Board of Directors

• Board of Directors - structure, functioning

• Directors - Qualification and disqualification, termination
• Categories of Directors
• Key Managerial Personnel
• BOD committees
• Duties of directors

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 Board of Directors
• Definition
๏ Board of Director :the collective body of the directors of the company- S. 2 (10)
๏ Director: appointed by the board of the company - S. 2 (34)

• No. Of Directors - S. 149 (1)

• Only individuals
• Public Company: 3- 15
• Pvt. Company : 2 - 15
• OPC : 1
• Proviso:
• >15 — Spcl Resl
• At least 1 Woman Director - companies : Rule 3, Companies (Appointment and
Qualification of Directors) Rules, 2014
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 Who may be appointed as a director
 Only Individuals can be appointed as directors ( u/s 149)
DIN is mandatory (u/s 153)
A person can only one DIN ( u/s 155)
Company is required to inform DIN of Director to ROC within 15 Days
(u/s 157)
No other qualification prescribed for Directorship
Articles may provide minimum Share qualification
• Disqualifications - S. 164
• Unsound mind - court declaration
• insolvent - undischarged/ applied
• Conviction -
• moral turpitude + >6 months imprisonment and 5 year limitation
• >7 years imprisonment
• Related party transaction in the preceding 5 years
• NB: disqualification continues even when appeal/petition has been filed (2017 Amendment)
• Lack of DIN
• Exceeds the limit of directorship (2018 Amendment)
• Orders of court/ tribunal
• Is/has been a director of a Company - S. 164 (2)
• has not filed financial statements/annual returns - 3 continuous financial years
• Failed to repay deposits/ redeem any debentures/ / pay interest / dividends - > 1 year
• For a period of 5 years
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Legal Position of Directors

• In the words of Bowen LJ “ Directors are described sometimes as agents,

sometimes as trustees and sometimes as managing partners, 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 to be considered”
Directors as agents
• Cairns, L.J observed that “ the company itself cannot act in its own person; it can only

act through directors, and the case is, as regards those directors, merely the ordinary

case of principal and agent”

• Ferguson v. Wilson (1866) LR 2 Ch App 77 (UK) Held that a company can act

only through its directors, who function as its agents.

• M/s Sarathi Leasing Ltd. v. B Narayana Shetty (2000) held that Directors are not

personally liable if they act within their authority as agents.

• However, if a director exceeds their authority, they may be held personally liable for

damages.
• Vineet Kumar Mathur v UOI [ 1996] 20 CLA 213 (SC) Directors as
agents can make the company liable for contempt of court
• A transaction by directors which is beyond their powers but within
powers of company can be ratified- Bhajekar v Shinkar [1934] 4
Comp. Cas.434 (Bom.).
• Floating Services Ltd v. MV San Fransceco Dipalola [2004] 52 SCL 762
(Guj.) –on the date of presentation of suit Company was admitted for
struck off the register-No question of ratification
Directors as trustees
Directors are trustees of company assets and funds and must act in good faith for the benefit of the
company and its shareholders.

Official Liquidator v. P.A. Tendolkar (1973 AIR 1104, 1973 SCR (3) 364)

• Supreme Court ruled that directors must act with honesty and integrity.

• If a director misuses company funds or breaches trust, they can be held personally liable.

Percival v. Wright (1902) 2 Ch 421

• Established that directors owe fiduciary duties to the company, not to individual shareholders.

• Directors must not use company property for personal gain.

• They must act in the best interests of the company as a whole.

Ramaswamy Iyer v Brahmayya & Co [ 1966] 1 Comp LJ 107 ( Mad)

• The Directors of a company are trustees for the company and with
reference to their power of applying funds of the company and for misuse of
the power they could be rendered liable as trustees and on their death the
cause of action survives against their legal representatives
Fiduciary Duties of Directors
Directors owe fiduciary duties to the company, meaning they must:
1. Act in good faith and in the company’s best interest.
2. Avoid conflicts of interest.
3. Exercise due care and diligence in decision-making.
Dale & Carrington Invt. (P) Ltd. v. P.K. Prathapan (2005) 1 SCC 212
• The Managing Director illegally issued additional shares to himself, diluting other shareholders'
ownership.
• Supreme Court declared the issuance void, stating directors must act in good faith and not for
personal benefit.
Satyam Scandal – SEBI v. Ramalinga Raju (2014)
• Directors of Satyam Computers falsified financial statements to inflate profits.
• Courts held them personally liable and imposed heavy penalties.
• Directors must act with honesty, fairness, and loyalty.
• Misusing their position for personal gain is a breach of duty.
Duty of care & Skill
Directors must use reasonable skill, care, and diligence in managing company
affairs.

Laxmanaswami Mudaliar v. Life Insurance Corporation of India (1963 AIR 1185,

1963 SCR Supl. (2) 887)

• Directors diverted company funds for an unauthorized purpose.

• Supreme Court ruled that directors must exercise due diligence and

ensure proper use of company funds.

• A director must have basic business judgment and act prudently.

• If they act recklessly, they can be held liable for negligence.

Criminal Liability of Directors
Directors can be criminally prosecuted for fraud, mismanagement, or non-compliance with corporate laws.

Sunil Bharti Mittal v. CBI (2015) 4 SCC 609

• CBI charged Sunil Bharti Mittal (Airtel Chairman) for telecom license irregularities.

• Supreme Court ruled that a director is not automatically criminally liable unless they were personally

involved in wrongdoing.

N. Narayanan v. Adjudicating Officer, SEBI (2013) 12 SCC 152

• Directors engaged in insider trading, harming investors.

• Supreme Court imposed severe penalties, reinforcing that directors must not misuse confidential

information.

• Directors can face imprisonment for fraudulent activities.

• They must ensure compliance with corporate laws to avoid liability.

Personal Liability for company’s debts

A company is a separate legal entity, but courts can hold directors personally

liable in cases of fraud or mismanagement.

Delhi Development Authority v. Skipper Construction Co. (1996) 4 SCC 622

• A real estate company collected money from buyers but never delivered

flats.

• Supreme Court lifted the corporate veil, holding directors personally liable.

• Directors cannot use the company structure to commit fraud.

• Courts can hold them personally responsible for corporate misconduct.

Are Directors employees of the company?

In Le Behrens & Co [1932] 2 Comp. Cas. 588

• The Directors are elected representatives of the shareholders engaged
in directing the affairs of the company on its behalf. As such directors
are agents of the company but they are not employees or servants of
the company
Director’s Disqualification (Section 164, Companies Act,
2013)

A director can be disqualified for:

• Fraud or dishonesty.

• Failure to file financial statements for 3 years.

• Non-compliance with tax laws.

Yashovardhan Saboo v. Union of India (2019 SCC Online Del 11954)

• The government disqualified the petitioner for non-filing of annual returns.

• Court upheld the disqualification, reinforcing strict compliance with corporate laws.
 Directors - Appointment
Subscriber to the Memo First Director - u/s 152

General Meeting Appointment/regularisation/reappointment

Additional Director - u/s 161 (1)

BoD Alternate Director - u/s 161 (2)
Nominee Director - u/s 161 (3)
Casual Vacancy Director - u/s 161 (4)

Small Share Holder u/s - 151

Tribunal u/s- 241

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Appointment of First Directors [ Section 152]

• The First directors are usually appointed by name in the AOA

• Otherwise the subscribers to MOA shall be deemed to the first
directors of the company
• In case of OPC, an individual being member shall be deemed to be first
director
• No person shall be appointed as director without DIN
• Consent from Director to be obtained
Appointment of Subsequent
Directors
• As per Section 152(2), every director must be appointed in a general meeting.
• The appointment must be approved by the shareholders via an ordinary
resolution unless the Act requires a special resolution.
• Section 152(6) provides that at least two-thirds of directors in a public company
must be rotational, retiring by rotation, and eligible for reappointment.
• In every GM 1/3rd of Director shall retire by rotation
• The Delhi HC – B R Kundra v Motion Pictures Association [1976] 46 Comp
Cas.339, held that the directors cannot prolong their tenure by not holding a
meeting on time. They must retire on the date when AGM to be conducted
• Furnish - S. 152 (4)
• DIN
• Declaration - not disqualified under the act
• Consent - to be filed the registrar of companies - within 30 day - S. 152 (5)
Deemed Re-appointment of a retiring director
[Section 152]

• Unless other director is appointed, a retiring director is deemed to be

re-appointed
• Rotation by retire- not applicable in case of private company
To be voted individually - S.162 (1)
• One resolution - one director
• Unless a proposal to move such a motion has first been agreed to at the
meeting unanimously.
• Contravention - void ab intio, irrespective of lack of objection.
Appointment of a director other than
retiring director [Section 160]
Who can be appointed?
Any person (not being a retiring director) can be proposed for appointment as a director at
a general meeting.
Who can propose the appointment?
The proposal can be made by:
• Any shareholder holding at least ₹1 lakh (or 1% of total voting power) in shares.
• Any person other than a director who wants to be appointed.
Notice Period:
A written notice of at least 14 days before the meeting is required for such an appointment.
Deposit Requirement:
A deposit of ₹1,00,000 must be paid along with the notice, which is refunded if the
nominee gets at least 25% of the votes at the meeting.
Need to pass ordinary resolution at GM
Appointment by BOD [Section
161]
(A) Additional Director (Section 161(1))
• If authorized by the Articles of Association (AOA), the Board can appoint an
Additional Director.
• They hold office only until the next Annual General Meeting (AGM).
• If the AGM is not held, they vacate office on the last permissible date of AGM.
(B) Alternate Director (Section 161(2))
• The Board may appoint an Alternate Director in place of a director who is absent
for more than three months from India.
• The appointment must be authorized by the AOA or approved by a resolution at a
general meeting.
• The Alternate Director’s tenure ends when the original director returns to India.
(C) Nominee Director (Section 161(3))
• A Nominee Director may be appointed if required under a loan agreement or
by a government authority.
• Appointed based on the terms set by financial institutions or regulatory
bodies.
(D) Casual Vacancy Director (Section 161(4))
• Applies only to Public Companies.
• If a director appointed in a general meeting vacates due to death, resignation,
or disqualification, the Board can fill the vacancy.
• The new director holds office until the next AGM, where shareholders approve
the appointment.
Small Share holder Director - S. 151
• Listed company
• “May”
• no compulsion
• Enabling provision
• Discretion
• 1 Director
• SSH means holding shares of nominal value < 20K / such other sum
prescribed
• Rule 7 - Companies ()
• Notice of appointment - > 1K SSH / one-tenth of SSH - whichever is lower
• Can discretion be used after receiving a notice? 2
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Additional Director
• S. 161 (1)

• AoA may confer BoD

• Backdoor entry prohibited

• Other than a person who fails to get appointed as a director in GM

• Term : upto next GM

• All companies - Private + Public

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 Alternate Director
• S.161 (2)
• AoA / GM resolution - BoD
• Not a person who holds
• alternate directorship of another Director of the company
• Directorship in the same company
• Term:
• Not less than 3 months
• co-terminus with that of director who place is being taken
• Vacate when the director returns to India
• Proviso:
• For ID - qualified to be appointed as ID
• Reappointment of retiring Directors is not applicable to AD
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Nominee Director
• S. 161 (3)
• Subject to AoA - BoD
• Nominated by institution
• Pursuant to
• any Law
• agreement
• CG/SG (shareholding in the company)

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Casual Vacancy Director
• S.161 (4)
• Office of director falls vacant before expiry of term
• Subject to AoA - BoD
• Approval in the subsequent GM
• Term : co-terminus with the remainder of the vacancy

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Resident Director [Section 149(3)]

Every company must have at least one director who has stayed in India
for a minimum of 182 days in the previous calendar year.

• The director must physically stay in India for at least 182 days in the
preceding calendar year (not the financial year).
• The director can be an Indian citizen or a foreign national, as long as
they meet the residency criteria.
 Independent Director
No of directors
• At least 1/3 - Listed public companies : S. 149(4)
• At least 2 - Public Companies : Rule 4 Companies (Appointment of Directors) Rules, 2014
• Paid up share capital : >10 Cr / Turnover : > 100 Cr / Aggregate Liabilities - outstanding loans + deb + deposits : >50 Cr

• Provided, not req to comply if failed to fulfil these conditions for 3 consecutive years
• Exceptions: JV, wholly owned subsidiary, dormant company (u/s 455)

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• Who can be an ID? u/s 149 (6)
• Other than MD/ whole time director/ nominee director
• Person of integrity, experience and expertise
• Not a promoter/ related to a promoter or director
• No pecuniary relationship (other than remuneration) / having transaction not > 10% of Total income - 2 pr. yrs
• No relatives

• interest/security : 2 pr. Financial yrs/ Cr. Yr (proviso : may hold face value <50 L / 2% of PUC)
• Indebted in excess of such amount as may be prescribed: 2 pr. Financial yrs/ Cr. Yr
• Pecuniary transactions : >2% of Gr TO/ total income cumulatively
• Neither himself/ relatives - any 3 preceeding financial yrs

• KMP/Emplyoyee
• Employee/ proprietor/partner -
• auditors/CS/Cost auditors
• law firm/consulting firm having transaction >10% of GTO
• With relatives holds >2% voting power
• CE/Director of NPO’s - >25% receipts
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Declaration of Independence - 149(7)
• First meeting of board in which he participates
• First meeting of the board - every financial year
• Change in status which affects his status as ID

Schedule IV
• Guidelines of professional conduct
• Role and functions
• Duties
• Manner of appointment
• Reappointment
• Resignation/Removal
• Separate Meeting
• Evaluation mechanism

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Vacancy of office - S. 167
• Disqualified u/s 164
• U/s 164 (2) - disqualified - all directorships
• Absentee - all BoD Meetings - 12 M - with/without seeking leave of absence
• Non disclosure of interest u/s 184
• Removed under this act
• Disqualified on the orders of tribunal/court
• Conviction - moral turpitude/ otherwise - > 6M
• Proviso : office is not vacant
• 30 days - date of conviction/disqualification
• Appeal/ petition - within 30 days until 7 days of disposal
• Further appeal/petition preferred -within 7 days until disposed
• Private company - additional grounds - AoA
• G. Vasudevan Vs Union of India (Madras High Court) - S.167 (1) vs Art. 14,19(1)(g)

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 Removal of Directors by Shareholders (Section 169)

• Shareholders have the power to remove a director before the expiry of

their term by passing an ordinary resolution in a general meeting.
• However, this does not apply to:
• Directors appointed by the National Company Law Tribunal (NCLT) under
Section 242.
• Directors appointed under proportional representation (Section 163).
Procedure for Removal by Shareholders

Step 1: Special Notice by Shareholders

• Shareholders holding at least 1% voting power or shares worth at least ₹5,00,000 (paid-up
capital) must give a special notice.
• This notice must be given at least 14 days before the meeting.
Step 2: Intimation to the Concerned Director
• The company must send a copy of the notice to the director immediately.
Step 3: Director’s Right to Respond
• The concerned director has the right to make a written representation.
• The company must circulate this representation to all shareholders.
Step 4: Passing of Ordinary Resolution
• Shareholders vote in a general meeting (AGM or EGM).
• If a simple majority (more than 50%) votes in favor, the director is removed.
Step 5: ROC Compliance
• The company must file Form DIR-12 with the Registrar of Companies (ROC) within 30 days of
removal.
Where AOA of company confer power on BOD to remove a director
• Ravi Prakash Singh v Venus Sugar Ltd [2008] 84 SCL 75
• The Delhi HC held that power to remove a director contained in the
AOA is not affected by the provisions of section 169
Filling casual vacancy by removal of a director
• The BOD can fill the casual vacancy – Special Notice is required
• They cannot appoint removed director
Compensation for Loss of office [u/s 202 R/w S.169(8)]
• The director removed is not entitled for any compensation except in
case of MD/WTD/Manager
• The compensation amount cannot exceed his remuneration
amount[ u/s 202(3)]
1. LIC of India v. Escorts Ltd. (1986 AIR 1370, SC)
1. Held: Shareholders have an absolute right to remove a director if the correct
process is followed.
2. Courts will not interfere unless there is oppression or mismanagement.

2. Cyrus Mistry v. Tata Sons Ltd. (2021 SCC Online SC 272)

1. Held: Removal of a director is valid if done legally, even if it seems unfair.
2. A company can remove a director unless it amounts to oppression under
Section 241.
3. Dale & Carrington Investment (P) Ltd. v. P.K. Prathapan (2004)
122 CompCas 161 SC
1. Held: A director cannot misuse powers to prevent their removal (e.g., issuing
new shares to gain control).
2. Courts will intervene if removal is obstructed by fraudulent actions.
 Removal of Directors by the Tribunal (NCLT) (Sections 241-242)

• The National Company Law Tribunal (NCLT) can remove a director if

their actions are found to be oppressive or against public interest.
• This is usually done under Sections 241 and 242 in cases of oppression
and mismanagement.
 Procedure for Removal by NCLT

Step 1: Petition by Shareholders or Government

• Shareholders holding at least 10% of the voting power can file a petition before NCLT under Section
241.

• The Central Government can also file a petition in cases of fraud or public interest violations.

Step 2: Tribunal Investigation

• NCLT examines whether the director’s actions are:

• Prejudicial to the company or public interest.

• Leading to oppression or mismanagement.

Step 3: NCLT Orders Removal

• If NCLT finds misconduct, it can remove the director and bar them from holding future directorships.
1. Cyrus Mistry v. Tata Sons Ltd. (2021 SCC Online SC 272)

1. Held: Courts upheld the board’s right to remove a director but ruled that mismanagement and

governance failures could be challenged under Section 241.

2. NCLT can remove a director if there is mismanagement, but not just because they were removed

unfairly.

2. Shanti Prasad Jain v. Kalinga Tubes Ltd. (1965 AIR 1535 SC)

1. Held: Courts will not intervene unless oppression or mismanagement is proven.

2. Due process is crucial, and NCLT won’t remove a director just because shareholders are

dissatisfied.

3. R. Subbu Lakshmi v. Sun TV Network Ltd. (2018 SCC Online NCLT 928)

1. Held: A director who acted against minority shareholders’ interests was removed by NCLT.

2. Abuse of power by directors can lead to NCLT intervention

 Section 168 – Resignation of Director

1. Resignation Letter:
1. A director may resign by submitting a written resignation to the company.
2. The resignation must be dated and should ideally mention reasons (not mandatory).

2. Company’s Obligation to Intimate ROC:

1. The company must file Form DIR-12 with the Registrar of Companies (ROC) within 30 days of receiving the
resignation.
2. The company must place the resignation in the Board’s next meeting and record it in the Minutes of the Meeting.

3. Director’s Option to File DIR-11:

1. The resigning director may (but is not obligated to) file Form DIR-11 with the ROC within 30 days to formally notify
their resignation.
2. DIR-11 should be accompanied by:
3. A copy of the resignation letter
4. Proof of dispatch to the company

4. Effective Date of Resignation:

1. The resignation takes effect from the date mentioned in the resignation letter OR the date the company receives it,
whichever is later.

5. Liability Post-Resignation:
1. The resigning director remains liable for any acts or decisions taken during their tenure.
1. Suresh Chandra Marwaha v. Lauls Ltd. & Ors. (2017) NCLT, New Delhi
1. A company cannot reject a resignation once it is received.
2. The resignation does not require board approval to be effective.
3. The moment a resignation is submitted, the director ceases to hold office from the
effective date.
4. The company must file DIR-12 with the ROC to update records

2. Achintya Kumar Barua v. Ranjit Barthakur (2000) 104 CompCas 234

(Gauhati HC)
1. A director cannot be forced to resign unless the resignation is voluntary.
2. If a resignation is disputed, the burden is on the company to prove it was voluntary.
3. A valid resignation requires clear intent and proper documentation.
 Powers of BOD

Under Section 179(1), the Board has the authority to exercise all powers
of the company, except those expressly reserved for shareholders in a
general meeting by the Companies Act or the Articles of Association
(AoA).
Section 179(3): Specific Powers of the Board
The Board has the power to:
[Link] Calls on Shareholders → Demand unpaid share capital.
[Link] Authorize Buy-Back of Securities
[Link] Shares & Securities → Subject to compliance with Section
62 (Rights issue & Private placement).
[Link] Funds → Limited by Section 180(1)(c) (requiring
[Link] Company Funds → Requires prudence and adherence to AoA.
[Link] Loans & Guarantees → Subject to Section 186 (Loan and
Investment restrictions).
[Link] Financial Statements → Board must approve and present to
shareholders.
[Link] Diversify the business of the company
[Link] Mergers & Acquisitions → Requires due diligence and
compliance with Sections 230-232.
[Link] Key Managerial Personnel (KMPs) → Subject to Section
203 (appointment of CEO, CFO, CS).
Other Powers

• Power to fill the casual vacancy

• Sanctioning of a contract in which directors are interested [188]
• Power to recommend rate of dividend
• Power to appoint a person as managing director or manager who is
holding either office in another company [203]
• Power to enter into any contract or arrangement with related party
[188]
• Appoint internal auditor and secretarial auditor
1. Power to Issue Shares
Nanalal Zaver v. Bombay Life Assurance Co. Ltd. (1950 AIR 172)
The Supreme Court held that the Board must act in good faith and not misuse share issuance
powers to dilute existing shareholders' rights.
2. Power to Borrow Money
Bachharaj Factories Ltd. v. Hirjee Mills Ltd. (AIR 1955 Bom 355)
A company's borrowing must align with its Articles of Association (AoA), and the Board cannot
exceed these limits without shareholder approval.
3. Power to Invest Company Funds
D.A. Sathe v. Bank of Maharashtra (1985 AIR 538)
Ruling: Directors must exercise due diligence and prudence when making investment decisions
to safeguard shareholders' interests.
Section 180: Restrictions on Board Powers
Key Provisions of Section 180
Section 180(1) imposes four key restrictions on the Board’s powers,
requiring shareholder approval through a special resolution for:
Sale, Lease, or Disposal of Company Assets (Section 180(1)(a))
The Board cannot sell or lease substantial assets of the company
without special resolution approval from shareholders.
Borrowing Beyond Limits (Section 180(1)(c))
The Board must seek shareholder approval if borrowings exceed
the paid-up capital + free reserves of the company.
Granting Loans & Guarantees (Section 180(1)(d))
The Board cannot provide security or guarantees that could jeopardize
the company’s financial position without prior approval.
Delegation of Powers (Section 180(1)
The Board may delegate borrowing powers to committees, but within
approved limits.
Restriction on Selling Assets Without Approval
Shloka Nath v. Registrar of Companies (2020 SCC Online Del 2445)
The Delhi High Court ruled that a company’s core assets cannot be sold without
shareholder consent, as it affects the business’s existence.
Borrowing Beyond Limits Requires Approval
V.B. Rangaraj v. V.B. Gopalakrishnan (1992 AIR SC 453)
Borrowings must comply with the Articles of Association (AoA), and any
deviation requires special resolution approval.
Ultra Vires Borrowing Not Binding
Lakshmanaswami Mudaliar v. LIC (AIR 1963 SC 1185)
Any borrowing beyond legal limits is ultra vires (beyond authority) and not
binding on the company unless ratified by shareholders.
Related Party Transactions

Who is a related party ? - S. 2 (76)

• a director or his relative
• a key managerial personnel or his relative
• a firm, in which a director, manager or his relative is a partner
• a private company in which a director or manager or his relative is a member or director
• a public company in which a director or manager is a director and holds along with his relatives, more
than two per cent (2%) of its paid-up share capital
• any body corporate whose Board of Directors, managing director or manager is accustomed to act in
accordance with the advice, directions or instructions of a director or manager

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• any person on whose advice, directions or instructions a director or manager is accustomed to act:
• Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions
given in a professional capacity
• any body corporate which is
• a holding, subsidiary or an associate company of such company
• a subsidiary of a holding company to which it is also a subsidiary
• an investing company or the venturer of the company
• such other person as may be prescribed
Related Party Transactions
• Who is a relative ? - S. 2 (77)
• Members of HUF
• Husband and Wife
• As specified in Rule 4, Companies (Specification of Definition Details), Rules, 2014
• Father incl. Step father
• Mother incl. Step mother
• Son incl. Step son
• Son’s Wife
• Daughter
• Daughter’s husband
• Brother incl. Step brother
• Sister incl. Step sister
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Related Party Transactions
• No company shall enter into any contract/arrangement with related party

• Sale/purchase/supply - goods and services

• Selling/disposing/ buying/leasing - property of any kind

• Availing/rendering - services of any kind

• Appointment of agent

• Such related party’s appointment - office/ place of profit - comp/ subsidiary/ associated comp.

• Underwriting - subscription of securities/derivatives

• Exception: BoD Consent vide resolution at Board meeting + subject to such conditions as may be 5
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prescribed
Related Party Transactions

• Prescribed : Rule 15 Companies (Meetings of Board and its Powers)

Rules, 2014 - conditions
• Disclosure at the Board meeting at which resolution is proposed
• Name of the RP and nature of relationship
• Nature, duration and particulars of contract/arrangement
• the material terms of the contract or arrangement including the value
• any advance paid or received for the contract or arrangement
• the manner of determining the pricing and other commercial terms, both included as part
of contract and not considered as part of the contract
• Director with Interest-shall not be present at the meeting during
discussions on the subject matter of the resolution relating to such
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• Provisos:
• Resolution - company having a paid-up share capital of not less than such amount, or transactions not
exceeding such sums, as prescribed - Rule 15 (3), Companies (Meetings of Board and its Powers) Rules,
2014
• Exception : transactions - holding company and wholly owned subsidiary - maintaining consolidated
accounts and are placed before the shareholders at the GM for approval;
• Member = related party : shall not vote in the resolution
• Not apply : > 90% of members - relatives of promoters / RP
• Shall not apply : transactions entered in the ordinary course of business other than transaction which are
not on an arm’s length basis
• Arm’s length transaction: between related parties as if they were unrelated so that there is no conflict of
interest

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• Post-facto approval
• Contract/arrangement not pre-approved by BoD/Share holders
• ratification - 3 months from the date of entering into contract or arrangement
• If not- voidable at the option of BoD/ Shareholders
• indemnification - director against losses
• Non- Compliance - S.188 (5)
• Listed company - 25 Lakh (2018 Amendment)
• Other company - 5 Lakh (2018 Amendment)

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 Disclosure of Interest

Where? - S 184 (1)

• Director - 1st meeting of Board + 1st meeting of Board in every financial year
What? Concern or interest in
• Any company/companies/body corporates/ firms/associations
• Include shareholding
Duties of Director -S. 184 (2)
• directly/indirectly - Concerned/ interested in
• a contract/arrangement or proposed contract/ arrangement
• Entered or to be entered
• Body Corporate : >2% shares or Promoter/manager/CEO
• Firm/other entity : Partner/owner/member
• Disclose - nature of concern/interest at Board meeting in which it is discussed and not participate in such meeting
• Proviso: if not at the time of entering into contract, disclose when he becomes interested
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7
• Voidable - S. 184(3)
• Grounds
• Non disclosure
• Participation of director
• At the option of the company
• Non compliance- S.184(4)
• Penalty of 1 Lakh
• Exception - S. 184 (5)
• Not apply to contracts or arrangements between companies/ body corporates
• Where any of the directors individually or together hold
• < 2% of paid up share capital
• In the other company/ body corporate
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Duties of Directors
• Statutory Duties
• To file Return of Allotment [ Section 39]
• Duties under Section 166
• To Disclose Interest [Section 184]
• To Disclose receipt from transfer of property [Section 191]
• To Disclose receipt of compensation from transfer of shares [ Section 191]
• Duty to attend Board Meeting [ 167(1)(b)]
• To Convene GM
• To Authenticate Financial Statements [u/s134]
• To appoint First Auditor of the Company [ u/s 139]
• To Appoint Cost Auditor [ u/s 148]
 Statutory Duties
Duties of a Director - S. 166
• Duty to act as per the articles of the company
• Duty to act in good faith
• 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.
• Duty to exercise due care
• reasonable care, skill and diligence
• exercise independent judgment
• Duty to avoid conflict of interest
• Duty not to make any undue
• to himself or to his relatives, partners, or associates
• Penalty : amount equal to that gain to the company
• Duty not to assign his office
• assignment so made shall be void
• Penalty : between 1 lakh and 5 lakh

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0
Fiduciary Duties
• Duty to act in good faith - S.166 (2)
• to promote the objects of the company for the benefit of its members as a
whole
• in the best interests of the company, its employees, the shareholders, the
community
• for the protection of environment.
• Duty to exercise due care - S. 166 (3)
• reasonable care, skill and diligence
• exercise independent judgment

61
• General Duties
• Duty of Good faith
• Cook v Veeks [1916] AC 554
• Burland v Earle [1902] AC 83
• Duty of Care
• Re City Equitable Fire Insurance Company’s Case
• Lagunas Nitrate Co Lagunas Nitrate Syndicate [1899] 2 Ch 392
• Duty not to Delegate
FD- Fashioned out of common law
• Berry & Stewart v. Tottenham Hostpur Football and Athletic Co. Ltd., 1936
• Discretionary power must be exercised in good faith for the benefit of the company.
• Unless the contrary is proved, the power is deemed to have been exercised properly.

• M.J.
•
Amrithalingam v. Gudiyatham Textiles Pvt. Ltd., ,1972
If the articles of association give an unfettered discretion, the court would interfere with it only on proof of bad faith

• Bajaj
•
Auto Limited v. N.K. Firodia, AIR 1971
discretion implies just and proper consideration of the proposal under the facts and circumstances of the case
• directors are, therefore, required to act bona fide and not arbitrarily and not for any collateral motive
• Three tests:
• Whether the directors acted in the interest of the company
• Whether they acted on a wrong principle
• Whether they acted on oblique motive or for a collateral purpose

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3
Remuneration - S 149(9), 197 (5) , Rule 4 Companies (Appointment and Remuneration)
Rules, 2014
• Not entitled to stock
• Remuneration by way of a fee - 197(5)

• Attending meetings - Board/committee

• Any other purpose - decided by the board
• Proviso - not exceed the prescribed amount
• Reimbursement - participation in meetings
• Commission on profits - as approved by the members
• Sitting fees - Rule 4 of Companies (Appointment and Remuneration) Rules, 2014

• Determined by the BoD

• < 1L / meeting
• Proviso- not be less than fee payable to other directors
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4
• Tenure

• Term - S. 149 (10)

• Subject to S. 152

• Upto 5 consecutive years

• Reappointment - Spcl. Res.

• Cooling off period - S. 149 (11)

• Not more than 2 consecutive terms

• But can be appointed after expiration of 3 years

• Proviso: not associated with company - any capacity - directly/indirectly

• Liability

• Acts of the company which has occurred with

• Knowledge - attributable through board process

• Consent/connivance/non-diligence

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5
Data Bank - S. 150
• Eligible and willing IDs- Names, addresses and qualifications
• CG notified - body/ institute/ association
• 2019 Notification : Indian Institute of Corporate Affairs
• Proviso - responsibility of due diligence - with the company
• Approved - General Meeting + Explanatory statement justifying appointment
• Subject to Rule 6 of Companies (Appointment of Directors) Rules, 2014
• Companies (Creation and Maintenance of Data Bank of IDs) Rules, 2019

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Key Managerial Personnel
• Definition - S.2 (51)
• Means
• CEO - S.2(18) /MD - S.2(54)/ Manager - S.2(53)
• CS - S.2(24)
• WTD - S.2(94)
• CFO - S.2(19)
• Not more than one level below Director and designated KMP by Board
• Such other officer as may be prescribed
• Appointment- S. 203 , Rule 8, 8a of Companies ( App and Remuneration of
MP) Rules, 2014
• Listed Company : whole time KMP
• Public company having paid-up share capital - >10C : whole time KMP + CS
• Resolution - Board - terms, conditions & remuneration 6
7
• Holding office
• A WT-KMP - not more than one company at the same time
• Except - subsidiary company
• Proviso
• Can be a Director of any company - Board permission
• Can be appointed at MD - if he is MD/manager of one other company
• Resolution - BM with the consent of all the directors present at the meeting

• Vacancy
• Filled within 6 M
• By the Board at BM

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Managerial Person- MD,WTD,
Manager
• Appointment - S. 196
• Either MD or Manager
• Term: <5 years - appointment and re-appointment
• Disqualifications
• Age: 21-70
• Proviso : >70 - thro SR
• Insolvent - undischarged/adjudged
• Suspended payment to his creditors
• Conviction - >6M
• Appointment and Remuneration - approved by BoD - subject to approval at
GM
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Remuneration
• Total managerial remuneration - S.197 (1)
• < 11% of NP
• Proviso: >11 - GM authorisation
• Proviso: without the approval of the company
• one person : not exceed 5% of NP
• Directors - who are not MD/WTD/ Managers
• not exceed 1% of NP - if there is a WTD/MD/Manager
• Not exceed 3% in other cases

• Exclusivity - S.197 (2)

• S.197(1) + Fees u/s 197 (5)

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0
• No Profit/inadequate profit - S. 197 (3)
• Directors incl. MD/WTD/Manager/ID/non exec Director
• No sum exclusive of fee u/s 197 (5), subject to Schedule V
• Fees - S. 197 (5)
• Attending meetings - BoD/ Committee
• Any other purpose decided by the Board
• Proviso: not exceed Rule 4, Companies ( Appointment and Remuneration of
MP) Rules, 2014

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1
• Schedule V
• Companies having profits - not exceed limits u/s 197
• Companies not making profits/inadequate profits
Limit of yearly remuneration
Limit of yearly remuneration payable
Where the effective capital (in rupees) payable shall not exceed (in shall not exceed (in rupees) in case of
is Rupess) in case of a other director
managerial person

Negative or < 5C 60L 12L

5-100 C 84L 17L

100 - 250 C 120L 24L

120 lakhs plus 0.01% of the

24 Lakhs plus 0.01% of the effective
>250 C effective capital in excess of capital in excess of Rs.250 crores
Rs.250 crores
• Proviso : remuneration may exceed - SR by shareholders.
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 Corporate Social Responsibility
• CSR Committee - S.135 (1)

• All companies

• Networth : > 500C / TO: > 1000C / NP : > 5C

• Immediately preceding financial year (2017 amendment)

• >3 Directors with at least 1 ID

• Proviso : >2 Directors if Company is not required to have an ID u/s 149 (4)

• Exception - S. 135 (9)

• amount under CSR: < 50L - No need of CSR Committee

• BoD- Functions of the CSRC

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• Functions of CSR Committee - S.135 (3)

• CSR Policy formulation and recommendation to BoD

• Indicate activities - Schedule VII

• Recommendation of the expenditure

• Monitor the CSR policy

• Duties of Board - S.135 (4)

• Approve CSR Policy

• Disclosure in Report

• Place it on Website

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4
• CSR Expenditure - S.135 (5)

• At least 2% of Avg. net profits

• 3 immediately preceding financial years

• Proviso :

• preference to local area and areas around where it operate

• Failure to spend

• Board : specify in report reasons for not spending + transfer the funds in Such VII

• Set-off : excess amount spent — in the succeeding financial year (2020 Amendment)
• Unspent Amount - S.135 (6) : 2019 Amendment

• Unspent CSR Account (Sch Bank) : transferred within 30 days of end of financial yr

• Spend within 3 financial years towards CSR Policy

• Failure: transfer to fund under Schedule VII - within 30 days of the 3rd financial year
• Default in compliance - S.135 (7) : 2020 Amendment

• Penalty:2 x (amount to be transferred to Such VII / UCSR account) / 1C - whichever is less

• Every officer: 1/10 x (amount to be transferred to Such VII / UCSR account) / 2L - whichever is less

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5
 Audit Committee

Legal Provisions
• Section 177 of the Companies Act, 2013
• Rule 6 of the Companies (Meetings of Board and its Powers) Rules, 2014
• SEBI (LODR) Regulations, 2015
Mandatory for:
• Listed Companies
• Public companies with:
• Paid-up capital ≥ ₹10 crore, OR
• Turnover ≥ ₹100 crore, OR
• Outstanding loans, debentures & deposits ≥ ₹50 crore
Duties
• Oversight of financial reporting and disclosures
• Reviewing internal audit and risk management
• Recommending appointment/removal of auditors
• Recommendation - appointment, remuneration and terms of app of auditors
• Review and monitor - auditor’s independence, performance and effectiveness
• Approval / subsequent modification of transactions of the company with related
parties
• Scrutiny - inter corporate loans and investments
• Evaluation- internal financial controls and risk management systems
• Monitoring - end use of funds raised through public offers
Nomination and Remuneration Committee (NRC)

Legal Provisions
• Section 178(1) of the Companies Act, 2013
• SEBI (LODR) Regulations, 2015
Mandatory for:
• Listed Companies
• Public companies with:
• Paid-up capital ≥ ₹10 crore, OR
• Turnover ≥ ₹100 crore, OR
• Outstanding loans, debentures & deposits ≥ ₹50 crore
Composition - S. 178 (1)
• Minimum 3 Non-executive Directors with not less than 1/2- IDs
• Proviso: chairperson of company can be a member but shall not chair NRC
Functions - S. 178 (2), S. 178 (3)
• Recommend appointments/removals of directors & senior executives
• Establish criteria for board evaluation
• Decide director & executive remuneration
• Identifying qualified person - directors , senior management
• Recommend - appointment and removal
• Specify manner of performance evaluation - Board, committees and individual
directors
• Carried out - board/ NRC/ independent external agency
• Formulate the criteria - qualifications, positive attributes and independence of
Directors
• Recommend a Policy to Board - remuneration - Dir, KMP, Other employees
Stakeholders Relationship Committee
Legal Provisions
• Section 178(5) of the Companies Act, 2013
• SEBI (LODR) Regulations, 2015
Mandatory for:
• Listed companies with more than 1000 shareholders, debenture-holders, or
security-holders
• Composition - S. 178 (5)
• Chairperson - non executive director
• Members - decided by the board
Key Functions:
• Redressal of shareholder grievances (dividends, share transfers)
• Monitoring investor relations
• Ensuring regulatory compliance
Corporate Social Responsibility (CSR) Committee

Legal Provisions
• Section 135 of the Companies Act, 2013
• Companies (CSR Policy) Rules, 2014
Mandatory for:
Companies meeting any one of the following criteria:
• Net worth ≥ ₹500 crore
• Turnover ≥ ₹1000 crore
• Net profit ≥ ₹5 crore
Key Functions:
• Formulate and oversee CSR policies
• Ensure minimum CSR spending (2% of average net profits for last 3 years)
• Monitor CSR activities
Risk Management Committee

Legal Provisions
• Regulation 21 of SEBI (LODR) Regulations, 2015
Mandatory for:
• Top 1000 listed companies based on market capitalization
Key Functions:
• Identify & assess business risks (financial, operational, cyber,
etc.)
• Develop risk mitigation policies
• Report risk factors to the Board
Share Transfer Committee

Legal Provisions
• Section 56 of the Companies Act, 2013
• SEBI (LODR) Regulations, 2015
Voluntary but common in large corporations
Key Functions:
• Approval of share transfers and transmissions
• Issuance of duplicate share certificates
• Monitoring regulatory compliance
Finance Committee

Legal Provisions
• Section 179 of the Companies Act, 2013
Voluntary but common in large corporations
Key Functions:
• Approve financial transactions (loans, investments, borrowing
limits)
• Oversee fund-raising activities
• Monitor financial risk exposure