Duties of a Director

Sujith Surendran
• The duties and responsibilities of directors can broadly
be classified into two.
• [i] Duty to manage the affairs of the company: The
duties and liabilities which encourage and promote the
best efforts of directors in the efficient and prudent
corporate management and taking wise decisions to
avoid risks and liability to the company.
• [ii] Duty to Protect the Interests of the Stakeholders:
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.
• With the 2013 Act, there is an attempt to shift
the focus for directors from looking solely at
shareholders’ interests to taking account
interests of other stakeholders as well.
• There are no guidelines for order of
preference, so, it is not clear whose interests
should take precedence in case of conflicting
interests.
• Thus, in such situations, would it be prudent
for a director to act in the interest of
employees ignoring the interests of the
shareholders?
• Companies have statutory CSR obligations. If
there is a conflict of interest on environment,
local community interests, etc will it result in a
breach of duty on the part of the director?
• Whose interests shall a nominee director
protect? Whether his duties and liabilities run
par with other directors?
Indian Companies Act of 2013, 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.
• 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.
 More Duties
• The board needs to lay the financial
statements for approval and adoption at the
annual general meeting of the shareholders
(Section 129)
• The directors are responsible for devising
proper systems to ensure compliance with the
provisions of all applicable laws and to ensure
that such systems are adequate and are
operating effectively (Section 134)
• Director needs to ensure that the company
complies with obligations relating to corporate
social responsibility provided under Section
135;
• The board is responsible for appointing first
auditors (Section 139);
• A director needs to disclose his interest in a
contract with the company (Section 184);
• A director is prohibited from engaging in
forward dealing of securities (Section 194);
• The board is responsible for appointment of
whole time key managerial personnel (Section
203);
• The directors are responsible for issuance of
notice and holding of board meetings and
general meetings etc.
 Schedule IV
The Schedule has stipulated 13 (thirteen) different
duties to be performed by an independent director.
Some of these duties include:
(a) Regularly updating and refreshing the skills,
knowledge and familiarity with the company.
(b) Strive to attend and participate actively in all
meetings of the Board and the committees and general
meetings.
(c) Keeping well informed about the company and the
external environment in which it operates.
(d) Not to unfairly obstruct the functioning of a proper
board or committee.
(e) To pay sufficient attention and ensure that adequate
deliberations are held before approving related party
transactions and assure himself that the same are in the
interest of the company.
(f) To ensure that the company has an adequate and
functional vigil mechanism and also to ensure that the
interests of a person who uses such mechanism are not
prejudicially affected on account of such use.
(g) Not to disclose confidential information, including
commercial secrets, technologies, unpublished price
sensitive information, etc., unless such disclosure is
expressly approved by the board or is required by law.
• Section 149(12) of the 2013 Act, inter-alia,
states that notwithstanding anything
contained in this Act an independent director
shall be held liable, only in respect of such
acts of omission or commission by a company
which had occurred with his knowledge,
attributable through Board processes, and
with his consent or connivance or where he
had not acted diligently.
• Exemption given due to the limited degree or
involvement of an independent director in the
day to day affairs of the company.
• The burden of proof lies on the independent
director to prove that he was diligent in the
discharge of his duties and that he had acted
in a bona fide manner.
 Safeguards
• How Directors can safeguard themselves?
– Attend
– Read
– Record
– Educate
– Seek Advise
– Insure
 OFFICER IN DEFAULT
• Various penal provisions in the 2013 Act, which
seek to penalize a company’s officers which
includes company’s directors, and charge them
for offences committed under the Act.
• The minimum amount of fine that is imposed
under certain Sections is Rs 25,000 which in
certain cases extends to Rs 25 crores or even
more
• Apart from monetary penalties, certain offences
even attract imprisonment