Duties of A Director in India And in the UK

The term ‘director’ in Companies Act 2013 is defined under Section 2(34) as “a director appointed to the Board of a company”, whereas a Board of Directors or Board, with reference to a company, means the collective body of the directors of any company. According to Chapter XI, Section 149 of the Companies Act 2013, it is compulsory for every company to have a Board of Directors, the composition of which should be as follows:

1. Public Company: At least 3 but not more than 15 directors; out of these at least 1/3 rd must be Independent Directors.

2. Private Company: At least 2 but not more than 15 directors.

3. One person Company: Minimum 1 director.

4. At least 1 woman director.

5. At least 1 director who has stayed in India for a minimum of 182 days in the previous calendar year.

Companies Act 2013 is built on the principles of responsibility of the Board of Directors, protection of interests of the shareholders, and self-regulation through disclosures. Through clearly defining liabilities and responsibilities of the directors and penal actions on failure to follow the same the 2013 amendment has ensured several effective measures. Thus, these duties and responsibilities impose on the directors that they take a sincere effort to undertake corporate governance and that protection of the interest of the shareholders always be in their consideration. Thus, the directors shall always keep the interests of company and its stakeholders ahead of personal interests.[1]

Though there is no exhaustive list of duties that a director must fulfil, in a general sense, a director must act in accordance with the Articles of Association of the company and pursue the best interests of the stakeholders of the company. They must act in good faith and promote the objects of the company.

A director shall use their sane independent judgement to exercise his duties with due and reasonable care, skill and diligence. Being aware of conflict of interest situations is also vital and a director should try and avoid such conflicts for the interest of the company. To ensure vigil mechanism of the company and the users are not prejudicially affected on account of such use. A director interested in any transaction of the company must disclose such interest to other directors. A director must also convene statutory meetings, Annual General Meeting, and Extraordinary General Meetings.[2]

DUTIES OF A DIRECTOR IN THE UK

The UK Companies Act, 2006 enlists the provisions with regard to the duties of the directors of a company in the UK. These are as follows:[3]

1. Section 171 confers the duty to act within powers.

2. Section 172 confers the duty to promote the success of the company.

3. Section 173 confers the duty to exercise independent judgment.

4. Section 174 confers the duty to exercise reasonable care, skill and diligence.

5. Section 175 confers the duty to avoid conflicts of interest.

6. Section 176 confers the duty not to accept benefits from third parties.

7. Section 177 confers the duty to declare interest in proposed transaction or arrangement.

A director of a company is supposed to act in accordance with the company’s constitution and also in a way which he considers, in good faith, would be most likely to promote the success and objects of the company for the benefit of its members as a whole.

A director of a company is required to exercise their independent judgment. However, this duty is not infringed if they act — (a) in accordance with an agreement duly entered into by the company that restricts the future exercise of discretion by its directors, or (b) in a way authorised by the company’s constitution. A director of a company must, at all costs, avoid any situation which might result in them having a direct or indirect interest that conflicts, or may possibly conflict, with the interests of the company.

A director of a company is bound to not accept any benefit from a third party due to the reason of— (a) his being a director, or (b) his doing (or not doing) anything as director. Under clause 2 of section 176, a ‘third party’ means any person other than the company, an associated body corporate or a person acting on behalf of the company or an associated body corporate. If the acceptance of the benefit cannot reasonably be regarded as likely to result in a conflict of interest, this duty is not infringed.

Any proposed transaction or arrangement with the company, which requires the interest of any director, whether direct or indirect, requires them to disclose such interest – declare the nature and extent of such interest – to the other directors.

References

[1] Anubhav Pandey, Duties of a Director under Companies Act 2013, IPLEADERS, https://blog.ipleaders.in /directors-duties/.

[2] Ankit Sethi, Directors of a Company in India, LEGAL SERVICES INDIA, http://www.legalserviceindia.com/article/l250-Directors-of-a-Company.html.

[3] UK Companies Act, 2006.

Author Details: Rishabh Shukla (New Law College, Bharati Vidyapeeth to be Deemed University)

The views of the author are personal only. (if any)