Section 274 (1) (g)

Clause g has been introduced in sub section (1) by the Companies Amendment act,
2000. The purpose of the amendment is to disqualify certain person from
directorship in public companies

The disqualifications is incurred by a person who has been working as a director in a

company which has made the following type of defaults

i) Failure in filing annual returns & annual accounts for a continuous period
of THREE YEARS ON OR AFTER 01-04-1999 .
ii) Failure in paying back mature deposit or interest on deposit, or failure to
pay back debenture holders on due date of redemption of debentures or
failure in paying the declared dividend and the default has continued for
one year or more.

The disqualification under clause (g) WILL LAST FOR A PERIOD OF FIVE YEARS
Section 274 (1) (b) &(c)

(b) He is an undischarged insolvent

(c) He has applied to be adjudicated and his application is pending

Under section 202 it is an offence for an undischarged insolvent to take part in or be

concerned in the management of the company. Here under this section an
undischarged insolvent and one who jas applied for adjudication as an insolvent are
disqualified from being appointed as a director. The prohibition on insolvents
managing companies is not intended to punish them but is to protect the
community. It is a strong policy of law that insolvents should not act as company
directors, not necessarily because they are dishonest but because failure is often a
sign of incompetence from which the community should be protected.

Definition of wholetime director

A director employed to devote the whole of his time and attention I the carrying the
affair of the company. That is to say that he cannot also be an employee of another
company or elsewhere or be engaged in any other pursuit, though he may he may
be an ordinary director of one or more other companies also.

If a director is appointed manager, and if as per terms of his employment he is not

to be also manager pr employee of any other company, he is a wholetime director
 Role of Directors or Board of Directors (BoD) in a Company?
by Durga Rao on 01 November 2010

Published in Corporate Law | Comments

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There were many judgments on the role of directors and the responsibility of
directors/Board of Directors in any Company. In Private Limited Companies or the
Public Companies, the role and responsibility of the Directors or the Board of
Directors depend upon the regulations in the Articles of the Company and the
provisions of the Companies Act, 1956. When it comes listed Public Companies,
other provisions like the SEBI guidelines, regulations, provisions in the listing
agreement etc. deserve consideration. In Private Limited Companies or the closely
held Companies, we know that the company is actually run by the Directors and we
know as to how AGM’s are conducted in these companies in reality. It may not be
the case when it comes to listed Public Companies in view of various guidelines,
regulations and the provisions of listing agreement entered into with the Stock
Exchange. Directors or the Board of Directors has a very big role to play in any
Company and they conduct the day-to-day affairs of the Company and it may not
possible for the AGM to give directions to the Company from time to time though
every Company should act as per the provisions of the Companies Act, 1956 and
certain decisions can only be taken by the Shareholders in the Annual General
Body Meeting (AGM). Taking reality in the corporate world in consideration,
considering the legal provisions and on the role of the Directors or the Board of
Directors (BoD), the Hon’ble High Court of Delhi, in Crl. M.C. No. 2652 OF 2010,
between Raj Travels & Tours Ltd. & Others Vs. Destination of the World
(Subcontinent) Private Limited, was pleased to observe as follows:

“7. It is a matter of common knowledge that when companies are floated and public
issues are brought, big advertisements are issued giving big names
as directors and promoters of the company. These names are the names of
successful CEOs, or directors who have achieved success in other fields. Due to
these names at the very inception and formation of company, when there is no
wealth or property of the company, the share of the company is sold at a premium
promising big business and success. Once money is mopped up from the public, in
all those cases where the companies were created only for the purpose of mopping
up hard earned money of public or to befool them, it is found that those big names
disappear and in almost every litigation those directors who formed part of the core
of the company and gave promises that the Company would do roaring business
quietly disappear from the scene or take plea that they were not responsible for
business of the company.

8. Let us examine the role of Board of directors (BoD) in terms of Companies Act
and other legal provisions. Company is a legal personality and Board
of Director acts as its body and mind. Under Section 291 of the Companies Act,
BoD is authorized to do what the company is authorized to do, unless barred by
restrictions on their power by the provisions of the Companies Act. It is well settled
that directors, while exercising their powers, do not act as agents for the majority or
even all the members and so the members cannot by a resolution passed by a
majority of even unanimously, supersede the directors’ power and instruct them
how they shall exercise their power. The powers of management are vested
in directors and they and they alone can exercise these powers. The only way in
which the General Body of a company can overrule the BoD is altering the Articles
and refusing to re-elect the directors, whose actions they disapprove. The
shareholders cannot themselves usurp the powers, which by Articles are vested in
the directors. Thus the relationship of BoD with the shareholders is more of a
federation than that one of subordinate and superior.

9. Under the Companies Act, BoD has powers to make calls on shareholders in
respect of money unpaid on their share, power to authorize the buy-back, power to
issue debentures, power to borrow moneys otherwise than on debentures, power
to invest the funds of the company and power to take and make loans. There is no
doubt that BoD 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, the above powers. However the principal power still vests in
BoD and the Manager or Managing Director acts only as an agent of the BoD.
Apart from this, BoD has power to form opinion about the solvency of the
company in respect of buy back shares (Section 77A), power to fill up
casual vacancies in the office of Directors (Section 262), power to
constitute Audit Committee and specify terms of reference thereof
(Section 292A), power to make donation to political parties [Section
293A(2)], power to accord sanction for specified contracts in which one
or more directors are interested [Section 297(4)], power to receive
notice of disclosure of director’s interest [Section 299(3)(c)], power to
appoint or employ a person as Managing Director or Manager [Section
316(2)], power to invest in shares or debentures of any other body
corporate (Section 372A), power to appoint or employ a person as its
Manager [Section 386(2)], power to make a declaration of solvency,
where it is proposed to wind up the company voluntarily [Section
488(1)], power to approve the text of advertising for inviting public
deposits [Section 58A r/w Rule 4(4)]. Some of the powers can only be
exercised by resolution passed at the meeting with consent of
the Directors present at the meeting.

10. Normally, the banks or other financial institutions give huge loans
to the companies and in order to protect their interests, they
nominate their Directors on the Board of Companies. These
directors are called nominee directors and the function of
these directors is to safeguard the financial interest of the institution
who nominated them and to ensure that no decision is taken by BoD
which goes against the financial institution. Such directors are not
considered responsible for the business of the company.”