Who is a Director?
A Director includes any person occupying the position of Director, by whatever name called [Sec.2 (13)]. Directors occupy a key position in the management of the company. While they are entrusted with wide powers they are also accountable to the company.
Who is a part-time Director?
Part-time Directors are those Directors who do not take a direct part in the day to day management and administration of the company. While whole-time Directors are functional directors and their position in the company is similar to that of an employee, it is not so in the case of part-time directors. They are non-executive directors. However, there is not much distinction between a whole-time director and a part time director when it comes to the question of the powers, rights, duties and responsibilities.
Appointment of part-time director – Under the provisions of the Companies Act, 1956, a part-time Director can be appointed in either one of the following ways:
a) As an Additional Director u/s 260
b) As a casual Director u/s 262
c) As an Alternate Director u/s 313.
In addition to the above, a part-time Director can also be appointed in the following situations:
a) Where a person, who is not a retiring director, is appointed as a Director in the General Meeting of the company u/s 257.
b) Where financial institutions appoint nominee directors on the boards of companies u/s 408.
Duties, rights, powers and responsibilities –
Powers –
The Board of Directors is entitled to exercise all such powers and to do all such acts and things as the company itself is authorized to exercise and do. Generally the powers of the Board are delineated in the Articles of Association. These powers can be exercised subject to the restrictions imposed by the Act (S.292).
The powers to be exercised by the Board are exhaustive in nature and while some of these can be exercised by the Board, some other powers can be exercised subject only to the approval of shareholders, viz. S.293, 293A, 297, etc. Yet again there are certain powers which can be exercised only with the approval of the Government like Sec.294AA, 295, etc.
Rights –
The Act has conferred various legally enforceable rights on the Directors. These rights can be classified into two categories, viz. individual rights and collective rights.
Individual rights are –
a) Right to inspect books of accounts [S.209(4)]
b) Right to receive notices of board meetings [S.286(1)]
c) Right to receive draft circular resolutions [S.289]
d) Right to receive sitting fee [S.309(2)]
e) Right to be heard at the General Meetings [S.284(3)]
f) Right to inspect minutes of board meetings
g) Right to record his dissent [S.193(4)]
h) Right to participate and vote at Board meetings [S.300]
i) Right to claim travel, stay and other expenses
j) Right to summon board meetings
k) Right to ask the board to appoint alternate director [S.283(1)]
Collective rights are –
a) Right to refuse transfer of shares
b) Right to elect a Chairman
c) Right to appoint a Managing Director
d) Right to recommend Dividend
e) Right to approve investments.
Duties –
In the matter of proceedings for negligence, default, breach of duty, misfeasance and breach of trust, the Act and the Rules do not make any distinction between whole-time and part-time Directors. Liability for such acts is equal. However, part-time directors may be relieved from liability where no evidence of the fact that they exercised control in any matter is brought forth.
Directors of public companies are their agents as regards strangers, but as regards shareholders they are always clothed with a fiduciary character with reference to any dealings with property of the company. A director being in a fiduciary position is expected to protect the company’s interests and not to utilize his position and knowledge possessed by him by virtue of his office, to the detriment of the company’s interests and for his personal gain. The directors of the company are trustees in a limited sense. He is only liable for breach of trust if he misapplies funds or misappropriates assets.
The duties of a director are –
a) Fiduciary duties of loyalty and good faith
b) Duties of care, skill and diligence
c) Collective duties of directors under company law
d) Individual duties of directors under company law.
Fiduciary duties –
The Director occupies a fiduciary position in the company. Fiduciary position refers to a position of trust and confidence. The fiduciary position of directors requires them to act honestly and in good faith.
Duties of care, skill and diligence –
In India there is no specific provision regarding the duties of care and skill of the director in the Companies Act. Courts have been mostly following the English decisions and the Common Law rules. A director must take the care which an ordinary man might be expected to take in conducting the affairs of the company. He is not an insurer of the success of the company. A Director’s duty has been laid down as requiring him to act with such care as is reasonably to be expected from him having regard to his knowledge and experience.
The directors are not liable for mere errors of judgment. They are not bound to give continuous attention to the company. A director is liable only for gross and culpable negligence.
In contrast, a far greater degree of skill and commitment to the company will be expected from Managing Director and Executive Directors/Whole-time Directors.
Collective duties of directors under Company Law –
Companies Act, 1956 contains certain specific provisions with regard to duties to be performed by directors collectively as a Board. Some of these are:
a) Investment of funds (Sec.292 & 372)
b) No misstatement in prospectus (Sec.56)
c) Holding of Annual General Meeting (Sec.166)
d) Filing certain resolutions like appointment/reappointment of MD (Sec.192)
e) Directors’ Report (Sec.217)
f) Appointment of Auditors (Sec.224)
g) Holding of Board Meetings (Sec.285).
Individual duties of directors under company law –
Some of the individual duties and obligations imposed on every director by the Companies Act, are as under:
a) Duty to attend Board Meetings
b) Duty to file his consent to act as Director (Sec.264 & 266)
c) Duty to take qualification shares (Sec.270)
d) Duty to abstain from discussion and voting in which he may be directly or indirectly concerned or interested (Sec.300).
Responsibilities of directors-
a) To bring an independent judgment to bear on issues of strategy, performance, resources, including key appointments, and standards of conduct.
b) To be independent of management and free from any business or other relationship which could materially interfere with the exercise of their independent judgment.
Disabilities of Directors –
With a view to protecting the interests of the company and the shareholders, the Companies Act has imposed certain disabilities on the directors by virtue of which certain acts cannot be done by the directors as indicated below:
a) Articles cannot provide for relieving directors from any liability on account of any negligence, default, misfeasance, breach of duty or breach of trust by him (Sec.201).
b) Undischarged insolvent cannot be a director (Sec.274)
c) No person can be a director of more than 15 public companies (Sec.275)
d) Director cannot assign his office (Sec.312).
The directors must see that the duties and obligations imposed on them as well as on the company by various provisions of the Companies Act are carried out and in time.
are part tiem directors are independent directors ?