DIRECTORS

1. Meaning- S. 2(13) A director includes any person occupying the position of a director by whatever name called. Functions and duties discharged determine whether he is a director or not e.g. designation as governors or members of executive committee 2. Deemed director/shadow director S. 7 A director may include any person in accordance with whose instructions the board of directors of a company is accustomed to act. Such a director does not have the power or rights in connection with management of the company. He is reckoned as a director for the liabilities and obligations of the company. Professionals like lawyer, Chartered Accountant will not be deemed as directors Who may be appointed as a director ? Only individuals can be appointed as a director of the company. A body corporate, association or a firm cannot be appointed as a director of the company. This provision does not apply to deemed director/shadow director. Thus a holding company may be deemed to be a director if the subsidiary is accustomed to act according to the directions of holding company. Qualifications No educational qualifications are prescribed by law QUALIFICATION SHARES To obtain shares only if required by Articlesa. To be obtained within 2 months b. Any provision in Articles which requires a person to obtain shares within a period less than 2 months is void. c. Nominal value not to exceed Rs. 5000 Joint holding- one can be appointed Consequences if shares not obtained- Vacate the office and also punishable. Private company can have its own rules.

DISQUALIFICATIONS 1. Unsound mind 2. Undischarged insolvent 3. Applied to be adjudged as an insolvent 4. Offence involving moral turpitude 5. Failure to pay call money for more than 6 months 6. Disqualified by order of court 7. A director of a public company which is in default a) if annual accounts and annual returns for continuous 3 financial years, or b) failure to repay deposit or interest thereon on due date or redeem debentures on due date and such failure continues for one year Disqualified to be appointed as a director of a public company for 5 years Appointment of first directors 1. Usually named in Articles 2. Subscribers to memorandum till duly appointed in general meeting Subsequent directors Only in general meeting Retirement by rotation in case of public company or its subsidiary private company Unless the articles provide for retirement of all directors at every AGM At least 2/3 rd of total liable to retire by rotation Of 2/3 rd rotational directors, 1/3 rd or no. nearest to 1/3 rd shall actually retire at AGM. Those who have been longest in office shall retire first. Persons appointed on same day, retirement to be determined by mutual consent and in case of default, by draw of lots. Minimum and maximum no. of directors Minimum Every public company 3 directors Every private company- 2 directors Maximum No limit provided in the Act. Articles may provide for maximum no. The maximum no. may be increased/reduced by altering articles. Maximum no. of directorships A person cannot hold office as a director in more than 15 companies

Exclusions Private companies Unlimited companies Section 25 companies Alternate directorships A person holding directorship in 15 companies, is appointed director, then - new appointment will not be effective if within 15 days the choice not made - New appointment void after 15 days if choice not made. A person holding directorship in 14 or less no. of companies, is appointed director taking th total no beyond 15, then - new appointment will not be effective if within 15 days the choice not made - all new appointments void after 15 days if choice not made. Vacation of office of a director 1. Where he incurs any disqualification of S. 274 2. Failure to obtain qualification shares 3. Absence from 3 consecutive board meetings or all meetings for a period of 3 months whichever is longer 4. Obtains loan/guarantee/security without Central Govt. approval 5. Fails to disclose his interest 6. He is removed Removal of a director 1. A director may be removed by passing an ordinary resolution 2. Special notice of such a resolution shall be given to all the members 3. Notice shall also be given to the concerned director who shall be entitled to make a representation 4. If the representation is made in writing, he may request the company to notify the same to the members. 5. If the representation could not be sent, it shall be read at the meeting 6. The director is also given an opportunity of being heard at the meeting A director appointed by Central Govt., Company Law Board, SICA, nominee director of financial institutions cannot be removed.

POWERS OF DIRECTORS 1. 2. 3. 4. 5. 6. Powers that can be exercised only at the Board MeetingTo make calls on shares To buy back shares To issue debentures To borrow money otherwise than on debentures To invest funds of the company To make loans

Powers in respect of items 4,5 and 6 can be delegated to a committee of directors or a managing director or manager of the company In the following cases, powers should not only be exercised at the Board meeting but also every director present and entitled to vote must consent thereto1. To appoint a person as a managing director or a manager who is already a managing director or manager of another company. 2. To invest in any shares of any other body corporate or to make inter-corporate loans. RESTRICTIONS ON POWERS Powers that can be exercised only with the consent of shareholders in general meeting 1. Sale or lease the whole or substantially the whole of the undertaking 2. Remit or give time for repayment of any debt due from a director. 3. Invest the compensation received in respect of complulsory acquisition of any property of the company. 4. Borrow money exceeding aggregate of paid up capital and free reserves. 5. Contribute to any charitable or other fund not related to the business of the company or welfare of the employees exceeding Rs.50,000 or 5% of average net profits of last three years whichever is higher. Political Contributions Government companies and companies in existence for less than three financial years are not allowed to make any political contributions. Other companies can make political contributions up to the total amount in any financial year not exceeding 5% of the average net profits of last three financial years.

INTERESTED DIRECTOR S. 297 prohibits certain contracts to be made with or by a company except with the consent of the Board at its meeting Prior approval of the Central Govt. where the paid up share capital of the company is Rs. 1 crore or more Contracts covered 1) For the sale, purchase or supply of any goods or services including any appointment with the company 2) For underwriting the subscription of any shares or debentures of the company Parties to the contractCompany on one hand, and On the other hand, - a director, his relative, a firm in which such a director or relative is a partner, any other partner in such a firm, a private company of which the director is a member or director Exceptions 1. A contract for cash at the prevailing market price 2. A contract in which the party regularly trades or does the business and the value of the goods/services does not exceed Rs. 5000 in any year 3. Any transaction with or by a banking or an insurance company 4. In circumstances of urgent necessity. However the consent of the Board must be obtained within three months Note- Exception in 4 not applicable in case of a company having paid up capital of Rs. 1 crore or more since prior approval of Central Govt. is required in case of such companies Disclosure of interest If the contract involves 2 companies, disclosure is not required if the shareholding is not more than 2% of the paid up share capital of the other company Failure to disclosea) Fine upto Rs. 50000 b) Liable to vacate his office as a director

Loans to directors 1. 2. 3. 4. 5. 6. A company cannot give, without the prior approval of the Central Govt., any loan directly or indirectly, to Any director of the company or its holding company Any partner or relative of such director Any firm in which such a director or relative is a partner Any private company of which such director is a director or member Any body corporate of which 25% of the voting power is controlled by any such director Any body corporate, whose Board or MD or Manager is accustomed to act as per the instructions of the director Exceptions 1. 2. 3. 4. 5. A private company A banking company A holding company in respect of loans to its subsidiary Facility given to a director for payment of a flat/accommodation in installments Any salary advance given to the director