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Duties of Directors of a Company -

Corporate Law Project Report

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 DUTIES OF DIRECTORS OF A COMPANY

SUBJECT: CORPORATE LAW

FACULTY, CORPORATE LAW

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 TABLE OF CONTENTS

INTRODUCTION .......................................................................................................................... 3

Research Methodology ............................................................................................................... 5

ENGLISH LAW ............................................................................................................................. 6

INDIAN POSITION ..................................................................................................................... 10

DUTIES OF DIRECTORS UNDER COMPANIES BILL, 2011 ................................................ 13

ARE THESE CHANGES ENOUGH?.......................................................................................... 15

CONCLUSION ............................................................................................................................. 17

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BIBLIOGRAPHY ......................................................................................................................... 18
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 INTRODUCTION

A Company, although has a legal personality, it cannot perform acts on its own. It performs its
functions through living persons, who act as agents for the company. 1 The Directors of a
Company are its primary agent and are duty bound to carry on the various functions of a
company. It is said that the Directors having been dismissed, the company cannot act. 2 They
ought to fulfill the objects of the company‘s existence which is prescribed in its Memorandum of
Association (MOA) and his powers to fulfill these objects are prescribed in the Articles of
Association (AOA).3 The intention of the company is identified through the acts of its Directors.
They serve as a requisite channel to accomplish the decision making and action taking task of the
corporation.4

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The Companies Act, 1956 attempt to define the term ―Director‖ entails the term such as

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―Director includes any person occupying the position of a Director, by whatever name called‖.
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Bowen LJ. has made an elaborate effort to define the position of the Director as agents, trustees
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and managing partners with each of these expressions not used as exhaustive of their powers and
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responsibilities, but as indicating useful points of view from which they may for the moment and

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for the particular purpose be considered.5 They are not servants or employees of a company but

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an officer who controls the operations of the company.6 However, a managing Director exercises

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dual capacity since he is an employee as well as an agent of the company.7

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The Companies Act 1956 provides that a public company should have a minimum number of
three Directors and a private company should have a minimum of two Directors.8 However, the
Act does not envisage any specific provision that generally governs the duties of Directors. The
duties are instead governed by common law, which judges are required to apply to a given set of
facts and circumstances. Under common law, there are certain broad sets of Director duties:

1
Lennard‘s Carrying Co. v. Asiatic Petroleum Co., 1915 AC 705 at p. 713.
2
Charanjit Lal Chowdhuri v. UOI and Ors.,
3
Gower and Davies' Principles of Modern Company Law, 17th Edn.
4
Avtar Singh, Company Law, 14th Edn, 2005.
5
Imperial Hydropathic Hotel Co. v. Hampson, (1882) 23 Ch D 1 49 LT 150.
6
Moriarty v. Regent‘s Garage & Engg Co, [1921] 1 KB 423;Lee v. Lee Air Farming Co.,.
7
Ram Pershad v. Commissioner of Income Tax, New Delhi MANU/SC/0330/1972.
8
Section 3, Companies Act, 1956.

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(i) Duty to act with skill, care and diligence, and

(ii) Fiduciary duties (to act in the interests of the company, to avoid conflicts of interest and to
act for proper purposes).9

However, past track record in India indicates that cases where common law Director duties have
been applied are few and far between. For this reason, duties of Directors are incapable of being
defined as clearly as one can in other jurisdictions, particularly in the developed markets.

The Companies Act, 1956 has been amended from time to time in response to the changing
business environment. The 2011 Bill proposes significant changes to the existing corporate law
provisions dealing with mergers and acquisitions and corporate restructuring with some
modifications to the Companies Bill, 2009.10 If approved by Parliament, it would replace a 55
year old legislation — the Companies Act, 1956.
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Recently, India has witnessed some major corporate scams. The Companies Bill, 2011 proposes
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to bring in a paradigm shift by providing for more stringent norms and increased penalty. The
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much anticipated Bill makes sweeping changes to the existing law. While the existing Act has
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more than 600 sections, the new bill has been presented with just 470 clauses. As a matter of

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fact, the new Bill was introduced to incorporate the changes that had been suggested by many

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stakeholders and members after the 2009 Bill had been presented before Parliament. 11

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In order to induce a greater level of clarity in Directors‘ duties, the Companies Bill, 2011 has a
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specific provision that deals with the subject matter. Clause 166 of the Bill is substantially
similar to the provision contained in the Companies Bill, 2009, with some iteration. The UK too
adopted the strategy of codifying Directors‘ duties in the Companies Act, 2006 (sections 171-
177).

9
A Ramaiya, A guide to Company Law, 17th Edn. 2010.
10
Robert Goddard, India: Company Law reform and the Companies Bill, Corporate Law and Governance,
September 2011, http://corporatelawandgovernance.blogspot.in/2011/09/india-company-law-reform-and-
companies.html
11
KPMG, The Companies Bill, 2011 presented before the Lok Sabha, December 2011,
http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/taxnewsflash/Documents/india-
dec20no2.pdf

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The bill seeks to establish a new benchmark for corporate governance in comparison to the
existing framework under the Companies Act 1956. In short, India has a chance with the
Companies Bill 2011 to take a lead in corporate governance innovation rather than following
developments in the United States or the United Kingdom.12 The new Bill seeks to repair and
fine tune the 1956 Act. While the intentions are good, it cannot be forgotten that the road to hell
is paved with good intentions too. There are some grey areas in the Act. However, the new Act
still promises to be a welcome change to plug the ambiguities, increase disclosures and
compliances, promote better governance and responsibility and provides safeguards for all
stakeholders. The Act has also proposed a few industry-friendly measures like one person
companies, the dormant company and allowing a small company‘s merger. More importantly, it
offers immense opportunities for all professionals.

Research Methodology

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The Researcher has adopted the doctrinal form of research in completing this project. This form
of research was most appropriate as the project is a study ofc
. the duties of Directors under the
English law, Companies Act and the new Companies aBill. Research material used includes
works of eminent researchers about the role of m Directors in a company as well as case laws
which provide evidence about the variousa
books available in the NALSAR y
n duties. The researcher has relied upon the various
library. Also, online sources like JSTOR, Google Books, Hein
dsites have been used. No part of this project is plagiarized and it is
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Online and various university

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the original work of the Researcher.

12
Sonia Shekhar, Companies Bill 2011 - Major Highlights, Articlesbase, http://www.articlesbase.com/ask-an-
expert-articles/companies-bill-2011-major-highlights-5509238.html

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 ENGLISH LAW

As mentioned previously, the duties of Directors were derived from basic common law and
equity principles. As emphatically stated by Justice Romner in Re City Equitable Fire Insurance
Company,13 the Director‘s duties depends upon the nature of the company‘s business, the manner
in which the work of the company is distributed between the Directors and the other officials of
the company.

Some of the general duties enumerated are his duty of good faith, duty of care in the performance
of work assigned to him, duty to exercise diligence and skill, etc. These duties must be exercised
by him not in extra ordinary capacity but as would be reasonably be expected of him to do so
using ordinary prudence.14 He must act in the best interest of the company, which includes
interests of future members as well.15 In Cook v. Veeks,16 the court emphasized that the Director

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must not make secret profits and must not exploit the company‘s opportunities for enhancing his

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own. The Director, being an agent of the company, is bound by the rule of ‘delegatues non potest
cin cases where it is permitted
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delegare’ and can delegate certain duties to other officials only
under the statute or the AOA. a
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a of a Director exists with the company since he is
As Palmer has stated, the fiduciary relationship

y n A Director may accept a shareholder's offer to

not usually a trustee for individual shareholders. 17

d he may have information which is not available to that other,

sell shares in the company although

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and the contract cannot be upset even if the Director knew of some fact which made the offer an
S However, there may be certain situations where Directors do owe a
attractive proposition. 18

fiduciary duty and a duty to exercise reasonable skill and care in advising members in connection
with a transaction or situation which involves the company or its business undertaking and also
the individual holdings of its members.19

13
14
Lagunas Nitrate Co. v. Lagunas Nitrate Syndicate (1899) 2 Ch. 392.
15
Majumdar
16
(1916) AC 524.
17
Palmer, Company Law
18
Percival v Wright [1902] Ch 401.
19
Pennington, Company Law

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 The UK 2006 Companies Act20 replaced and codified the principal common law and equitable
duties of Directors, but it does not purport to provide an exhaustive statement of their duties, and
so it is likely that the common law duties survive in a reduced form. Traditional common law
notions of corporate benefit have been swept away, and the new emphasis is on corporate social
responsibility. The seven codified duties are as follows:

1. S171 UK CA (2006) Directors to act within their powers – to abide by the terms of the
company‘s memorandum and articles of association and decisions made by the shareholders;

2. S172 UK CA (2006) Directors to promote the success of the company – Directors must continue
to act in a way that benefits the shareholders as a whole, but there is now an additional list of
non-exhaustive factors to which the Directors must have regard. This was one of the most
controversial aspects of the new legislation at the drafting stage. These factors are:

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i. the long term consequences of decisions

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ii. the interests of employees the need to foster the company‘s business relationships with
suppliers, customers and others
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iv. the desire to maintain a reputation a
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iii. the impact on the community and the environment
for high standards of business conduct the need to act
fairly as between members n
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Directors appointed to the board form the central authority in UK companies. In carrying out

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their functions, Directors whether formally appointed, de facto, or "shadow Directors owe a
22
series of duties to the company. There are presently seven key duties codified under the
Companies Act 2006 sections 171 to 177, which reflect the common law and equitable
principles. These may not be limited, waived or contracted out of, but companies may buy

20
Hereinafter UK CA 2006.
21
Re Hydrodam (Corby) Ltd [1994] BCC 161; UK COMPANIES ACT 2006 s 251; a shadow Director is typically a
bank or a dominant shareholder, according to whose directions a Director is accustomed to act.
22
Peskin v Anderson [2001] 2 BCLC 1 and UK COMPANIES ACT 2006 s 170; Directors do not, generally, owe
duties to shareholders or any other group directly. But duties may arise in tort, Williams v Natural Life Health Foods
Ltd [1998] 1 WLR 830. Also, when approaching insolvency Directors may owe duties to creditors, eg West Mercia
Safetywear Ltd v Dodd [1988] BCLC 250 and Colin Gwyer and Associates Ltd v London Wharf (Limehouse) Ltd
[2003] 2 BCLC 153.

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insurance to cover Directors for costs in the event of breach23. The remedies for breaches of duty
were not codified, but follow common law and equity, and include compensation for losses,
restitution of illegitimate gains and specific performance or injunctions.

The first Director's duty under section 171 is to follow the company's constitution, but also only
exercise powers for implied "proper purposes". Directors must display the care, skill and
competence that is reasonable for somebody carrying out the functions of the office, and if a
Director has any special qualifications an even higher standard will be expected. However, under
section 1157 courts may, if Directors are negligent but found to be honest and ought to be
excused, relieve Directors from paying compensation.

The central equitable principle applicable to Directors is to avoid any possibility of a conflict of
interest24, without disclosure to the board or seeking approval from shareholders. This core duty

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of loyalty is manifested firstly in section 175 which specifies that Directors may not use business

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opportunities that the company could without approval. Shareholders may pass a resolution

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ratifying a breach of duty, but under section 239 they must be uninterested
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own interest at stake. Beyond corporate a
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The purpose of the no conflict rule is to ensure Directors carry out their tasks like it was their
opportunities, the law requires Directors accept no

y n176, and also has specific regulation of transactions by a

benefits from third parties under section
company with another party din which Directors have an interest. Under section 177, when
uof a proposed contract, for example where a person owns a business
Directors are on bothtsides
Sto the company in which he is a Director , it is a default requirement that they
selling iron chairs 25

disclose the interest to the board, so that disinterested Directors may approve the deal. The
company's articles could heighten the requirement, say, to shareholder approval26. If such a self

23
UK COMPANIES ACT 2006 ss 232-235; while a Director may not have to pay for breach of duties, they will not
be able to avoid negative publicity and possibly appearing in court should the insurance company choose to contest
the claim.
24
Boardman v Phipps [1966] UKHL 2
25
Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq HL 461
26
See UK COMPANIES ACT 2006 s 180(1)(b) and Imperial MerCompanies Actntile Credit Association v
Coleman (1871) LR 6 Ch App 558, Costa RiCompanies Act Railway Company v Forwood [1901] 1 Ch 746,
Motivex v Bulfield Ltd [1988] BCLC 104, 117 and Boulting v ACTAT [1963] 2 QB 606, 636

8
dealing transaction has already taken place, Directors still have a duty to disclose their interest
and failure to do so is a criminal offence, subject to a £5000 fine.27

Finally, under section 172 Directors must "promote the success of the company". This somewhat
nebulous provision created significant debate during its passage through Parliament, since it goes
on to prescribe that decisions should be taken in the interests of members, with regard to long
term consequences, the need to act fairly between members, and a range of other "stakeholders",
such as employees28, suppliers, the environment, the general community29, and creditors30. Many
groups objected to this "enlightened shareholder value" model, which in form elevated the
interests of members, who are invariably shareholders, above other stakeholders. However, the
duty is particularly difficult to sue upon since it is only a duty for a Director to do what she or
"he considers, in good faith, would be most likely to promote the success of the company" 31.
Proof of subjective bad faith toward any group being difficult, Directors have the discretion to

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balance all competing interests, even if to the short term detriment of shareholders in a particular

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instance. There is also a duty under section 173 to exercise independent judgment and the duty of
care in section 174 applies to the decision making process.of a Director having regard to the
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factors listed in section 172, so it remains theoretically possible to challenge a decision if made
without any rational basis. 32
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27
UK COMPANIES ACT 2006 ss 182-183.
28
UK COMPANIES ACT 1985 s 309, which stipulated that shareholders and employees interests had to be
considered. No Companies Actses were ever brought under this provision. Older Companies Actses such as Hutton
v West Cork Railway Co (1883) 23 Ch D 654 and Parke v Daily News Ltd [1962] Ch 927 suggested Directors of
insolvent companies could not protect employees, though this had been reversed by statute, IA 1986 s 187 and UK
COMPANIES ACT 2006 s 247 (Power to make provision for employees on cessation or transfer of business).
29
UK COMPANIES ACT 2006 s 172(1)(a)-(f)
30
UK COMPANIES ACT 2006 s 172(3)
31
UK COMPANIES ACT 2006 s 172(1)
32
Regentcrest Plc v. Cohen, [2001] 2 BCLC 80

9
 INDIAN POSITION

In a very contradictory fashion, Section 2(10) of the Companies Act, 1956 defines the ―Board of
Directors‖ of a company as ―the collective body of the Directors of the company‖. Section 2(34)
in turn defines a Director as ―a Director appointed by the Board of the Company‖. So neither
section actually sheds any clarity on who a Director is, or what his/her duties are.33

A few tenets exist as regards the position of a Director and his general duties. The following are
certain statutory provisions under the Companies Act, 1956, which enumerate the various
circumstances where the Director owes a certain duty towards the company and its members:

a) To file return of allotments (Section 75) - In case the company fails to file the return of
the allotments stating the prescribed particulars with the Registrar within 30 days, the
Directors will be held liable as officer in default and a daily fine may be imposed till the
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default continues.

.becliable for fine upto Rs. 10, 000.

b) Must not issue irredeemable preference shares or shares redeemable after 20 years

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(Section 80) - Any Director making such an issue will

transaction of the company must a

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c) Must disclose interest (Section 299 - 300) - A Director who is interested in the
disclose the same to the Board. Any director or his
relative, a firm in which he or n
y his relative is a partner or a private company in which he is
a Director or member dshall not enter into any contract with the company for sale,
tuof any goods, materials or services and for underwriting the
purchase, supply
S of any shares or debentures of the company, since he is an interested
subscriptions
director.34 However, if the consent of the Board members by a resolution passed at their
meeting is granted, then the aforesaid contracts may be pursued. Thus, there is an
obligation upon the Director to disclose the nature of his concern or interest at a meeting
of the Board of Directors before entering into the contract for consideration. In cases
where the whole Board is aware of the facts of the transaction and the Director‘s interest
in the same, a formal disclosure is not necessary.35

33
L.V.V. Iyer, Guide to Company Directors‘ Powers, Rights, Duties & Liabilities, 2 nd Edn, 2003.
34
Section 297, Companies Act, 1956.
35
Venkatachalapati v. Guntur Mills AIR 1929 Mad. 353.

10
 In order to constitute a sufficient disclosure, a general notice must be given to the Board
by a Director specifying that he or his relative is a member or Director of a specific body
corporate and must be regarded as an interested party in the arrangement or contract
between the two companies.36 Such notice must be renewed at the beginning of every
financial year or else it shall expire.37 On failure to disclose the Director will be liable for
fine upto Rs. 50, 000.38 Further, he cannot participate or vote in the Board proceedings.39
d) Disclosure of receipt from transfer of property (Section 319)
e) Disclosure of receipt of compensation from transferee of shares (Section 320)
f) Duty to attend Board meetings (Section 283(1)(d))
g) To convene AGMs and extraordinary general meetings (Section 165, 166, 169)
h) To authenticate and approve the annual financial statement (Section 215)
i) To appoint the auditors of the company (Section 224, 233B)
j) To make declaration of solvency in case of members‘ voluntary winding up (Section 488)
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Apart from these, some general principles include that directors only owe their essential duties to

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the corporation, and not to individual shareholders, employees or creditors; a Director's core duty

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is to remain loyal to the company and avoid conflict of interest; a Director owes a fiduciary duty

a decisions in India interpret the same using

40
to fellow Directors and to the company. However, owing to a lack of clarity as to duties of

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Directors under the present Act, most n judicial
common law principles.
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The Supreme Court t
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in Bajaj Auto Ltd. v. N.K. Firodia and Anr., held that while exercising
discretion, the Directors will Act for the paramount interest of the company and for the general
interest of the shareholders because the Directors are in a fiduciary position both towards the
company and towards every shareholder. The Directors are therefore required to act bona fide
and not arbitrarily and not for any collateral motive. The action of the Directors must be set aside
if the same was done oppressively, capriciously, corruptly or in some other way malafide.42

36
Section 299(3), Companies Act, 1956.
37
ICICI v. Parasampura Synthetics Ltd. (1998) 17 SCL 51.
38
Section 299(4), Companies Act, 1956.
39
Section 300(1), Companies Act, 1956.
40
AK Majumdar and GK Kapoor, Company Law and Practice, 16 th Edn., 2011.
41
42
Harinagar Sugar Mills Ltd. v. Shyam Sunder Jhunjhunwala and Ors.

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However, the Director does not have any statutory duty to perform so far as individual
shareholders are concerned subject of course to any special arrangement which may be entered
into or a special circumstance that may arise in a particular case.43 Even if the Directors owe
some duty to the existing shareholders on the footing of there being some fiduciary relationship
between them.44 Thus, the fiduciary duty of the Directors to the company should not be equated
with the duty to the shareholders.

In Dale and Carrington Investment Private Ltd. and Another v P.K. Prathapan and Others,45 the
Supreme Court held that the fiduciary capacity with which the Directors have to act enjoins upon
them a duty to act on behalf of a company with utmost good faith, utmost care and skill and due
diligence and in the interest of the company they represent. They have a duty to make full and
honest disclosure to the shareholders regarding all important matters relating to the company.
The Directors are generally expected not to place themselves in a position where their duties
towards the company conflict with their personal interests.46
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While companies today have thus defined the rights, powersc
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Articles of Association, a need was felt for legal a
. and duties of Directors in their
clarity on this issue. The Dr J.J. Irani
Committee report has suggested that the list of m
duties of a Director should be ―inclusive, and not
exhaustive in view of the fact that no rulea
n of universal application can be formulated as to the
y have been introduced in the Parliament which has vouched
dduties of Directors, but none of them have been passed yet.
duties of the Directors.‖ Various Bills

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for a separate provision for the

43
Sangramsinh P . Gaekwad and Ors . vs . Shantadevi P . Gaekwad ( Dead ) thr . Lrs . and Ors .
44
Nanalal Zaver and Anr. v. Bombay Life Assurance Co. Ltd. and Ors.
45
[2004] 62 CLA 245 (SC)
46
National Textile Workers‘ Union and Ors . vs . P . R . Ramakrishnan and Ors .
47
13 Bills presented before Parliament - Veerapa Moily; See, Doshi, Companies Bill: The Final Cut, The Firm,
CNBC TV18, http://thefirm.moneycontrol.com/story_page.php?autono=585776.

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 DUTIES OF DIRECTORS UNDER COMPANIES BILL, 2011

The Companies Bill 201148 provides for various clauses envisaging the duties of Directors but
Clause 166 actually codifies this power. The Clause included in the Companies Bill is broad and
sweeping. Clause 166 is the new provision introduced to define the duties of a Director and
declares that it would be a punishable offence to commit a breach of those duties.

Clause 166 reads as follows:

―(1) A Director of a company shall act in good faith in order to promote the goals of the
company and in the best interest of the company, its members as a whole, its employees, the
shareholders, the community and for the protection of environment.

(2) A Director of a company must exercise his duties with due and reasonable care, skill and
diligence and must have an independent judgment.
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(3) Directors of a company shall not involve themselves in a situation where they may have a

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direct or indirect interest that can conflict with the good of the company.

mor attempt to misuse the resources of the

(4) The Directors of a company must not misuse
company for any undue gain either forn
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themselves or to their relatives, partners, or associates

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(5) Directors of a company cannot decide the successor to their position. A Director has to be

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elected democratically. Any such allocation shall be void.

(6) If a Director of the company is found guilty of violating the provisions of this section such
Director shall be punished with a fine which shall not be less than Rs 5,000 and may extend to
Rs 25,000 a day, for every day after the first day during which the violation continues.‖

The Bill seeks to introduce a new corporate entity called a ‗one person company‘ which should
have at least one Director and the duties of Directors under Clause 166 apply very well to

48
http://www.mca.gov.in/Ministry/pdf/The_Companies_Bill_2011.pdf

13
Director of one person company too. It defines concepts such as connected persons, shadow
Directors, de facto Director, etc.49

The new Bill also provides that 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 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.50 Further, a Director of a company shall not assign his office and any assignment
so made shall be void.

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49
Clause 216, 217, 218, Companies Bill, http://www.djei.ie/publications/commerce/2011/Companies%20Bill%20-
%20Part%205%20-%20Soft%20Copy.pdf.
50
Twenty First Report, The Companies Bill, 2011, Standing Committee on Finance, August 2011,
http://164.100.47.134/lsscommittee/Finance/21_Report_Companies_Bill.pdf

14
 ARE THESE CHANGES ENOUGH?

There are two opposing points of view here. The first advocates that there be minimal legal
restrictions on the role of the Directors, their powers, rights and duties. The company, according
to this view, should be free to decide what exactly its Directors should and should not do. The
other point of view believes that good corporate governance requires that at least the basic duties,
responsibilities and powers need to be spelled out in law, and the company should be allowed to
fill in the details. Clause 166 broadly adheres to the former point of view but also gives a gentle
nod of acknowledgement to the latter – overall, it brings no great advance to the law, nor does it
go far beyond the tenets we have already spelled out earlier.51

At the outset, it is necessary to note that this is only a partial codification of Directors‘ duties. It
is not possible to prescribe rules for every situation in which Directors‘ actions can be judged.

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That necessarily has to be left for a principles-based determination, usually by judges in specific

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cases, and hence the role of courts in implementing these duties cannot be taken away. While the
con the manner in which courts
statutory provisions do give some guidance, much would depend
.
interpret these duties, on which previous jurisprudence a is scant. Moreover, with issues
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terms of principles) is likely to emerge to a
surrounding delays and costs in the court system, it is not clear if a body of judge-made law (in

the codification of the duties willy

n guide the actions of Directors. Hence, it is not clear if

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necessarily result in a tangible enhancement when it comes to

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enforcing the duties.

Sfrom the duties contained in the Companies Bill, 2009 is noteworthy. The
One crucial change
previous Bill required Directors to act in the best interest of the company. This epitomizes the
shareholder model of corporate governance wherein the primary role of the Directors is to
protect the interests of the shareholders, and at most the interests of creditors in the event of
insolvency.53

51
Special Correspondent, Duties of the Director under Companies Bill, 2011, Business Line - The Hindu, December
2011, http://www.thehindubusinessline.com/industry-and-economy/article2729513.ece
52
V Umakanth, Companies Bill, 2011: Duties of Directors, Indian Corp Law, December 2011,
http://indiacorplaw.blogspot.in/2011/12/companies-bill-2011-duties-of-Directors.html.
53
I Qube, Duties of Director: A Wholistic View, KSR & Co Company Secretaries,
http://www.insol.org/emailer/Jan2012_downloads/India_Duties%20of%20Directors.pdf.

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However, the new Bill also requires Directors to act in the interests of ―employees, the
shareholders, the community and for the protection of the environment‖. This encapsulates the
stakeholder model of corporate governance wherein the Directors are required to take into
account the non-shareholder constituencies as well. This is consistent with the renewed emphasis
on Corporate Social Responsibility.54 While it seems unlikely that any duties owed by Directors
in connection with non-shareholder constituencies can be justifiable or enforceable in a court of
law, this at least prevents shareholders from initiating actions against Directors for not solely (or
even primarily) considering shareholder interests.

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54
Caroline Van Zile, India‘s Mandatory Corporate Social Responsibility Proposal: Creative Capitalism Meets
Creative Regulation in the Global Market, Asian-Pacific Law & Policy Journal Vol. 13, Issue 2, 269 - 303, 2012.

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 CONCLUSION

The Companies Bill, 2011 seeks to establish a new benchmark for corporate governance in
comparison to the existing framework under the Companies Act 1956. In short, India has a
chance with the Companies Bill 2011 to take a lead in corporate governance innovation rather
than following developments in the United States or the United Kingdom. The new Bill seeks to
repair and fine tune the 1956 Act.

I believe that the new Bill proposed will bring about a more structured corporate framework,
which is very much in line with the changing times that India is witnessing today. Investors have
become much smarter and more aware of their rights and privileges, and one cannot fool them
and take them for a ride.

However when it comes to the implementation and execution front, our system has always
m
o
lacked in putting forth a foolproof framework free off any bureaucracy. Hence, though it is of

c
the way corporate India functions, in realty one has to wait.and watch how the actual Act will
some cheer to the investor community that this bill has been introduced with hopes to improve

a
work and help protect investor interests.
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 BIBLIOGRAPHY

Books Referred:

 Avtar Singh, Company Law, 14th Edn, 2005

 A Ramaiya, A guide to Company Law, 17th Edn. 2010.
 AK Majumdar and GK Kapoor, Company Law and Practice, 16th Edn., 2011
 L.V.V. Iyer, Guide to Company Directors‘ Powers, Rights, Duties & Liabilities, 2nd Edn,
2003

Websites Referred:

 www.kpmg.com
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 www.articlesbase.com
c o
 .
a
www.mca.gov.in

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www.thehindubusinessline.com
 www.indiacorplaw.blogspot.in
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