Directors under Companies Act: Position, Appointment and Removal

Director under Companies Act

Director under Companies Act is defined in Section 2(34).  A Director is any person, occupying the position of Director, by whatever name called. They are professional men, hired by the company to direct its affairs. But, they are not the servants of the company. They are rather the officers of the company.

Position of the Director under Companies Act

In the case of The position of a director has been cited by Bowen LJ in the case of Imperial Hydropathic Hotel Co Blackpool v. Hampson as a versatile position in a corporate body. Directors are sometimes described as trustees, sometimes as agents and sometimes as managing partners. These expressions are from indicating point by which directors are viewed in particular circumstances.

Directors are the agents of the company

In the case of Moriarty v. Regent’s Garage Co, it was held that a director is not a servant of the company, but a controller of the affairs of a company.

Further in the case of Ferguson vs Wilson the it was clearly recognized that the directors are the agents of a company in the eyes of law.

Directors are the trustees of the company

In the case of Ramaswamy Iyer v. Brahamayya & Co. the madras high court regarding their power of applying funds of the company and for the misuse of power, the directors are liable as trustees and after their death, the cause of action survives against their legal representative.

In the case of Percival v. Wright, directors are not the trustees of the shareholders. They are trustees of the company.

Directors as the brain of the Company

In the case of Bath v. Standard Land Co. Ltd., it was stated that the board of directors are the brain of the company and a company does act only through them.

Appointment of Directors under Companies Act

Every company is required to have a Board of directors and it should be consisting of individuals as directors and not an artificial person. Section 149 lays down the minimum number of directors required in a company. There can be a maximum of 15 directors. A company may appoint more than 15 directors after passing a special resolution.

Appointment by nomination

When an agreement between the shareholders has been included in the articles that entitles every shareholder with more than 10% share to be appointed as a director, then they can be nominated as director.

Appointment by voting on an individual basis

The appointment of a director is made by voting at the general meeting as laid down under section 162 of the Companies Act, 2013.

Appointment by proportional representation

As per section 163 of the Companies Act, 2013, the article of a company can enable the appointment of directors through the system of voting by proportional representation. This system of voting is used to make effective minority votes.

Appointment by Tribunal under Companies Act

Under section 242(j) of the Companies act 2013, the Company Law Tribunal has the power to appoint directors.

Independent Directors

Section 149(4) of the Companies Act 2013 deals with the provision of the Independent Directors. The section lays down that at least one-third of the total number of directors should be independent directors in every listed company

Removal of Directors under Companies Act

The removal of directors takes place by: Shareholders, Company Law Tribunal, Resignation

Removal by Shareholders

Section 169 of the Companies Act 2013 provides that a director can be removed from his office before the expiration of his term of office by an ordinary resolution.

Removal of Directors by Company Law Tribunal

The removal of directors by the Company Law Tribunal can be done under section 242(2)(h). When an application is made to the tribunal for relief from oppression or mismanagement, then it may terminate any agreement of the company which has been made with a director.

Resignation

The resignation was recognized under the provisions laid down under Section 318 of the Companies Act, 1956. Under this section, it was held that when a director resigns his office, he is not entitled to compensation.

Author Details: Shubhang Gomasta (LLM student, MATS University, Raipur, Chattisgarh).