directors - 1/3rd maybe non-retiring directors. Thus if you have 12

directors, 8 directors have to retire by rotation.


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Case study : S. Jabh Singh vs

Panesar Mech. Works P. Ltd.

Where no period for retirement is prescribed inAOA, then directors will retire when they are

removed as per sec. 284.


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Case : Consolidated Nickel Mines

Ltd.

When AGM is not held, directors due to retire,

will retire on their due date similarly whenAGM is adjourned, the directors due to retire,

will retire on that that day

retiring director may be reappointed.FIFO in retirements


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How will you become a director?

At least 14 day notice of willingness to become

a director with fees of Rs. 500 (by the personor the person who is proposing someone asdirector).

The person must also submit his accent to

become a director to ROC at least 30 daysbefore appointment.


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Can BoD (board of directors)

appoint additional directors?

Yes IF AOA authorise it .

But this appointment will be till next AGM.

If AGM is not held, the director will retire onthe date of AGM.

(sec. 260)


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Casual Appointments (Sec. 262)

If there is a vacancy, the board may appoint adirector as per procedure in AoA. This is

casual appointment.


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ALTERNATE DIRECTOR (SEC.

313)

BoD may appoint alternate director in place of

a director who is going for a long vacation -the alternate director will leave the position

when original director returns. It must be for 3months or more.


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Appointment by Central Govt.

(sec. 408)If Company Law Board thinks it is necessary,then Central govt. May appoint a director for a

period upto 3 years.This director will not require qualification

shares (minimum number of shares to be heldby every director to be eligible to become a

director).

While counting 2/3rd, we will not take thisdirector into account.


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Appointment by 3rd parties

Financial institutions likeIDBI/IFCI/ICICI/SBI etc. Can appoint

addional nominee directors their particularshave to be submitted in form no. 32.


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Appointment in AGM

As per sec. 263 a director is appointed byshareholders by simple majority. Eachdirector will require separate resolution.


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Principle of Proportional

Representation (sec. 265)In order to enable minority shareholders, thisprinciple has been introduced. The directors

appointed by this principle should hold officefor 3 years and cannot be removed by AGM as

per sec. 284.

(upto 2/3rd

directors may be appointed by thissystem by single transferable vote /

cumulative voting).


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MD / whole time director (sec.

269)

Every public company having 5 crore or morecapital must have an MD / whole time director.

It requires permission of Central Government /or apply as per schedule XIII and submit return

in form 25C within 90 days of appointment.


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Schedule XIII part I

The person being appointed as MD must nothave violated any act like Central Excise,

Income Tax, Wealth Tax, Customs, FEMA etc.Age between 25 and 70 (A major with less

than 25 years age / more than 70 ,can also

become, if special resolution + govt.Permission is obtained).

must not have violated COFEPOSA


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Maximum period of term

The maximum period is 5 years -reappointment is permitted.


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Maximum remuneration (sec.

198)

5%

total managerial remuneration of the company= 11% of profit (computed as per sec. 349 and

350)

for part time director : 1% (if MD is there, 3%,if there is no MD)


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Sitting fees (sec. 309)

Maximum fees : 20000 for each meeting(when turnover is above 50 crore and capital +

reserves at least 10 crores).

Otherwise maximum : 10000 / per meeting.


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Qualification of directors (sec.

274)

Qualifications are not mentioned, but

disqualifications are mentioned in the law. Aperson of unsound mind, undischartedinsolvent, a person imprisoned for moral

turpitude for 6 months or more is not eligiblefor directorship.


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Case : Oriental Metal Pressingworks P. Ltd vs. Bhaskar

kashinath

The court held that only individual can bedirector, a firm or association cant be director,

as it is a position of trust.


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Case : People's bank of northern

India

Articles of association may exempt persons oftechnical / professional qualification fromhaving qualification shares. Otherwise thearticles may require the director to have

qualification shares.


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Qualification shares (sec. 270)

Director must have qualification shares in 2

months from appointmentthe nominal value of qualification shares

should not be more than Rs. 5000

bearer of share warrant cant be said to beholding qualification shres.


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Penalty : sec 272

If a director doesnt acquire qualification sharesin 2 months, he shall pay penalty Rs. 500 perday. (all these provisions are applicable only

on public companies)


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Number of directorship (max.)

sec. 275

No person can become director of more than15 companies (public companies)


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Sec. 278 what to exclude from

15 companies

Following are not counted in 15 companies :

private companyunlimited company

a company in which the person is alternate director

association not for profit

penalty : (sec. 279) : upto 50000 if you become directorof more than 15 public companies


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Vacation of post of director (sec.

283)A director has to vacate if :

he is of unsound mind, he doesnt acquire

qualification shares in 2 months, he is judgedinsolvent, convicted for moral turpitude &

imprisoned for 6 months or more, absents the 3consecutive meetings or for 3 months (without

leave), he doesnt disclose his interest in acontract (sec. 299), by court (sec. 203), whenhe is there as an employee, but he retires.


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Removal of director (sec. 284,

388B, 402, )

Shareholders can remove a director by

ordinary resolution. They have to send aspecial notice (14 day notice) for this meetingand pass the resolution. They cant remove a

director appointed by Govt / financialinstitution. (sec. 284)


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Removal by govt. In case of fraud

If the director is engaged in fraud, mal-practices, anti-social activities etc. Or the

company is not managed properly or thecompany is working against the interest of

lenders / financers, or the company isfollowing unsound business practices, The

director can be removed by government as persec. 388B to 388E.


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Removal by company law board

In order to prevent oppression andmismanagement, CLB can remove director

(sec. 397,398,402) that director cant becomedirector of another company for 5 years.


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Loans to director (sec. 295)

Without prior permission from government, nocompany can give loan to its director / firm

(where the director of this company is a partner/ proprietor ) / company of its director (its

director is holding 25% voting power in that

company),however, these provisions dont apply to private

/ banking / holding company


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Case : MR electronics

components

Advance salary to the wife of a director willnot come in sec. 295


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Case : Dr. Fredie Ardeshir

Sale of flat on instalment to the director willnot come under sec. 295


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Contract with firms related to

director (sec. 297)A company cannot enter into a contract with

another firm / company in which its own

director is a partner / owner, unless it has beenapproved by the board.

Exemptions : if it is cash transaction, or it is a

ordinary transaction in banking / insurancefirm or if the value of transaction is less thanRs. 5000 per annum.


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Case study

Professional services (like auditing,consultancy) dont come in sec. 297.


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Notice by director

A director has to give notice in form 24AA

when a company is about to enter into contractin which director is interested. The notice mustbe given to the board of directors when they

meet. (sec. 299)

penalty : Rs. 50000


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Case : fire stone tyre & rubber co

v/s synthetics and chemicals co.

Interest here means personal interest notofficial interest and includes closeness of

relatives (like father son).


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Director not to participate in some

meetings (sec. 300)

A director cannot participate in a meeting inwhich a matter / contract related to his issue /

in which he is interested, is discussed.


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Office of profit Sec. 314

Director / his relatives cannot hold an office of

profit having remuneration of Rs. 10000 ormore per month without special resolution.

Any firm / company in which director is a

partner / owner also cant hold a place of profitwithout special resolution


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Restriction on the powers of the

board

Sec. 293 restricts the powers of the board : itcant remit loan due to director or his firm, itcant invest compensation received otherwisethan as per law, it cant dive charity of morethan 5% of profit (or 50000) it cant borrow

more than equity + reserves withoutpermission.

C h di k i


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Can the directors keep accounts inother places than registered

office?Yes the board of directors have to take a

decision and communicate it in 7 days to ROC(registrar of companies) in form23 AA.

It can keep its accounts of branch offices atbranch office but a summarised report should

be sent to the registered office at intervals of 3months.


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Can a director inspect any book of

accounts?

Yes - during business hours ( sec. 209 (4) )

H l h ld h di


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How long should the directorskeep the books of accounts

preserved?

For 8 years.

H h ld di h


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How should directors get theaccounts and reports approved

from shareholders?

Within 6 months of date of closure of financialyear,it must be adopted by AGM as per sec.

210

financial year can be extended upto 15 months

and with permission of ROC, upto 18 months.


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Signing of annual accounts

Annual accounts must be signed by 2direcotrs / manager / secretary

if you have MD, he must sign it.

Sec. 216 : P & L as per format must beattached with balance sheet.

Sec. 217 : board of director must add his reporton working of company with the annual

account.


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Role of Company Directors