Department Of ISBM

SUB – Company Law

Submitted To :- Dr. Puneet Bafna

Submitted By :- Sikander Ali

B.com (CS) 4th Sem
ASSIGNMENT 1ST Company Law – 2nd

Q1. Who are Directors in a company?

A director is a person from a group of managers who leads or
supervises a particular area of a company, program, or project.
Companies that use this term often have many directors spread
throughout different business functions or roles (e.g. director of human
resources). The director usually reports directly to a vice president or to
the CEO directly in order to let them know the progress of the
organization. Large organizations also sometimes have assistant
directors or deputy directors. Director commonly refers to the lowest
level of executive in an organization, but many large companies use the
title of associate director more frequently. Some companies also have
regional directors and area directors. Regional directors are present in
companies that are organized by location and have their departments
under that. They are responsible for the operations for their particular
country. Though directors are the first stage in the executive team, area
directors are seen as higher up, based on their area of control.

Q2. Discuss the position of Directors.

Positions of Directors
The law relating to companies in India is contained in the Companies
Act, 1956. The Companies Act, 1956 is a consolidation of existing laws,
statutory rules and certain principles laid down in decisions of the Courts
in India and England. The Act of 1956 substantially incorporates
provisions of the English Companies Act, 1948.

A company means, a company formed and registered under the

Companies Act, 1956 or under any of the preceding Acts1. The word
company is used to denote an association of persons who have
associated together to the conduct or to carry on a business for gain. The
persons associating together will contribute some money for the conduct
of the business and the amount is known as the share capital of the
company. The association will be registered under the Companies Act
and thereafter it will be a legal person having an artificial personality.

A company is a legal person who is leaving only in the eyes of law. It’s
a creation of law which lacks both body and mind. It cannot act, just like
a human being. It can act only through some human agency. Directors
are those persons through whom company acts and does business. They
are collectively known as Board of Directors.

Section 252 – 323 of the Companies Act, 1956 deal with the
appointment of directors, remuneration of directors, disqualification of
directors, vacation of office by directors, Meeting of Board of Directors.

Board of Directors is the brain and the only brain of the company which
is the body, and the company can does act only through the board of
directors. A director is a person who has control over the direction,
conduct, management, or superintendence of the affairs of the company.
Only an individual can be appointed as a director. An association or a
firm cannot be appointed as director of a company.

Position Of Directors
It is not easy to explain the position that a director holds in a corporate
enterprise. A director is not a servant of any master. He is the controller
of the company’s affairs. Director of a company is neither an employee
nor a servant to the company. They are professional people who were
hired by the company to direct its affairs.
However there is no restriction under the Act, that a director cannot be
an employee to the company. In Lee v. Lee’s Air Farming Ltd2, it was
held that, a director may, however, work as an employee in different
capacity. There is no definite definition for director under the
Companies Act, 1956. Director includes any person who is occupying
the position of a director, whatever name called3. So in order to
understand the position of a director in a company we have to look in to
various decided cases.

In Judhah v. Rampada Gupta4, it was held that, director of a company

registered under this Act5 are persons duly appointed by the company to
direct and manage the business of the company. A director is sometimes
described as agents, trustees, managing partners etc. But each of these
expressions is used not as exhaustive of their powers and
responsibilities, but as indicating useful points of view from which they
may for the moment and for the particular purpose be considered.

Q3. Types of Directors.

Types of directors
There are two types of director, executive and non-executive. There is
no legal distinction made between executive and non-executive directors
- the difference is that non-executive directors do not get involved in the
day-to-day running of the business.

Executive directors perform operational and strategic business

functions such as:

 managing people
 looking after assets
 hiring and firing
 entering into contracts
Non-executive directors use their experience and expertise to provide
independent advice and objectivity, and they usually have a role in
monitoring executive management. A non-executive director might be
appointed to carry out a specialist role on a part-time basis or for their
expertise in specific activities, such as strategy and contract negotiation.

They usually work part time, attending board meetings and spending
time on specific projects.

Non-executive directors bring an objective view of the business, can

improve the board's effectiveness at relatively low cost and provide
valuable business connections.

Q4. How appointment of Directors takes place.

Appoinment of directors
Appointment of a Director is not only a crucial administrative
requirement, but is also a procedural requirement that has to be fulfilled
by every company. Under the Companies Act, only an individual can be
appointed as a Director; a corporate, association, firm or other body with
artificial legal personality cannot be appointed as a Director.

Generally, in a public company or a private company subsidiary of a

public company, two-thirds of the total numbers of Directors are
appointed by the shareholders and the remaining one-third is appointed
in accordance with the manner prescribed in Articles failing which, the
remaining one-third of the Directors must be appointed by the
shareholders. The Articles of a public company or a private company
subsidiary of a public company may provide for the retirement of all the
Directors at every AGM.
In a private company, which is not a subsidiary of a public company, the
Articles can prescribe the manner of appointment of any or all the
Directors. In case the Articles are silent, the Directors must be appointed
by the shareholders.

The Companies Act also permits the Articles to provide for the
appointment of two-thirds of the Directors according to the principle of
proportional representation, if so adopted by the company in question.

Nominee Directors can be appointed by a third party or by the Central

Government in case of oppression or mismanagement.

Appointment of Managing Directors

A Managing Director must be an individual and can be appointed for a

maximum term of five (5) years at a time.

A person who is already a Managing Director / Manager of a public

company or a private company subsidiary of a public company can
become the Managing Director / Manager of only one other company
(whether private or public) with the prior unanimous approval of the
Board of such company. However, no such restrictions are applicable to
a Manager or a Managing Director of "pure" private companies.

In case of a public company or a private company that is a subsidiary of

a public company, if the appointment is not in accordance with Parts I
and II of Schedule XIII of the Companies Act, such appointment must
be approved by the Central Government.

Remuneration

In the case of a public company or a private company which is a

subsidiary of a public company, the remuneration payable is subject to
the provisions of the Companies Act, and may be determined either by
the Articles or, if the Articles so provide, by a special resolution of the
company in general meeting.
Qualifications for Directors

The Companies Act does not prescribe any qualifications for Directors
of any company. An Indian company may, therefore, in its Articles,
stipulate qualifications for Directors. The Companies Act does, however,
limit the specified share qualification of Directors which can be
prescribed by a public company or a private company that is a subsidiary
of a public company, to be five thousand rupees (Rs. 5,000/-).

Conditions for appointment of managing / Whole-time Directors;

Disqualifications

The Companies Act, under Schedule XIII, also prescribes certain other
conditions that are to be fulfilled for the appointment of a Managing or a
Whole-time Director or Manager in case of a public company and a
private company that is a subsidiary of a public company. Accordingly,
no person shall be eligible for appointment as a Manager, a Managing
Director or a Whole-time Director if he or she fails to satisfy the
following conditions:

1. He or she should not have been sentenced to imprisonment for any

period, or a fine imposed under any of the following statutes, namely:

i. The Indian Stamp Act, 1899;

ii. The Central Excise Act, 1944;

iii. The Industries (Development and Regulation) Act, 1951;

iv. The Prevention of Food Adulteration Act, 1954;

v. The Essential Commodities Act, 1955;

vi. The Companies Act, 1956;

vii. The Securities Contracts (Regulation) Act, 1956;

viii. The Wealth Tax Act, 1957;

ix. The Income Tax Act, 1961;

x. The Customs Act 1962;

xi. The Monopolies and Restrictive Trade Practices Act, 1969 – now the
Competition Act, 2002;

xii. The Foreign Exchange Regulation Act, 1973 – now the Foreign
Exchange Management Act, 1999;

xiii. The Sick Industrial Companies (Special Provisions Act) 1985;

xiv. The Securities Exchange Board of India Act, 1992; and / or

xv. The Foreign Trade (Development and Regulation) Act, 1973.

2. He or she should not have been detained or convicted for any period
under the Conservation of Foreign Exchange and Prevention of
Smuggling Activities Act, 1974.

3. He or she should have completed twenty-five (25) years of age, but be

less that the age of seventy (70) years. However, this age limit is not
applicable if the appointment is approved by a special resolution passed
by the company in general meeting or the approval of the Central
Government is obtained.

4. He or she should be a managerial person in one or more companies

and draws remuneration from one or more companies subject to the
ceiling specified in Section III of Part II of Schedule XIII.

5. He or she should be a resident of India. 'Resident' includes a person

who has been staying in India for a continuous period of not less than
twelve (12) months immediately preceding the date of his or her
appointment as a managerial person and who has come to stay in India
for taking up employment in India or for carrying on business or
vocation in India. However, this condition is not applicable for
companies in the Special Economic Zone, as notified by Department of
Commerce from time to time.

Q5. Discuss the role of Directors in a company.

Role of the board of directors

Boards can be helped greatly by focusing on four key areas:

Establish vision, mission and values

Determine the company's vision and mission to guide and set

the pace for its
current operations and future development.

Determine the values to be promoted throughout the company.

Determine and review company goals.

Determine company policies

Set strategy and structure

Review and evaluate present and future opportunities, threats

and risks in the
external environment and current and future strengths,
weaknesses and risks
relating to the company
.
Determine strategic options, select those to be pursued, and
decide the means to
implement and support them.
Determine the business strategies and plans that underpin the
corporate
strategy.

Ensure that the company's organisational structure and

capability are appropriate
for implementing the chosen strategies.

Delegate to management

Delegate authority to management, and monitor and evaluate

the implementation
of policies, strategies and business plans.

Determine monitoring criteria to be used by the board.

Ensure that internal controls are effective.

Communicate with senior management.

Exercise accountability to shareholders and be responsible

to relevant
Stakeholders

Ensure that communications both to and from shareholders and

relevant
stakeholders are effective.

Understand and take into account the interests of shareholders

and relevant
stakeholders.
Monitor relations with shareholders and relevant stakeholders
by gathering and
evaluation of appropriate information.

Promote the goodwill and support of shareholders and relevant

stakeholders.

Responsibilities of directors
Directors look after the affairs of the company, and are in a
position of trust. They
might abuse their position in order to profit at the expense of their
company, and,
therefore, at the expense of the shareholders of the company.

Consequently, the law imposes a number of duties, burdens and

responsibilities
upon directors, to prevent abuse. Much of company law can be
seen as a balance
between allowing directors to manage the company's business so
as to make a
profit, and preventing them from abusing this freedom.

Directors are responsible for ensuring that proper books of

account are kept.
In some circumstances, a director can be required to help pay the
debts of his
company, even though it is a separate legal person. For example,
directors of a
company who try to 'trade out of difficulty' and fail may be found
guilty of 'wrongful
trading' and can be made personally liable. Directors are
particularly vulnerable if
they have acted in a way which benefits themselves.
The directors must always exercise their powers for a 'proper
purpose' – that is,
in furtherance of the reason for which they were given those
powers by the
shareholders.

Directors must act in good faith in what they honestly believe to

be the best
interests of the company, and not for any collateral purpose. This
means that,
particularly in the event of a conflict of interest between the
company's interests
and their own, the directors must always favour the company.
Directors must act with due skill and care.
Directors must consider the interests of employees of the
company.