Legal Position of

Directors
Directors

Directors are A director is not an

entrusted with employee of the
They are
collective company. It is not
professional men
responsibility of possible to correctly
appointed by
managing and describe his
shareholders.
directing affairs of relationship with the
the company. company.
They have some
Directors are
attributes of each of
described
them, but they are
sometimes as
neither trustees, nor
agents, sometimes
agents nor
trustees and
managing partners
sometimes as
in full sense of the
managing partners.
term.
Duties of director towards company

Exercise due
Director to act
diligence, care
according to Director to act in
and
Articles – section good faith and in
independence ––
166(1) of interest of all
section 166(3) of
Companies Act, stakeholders
Companies Act,
2013.
2013.
 Contd…
No undue gains or
advantages – A
director of a
company shall not Punishment for
achieve or attempt not discharging
No conflict of to achieve any the duties – If a
interest with undue gain or director of the
company –– section advantage either to company
166(4) of himself or to his contravenes the
Companies Act, relatives, partners, provisions of this
2013. or associates. If section, such
such director is director shall be
found guilty of punishable with fine.
making any undue
gains, he shall be
penalized.
 Director is not an employee

A director is not an employee of

the company. An employee of a
company may be appointed as a If a director is performing duties
Director, but in that case, he is and is working for the company,
acting in dual capacity. As an he will come within purview of an
employee, he is responsible to ‘employee’ – Monitron
company as the company is its Securities v. Mukundlal
employer. However, as a director, Khushalcnand 2001 LLR 339 (Guj
he is responsible to act in good HC).
faith as representative of the
shareholders.
3. Director has some traits of an agent of
the company

A principal can act through his agents. Acts of agents can bind the principal.
Since company acts only through its directors, the position of director can be
compared to that of an agent.
In Ram Prasad v. CIT AIR 1973, it was observed as follows, ‘A director of a
company is not a servant but an agent in as much as the company cannot act
in its own person but has only to act through directors who qua the company
have the relationship of an agent to its principal’.
However, an agent may act and enter into contracts in his own name. A
director cannot act in his own name. He has to act and enter into contract in
the name of company. An agent may or may not disclose the name of principal.
Director has some traits as ‘trustee’

A ‘trustee’ acts in trust for benefit of some one else.

The property and management of trust vests in the trustee, but

he has no personal interest in the property and management of
the trust. The trustee is expected to act in the best interests of
the trust and trust property. Similarly, funds and property of the
company are in trust of the directors. They are expected to act in
good faith and in the best interests of the company as a whole.
Whenever personal interests and company interests clash, his
personal interests should be secondary to the interests of the
company.
 • Duty to give consent and declaration
that he is not disqualified as director –
section 152 of Companies Act, 2013
Specific • Notice to Board every year regarding
duties of his interest in other firms/companies –
section 184 of Companies Act, 2013
a [corresponding to section 299(2) of
the 1956 Act].
director • Not to indulge in insider trading
[section 195 of Companies Act, 2013]
 • An individual director has following
rights—

Rights of • Right to inspect

books of account and other

director books and papers of the

company and copies of financial
information if the records are
and placed at other place in India –
inspection to be during business
limitation hours – section 128(3) of
Companies Act, 2013
s • Right to receive notices of Board
meetings – section 173(3) of
Companies Act, 2013
• Right to receive remuneration
including sitting fees – section
197 of Companies Act, 2013
• Right to be heard at the general
meeting if notice for his removal
has been received. He can also
make a representation in writing,
 • Right to record his dissent to any
proposed resolution in Board
meeting – section 118(4) of
Companies Act, 2013
• Right to participate and vote at
board meetings, unless he is
interested in a particular
resolution
Contd… • Right to claim travel, hotel and
other expenses for attending the
Board and committee meetings
and also in connection with
business of the company
• Right to summon Board meetings
 Number of Directorships:

Regulatory Limits: Many Best Practices: While specific

jurisdictions impose limits on the limits vary, companies often have
number of directorships an individual policies in place regarding the
can hold to prevent conflicts of maximum number of boards a
interest and ensure that directors director can serve on to ensure
can devote adequate time and effectiveness and accountability.
attention to each company.
 • 1. India:
According to the Companies Act, a person can hold a
maximum of 20 directorships in Indian companies at
the same time. However, only 10 of these can be
public companies.
• 2. United States:
There is no federal law limiting the number of
directorships, but individual states may have their own
Example regulations. Many companies also have internal policies
that may set limits, often around 3 to 5 directorships
for practical reasons.
• 3. United Kingdom:
The UK Companies Act does not specify a maximum
number of directorships, but company articles of
association may impose limits. It's common for corporate
governance guidelines to recommend a maximum of 3 to
5 directorships for non-executive directors to ensure
they can effectively fulfill their duties.
 • 1. Type of Company: Public vs. Private: In many jurisdictions,
the limits often differentiate between public and private companies.
For example, directors might be allowed to hold more directorships
in private companies compared to public ones.
• 2. Nature of Role: Executive vs. Non-Executive: Some
regulations may impose stricter limits on executive directors
compared to non-executive directors. For example, an executive
director may be limited to fewer directorships to ensure they can
focus on their primary role.
• 3. Time Commitment: Directors are generally expected to devote

Terms and adequate time to each board role. If a director holds multiple
positions, they may need to demonstrate that they can fulfill their
duties effectively across all roles.

Conditions • 4. Disclosure Requirements: Directors may be required to

disclose their other directorships when joining a new board, allowing
the company to assess potential conflicts of interest or time
constraints.
• 5. Regulatory Compliance: Some jurisdictions may require
directors to adhere to specific regulatory requirements regarding
their directorships, and failure to comply can lead to disqualification
or penalties.
• 6. Company Policies: Individual companies may have their own
governance policies that set limits on directorships beyond legal
requirements, focusing on ensuring effective oversight and
management.
INDEPENDENT DIRECTOR
• An independent director is a non-executive board
member who is not involved in the day-to-day
operations of a company and has no material
relationship with it. They are also known as outside
directors.
• An independent director shall possess appropriate skills,
experience and knowledge in one or more fields of
finance, law, management, sales, marketing,
administration, research, corporate governance,
technical operations or other disciplines related to the
company’s business.
Contd…
• Some responsibilities of independent directors board
and Providing leadership, Helping with succession
planning, Serving as a liaison between shareholders and
management, and Improving corporate credibility.
• Independent directors are important for good corporate
governance and protecting shareholder interests. They
provide unique perspectives and backgrounds to the
board, and help improve strategy and governance.
 QUALIFICATION FOR INDEPENDENT
DIRECTOR
• As per section 149(6) read along with Rule 5 of
Companies (Appointment and Qualification of Directors)
Rules, 2014 following person can be appointed as
independent director or pecuniary relationship with the
company or directors.
• Not MD-WTD Nominee Director: A person who is not a
Managing Director or Whole time Director or Nominee
Director.
• Example: u SBI has granted loan of Rs. 10 crore to A
Ltd. and appointed Raja as nominee director on board of
A Ltd. Raja cannot be considered as independent
director.
Contd…
• Relevant experience & Expertise: Person of integrity and
possesses relevant experience and expertise in opinion of Board.
Example: Raja is M. Tech in Electronics. Raja cannot be eligible as
independent director for pharmaceutical company. But he can be
eligible as independent director in company whose activities are
related to electronics.
• Not promoter: A person who is or was not promoter of company,
its holding, subsidiary or associate company.
• Not related to Promoter : A person who is not related to
promoter or director of company, its holding or subsidiary or
associate company. Example: Raja is promoter of A Ltd. Rani who is
wife of Raja cannot be considered as independent director for A
Ltd. or its holding or subsidiary or associate company.
Contd…
• No Pecuniary Relationship: A person who has or had no
pecuniary relationship other than remuneration as such
director or having transaction not exceeding 10% of his total
income or such amount as may be prescribed with company,
its holding company or subsidiary company or associate
company or their promoters, or directors, during last 2
financial years or during the current financial year. (Note:
This provision is not applicable to Government Company)
• Example: Raja is having franchisee of AC manufactured by A
Ltd. Raja is not eligible to be appointed as independent
director of A Ltd.
Number of Independent Director
• As per Section 149(4) Listed public company shall have
at least 1/3rd of the total number of directors as
independent directors.
• Unlisted public company: Rule 4 of Companies
(Appointment and Qualification of Directors) Rules,
2014, provides that following public companies shall
have at least two independent directors:
• Which is having paid up share capital of Rs. 10 crore or more;
• or Which is having turnover of Rs. 100 crore or more; or
• Which have, in aggregate, outstanding loans, debentures and
deposits, exceeding Rs. 50 crore.