DIRECTORS & COMPANY

AUDITORS
Presented by

Roshan Bharadwaj Jakkala -23287

Kolla Vinay Sai – 23276

Sai Vignesh Gandhe - 23264

Who are Directors?
The persons who are in charge of the management of
the affairs of a company are termed as Directors.

The directors of a company are its eyes, ears, brain,

hands, nerves and other essential limbs, upon whose
efficient functioning depends the success of the
company.
Board of Directors
Minimum number of directors- Public Company-3
Directors
Private Company - 2 directors
One Person Company(OPC) - 1 Director
Maximum Number of Directors is 15, which can be
increased by passing a special Resolution.

Director Identification Number (DIN) is an unique identification number

allotted by the Central Government to any individual, intending to be
appointed as director
Maximum number of Directorships, a person
can hold is 20. At the same time, a person
cannot be a Director of more than 10 public
companies.
Power of Board [Section 179]
(a)to make calls on shareholders in respect of money
unpaid on their shares;
(b)to authorise buy-back of securities
(c)to issue securities, including debentures, whether in
or outside India;
(d)to borrow money
(e)to invest the funds of the company;
(f) to grant loans or give guarantee or provide security
in respect of loans;
g) to approve financial statement and the Board’s report;
h) to diversify the business of the company;
i) to approve amalgamation, merger or reconstruction;
j) to take over a company or acquire a controlling or
substantial stake in another company;
k) to make political contributions;
l) to appoint or remove key managerial personnel (KMP);
m) to appoint internal auditors and secretarial auditor;
Types of Directors
1. First Directors
2. Subsequent Directors
3. Retiring Directors
4. Wholetime Directors
5. Woman Directors
6. Small shareholder Director
7. Resident Director
8. Nominee Director
9. Independent Director
10. Additional Director
11. Alternate Director
12. Casual vacancy Director
Appointment of directors
1. First Directors: The first directors are mentioned in
the AoA. If it is not mentioned, then the
subscribers to the MoA will act as the first directors
until Directors are appointed.
2. Subsequent Directors: All directors other than first
directors are called subsequent directors.
3. Retiring VS Wholetime directors:
Retiring Directors:
Out of the total Directors excluding independent
directors and nominee directors 2/3rd must be retiring
Directors.
Ex: There are totally 12 directors of which 4 are
independent directors and 1 nominee director. Of the
balance 7 x 2/3 = 5 directors must be retiring Directors
and 2 can be whole time directors.
RULES
• 1/3rd of the retiring Directors (5 x 1/3 = 2 in the above
example) directors must compulsorily retire at each AGM
based on seniority.

• The retiring Directors can be reappointed in the AGM.

• The choices for reappointment are:

The same person who retired or
A new person can be appointed
• The AGM will stand adjourned to the next week same
day
• In the adjourned meeting a person will have to be
compulsorily appointed
• If no person is appointed even in the adjourned
meeting, then the retiring director is deemed to be
appointed.
• If he is not interested then the MCA will appoint a
person as director
Wholetime director
The directors who are not subjected to the rule of
retirement are called whole time directors.
Woman director: Section 149
• The following class of companies shall appoint at least
one woman director-
• (i) every listed company;
• (ii) every other public company having :-
(a) paid–up share capital of one hundred crore rupees
or more; or
(b) turnover of three hundred crore rupees or more .
Small Shareholders Director
A small shareholder is a person who is holding shares of
nominal value amounting to a maximum of Rs 20,000 in
a public company.
A company on its own or on the application of a small
shareholder can appoint a small shareholder director.
He will be treated as an independent director.
Resident director
A director who has stayed in India for atleast 182 days
in during a financial year is referred as Resident
Director. Every company shall have at least one
director who stays in India for a total period of not less
than one hundred and eighty-two days during the
financial year.
Nominee director
Nominee Director is a director in a company who has
been appointed by financial institutions, banks or
investors to form part of the Board of Directors.
Appointment of nominee directors is governed by and
subject to the provisions of the articles of association
of the company.
They are appointed to safeguard the interests of the
financial institutions.
Additional director (sec 161)
A company wants a person to be director for a specific
purpose. Ex - A company wants to start a new company
in USA. If suppose this requires that the parent
company must have a US citizen as a director until the
new co is incorporated, a person can be appointed as a
director by the BOD as additional director (within the
overall number of 15.
The additional director can be director till the next AGM where he
must be voted for and appointed.
Sanjay Bhargava and His friend who is also director in Starlink are
returning from Hissar to New Delhi. On the way they meet with an
accident. SB is full safe. Friend is injured – and admitted in hospital and
doctors tell he needs 4 months total rest.
SB needs a person as director in lieu of his friend.
ALTERNATE DIRECTOR (161(2))
When a director cannot be a director for atleast 3 months, then
another person can be appointed in his place by the BOD. He will be
director until the original director returns.
Casual vacancy director (161(4)
A director suddenly dies during mid year. This leads to
a casual vacancy.
Another person can be appointed by the BOD in his
place who will be director until next AGM, where he
has to be elected.
ELECTION OF DIRECTORS IN GENERAL MEETING
1. Any person unless disqualified is permitted to
get elected as a director.
2. He has to give 14 days notice to regd office
3. The company in turn has to give 7 days notice to
members
4. Directors will be elected in the GM through a
simple/ordinary resolution.
RESIGNATION OF DIRECTOR – Sec 168
A director can resign by giving 30 days notice
REMOVAL OF DIRECTOR – Sec 169
A company can remove a director by giving him a special
notice of a general meeting as per AOA.
The concerned director can represent his case in the
meeting.
The director can be removed by an ordinary resolution.
Qualifications of directors
• Any person can be appointed as Director as long as he
has a DIN and he is appointed by either the BOD or
the Shareholders in a GM.
Disqualifications
1. Minor/Person of unsound mind
2. Declared insolvent
3. Not paid calls
4. Convicted and jailed for 6 months
5. Does not have DIN
6. Disqualified by NCLT
7. A person becomes ineligible to accept new directorships if
_________.
Rights of directors
Indvl rights
1. Receive notice of meetings
2. Attend meetings
3. Vote in BOD meetings
4. Inspect books of accounts
5. Inspect all registers of the company
6. Inspect minutes of meetings
Collective rights
These are rights exercised as a board
1. Right to elect chairman of the board
2. Right to appoint managing director
3. Right to recommend a dividend
4. Right to refuse transfer of shares
5. Right to make calls on shares
6. Right to forfeit shares
Duties of directors [Section 166]
• 1. Duty to act as per the articles of the company The director of a
company shall act in accordance with the articles of the company.
• 2. Duty to act in good faith: 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.
• 3. Duty to exercise due care A director of a company shall exercise his
duties with due and reasonable care, skill and diligence and shall
exercise independent judgment.
• 4. Duty to avoid conflict of interest 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.
• 5. Duty not to make any undue gain 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 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.
• 6. Duty not to assign his office A director of a company shall not
assign his office and any assignment so made shall be void
Managing Director
A Managing Director is a is a part of the Board of
Directors and is director who is trusted with
substantial powers of management.

Qualifications to be MD
1. Min age 21 yrs, Max age 70 yrs
2. Not insolvent
3. Not convicted and jailed for 6 months or more
Appointment of MD
1. Obtain Consent and Declaration of the person to be appointed as
MD
2. Meeting of Nomination and Remuneration Committee: This is a
committee of certain directors who decide the
remuneration of KMP
3. Meeting of BOD: Initially MD can be appointed by BOD.
A person can be MD for a max of 2 companies. If the
person to be appointed is already MD of another
company, then all the directors present in the BOD
meeting must approve the appointment.
4. Approval at GM: The MD appointed at BOD meeting
must be approved by shareholders at the next GM.
5. Form MR-1: The appointment of MD must be filed with
RoC in MR-1 within 60 days of appointment
6. Making Necessary entries in Statutory Registers: Company
shall make necessary entries in the Register of Director
and Key Managerial Personals
Term of Managing Director:-
• A person can be appointed as a Managing Director
not for a period more than 5 years at the
appointment.
• However, it can be extended after the completion of
the term.
 INDEPENDENT DIRECTORS
Section 149(6)- Independent Director, means a
director other than a managing director or a whole
time director or a nominee director -
(a) who, in the opinion of the Board, is a person of
integrity and possesses relevant expertise and
experience;
(b) who is or was not a promoter of the
company or its holding, subsidiary or
associate company;

(c) who is not related to promoters or

directors in the company, its holding,
subsidiary or associate company;
(d) who has or had no pecuniary relationship
with the company, during the two
immediately preceding financial years or
during the current financial year.
(e) none of whose relatives has or had
pecuniary relationship or transaction with the
company
(f) who, neither himself nor any of his relatives holds
or has held the position of a key managerial personnel
in the company
(g) holds together with his relatives not more than two
per cent, or more of the total voting power of the
company;
(h) is not a Chief Executive or director, of any non-
profit organisation that receives twenty-five per cent
or more of its receipts from the company. Ex - Kidney
foundation – Donations ₹ 10 crs. Prathan Ltd co has
donated ₹ 4 crs to Kidney foundation.
Number of Independent Directors
Section 149(4) provides that every listed
public company shall have at least one-third
of the total number of directors as
independent directors.
The following class or classes of companies shall have
at least two directors as independent directors –
• the Public Companies having paid up share capital of
ten crore rupees or more;
• the Public Companies having turnover of one hundred
crore rupees or more;
• the Public Companies which have, in aggregate,
outstanding loans, debentures and deposits,
exceeding fifty crore rupees.
 Term of independent director
• An independent director can be appointed for a term of up to five
consecutive years on the Board. However, in case of his reappointment for
further five year then special resolution needs to be passed in general meeting
[Section 149(10)].
• Further independent director can be considered for re-appointment (after two
consecutive terms) only after expiration of three years of ceasing to become an
independent director but he must not be appointed/associated with the
company directly or indirectly in any other capacity during the said period of
three years.
Ind directors are appointed for 5 yrs by the existing BOD. If they have to be
appointed for another 5 years of another term then it requires special resolution in
a GM.
Mr. Kamalkanth – Ind director for 10 yrs in Madhur Pang Ltd. 3 yrs gap has to be
given. In those 3 yrs he must not be associated with the co in anyway.
ROLE AND FUNCTIONS OF INDEPENDENT
DIRECTOR
(i) Balance the often conflicting interests of the
stakeholders.
(ii) Facilitate withstanding and countering pressures
from owners.
(iii) Fulfill a useful role in succession planning.
(iv) Act as a coach, mentor and sounding Board for
their full time colleagues.
(v) Provide independent judgment and wider
perspectives.
Additionally they must:
1) uphold ethical standards of integrity and probity;
2) act objectively and constructively while exercising his
duties;
3) exercise his responsibilities in a bonafide manner in the
interest of the company;
4) devote sufficient time and attention to his professional
obligations for informed and balanced decision making;
5) Not allow any extraneous considerations that will vitiate his
exercise of objective independent judgment in the paramount
interest of the company as a whole, while concurring in or
dissenting from the collective judgment of the Board in its
decision making;
6) Avoid abusing his position to the detriment of the company
or its shareholders or for the purpose of gaining direct or
indirect personal advantage or advantage for any associated
person;
7) Refrain from any action that would lead to the loss of his
independence;
8) Inform the Board immediately whose circumstances arise
which makes an Independent Director lose his independence;
9) Assist the company in ensuring best corporate governance
practices. CG refers to practices of the top mgt (BOD) in
ensuring that the company is run efficiently.
COMPANY AUDITOR
Appointment of Auditor
(Sec 139)
(ii) Before such appointment is made, the
written consent of the auditor to such
appointment, and a certificate shall be
obtained from the auditor.
(iii) The certifi cate shall also indicate whether
the auditor satisfies the criteria provided in
section 141.
(iv) The company shall inform the auditor
concerned of his or its appointment, and also
file a notice of such appointment with the
Registrar within 15 days of the meeting in
which the auditor is appointed.
(v) A retiring auditor may be re-appointed at an
annual general meeting, if-
(a) he is not disqualified for re-appointment;
(b) he has not given the company a notice in writing
of his unwillingness to be re-appointed;
(c) a special resolution has not been passed at that
meeting appointing some other auditor or providing
expressly that he shall not be re-appointed.
(vi) Where at any annual general meeting, no auditor
is appointed or re-appointed, the existing auditor
shall continue to be the auditor of the company.
Rotation of Auditors - 139(2)
As per section 139(2), no listed company or a company
belonging to such class or classes of companies as mentioned
above, shall appoint or re-appoint-
(a) an individual as auditor for more than one term of five
consecutive years; and
(b) an audit firm as auditor for more than two terms of five
consecutive years.
Provided that -
(i) an individual auditor who has completed his term under
clause (a) shall not be eligible for re-appointment as auditor
in the same company for five years from the completion of his
term;
(ii) an audit fi rm which has completed its term under clause
(b), shall not be eligible for re-appointment as auditor in the
same company for five years from the completion of such
term.
QUALIFICATIONS OF AUDITORS (Sec 141)

(1) A person shall be eligible for appointment as an auditor

of a company only if he is a chartered accountant
(2) Where a firm including a limited liability partnership is
appointed as an auditor of a company, only the partners
who are chartered accountants shall be authorised to act
and sign on behalf of the firm.
DISQUALIFICATIONS OF AUDITOR Sec 141
1. A body corporate
2. An officer or employee of the company
3. A person whose partner or relative holds shares with facevalue ₹ 1
lakh or more in the company
4. A person who holds any shares in the company.
5. is indebted to the company, or its subsidiary, or its holding or
associate company or a subsidiary of such holding company, in excess
of ₹ 5,00,000;
6) has given a guarantee or provided any
security in connection with the
indebtedness of any third person to the
Company or its Subsidiary, or its Holding
or Associate Company or a Subsidiary of
such Holding Company, in excess of ₹1
lac.
7)a person or a firm who, whether
directly or indirectly has business
relationship with the Company
8)a person whose relative is a Director or
key Managerial Personnel.
9)a person who is in full time
employment elsewhere
10) a person who has been convicted by
a Court of an off ence involving fraud and
a period of ten years has not elapsed
from the date of such conviction.
11) a person who is disqualified by
maximum audit appointments rule.
CASE STUDIES
1. ABD Ltd wants to appoint CHGT Ltd
as auditor. Is this possible?
2. Jal Jal Ltd wants to appoint CA.
Ganesh, its CFO as auditor. Is it
possible?
3. MATUNGA Ltd wants to appoint CA.
Tang who is a partner in Pulse and
brothers in which the CXO of
Matunga Ltd is partner. Permitted?
4) M/s RM & Co. is an audit firm having
partners CA. R and CA. M. The firm has
been offered the appointment as an
auditor of Enn Ltd. for the Financial Year
2016-17. Mr. Bee, the relative of CA. R, is
holding 5000 shares (face value of ₹10
each) in Enn Ltd. having market value of
₹1,50,000. Whether M/s RM & Co. is
disqualified to be appointed as auditors
of Enn Ltd.?
5) Mr. A, a practicing Chartered
Accountant, is holding 3 equity
shares of XYZ Ltd. having face value
of ₹ 30. Whether Mr. A is qualified
for appointment as an auditor of XYZ
Ltd.?
6) CA Nirltesh has been given a loan
of ₹ 2 Lakhs by Mahalingam Ltd. Can
he be appointed auditor of the
company?
8) Jingle is a LLP which is a audit firm also
providing consultancy services to Print Ltd.
Print wants to appoint Jingle as its auditor.
Possible?
REMOVAL OF AUDITORS
Sec 140(1)
The auditor appointed under section 139 may be
removed from his offi ce before the expiry of his
term only by a special resolution of the company,
after obtaining the previous approval of the
Central Government.
Step 1: BOD resolution
Step 2: Appln to Central govt within
30 days
Step 3: hold the general meeting
within 60 days of receipt of approval
of the Central Government for
passing the special resolution.
MAXIMUM AUDIT APPOINTMENTS

20 companies, excluding
 one person companies,
 dormant companies
 small companies and
 private companies having paidup share capital
less than ₹100 crore
12) SEC 144 disqualification - prescribes certain
services not to be rendered by the auditor
(i) accounting and book keeping services;
(ii) internal audit;
(iii) design and implementation of any financial
information system;
(iv) actuarial services;
(v) investment advisory services;
(vi) investment banking services;
(vii) rendering of outsourced financial services;
(viii) management services;
Rights of Auditors

1. Right of access to books: Books means all documents

needed for audit
2. Right to obtain information and explanation from officers
3. Right to receive notices and to attend general meeting
4. Right to report to the members of the company on the
accounts examined by him
5) Right to lien: auditor can exercise lien on
books and documents placed at his possession
by the client for non payment of fees, for
work done on the books and documents.
(i) Documents retained must belong to the
client who owes the money.
(ii) Documents must have come into
possession of the auditor on the authority of
the client. They must not have been received
through irregular or illegal means. In case of a
company client, they must be received on the
authority of the Board of Directors.
(iii) The auditor can retain the
documents only if he has done work on
the documents assigned to him.
(iv) Such of the documents can be
retained which are connected with the
work on which fees have not been paid.
DUTIES OF AUDITORS

1. Duty to prepare audit report Sec 143(3)

2. Duty to Sign the Audit Report: section 145
3. Duty to comply with Auditing Standards: section
143(9)
4. Duty of Auditor to Inquire, Sec 143
a. Loans given by the company are
properly secured
b. Transactions of the company which
are represented merely by book
entries are not prejudicial to the
interests of the company;
c. personal expenses have not been
charged to revenue account;
d. if any shares have been allotted for
cash, whether cash has actually
been received
5) Duty in relation to Fraud: If in the course of
audit work the auditor suspects any fraud by
employees of the company -
• Must report to Central government if
amount of fraud is equal or greater than
₹ 1 crore
• Must report to audit committee is
amount of fraud less than ₹ 1 crore
6) Duty to state the reason for qualification or
negative report as per section 143(4)
 Presented by

Roshan Bharadwaj Jakkala -23287

Kolla Vinay Sai – 23276

Sai Vignesh Gandhe - 23264