Ravi Singhania


updated on 2/06/2020

INTRODUCTION

Recent international and local jurisprudence has necessitated the establishment of a standard of conduct, which is warranted from the directors of a company. With this objective in mind, the Companies Act, 2013 (hereinafter referred to as the ‘Act’) has been added into the statute book of the land. The Act replaced the previous Companies Act, 1956. Under the Act, the board of directors of the company, who are responsible for the management of the company, are given wide powers to carry out the objectives of the company. The purpose of this handbook is to lay down the duties, responsibilities and liabilities of board of directors in light of the provisions of the Act.*

 

CONSTITUTION OF BOARD OF DIRECTORS

 

The following excerpt is apposite for the purpose of understanding and perceiving the true meaning of the term “director.”*

 

“At common law, once a person accepts appointment as a director, he becomes a fiduciary in relation to the company and is obliged to display the utmost good faith towards the company and in his dealings on its behalf.”

 

Under the Act, the term director has simply been stated as a person who is appointed to the Board. However, the elaborate provisions of the Act, when read entirely, puts forth the idea behind the term ‘director’. The Act envisages appointment of independent directors, woman directors and other directors (non-independent directors). Also, the Act provides that each company shall have a Board of Directors comprising of individuals as directors and shall have the following number of directors in each of these cases:

 

  • a minimum of three directors in the case of public company4
  • a minimum of two directors in the case of private company5
  • a minimum of one director in the case of one Person Company6
  1. Independent Director: The Act prescribes appointment of independent directors on the board in the following
    cases:

           (1.1) At least one third of the board to comprise of independent directors in case of Public listed companies; and
           (1.2) Certain other specified companies that meet the criteria listed below are required to have at least two independent directors:

 

  • Public companies which have paid up share capital of INR 10,00,00,000 (Rupees Ten Crore only);
  • Public companies which have a turnover of INR 1,00,00,00,000 (Rupees One Hundred Crore only); and
  • Public companies which have, in the aggregate, outstanding loans, debentures and deposits exceeding INR 50,00,00,000 (Rupees Fifty Crore only)
  • Woman Director: Every listed company or every other public company having a paid up share capital of INR 1,00,00,00,000 (Rupees One Hundred Crore) or more or turnover of INR 3,00,00,00,000 (Rupees Three Hundred Crore) or more shall appoint a woman director

 

It is to be noted that the total number of directors should not exceed 15 (fifteen)8. However, the company may appoint more than fifteen directors through a special resolution to the same effect.9 Every company should have at least one director who has stayed in India for a total period of not less than 182 days (One Hundred and Eighty Two Days) during the financial year.

 

Read More