Directors

1. Directors

2. Definition : According to Sec2(34) “Director” means a director appointed to the Board of a company. A director is a person having control over the direction, conduct, management or superintendence of the affairs of the company.

3. “ any person occupying the position of the director by whatever name called” • Elected by the shareholders to direct, control, manage and supervise the affairs of the co. - Only individuals to be directors - Provision of DIN (mandatory)

4. Number of Directors (2015 edition) Every company shall have a Board of Directors consisting of individuals as directors and shall have— • Minimum: - at least 3 directors, in case of public company - at least 2 directors, in case of private company - at least 1 director, in case of OPC (b) Maximum: - fifteen directors A company may appoint more than 15 after passing a special resolution and such class of companies at least one woman director. NOTE: Every company shall have at least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year. (Resident director)

5. Increase or reduction in number of directors NOTE: The Articles of a company may prescribe the limit for no. of directors for its Board of Directors (i) The number fixed can be Increased or decreased within limits (mentioned in Articles) by Ordinary Resolution of the company in general meeting. - Board will not function, if number falls below. (ii) In case of any increase beyond the articles, Central Government approval is required. (iii) If the number does not make the total number more than 15, no such approval from CG is required as CA 2013 however, permits every company to appoint directors above the prescribed limit of 15 (fifteen) by authorizing such increase through a special resolution.

6. Highlights (as per the companies act 2013) • Every company is required to appoint 1 (one) resident director on its board. • Nominee directors shall no longer be treated as independent directors. • Listed companies and specified classes of public companies are required to appoint independent directors and women directors on their boards. http://www.nishithdesai.com/information/research-and-articles/nda-hotline/nda-hotline-single-view/article/companies-act-2013-greater-emphasis-on-governance-through-the-board-and-board-processes.html?no_cache=1&cHash=ca550459d744bead6c8090812a8c1561

7. http://www.mondaq.com/access/rssfeeds.asp?ipc_id=28&itopic_id=3 Types: Directorshttp://articles.economictimes.indiatimes.com/2014-03-28/news/48662757_1_new-companies-act-share-capital-corporate-affairs-ministry 1. Independent Directors 2. Executive Directors e.g. Managing Directors/Chief Executive/CEO/top rank corporate officer /Executive Directors 3. Non-executive Directors 4. Nominee Directors - belongs to non-executive category - representative of the third party/investor, FI 5. Women Directors 6. Whole-Time directors 7. Managing Director

8. 1. Independent Director: (2015 edition) An independent director in relation to a company, means a director other than a managing director or a whole-time director or a nominee director Who can be an ID ? - one who is in the opinion of the Board, a person of integrity and possesses relevant expertise and experience - who is or was not a promoter of the company or its holding, subsidiary or associate company. - who is not related to promoters or directors in the company, its holding subsidiary or associate company - a person, none of whose relatives have or had pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors Number of ID in BoD : (i) Every listed public company shall have at least one-third of the total number ofdirectors as independent directors OR (ii)Central Government may prescribe the minimumnumber of independent directors in case of any class or classes of public companies. like, Certain class of corporates are required to have at least two independent directors on their respective boards. The rule would apply to public companies having minimum paid up share capital of Rs 10 crore and those where their aggregate "outstanding loans, debentures and deposits" exceed Rs 50 crore, 

9. 2. Executive Director: http://www.businessdictionary.com/definition/executive-director.html - who is usually also its full-time employee - has a specified decision making role as director of finance, marketing, operations, etc., on an on-going basis. Other names:  Inside, Internal director 3. Non-Executive Director: http://www.businessdictionary.com/definition/non-executive-director.html • not an executive director and, therefore, does not participate in the day-to-day management of the firm. • involved in planning and policy making Other names:  external director, independent director, outside director, or director at large.

10. 4. Nominee Director: (as per 2013 act) A nominee director is a representative of the investor or the third party getting involved in the Company - has a dual, almost conflicting position. - On the one hand, as the director of the company, he has to serve the company and take actions which are in the best interest of the company. At the same time, since he has been appointed to protect the interests of the investor investing in the company, he has to also make sure that the investor’s interests are safeguarded, even if that in some cases means going against the interest of the company. Example: Nalin Kumar Srivastava, as a government nominee director on the board of MRPL http://www.thehindubusinessline.com/companies/govt-nominee-on-mrpl-board/article6974732.ece

11. 5. Women Director: http://www.caclubindia.com/articles/the-companies-act-2013-provisions-relating-woman-directors-18782.asp http://articles.economictimes.indiatimes.com/2014-03-28/news/48662757_1_new-companies-act-share-capital-corporate-affairs-ministry (i) Every Listed Company /Public Company with paid up capital of Rs 100 Crores or more (ii) Every Public Company with turnover of Rs 300 Crores or more shall have at least one Woman Director within a period of 1 year Example: Apollo Hospital Enterprise, a company with highest no.of women directors i.e. Four https://www.apollohospitals.com/corporate-apollo-management.php

12. CA 2013 Updates • “Nominee Director” means a director nominated by any financial institution in pursuance of the provisions of any law for the time being in force, or of any agreement, or appointed by any Government, or any other person to represent its interests. Nominee Director shall not be deemed to be independent director as per Section 149(6). • These institutions/banks etc. also insist on borrowing companies to alter their articles of association so as to empower them to appoint and terminate the services of their nominee directors on the Board of the company as and when they like. These directors are known as nominee directors. They are not liable to retire by rotation and hold office at the pleasure of their nominating agencies. They cannot be removed by the company.

13. CA 2013 Updates • http://onlinelawclub.com/provisions-relating-to-appointment-of-nominee-directors-under-companies-act-2013/ • Position of Nominee DirectorsWhile the Listing Agreement stated that the nominee directors appointed by an institution that has invested in or lent to the company are deemed to be independent directors, CA 2013 states that a nominee director cannot be an independent director. However, the SEBI Circular in line with the provisions of CA 2013 has excluded nominee directors from being considered as independent directors.CA 2013 defines nominee director as a director nominated by any financial institution in pursuance of the provisions of any law for the time being in force, or of any agreement, or appointed by the Government or any other person to represent its interests.

14. CA 2013 Updates • WOMAN DIRECTOR • Listed companies and certain other public companies shall be required to appoint atleast 1 (one) woman director on its board. • Companies incorporated under CA 2013 shall be required to comply with this provision within 6 (six) months from date of incorporation. In case of companies incorporated under CA 1956, companies are required to comply with the provision within a period of 1 (one) year from the commencement of the act.

15. 6. Whole time Director: (as per 2013 act) A whole-time director includes: a director in the whole-time employment of the company; 7. Managing Director: (as per 2013 act) It means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, - is entrusted with substantial powers of management of the affairs of the company and - includes a director occupying the position of managing director, by whatever name called. 8. Small shareholders Director: (as per 2013 act) Meaning of small shareholder: - a shareholder holding shares of nominal value of not more than twenty thousand rupees or such other sum as may be prescribed. A listed company will be required to have a small shareholders' director. The rule will kick in if at least 1,000 or one-tenth of the total number of small shareholders move a notice for appointing such a director.

16. Appointment of Directors (2014 edition) 1. By Promoters i.e. First directors of the company 2. By Members/company 3. By Board 4. By Third parties 5. By Central Govt. 6. By proportionate representation 7. Appointment of Independent Director ( from 2015 edition book) 8. Appointment of directors elected by small shareholders (from 2015 edition book)

17. NOTE : (as per 2013 act) (i) No person shall be appointed as a director of a company unless he has been allotted the Director Identification Number (ii) Every person proposed to be appointed as a director by the company in general meeting or otherwise, shall furnish his Director Identification Number and a declaration that he is not disqualified to become a director under this Act. (iii) A person appointed as a director shall not act as a director unless he gives his consent to hold the office as director and such consent has been filed with the Registrar within 30 days of his appointment

18. 1. By promoters (first directors of the co.) a. As prescribed by articles b. If not named in the articles, then determined by subscribers of the MOA or majority of them. c. If not as per above method , the subscribers of Memorandum who are individuals become directors. (till appointment of directors in the 1st AGM) In case of a One Person Company: (as per 2013 act) an individual being member shall be deemed to be its first director until the director or directors are duly appointed by the member in accordance with the provisions of the section.

19. 2. By Members/Company (Subsequent Appointment) • Subsequent appointment by the members has to be done by the shareholders in the general meeting. • At AGM atleast 2/3rd of total directors of a public co./private company subsidiary of public co. shall be liable to retire by rotation. (i) At AGM,1/3rd of rotational directors shall retire from office (ii) retiring rotational directors would be those who had a longer stay. (iii) vacancy can be filled by retiring director /some other person. (iv) if still the vacancy is not filled: - then meeting may resolve not to fill the vacancy - In the absence of such resolution mentioned above, the meeting stands adjourned - if not, in adjourned meeting also, then retiring director is re-appointed

20. 3. By Board of Directors (i) Additional director - Within the maximum strength of board fixed by articles, board may appoint such director and he will hold office only upto the commencement of next AGM. (irrespective of AGM held or not) - If additional director is acting as MD also, then both will cease at the next AGM - director will vacate the office as an additional director at any time who shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier. (ii) Casual vacancy (other than retirement of director) It arises as a result of death, resignation, disqualification or any reason other than retirement by rotation. In case of public co. or pvt.co. which is subsidiary of public co.: - casual vacancy is filled by Board of Directors @ a Board meeting (iii) Alternate Director - if AoA provides OR resolution is passed in general meeting for alternate director. - acts for original director in his absence for a period of atleast 3 months (from India)

21. 4. Appointment by third parties Allowed under certain circumstances, if power by Articles given to debenture-holders or creditors (i) their number cannot exceed by 1/3rd of the total no.of directors (ii) such elected ones , cannot liable to retire by rotation

22. 5. Appointment by Central Government: Act empowers Central Government to appoint as the Company Law Board may by an order in writing. - To effectively safeguard the interests of the company or its shareholders or public interest. - Appointment will be for a period not exceeding 3 years on any one occasion. CLB may pass the order on a reference made to it by CG or on the application – (i) of not less than 100 members of the co., or (ii) of members of the co. Holding not less than 1/10th of total voting power. The director elected a. Not required to take qualification shares b. Not subject to retire by rotation c. Removal by Central Government only.

23. http://www.corporate-cases.com/2012/07/proportional-representation-appointment-director.htmlhttp://www.corporate-cases.com/2012/07/proportional-representation-appointment-director.html 6. Appointment by Proportional representation - As per articles, appointment of not less than 2/3rds of the total number of directors as a public company/private company subsidiary of public company. - by a single transferable vote or cumulative voting or otherwise - appointment made once in 3 years.

24. 7. Appointment of an Independent director An independent director may be selected from a data bank containing names, addresses and qualifications of persons who are eligible and willing to act as independent directors, maintained by any body, institute or association, as may by notified by the Central Government, having expertise in creation and maintenance of such data bank (i) responsibility of exercising due diligence before selecting a person from the data bank referred to above, as an independent director shall lie with the company making such appointment. (ii) The appointment of independent director shall be approved by the company in general meeting (iii) The Central Government may prescribe the manner and procedure of selection of independent directors who fulfill the qualifications and requirements

25. 8. Appointment of directors elected by small shareholders Meaning of small shareholder: - a shareholder holding shares of nominal value of not more than twenty thousand rupees or such other sum as may be prescribed. Provision: A listed company may have one director elected by such small shareholders in such manner and with such terms and conditions as may be prescribed.

26. ??? • How many directors are liable to retire by rotation ? • Mr.Pig, a director died on Jan 3, 2014 during his directorship in Mice Co. Ltd. How will his position be filled? • How is alternate director appointed? By __________ or _________

27. ??? • Small shareholders are holding shares of nominal value of not more than _________or such other sum as may be prescribed. • Ria Co. and its Board decided to keep 3 additional directors on Feb6 ,2012? Can they? Given: AGM is scheduled on March 6, 2013. Assume, they kept 2 additional directors in place of 3. When will they retire ?

28. Disqualification (2014 edition book) As per the company law, the following persons are disqualified from been appointed as a director: • Unsound mind • Who has applied for being adjudged insolvent • Who has been convicted by the court and 5 years have not lapsed. • Not paid for the call on shares for more than 6 months • Any other person who has been disqualified by the court for fraudulent reasons. • Persons who are already directors in maximum number of companies i.e.20 http://www.corporate-cases.com/2012/07/maximum-number-of-directorship-in-Companies.html as per the provisions of the 2013 Act or • Any other person who has been disqualified by the court for any other reason

29. Removal of directors (2014 edition book) • By Shareholders (before the expiry of his period of office) - by ordinary resolution Exceptions: • Appointed by Central govt. • Where company adopted system of Proportional representation • Holding office for life (in case of private co. only) Right of director to make representation Vacancy: - may be filled in the same meeting provided special notice of the proposed appointment was also given. - successor holds office until the date to which the predecessor would have held office, if not removed - treat casual vacancy (filled by Board)

30. 2. Removal by Central Government: Central Government may remove the director on recommendation of NCLT (Tribunal)by a case referred to it. Circumstances : - Person concerned in the conduct & management is guilty of fraud or default - Business is not conducted by the person in acc. With sound business principles - The co. is managed by such person which is likely to cause or has caused serious injury or damage to the interest of the trade industry - Intent to defraud its creditors, members or any other person 3. Removal by Company Law Board In case of oppression and mismanagement

31. Position of Directors (2014 edition book) • Directors as agents • Directors as employees • Directors as officers • Directors as trustees - of the company’s money and property - of the powers entrusted to them (case : Alexander v. Automatic Telephone Co. payment on shares) (case : Piercy v. S.Mills and Co.Ltd. power to issue unissued shares) 5. NOTE : Directors are trustees for the company and not any third parties case : Percival v. Wright (bought shares from shareholder w/o telling him about the sale of company. 6. Director as Quasi-trustee Reason : - they are not vested with the ownership of company’s property - functions are not same of trustees - duties of care are not so onerous as those of trustees

32. Powers of Directors (2014 edition book) • General Powers : - entitled to exercise all such powers and acts as the company is authorised to do. (co-extensive right) - shall not do any act which is to be done by the company in general meeting. - exercise such powers subject to rules in Articles/MoA/ general meeting • Powers at Board meeting : perform powers on behalf of company by means of resolutions passed at the meetings - make calls on shareholders - issue debentures - borrow moneys other than debentures - invests the funds of company - make loans.

33. (iii) Powers with approval of company in general meeting: In case of a public company : - to sell, lease or dispose whole or substantial part of the undertaking of the company - to remit or to give time for repayment of any debt due to the company by a director except renewal and continuation of an advance by a banking co. - to invest the compensation received by the company under compulsory acquisition - to borrow moneys where the money to be borrowed is more than the paid-up capital of company and its reserves - to borrow temporary loans for ordinary course of business is excluded - to contribute charitable and other funds (non related with business or employees’ welfare), amount exceeding Rs.50,000 in any financial year OR 5% of the average net profits of 3 preceding financial years , whichever is greater. It may also contribute Rs.50,000 even if loss is incurred

34. Duties : Directors (old book + new act) General Nature : (I) Fiduciary duties (II) Duties of care, skill and diligence Fiduciary Duties : (owed to the company not to the individual shareholders) 1. Exercise the powers honestly and bona fide for the benefit for the company as a whole 2. Not to put himself in a position where the duties conflict with the personal interests. 3. Not to make secret profits, if made then account to the company. 4. A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company

35. Duties of care, skill and diligence : 1. Use of care and diligence as per knowledge and status and shall exercise independent judgement 2. Standard of care depends upon : - nature of business - division of powers between directors and other officers Other Duties: 1. to attend Board meetings. 2. not to delegate beyond AoA 3. to disclose his interest. Additional Duties: (as per 2013 act) 1. a director of a company shall act in with the articles of the company. 2. Shall act in the best interests of the company, its employees, the shareholders, the community and for the protection of environment. 3. A director of a company shall not assign his office and any assignment so made shall be void NOTE: If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

36. The articles of a company authorised the payment of interest on the amount paid up on the shares..The directors paid interest to the shareholders out of capital. • Is the payment justified? • Are the directors liable to refund the amount so paid to the company ?