“A corporation is an artificial person that is invisible, intangible, and exists only in the eyes of the law.” A company has “no mind that may have knowledge or intention and does not have the power to fulfil its purpose and must therefore act through living persons.” Therefore, in a company are managers. However, a director means “a manager appointed to a company’s board.” The Board of Directors means the group of managers.
Position of Directors under Companies Act 2013
The company hires professional men to serve as directors. The role of directors in a corporate enterprise is difficult to explain. Directors are not the company’s servants; rather, they are the company’s officers who direct the company’s affairs. A director, on the other hand, may work as an employee in a different capacity.
In terms of directors, the Companies Act of 1956 defines them as “persons occupying the position of a director, by whatever name called,” whereas the Nigerian Act defines them as “persons duly appointed by the company to direct and manage the business of a company,” which is far more appropriate.
Types of Directors under Companies Act 2013
There are various types of directors in a company. They each have a distinct role, work, and responsibilities. This paper will address each of them.
“The Companies Act refers to two distinct categories of directors:
- A Managing Director is a Director who has significant management powers over the affairs of the company, subject to the supervision, control, and direction of the Board in question.
- A Whole-time Director is defined as “a Director who is employed full-time by the company, devotes his entire working day to the company in question, and has a significant personal interest in the company as his source of income.”
- Every public company and private company that is a subsidiary of a public company with a share capital of more than Five Crore Rupees (Rs. 5,00,000/-) must have a Managing or Whole-time Director or a Manager.
Further Classification of Directors
The Companies Act recognises the following additional types of Directors based on the circumstances surrounding their appointment.
- Small shareholder: A company may have a director elected by small shareholders. A small shareholder is defined as a shareholder who owns shares with a nominal value of no more than Rs. 20000 or such other amount as may be prescribed.
- Women Directors: “Section 149 of the Companies Act, 2013, read with Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014, requires every listed company and public company with paid-up share capital of not less than Rs. 100 crore or a turnover of Rs. 300 crore or more to appoint at least one woman director.” “There is no prohibition on the appointment of a female relative of a director to a company’s board of directors. Furthermore, there is no proposal to impose such a restriction.”
- Nominee Directors: Explanation of Subsection 7 of Section 149 of the Act defines it as “a director nominated by any financial institution in accordance with the provisions of any law in force at the time, or of any agreement, or appointed by any Government, or any other person to represent its interests.” Their appointment is mentioned in subsection 3 of section 161 of the act.
- First Directors: Individuals appointed by the subscribers to the company’s memorandum of incorporation. They are usually listed in the articles of incorporation. They will be considered a director until the directors are elected at the annual general meeting.
- Casual vacancies: If a Director appointed at the AGM resigns before his or her term of office expires in the normal course, the resulting vacancy may be filled by the Board, subject to the Articles. Such a person shall hold office for the same period of time that the Director who vacated office would have held office if he or she had not vacated such office.
- Additional Directors: Directors appointed by the Board if the need arises and the power is provided in the Articles of Association; however, the total strength must not exceed the number specified in the Articles.
- Alternate Directors are appointed “if so authorised by the Articles or by a resolution passed by the company in general meeting, the Board may appoint an Alternate Director to act for a Director who is absent for whatever reason for a minimum period of three months from the State in which the Board’s meetings are ordinarily held.” “He will hold the office for the same amount of time that the Original Director would have held the office.” “Any provision for automatic re-appointment of retiring Directors does not apply to the Alternate Director,” however.
- Shadow Director: A person who is not appointed to the Board but whose directions the Board is accustomed to acting on, is liable as a Director of the company, unless he or she is providing advice in his or her professional capacity. As a result, such a “shadow” Director may be considered a “officer in default” under the Companies Act.
- De facto Director: “A person who is not actually appointed as a Director, but acts as one and is held out by the company as such, is considered a de facto Director.”
Unlike a “shadow” Director, a de facto Director “purports to act as a Director of the company and is perceived as acting by the outside world.” Under the Companies Act, they are liable as a Director.
On the Basis of Listing Agreement
- Independent director: A listed public company must have at least one-third of its directors be independent. The Central Government determines the minimum number of independent directors for each class or classes of public companies. The independent directors are defined in subsection 6 of Section 149 of the Act. It is critical to remember that they must declare their independence at the first meeting of the board, which he attends, as well as at the first meeting of the board every fiscal year. Schedule IV must be followed by the company and its independent directors. In Briji Gopal Daga Case, it was held they can be held liable only for the acts which occurred with their knowledge and consent.
- Executive and non-executive directors: “An Executive Director can be either a Whole-time Director or a Managing Director of the company. A non-executive Director, on the other hand, is “a Director who is neither a Whole-time Director nor a Managing Director.” According to Clause 49 of the Agreement, the Board should be a mix of both, with at least fifty percent (50%) of the Board consisting of non-executive Directors. Furthermore, “where the Chairman of the Board is a non-executive Director, at least one-third of the Board should comprise independent Directors; if he is an Executive Director, at least half of the Board should comprise independent Directors.”
It is self-evident that the success of the company is dependent on the competency of the directors, as they are the real brains behind the operation. As a result, it is essential that the company’s management be placed in the hands of a competent individual. As a result, their appointments should be governed by the Act.
Keeping the importance of the director in a company in mind, the legislature repealed an evil that was previously in practice: “a company or a firm can also be a director of a company.” However, it is now “no longer there, no company, firm, or association can be appointed as a director.” No company may appoint a director unless he has been assigned a Director Identification Number under Section 154.”
As far as the synopsis is concerned, they can be removed in a variety of ways, as explained in sections 169 and 242(2)(h), which discuss removal by CLT and resignation under section 168. Sections 179, 179(3), 180, 181, 182, and 183 delegate authority to the directors. Sections 166, 166(2), 166(3), 463, and 184 all mention the duties. These are some relevant provisions concerning the removal, powers, and duties of a company’s directors.
- Mashall J. in Dartmouth College v. Woodward, 4 L. Ed. 629, 17 U.S. 518(1819), 636 cited in Laski, “The Personality of Associations”29 Harv. L. Rev. 404.
- Tesco Supermarkets Ltd. v. Nattrass, 1972 A.C. 153. Lush J., 431.
- Companies Act, 2013 §2 cl.34.
- Companies Act, 2013 §2 cl.10.
- Ram Chand & Sons Sugar Mills (P) Ltd. v. Kanhayalal Bhargava, A.I.R. 1966 S.C. 1899.
- Moriarty v. Regent’s Garage Co., (1921) 1 K.B. 423
- Lee v. Lee’s Air Farming Ltd., 1961 A.C. 12.
- Ameze Guobardia, “The Criminal Liability of Directors of Failed Banks in Nigeria”, (1998) J.B.L. 198.
- Companies Act, 2013 §151.
- Companies Act, 2013 §149 read with Companies (Appointment and Qualification of Directors) Rules, 2014, Rule 3.
- Companies Act, 2013 §149 cl. 1 proviso.
- Companies Act, 2013 §149 cl. 7, Explanation.
- Companies Act, 2013 §161 cl. 3.
- Companies Act, 2013 §152.
- Companies Act, 2013 §161 cl. 4.
- Companies Act, 2013 §161 cl. 1.
- Shailesh Harilal Shah v. Matushree Textiles Ltd., A.I.R. 1994 Bom. 40.
- Companies Act, 2013 §161 cl. 2.
- Companies Act, 2013 §149 cl. 6.
- Companies Act, 2013 §149 cl. 7.
- Companies Act, 2013 §149 cl. 8.
- Briji Gopal Daga v. State of Kerala, (2013) 181 Comp. Cas. 320 (Ker.).
Submitted By: Kartikey Garg (Galgotias University)