Chairman as per Companies Act 2013 & Articles of Association

Mandar D Rane, CS,LLB 

The term Chairman is not defined under the Companies Act, 2013 (Act). As per the relevant regulations of Article of Association (AOA) of the Company and relevant Sections casts various powers, obligation and functions for the chairman.

Section 118 of the Act extensibly refers to minutes of proceedings of general meetings and of Board and other meetings, where the Chairman has to conduct the meeting of its Board of Directors and the power of Chairman on inclusion of matters in minutes of meeting.

 With reference to the above provisions and as those stated in AOA as a matter of convention, the Chairman of a Company presides over the meetings of the board.  Therefore, the Chairman has the powers under the common law, such as :-

• the power to preside over the meetings,
• bring the discussion on any question and
• the power to adjourn the meeting if necessary under the circumstances(Article 96).

Chairman and KMP

 As per Sec 2(51) of the Act defines the term of KMP; however there is no substantive provision laid by the definition section. Hence, the managing director (MD), CEO, every whole time director, CFO and CS are treated as KMPs.

 Now the interesting conclusion from this is that every manager, whole-time director (WTD), and the MD as well as the CEO (as per Section 203, the company needs only one of these), will be treated as a KMP.Hence, all the substantive requirements of law pertaining to KMPs apply only to each WTD, and the MD.

 The supra of the judgment of Karnataka High Court in; Shamanur Shivashankarappa vs M/S. India Sugars on 18 July, 2014 held that – : “Absence of any such specific averment in the complaint demonstrating the role of the Chairman in commission of the offence, it cannot be held that prima facie case is made out against the appellant No.2 Chairman.” 

Fiduciary Responsibility of Chairman

 A person who is a chairman of the board of directors has additional rights and duties, and additional opportunities. It is usually the function of a chairman to determine, or at least to exercise a significant influence upon, the agenda of the meetings of the board. He or she is in a position to ensure that proposals are brought forward for consideration by the directors at their meetings.

Exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of a Company in specific circumstances and occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.

The chairman has a general responsibility to oversee the functioning of the board and to ensure that all matters properly to be considered by the board are in fact brought before it. The chairman should have extensive involvement with the chief executive in order to be appropriately familiar with what is happening in the company.

The chairman must be ready, willing and able to intervene decisively as and when necessary. The chairman should further ensure that the views of all directors are heard and not stifled by the conduct of others during deliberations and that board meetings achieve the purposes for which they are intended, and should take a lead in reviewing the composition, effectiveness and performance of the board.