Meaning of Director
The Companies Act 2013 under the section 2(34) defines the term 'Director' as a
person who is appointed and designated as the director of the company to carry
out the affairs of the company in accordance with the MOA and AOA of the
company. Section 2(10) of the companies act 2013 defines the term Board of
Directors as the group of directors of the company. Thus, we can say that the
meaning of director is the officers of the company appointed to govern the
affairs of the company.
They are the top-level management officials in the
company. A director is the agent of the company for the reason that they act on
behalf of the company. They are the trustee of the company as entrusted with the
assets and funds of the company and they have to use their power to apply these
in the interest of the company and shareholders. They are also the officers of
the company according to section 2(59) of the companies act 2013 which says that
the officers of the company include Directors and other few officials.
Appointment of Director
Now if we focus on the appointment of directors in the company. Section 149(1)
provides that every company shall have a board of directors which shall be
consisting only individuals as directors. It also specifies that there shall be
a minimum number of three directors in the case of a public company, two
directorsfor the private company, and one in case of the one-person company. A
company can have a maximum of fifteen directors in the BOD.
There are few types of directors and their appointment are explained here:
The act under the second proviso of section 149(1) emphasize
that there shall be one women director in the BOD of every listed company or any
public company having paid-up capital of Rs. 100 crores or turnover of Rs. 300
crores. Such women directors shall be appointed by the shareholder in the
section 149(4) insists that one-third of the total number
of directors shall be independent directors. Independent directors are appointed
by the shareholder in the annual general meeting.Independent directors dispense
the role of an unbiased judge inside the company. They supervise the functioning
of the company and increase the credibility of the company's practices. They
ensure the proper compliance of the act and the standards of corporate
governance. Independent directors also oversee the auditing committee to
preserve the integrity of the financial information disclosed by the company.
They are appointed to safeguard the interest of all the stakeholders of the
Section 151 of the act provides for the appointment of one
director by the small shareholder. Small shareholders are the shareholders
having shares of value not more than twenty thousand rupees or any amount
prescribed by the MOA or AOA.
Section 152(1) deals with such director. Article of association
specifies for the appointment of the first director. But when the AOA is quiet
on this subject, then the subscribers of the memorandum are considered as the
FIRST DIRECTOR. Such first director shall hold the office till the first annual
general meeting. In the first AGM, all the directors are appointed.
section 152(6) provides for the rotation of the directors.
In a public company, not less than two-third of the total number of directors
are liable to retire by rotation. Now at every annual general meeting one-third
of such directors are liable to retire by rotation. The director who have been
longest in office since their appointment shall retire by rotation at the
subsequent annual general meeting. But if two directors are appointed on the
same day then one of them shall retire after a mutual agreement between them.
The rest one-third directors are the whole-time directors and they are also
appointed by the company in the general meeting.
Section 161(2) of the act indicates if any director is
absent from India for three or more than three months, then an alternate
director can be appointed by the board of the directors if the AOA authorizes or
if any resolution is passed by the board in a general meeting for such an act.
The person must not hold any other alternate directorship. He shall be holding
the office for the same term as the original director will. He shall have to
vacate the office when the original director returns to India.
Section 161(1) of the act provides if the AOA of the
company confers the power on the board of directors then they can appoint any
person as an additional director. He will hold the office until the next annual
general meeting. He must not be the person who failed to get appointed as a
director in the general meeting.
Nominee Director- Such directors are appointed under section 161(3) of the act
by the board. A person is nominated by any institution in pursuance of any law
or by state or central government by the virtue of its shareholding in that
Vacancy of the office of Director
Now the Companies act 2013 also prescribes provision for the vacancy of the
office of director. If any of the provision of section 167(1) is attracted then
the office of the director shall become vacant.
The provisions are as following
- If the director incurs any of the disqualifications provided in section 164.If
he is absent from all the meetings of the Board of Directors held during a
period of twelve months with or without seeking leave of absence of the Board.
- Related party transaction:
If he acts in contravention of the provisions of
section 184 relating to entering into contracts or arrangements in which he is
directly or indirectly interested.
- If he fails to disclose his interest in any contract or arrangement in which he
is directly or indirectly interested, in contravention of the provisions of
- If he is disqualified by an order of a court or the Tribunal.
- If he is convicted by a court of any offence, whether involving moral turpitude
or otherwise and sentenced in respect thereof to imprisonment for not less than
six months. Provided that the office shall be vacated by the director even if he
has filed an appeal against the order of such court If he is removed in
pursuance of the provisions of this Act.
- If he, having been appointed a director by virtue of his holding any office or
other employment in the holding, subsidiary or associate company, ceases to hold
such office or other employment in that company.
Removal Of Director
Section 169 of the Indian Companies Act, 2013 states the procedure for the
removal of the director. Section 169 of the Companies Act, 2013 states that the
shareholders can remove the director by passing an ordinary resolution in a
This right cannot be taken away by the MOA, AOA, or any document or any
According to section 115 of the Companies Act, 2013, a special notice with the
intention of removing a director by the specified no. of members of the company
has to be passed at least before 14 days before the concerned meeting at which
it has to moved excluding the day on which the notice is served and the day of
the meeting. (Section 169)
The company shall immediately, after it has received the notice should inform
its members by a notice of resolution in the same way it does at the time of a
If it is not possible for the company to send notice to all the members, it
should publish it in form of an advertisement in a newspaper having an
appropriate circulation at least before 7 days of the meeting.
The company should give intimation to the concerned director about his removal
by sending the copy of the resolution which is sought to be passed. The director
will have the right to be heard on the resolution at the meeting.
The director can submit his statement in writing against his removal from the
company and can also ask the company to notify it to the other members.
If the representation of a reasonable length and has not been too late also
then the company must:
- Mention in the notice of resolution that the fact of the representation
has been received at the annual general meeting.
- Send a copy of the representation to every member of the meeting if the
representation has been received before the notice of the meeting.
- If the writing is not able to reach the members of the company because it has
been received too late or the company itself made some default in sending it
then the representation must be read at the annual general meeting, it is at the
discretion of the director. In addition, he can also make oral representation.
- Provided that the copy of the representation need not be sent out and the
representations need not be read out at the meeting if, on the application
either of the company or any other person who claims to be aggrieved, the
Tribunal is satisfied that the rights conferred by this sub-section are being
abused to secure needless publicity for defamatory matter and the tribunal may
order the company's costs on the application to be paid in whole or in part by
the director notwithstanding that he is a party to it.
Roles Of Director
A Company is an artificial person and need few persons in the Board of
Company to run the business of Company on behalf and welfare of Shareholders of
Company. The Director acts as agent of shareholders and promotes the objects of
Company so that Company can earn good profit and increase the intrinsic value of
share and Earning of the Company.
Any Whole time director appointed by the Board of Directors and
approved by the shareholders of the company acts as an employee of the Company
by managing day to day affairs of the Company. All the Directors operate the
Company in the contours of employment Letter issued by the Board of Company.
Directors is treated as main officer of Company who shall be liable for
penal consequences under various statues, if affairs of Company are not in
compliances as per Companies Act, Income Tax Act, FEMA provisions and other
applicable Legal statues defined for various industries.
Director is treated as trustees of the company, money and property of
the powers entrusted to and vested in them only as trustee.
Functions Of Director
- A director of the company must act in accordance with AOA.
- 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/ shareholders as a
whole, and in the best interests of the company, its employees, the
shareholders, the community and for the protection of environment.
- A director of a company shall exercise his duties with due and
reasonable care, skill and diligence and shall exercise independent
- 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.
- 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
- A Director must ensure that all the affairs of Company are being done in
best possible way and without compromising on legal Compliance of the
Company and at same time which are not prejudicial for the interest of
The Companies Act 2013 has very well played its role in enacting Corporate
Governance in the very core of the companies system. However, more than
adherence to purpose its relies on adherence for survival which may fail it
someday like all previous amendments. It needs to be more straight forward while
assuring shareholders interest. Fear may allow necessary shield to hold the
corrupt people for some time however it will not be long that bypass to such
rules are already being invented.
Corporate Governance needs to be imbibed into
the soul of the system through tangible benefits to the followers , only then it
will become the goal of the companies and will be followed religiously. The best
thing is all stakeholders and shareholders of the companies have faith in the
Companies Act and it will keep enlightening the path to universal Corporate