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CHANAKYA NATIONAL LAW UNIVERSITY

CORPORATE LAW- I
Project Report on:
BOARD OF DIRECTORS

Submitted to: Mrs. Nandita Jha (Faculty for Corporate Law)


Submitted by: Anubhuti Varma
Roll no.-721,
VII Semester.

ACKNOWLEDGEMENT
Apart from the grace of almighty, many people have been profusely generous and helpful
to me in the course of my research tenure; I cannot extend my gratitude in a single direction but will
have to bestow my thanks, blossoms by blossoms, upon a few, if not all persons, who do merit a
special kind of tribute by virtue of their assisting me along the way. In the first place, I feel
tremendously excited in recording my most sincere and profound gratitude to my adroit supervisor

Mrs. Nandita Jha (Faculty for Corporate Law). I would like to make sincere prayer before
almighty for him, without his blessings, invaluable guidance, intellectual inspiration and perpetual
encouragement; I could not have accomplished and presented this work, in the present form. I owe
my sincere thanks to Library staff members of University for their assistance and cooperation to
find out the relevant material for my research.
Anubhuti Varma
VII Semester.

RESEARCH METHODOLOGY
2

SUBJECT: Corporate Law- I


TOPIC: Board of Directors
OBJECTIVES: The main objects of my study are:
i)
ii)

To ascertain the concept of Board of Directors as per Companies Act,2013


To conduct a detailed study with regard to the provisions mentioned theirein.

RESEARCH METHODOLOGY: Doctrinal research methodology has been used. Keeping the
objectives in mind, material was collected with the help of different books and then it was compiled to
make the theoretical part of the project. Secondary sources were also utilized in order to complete the
objective.
RESEARCH TOOLS: The research of this project was carried with the help of the Internet and Library
of Chanakya National Law University.
FOOTNOTING STYLE: In whole of my project uniform footnoting style has been adopted.

CONTENTS

1.
2.
3.
4.
5.

Introduction
Appointment and Qualifications of Directors
Powers of Board of Directors
Duties of Board of Directors
Conclusion

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9
14
20
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6.

Introduction
A board of directors is a body of elected or appointed members who jointly oversee the activities
of

a company or organization.

Other

names

include board

of

governors, board

of

managers, board of regents, board of trustees, and board of visitors. It is often simply referred to
as "the board".
A board's activities are determined by the powers, duties, and responsibilities delegated to it or
conferred on it by an authority outside itself. These matters are typically detailed in the
organization's bylaws. The bylaws commonly also specify the number of members of the board,
how they are to be chosen, and when they are to meet. However, these bylaws rarely address a
board's powers when faced with a corporate turnaround or restructuring, where board members
need to act as agents of change in addition to their traditional fiduciary responsibilities.1
In an organization with voting members, the board acts on behalf of, and is subordinate to, the
organization's full group, which usually chooses the members of the board. In a stock
corporation, the board is elected by the shareholders and is the highest authority in the
management of the corporation. In a non-stock corporation with no general voting membership,
the board is the supreme governing body of the institution; 2 its members are sometimes chosen
by the board itself.
Typical duties of boards of directors include:

governing the organization by establishing broad policies and objectives;

selecting, appointing, supporting and reviewing the performance of the chief executive;

ensuring the availability of adequate financial resources;

approving annual budgets;

1 Anderson, Raymond; Sawyer, Hugh. "The Board of Directors as an Agent of Change in Turnarounds".
Transaction Advisors. ISSN 2329-9134
2 Robert III, Henry M.; William J. Evans; Daniel H. Honemann; Thomas J. Balch (1 October
2000). Robert's Rules of Order Newly Revised. Cambridge, MA: Da Capo Press.ISBN 0-7382-0307-6
5

accounting to the stakeholders for the organization's performance;

setting the salaries and compensation of company management;

The legal responsibilities of boards and board members vary with the nature of the organization,
and with the jurisdiction within which it operates. For companies with publicly trading stock,
these responsibilities are typically much more rigorous and complex than for those of other
types.
Typically the board chooses one of its members to be the chairman, who holds whatever title is
specified in the bylaws or articles of association. The development of a separate board of
directors to manage the company has occurred incrementally and indefinitely over legal history.
Until the end of the 19th century, it seems to have been generally assumed that the general
meeting (of all shareholders) was the supreme organ of the company, and the board of directors
was merely an agent of the company subject to the control of the shareholders in general
meeting.3
However, by 1906, the English Court of Appeal had made it clear in the decision of Automatic
Self-Cleansing Filter Syndicate Co Ltd v Cuninghame [1906] 2 Ch 34 that the division of powers
between the board and the shareholders in general meaning depended on the construction of
the articles of association and that, where the powers of management were vested in the board,
the general meeting could not interfere with their lawful exercise. The articles were held to
constitute a contract by which the members had agreed that "the directors and the directors alone
shall manage."
The new approach did not secure immediate approval, but it was endorsed by the House of
Lords in Quin & Axtens v Salmon4 and has since received general acceptance. Under English
law, successive versions of Table A have reinforced the norm that, unless the directors are acting

3 Gower, Principles of Company Law (6th ed.), citing Isle of Wight Railway v Tahourdin(1883) 25 Ch D
320.
4 [1909] AC 442
6

contrary to the law or the provisions of the Articles, the powers of conducting the management
and affairs of the company are vested in them.
The modern doctrine was expressed in John Shaw & Sons (Salford) Ltd v Shaw5 by Greer LJ as
follows:
A company is an entity distinct alike from its shareholders and its directors. Some of its powers
may, according to its articles, be exercised by directors, certain other powers may be reserved for
the shareholders in general meeting. If powers of management are vested in the directors, they
and they alone can exercise these powers. The only way in which the general body of
shareholders can control the exercise of powers by the articles in the directors is by altering the
articles, or, if opportunity arises under the articles, by refusing to re-elect the directors of whose
actions they disapprove. They cannot themselves usurp the powers which by the articles are
vested in the directors any more than the directors can usurp the powers vested by the articles in
the general body of shareholders.
It has been remarked that this development in the law was somewhat surprising at the time, as
the relevant provisions in Table A (as it was then) seemed to contradict this approach rather than
to endorse it.6
Stipulation and elucidation of the duties, functions and responsibilities of the directors of a
company, especially the public limited companies, are welcome and great contribution of the
new company law of India, the Companies Act of 2013, to better corporate governance and
security, and the best possible growth and prosperity in the corporate world of India. The former
company law of India, the Companies Act of 1956, was disgustingly deficient in this respect. The
new CA-2013 can be seen as offering a landmark piece of legislation in this regard, which duly
and explicitly clarifies, redefines, and enlarges the ambit of duties and responsibilities of the
directors. These newly introduced provisions by CA-2013 regarding the duties and
responsibilities of the directors, including the independent directors, not only provide greater
5 [1935] 2 KB 113
6 Principles of Company Law (6th ed.) at 185
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certainty to the directors regarding their conducts and responsibilities, and thus, ensuring better
and impeccable corporate management and governance; but also enable and empower the
beneficiaries, regulators, and the courts, to judge, regulate, and control the activities and
obligations of the directors more objectively and effectively. Ours this well-drafted web-article
offers very useful and fertile information exclusively about these new provisions of the Indian
Companies Act of 2013, connected with the roles, duties, and responsibilities of the directors and
independent directors of public limited companies.
This prudent legislation of the CA-2013 over the duties and liabilities of the directors, is further
supported and supplemented by the revised corporate governance norms (Revised and New
Clause 49 of the Listing Agreement) of SEBI [the Securities and Exchange Board of India], in
order to bring the SEBI's corporate governance norms in connection with the listed companies, in
close harmony and consistency with the provisions of the CA-2013.
While the several provisions of the CA-2013 related with duties of directors have been made
effective from April 01, 2014; the revised SEBI's norms for corporate governance are likely to be
in force from October 01, 2014.
Here, it may also be briefly just mentioned that the Directors are regarded as being the Key
Managerial Persons of a company, with special importance to the listed companies. They can
hold multiple high and responsible positions in the companies, such as the Managing Director,
Manager, Whole Time Director, or an Independent Director. Thus, efficient, flawless, and rather
progressive management of a company, and the desired growth and profitability of its businesses,
are certainly largely dependent on the competence and trustworthiness of its directors. By the
way, a Director means a Director appointed to the Board of a company; and, the Board of a
company represents the collective body of its directors.

Appointment and Qualification of Directors


With the new Companies Act, the law has become more stringent for private companies than
for public companies; Moving from the Companies Act 1956 to the Companies Act 2013 is like
shifting from your old house to a new one. In the old house, where you have stayed for years,
everything would have found its own place the shoes, the clothes, umbrella, first aid, brooms,
and whatever else you need in your household. Your legs can find their own way, even in pitch
dark of night they know the way to the bathroom, to the stairs, they even know where the
stairs end.
Directors of a company hold the most crucial position in the Company. With the new Companies
Act, 2013 (New Act) already in force, their position has become even more significant than
ever before. They are now formally included within the definition of key managerial personnel
or KMP under Section 2(51) of the New Act.
As per Section 149(1): Every Company shall have a Board of Directors Consisting of Individuals
as director. (It is clear to understand from this line that only an individual can be director of
company. Some persons have doubt that other than individual can be director or not). According
to this section ONLY AN INDIVIDUAL can be director of company. {The Board shall consist of
individuals not of other persons like firms, LLP, companies, gods or other legal persons.}
Minimum No. of Directors as per Section 149(1)(a):7

Three in case of Public Company.

Two in case of Private Company.

One in case of One Person Company.


Maximum 15 Directors (If company want to appoint more than 15 directors Special
Resolution Required to pass in General meeting)- Procedure {Simple Process of Holding of
Extra-Ordinary General Meeting, which we use in other Matters also)

7 Companies Act, 2013


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New Categories of Directors:

Resident Director:

As per Section 149 sub section 3 of Companies Act 2013, Board of Directors of a company, must
have at least one resident director i.e. (A person who has lived at least 182 days in India in the
previous calendar year)
As per General Circular No. 25/2014 The residence requirement would be reckoned from the
date of commencement of section 149 of the Act i.e. 1 st April, 2014, The first previous calendar
year, for compliance with these provisions would, therefore, be Calendar year 2014. The period
to be taken into account for compliance with these provisions will be the remaining period of
calendar year 2014 i.e. 1st April to 31st December).8

Therefore, on a proportionate basis, the number of days for which the director(s) would
need to be resident in India. During Calendar year.2014, shall exceed 136 days.

Regarding Newly Incorporated Companies it is clarified that companies incorporated


between 01.04.2014 to 30.09.2014 should have a resident director either at the time of
incorporation OR within six months of their incorporation.

Companies incorporated after 30.9.2014 need to have the resident director from the date
of incorporation itself.

Women Director:

As per Section 149 (1) (a) second proviso requires certain categories of companies to have At
Least One Woman director on the board. Such companies are any listed company, and any public
company having1.

Paid Up Capital of Rs. 100 cr. or more, or

2.

Turnover of Rs. 300 cr. or more.

Independent Director:

Independent Director is for the first time introduced in the Companies Act, 2013 under section
149(6)
8 https://indiancaselaws.wordpress.com/category/corporate-law/companies-act2013/. Accessed on 22.09.2015.
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Additional Directors:

Any Individual can be appointed as Additional Directors by a company under section 161 of the
New Act.

Nominee Director:

As per Section 161(3). Subject to AOA of company, the Board May appoint any person as a
director nominated by any institution in pursuance of the provisions of any law for the time being
in force or of any agreement or by the Central Government or the State Government by virtue of
its shareholding in a Government company.( According to term: Subject to AOA of
company means there should be provisions in Articles of Association of Company for
appointment of Nominee Director, if there is no provision in Articles of company then alter the
provision in AOA).9

Alternate Directors:

As per Section 161(2) A company May appoint, if the articles confer such power on company
or a resolution is passed (if an Director is absent from India for atleast three months).

An alternate Director cannot hold the office longer than the term of the Director in
whose place he has been appointed.

Additionally, he will have to vacate the office, if and when the original Director returns to
India.

Any alteration in the term of office made during the absence of the original Director will
apply to the original Director and not to the Alternate Director.
Appointment of directors in private companies as per new law:

Practicing Company Secretary

9 https://indiancaselaws.wordpress.com/category/corporate-law/companies-act2013/. Accessed on 22.09.2015.


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The liberty given to private companies to self-regulate the appointment process has, surprisingly,
been completely taken away Under Companies Act-2013. This sounds completely paradoxical, in
view of the fact that in case of public companies, they still have the liberty to self-regulate to the
extent of one third of the board strength.
Sec 152 (6) (b) provides liberty, but only to public companies, to appoint one third of the total
board by a self-regulated process. While there was an exception to private companies in Sec. 255
(2) of the 1956 Act, that exception has been dropped while transporting the provisions into the
new Act.
It could not be the case that such was the intent of the lawmaker there is absolutely no case for
imposing more stringent regulations in case of private companies, than in case of public
companies.
Section 152 of the New Act governs the appointment of directors. Certain specific
requirements for appointment of director as lay down in the New Act areIf different person are not named as first director in articles of the company, individual
subscribers shall be deemed to be first directors. Every director other than first directors of
company shall be appointed in general meeting as per Section 152(2). If company Want to
appoint a person as director in meeting other then General meeting Company can do this by
appointing such person as additional direct. 10
ADDITIONAL DIRECTOR:
Ensure that the director to be appointed by board of directors exercising the power so conferred
in them by the Articles of the companyis not such a person who has failed to get appointed as a
director in a general meeting. (If A proposal is made in General Meeting for appointment of a
person as Director, if resolution got failed not passed in that meeting and that person fails to get
appointed as a director in a general meeting, then that person cant appoint as additional
director). The additional director has to be appointed till date of next AGM or last date on which
AGM should have been held, whichever is earlier.
10
http://www.mondaq.com/india/x/284280/Corporate+Governance/Directors+under+Companies+Act+2013
+is+it+old+wine+in+new+bottle. Accessed on 23.09.2015.
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PROCEDURE:

First Check whether Articles (AOA) of the Company contain power/authorization to


appoint Additional Director read with Section 161(1) of the Companies Act, 2013. {If
there is no provisions in Articles of the Company then Alter the Articles of the company
to have enabling clause for appointment of Additional Director.

Second Check whether such person have DIN No. or Not. If such person doesnt have
DIN No. then Apply for DIN.

Following documents are require from director to appointment him as additional


director.

Consent in writing to act as Director in Form DIR-2 pursuant to Rule-8 of Companies


(Appointment & Qualification of Director) Rules, 2014-

Intimation by Director in form DIR-8 in terms of Companies (Appointment &


Qualification of Directors) Rules, 2014, to the effect that he/ she is not disqualified u/s
164(2) of Companies Act, 2014.-

Disclosure of Interest in Form MBP-1 pursuant to Section 184(1) read with Rule 9(1) of
Companies (Meetings of Board and its Powers) Rules, 2014. {One thing should be noted
MBP-1 should not be dated earlier than date of his/her appointment as Director}.

However, if there is nothing to disclose on the part of new Director, even then also
require to take form MBP-1 from Director. (NIL disclosure is also a disclosure under
section 184(1).

After receiving all the documents from the director:

Call the Board Meeting.

Pass Resolution for appointment of Additional Director.

Issue Letter of Appointment.

File e-form DIR-12 [Along with CTC+ Consent + Letter of Appointment)

File e-form MGT-14[For disclosure of interest in MBP-1]


Now this person will be Additional Director Till AGM of company. If company wants to appoint
him as director then regularize the person as director in General Meeting by Share holder
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Resolution. File form DIR-12 for Change in Designation of Director along with ordinary
resolution.
IF THE SECTION IS VIOLATED
Since the 8-lakh odd companies, sitting with more than 16-lakh directors, may not even be aware
of this change of law, what is the provision gets violated? There Section 159 to take care of
provides for a jail up to six months, with/without a fine.

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POWER OF BOARD OF DIRECTORS:


According to Section 179, the Board of Directors of a company shall be entitled to exercise all
powers, and to do all acts and things, as the company is authorised to exercise and do. The Board
shall be subject to restrictions imposed under this Act or in Memorandum or Articles or any
regulation of the Company. The Board shall not exercise any power which is required to be
exercised by the company in general meeting.11
No regulation made by the company in general meeting shall invalidate any act of the Board
done prior to these regulations come into existence and effect.
Powers to be exercise in Board Meeting (Section 179, Sub Section 3):
The Board shall exercise following powers only by means of resolution passed in its meeting:
(a) to make calls on shareholders in respect of money unpaid on their shares;
(b) to authorise buy-back of securities under section 68;
(c) to issue securities, including debentures, whether in or outside India;
(d) to borrow monies;
(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 Boards 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) any other matter which may be prescribed.
11 http://aishmghrana.me/2013/05/31/power-of-board-under-companies-act-2013/. Accessed on
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The Board may, by a resolution passed at a meeting, delegate to any committee of directors, the
managing director, the manager or any other principal officer of the company or in the case of a
branch office of the company, the principal officer of the branch office, the powers specified in
clauses (d) to (f) on such conditions as it may specify.
Clause (d) which deals with power to borrow money needs many explanations. Nothing in this
clause (d) shall apply to borrowings by a banking company from other banking companies or
from the Reserve Bank of India, the State Bank of India or any other banks established by or
under any Act. In respect of dealings between a company and its bankers, the exercise by the
company of the power specified in clause (d) shall mean the arrangement made by the company
with its bankers for the borrowing of money by way of overdraft or cash credit or otherwise and
not the actual day-to-day operation on overdraft, cash credit or other accounts by means of which
the arrangement so made is actually availed of.
Company to restrict power of Board (Section 179, Sub Section 4):
The company in general meeting has power to impose restrictions and conditions on the exercise
by the Board of any of the powers specified in this section.
Restrictions on Power of Board (Section 180):
The Board of Directors may exercise particular powers only with the consent of the company
given by way of special resolution passed in general meeting of the company.
These are:
(a) To sell, lease or otherwise dispose of the undertaking;
(b) To invest otherwise in trust securities the amount of compensation received by it as a result of
any merger or amalgamation;
(c) To borrow money; and
(d) To remit, or give time for the repayment of, any debt due from a director.
To sell, lease or otherwise dispose of the undertaking (Section 180, Sub section 1, clause a,
and sub section 3, 4):
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The Consent of Company in General meeting by way of special resolution is required to sell,
lease or otherwise dispose of the whole or substantially whole of the undertaking of the
company. Where, the company owns more than one undertaking, than sell, lease or otherwise
dispose of the whole or substantially the whole of any of such undertakings require such consent.
Undertaking shall mean an undertaking in which the investment of the company exceeds
twenty per cent of its net worth as per the audited balance sheet of the preceding financial year or
an undertaking which generates twenty per cent of the total income of the company during the
previous financial year.
The expression substantially the whole of the undertaking in any financial year shall mean
twenty per cent or more of the value of the undertaking as per the audited balance sheet of the
preceding financial year.
Nothing contained in this clause shall affect
(a) The title of a buyer or other person who buys or takes on lease any property, investment or
undertaking as is referred to in that clause, in good faith; or
(b) The sale or lease of any property of the company where the ordinary business of the company
consists of, or comprises, such selling or leasing.
Any special resolution passed by the company consenting to the transaction as is referred to in
clause (a) of sub-section (1) may stipulate conditions specified in such resolution, including
conditions regarding the use, disposal or investment of the sale proceeds which may result from
the transactions.12
To borrow money (Section 180, Sub section 1, clause c, and Sub section 2):
The Consent of Company in General meeting by way of special resolution is required to money,
where the money to be borrowed, together with the money already borrowed by the company
will exceed aggregate of its paid-up share capital and free reserves, apart from temporary loans
obtained from the companys bankers in the ordinary course of business.
12 https://indiancaselaws.wordpress.com/category/corporate-law/companies-act2013/. Accessed on 22.09.2015.
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The expression temporary loans means loans repayable on demand or within six months from
the date of the loan such as short-term, cash credit arrangements, the discounting of bills and the
issue of other short-term loans of a seasonal character, but does not include loans raised for the
purpose of financial expenditure of a capital nature.
Every special resolution passed by the company in general meeting shall specify the total amount
up to which monies may be borrowed by the Board of Directors.
No debt incurred by the company in excess of the limit imposed by clause (c) of sub-section (1)
shall be valid or effectual, unless the lender proves that he advanced the loan in good faith and
without knowledge that the limit imposed by that clause had been exceeded.13
CONTRIBUTION TO BONA FIDE CHARITABLE AND OTHER FUNDS
(SECTION 181):
The Board of Directors of a company may contribute to bona fide charitable and other funds. The
prior permission of the company in general meeting shall be required for such contribution in
case any amount the aggregate of which, in any financial year, exceed five per cent. of its
average net profits for the three immediately preceding financial years.
POLITICAL CONTRIBUTION (SECTION 182):
Political Contribution is one of the intense debates for years. To constitute Political Contribution,
such contribution must be to Political Parties (other organisations of political nature are
excluded). This section say that political party means a political party registered under section
29A of the Representation of the People Act, 1951.
Limit on Political Contribution (Section 182, Sub section 1)
A company, other than a Government company and a company which has been in existence for
less than three financial years may contribute any amount directly or indirectly to any political
party. The aggregate of the amount which may be so contributed by the company in any financial
year shall not exceed seven and a half per cent of its average net profits during the three
13 http://aishmghrana.me/2013/05/31/power-of-board-under-companies-act-2013/. Accessed on
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immediately preceding financial years. No such contribution shall be made by a company unless
a resolution authorising the making of such contribution is passed at a meeting of the Board of
Directors and such resolution shall be deemed to be justification in law for the making and the
acceptance of the contribution authorised by it.
Constituent of Political Contribution (Section 182, Sub section 2):
In addition to direct donation, indirect donations and expenses also constitute political donations.
(a) a donation or subscription or payment caused to be given by a company on its behalf or on
its account to a person who, to its knowledge, is carrying on any activity which, at the time at
which such donation or subscription or payment was given or made, can reasonably be regarded
as likely to affect public support for a political party shall also be deemed to be contribution of
the amount of such donation, subscription or payment to such person for a political purpose;
(b) the amount of expenditure incurred, directly or indirectly, by a company on an advertisement
in any publication, being a publication in the nature of a souvenir, brochure, tract, pamphlet or
the like, shall also be deemed,
where such publication is by or on behalf of a political party, to be a contribution of such amount
to such political party, and
where such publication is not by or on behalf of, but for the advantage of a political party, to be a
contribution for a political purpose.
Disclosure of Political Contribution (Section 182, Sub section 3):
Every company shall disclose in its Profit and Loss Account any amount or amounts contributed
by it to any political party during the financial year to which that account relates, giving
particulars of the total amount contributed and the name of the party to which such amount has
been contributed.14
Contravention to this Section (Section 182, Sub section 4):
14
http://www.mondaq.com/india/x/284280/Corporate+Governance/Directors+under+Companies+Act+2013
+is+it+old+wine+in+new+bottle. Accessed on 23.09.2015.
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If a company makes any contribution in contravention of the provisions of this section, the
company shall be punishable with fine which may extend to five times the amount so contributed
and every officer of the company who is in default shall be punishable with imprisonment for a
term which may extend to six months and with fine which may extend to five times the amount
so contributed.
CONTRIBUTION TO NATIONAL DEFENCE FUND ETC. (SECTION 183):
The Board of Directors of any company or any person or authority exercising the powers of the
Board of Directors of a company, or of the company in general meeting, may contribute such
amount as it thinks fit to the National Defence Fund or any other Fund approved by the Central
Government for the purpose of national defence. Every company shall disclose in its Profits and
Loss Account the total amount or amounts contributed by it to the Fund during the financial year
to which the amount relates.

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Duties of the Board of Directors


The duties and responsibilities of directors stipulated by the Indian Companies Act of 2013, can
broadly be classified into the following two categories:-15

The duties and liabilities which encourage and promote the sincerest investment of the
best efforts of directors in the efficient and prudent corporate management, in providing
elegant and swift resolutions of various business-related issues including those which are
raised through "red flags", and in taking fully mature and wise decisions to avert
unnecessary risks to the company.

Fiduciary duties which ensure and secure that the directors of companies always keep the
interests of the company and its stakeholders, ahead and above their own personal
interests.

The following duties and liabilities have been imposed on the directors of companies, by the
Indian Companies Act of 2013, under its Section 166: --

A director of a company shall act in accordance with the Articles of Association (AOA)
of the company.

A director of the company shall act in good faith, in order to promote the objects of the
company, for the benefits of the company as a whole, and in the best interests of the
stakeholders of the company.

A director of a company shall exercise his duties with due and reasonable care, skill and
diligence and shall exercise independent judgment.

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.

15 http://aishmghrana.me/2013/05/31/power-of-board-under-companies-act-2013/. Accessed on
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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.

A director of a company shall not assign his office and any assignment so made shall be
void.

If a director of the company contravenes the provisions of this section such director shall
be punishable with fine which shall not be less than one Lakh Rupees but which may
extend to five Lac Rupees.

Independent Directors
The liability regime of the CA-2013 not only imposes the above-mentioned duties and
responsibilities on the directors of Indian companies, but also advocates for independence and
equitableness of the board of a company, especially a public limited company. Consequently, the
roles, duties, and responsibilities of the Independent Directors have also been stipulated by the
new Indian Companies Act of 2013. An Independent Director is that member of the board of a
company, who does not possess any financial relationship with the company (except the sitting
fees), nor can own shares in the company. The earlier Indian Companies Act of 1956 had no
explicit provisions for the independent directors, and only the Old Clause 49 of the Listing
Agreement of SEBI contained prescriptions for induction of independent directors to the listed
companies.16
The new Indian Companies Act of 2013 dictates that every listed company must contain at least
one-third of the total magnitude of its directors, as the independent directors; and it also
empowers the Government of India to include other categories of companies within the scope of
this provision or requirement (Section 149 of the CA-2013). Public limited companies
composited as per the former CA-1956, are granted a transition period of one year for making
16
http://www.mondaq.com/india/x/284280/Corporate+Governance/Directors+under+Companies+Act+2013
+is+it+old+wine+in+new+bottle. Accessed on 23.09.2015.
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strict compliance with this mandatory provision. Again, the independent directors are not
permitted to hold office for more than two consecutive terms of five-year periods.
In the new regime, the roles and duties of the independent directors attained significant
expansion, and many new other areas have been prudently covered. Broadly, they are
intelligently assigned the highly responsible role of the arbiters among various constituencies
within the corporation. Hence, the new provisions for the independent directors of the limited
companies are certainly very constructive for transparent and sound corporate governance, and
are hugely beneficial to the company and its all shareholders. Some of the most significant
functions, duties, and liabilities of the independent directors, are the following (as per the
Schedule IV of the CA-2013): --

To assist in forwarding equitable and independent judgment to the board

To secure and promote the interests of all stakeholders of the concerned company,
particularly of the minority shareholders

To conciliate and balance the conflicting interests of the stakeholders

To attend actively and constructively most of the board and committee meetings

To pay proper and adequate attention to Related Party Transactions (RPTs)

To report concerns honestly and impartially about any unethical behavior, violation of the
code of conduct, or any suspected fraud in the company

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Conclusion
The Companies Act, 2013 ("Act") is enacted to gradually replace the old Act of 1956, with the
objective to bring more accountability and good corporate governance. The Ministry of
Corporate Affairs has notified ninety-eight sections of the Act which have come into effect from
September 12, 2013 and repealed the corresponding sections of the 1956 Act. The Act appears to
place a higher degree of responsibility on the Board members for good corporate compliance. A
clear understanding of these obligations and responsibilities will be critical for current and
prospective Board members. In the Act, the sections related to role, duties and removal of
directors are yet to be implemented but it will happen soon and, therefore, merits attention. In the
context of the Board of a company, the legislators have focused on the role of independent
directors and have codified the duties of directors, which were missing in the old Act.
While looking at all the details, the Act does not appear to have introduced too many significant
changes in the provisions with respect to directors. The penalties for contravention under
different sections have been increased from a minimum of INR 10,000 (approx $161) to a
minimum of INR 50,000 (approx $807) to bring in more accountability. With the introduction of
strict eligibility criteria for appointment of independent directors, their pecuniary interest is
bypassed and this is to create a watchdog for public/listed companies. Penalty for any
contravention by an independent director is also introduced, but they will be liable only for those
fraudulent transactions for which they will give their consent or where it can be demonstrated
that they have not acted diligently. This defense hardly provides any immunity as most Indian
laws charge the directors for any offence. The Act also permits an Indian company to indemnify
its directors and officers, unlike the 1956 Act. Women too are encouraged to join the board room,
thus bringing in diverse viewpoints and talent. In essence, the Act has endowed responsibility
and introduced high standards for directors so that they are accountable to the shareholders for
their action and personally liable for any damage caused by them. But, the effectiveness of these
provisions will depend on how strictly they are enforced.

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BIBLIOGRAPHY
I. PRIMARY SOURCE

II.

Companies Act, 1956


Companies Act, 2013

SECONDARY SOURCE

Books Referred:

A Ramaiya, Guide to Companies Act, (2014), LexisNexis Butterworths Publications, 18th


Edn.
C.R.Datta, The Company Law, (2008), LexisNexis Butterworths Publications, 6th Edn.
Palmer's Company Law, (1987), Stevens & Sons Ltd. Publications, Vol 1, 24th Edn.

Articles Referred:

Anderson, Raymond; Sawyer, Hugh. "The Board of Directors as an Agent of Change in


Turnarounds". Transaction Advisors. ISSN 2329-9134
Robert III, Henry M.; William J. Evans; Daniel H. Honemann; Thomas J. Balch (1 October
2000). Robert's Rules of Order Newly Revised. Cambridge, MA: Da Capo Press.ISBN 07382-0307-6

Websites visited:

http://www.legislation.gov.uk/ukpga/1986/45/part/IV/chapter/III (UK Govt)


http://www.oft.gov.uk/shared_oft/reports/comp_policy/oft916.pdf (Office of
Trading)
http://www.jstor.org/stable/1327367
http://indiancaselaws.wordpress.com/category/corporate-law/companies-act-2013/
http://aishmghrana.me/2013/05/31/power-of-board-under-companies-act-2013/
http://www.mondaq.com/india

Fair

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