All about a Company Director under the Companies Act, 2013

The article 'All about a Company Director under the Companies Act, 2013' by Radhika Mittal elucidates the definition of a director, types of directors, rights and duties of a director, disqualification for the appointment of director along with the conclusion with emphasis on the key role of the director in the success of the company.

A Brief Introduction: Director under the Companies Act, 2013

In layman's language, a director is a person who manages or controls the operations of a particular organization. He is the person who gives directions as to what ways a particular thing needs to be done. The primary job of a director is to achieve the aim or objective of a business. He is the one who controls, manages, and directs the affairs of a company.

As per Section 2(34) of the Companies Act, 2013 a director is defined as

"a director appointed to the board of a company."

The law also mandates under Section 149(1) of the Companies Act, 2013, the minimum number of directors which are to be kept for running an operation of a business or a company. It says that for a private limited company, the minimum number of directors is two, in the case of a public company, the minimum number of directors is three and in the case of One Person Company, only a single director is enough to run the business of a company. However, the law also provides for the appointment of 15 or more directors in a company by passing a special resolution in the general meeting.

A company director is expected to use the skills, knowledge, and experience demanded by the operations of the business of a company. For this purpose, he may act as an agent of a company or as a trustee, an employee, or an officer of a company.

Types of directors

The Companies Act, 2013 provides for the following types of directors. These are as follows:

Managing Director

A Managing Director is one who manages the affairs of the company. As per Section 2(54) of the Companies Act, 2013, a Managing Director is entrusted with the substantive powers of the management of the company by virtue of either of the following:

• An agreement with the company or;
• Article of association or;
• A resolution passed in its general meeting or;
• Board of directors.

Small Shareholder's Director

According to Section 151 of the Companies Act, 2013 Small Shareholder Director is a director which is elected upon notice of a minimum of 1000 small shareholders or 10% of the small shareholders, whichever is lower for a listed company or on the company's own accord.

Women Director

According to Section 149(1)(a) of the Companies Act, 2013, there should be at least one female director in a company.

Whole-time Director

He is the one who is in whole time employment as a director in a company.

Interested Director

As per Section 2(49) of the Companies Act, 2013 an interested director is a director who is interested in any contract or arrangement which is entered into or by or on behalf of a company. Such interest can be in any of the following ways:

• By himself,
• Through any of its relative
•  By firm, body corporate, or other association of individuals in which he or any of his relatives is a - 

              Partner,

              Director, or

              Member

Nominee Director

As per the explanation of Section 149(7) of the Companies Act, 2013 a nominee director is one who is nominated by any financial institution to form part of a board of directors.

Residential Director

According to Section 149(3) of the Companies Act, 2013 a residential director is one who has stayed in India for at least 182 days in the previous calendar year. A company must have at least one residential director.

Additional Director

An additional director is one who is in addition to the directors already appointed in the general meeting. According to Section 161(1) of the Companies Act, 2013, the board of directors can appoint an additional director if they are empowered by the Article of Association of the company to do so.

Alternate Director

According to Section 161(2) of the Companies Act, 2013, the board of directors may appoint a person as an alternate director in the place of a director who is absent from India for a period of three months or more. However, it must be noted that the alternate director so appointed must vacate the post when the director in whose place he is so appointed comes back to India or if his tenure is completed. An alternate director will not be appointed as an independent director if he is not qualified to hold the post as an independent director.

Independent Director

According to Section 149(6) of the Companies Act, 2013 an independent director is one who is other than a managing director, a whole-time director, or a nominee director. According to Section 149(3) of the Companies Act, 2013 every listed company shall have at least one-third of the total number of directors as independent directors.

Disqualifications for appointment of director

The grounds for disqualification of the director are enumerated under section 164 of the Companies Act, 2013 and he can be disqualified for appointment as a director on any of the following grounds. These grounds are:

• If he is of unsound mind and stands so declared by the competent court.
• If he is an undischarged insolvent.
• If he has applied to be adjudicated insolvent and his application is pending.
• If he has been convicted of an offence involving moral turpitude or otherwise and sentenced to imprisonment for not less than six months.
• If an order from any court or tribunal is passed against him for not appointing him as director of a company.
• If he has not paid any calls for the shares held by him and six months have elapsed since the last call.
• If he has been convicted of an offence dealing with related party transactions.
• If he has not complied with the requirement of the director identification number.

Removal of directors

No person has got a position that lasts for eternity. Similarly, a director can also be removed from the company in any of the following ways:

Removal by Shareholders (Section 169)

A company may remove a director before the expiry of his period of office by passing an ordinary resolution and after giving him a reasonable opportunity of being heard. For moving a resolution, a special notice is required to be served in a company and after receipt of such notice, the company will send a copy to the concerned director to show cause. If the reasons for his removal are found satisfactory, then he will be removed from his office.

Removal by Tribunal (Section 242)

A director can be removed from his office by making an application to the Company Law Tribunal for his removal on the ground of mismanagement and oppression which is prejudicial to the public interest.

Rights and duties of directors

Rights of Director

A director has individual as well as collective rights in a company. The followings are the rights of a director:

Individual Rights

• He has the right to Inspection of books of accounts

• He has the right to receive board meeting notices

• He has the right to obtain a circular resolution draft

• He has the right to a sitting fee.

• He has the right to speak in General Meetings.

• He has a legal right in the context of the Inspection of board meeting minutes.

• He has the right to record his dissent.

• He has the Right to vote and participate in Board meetings

• He has the ability to claim travel, lodging, and other expenditures.

• He has the right to call board meetings.

• He has the right to request an alternate director from the board of directors.

Collective Rights

• He has the Right to prohibit share transfers

• He has the right to choose a chairman

• He has the Right to nominate a Managing Director and make dividend recommendations

• He has Investment approval authority.

Duties of Director

According to Section 166 of the Companies Act, 2013, a director shall act according to the article of association of a company. The followings are the duties of a director:

• A director of a company shall act in good faith in order to promote the object of a company, in the best interest of the members and shareholders of the company, and to protect the environment.
• A director of a company shall perform his duties with skills, diligence, independent judgment, and with reasonable care.
• A director of a company shall not involve in a conflicting situation prejudicial to the interest of the company.
• A director of a company shall not make any undue gain or advantage for himself or any other related person.
• A director of a company shall not assign his office.

Conclusion

Directors play the most important role in the success of a company. They have a major contribution to the growth and development of a company. Since they have a large duty burdened on their head, therefore, the responsibility that is intact with the role of director is greater. They are bound not to cross their statutory limits while dealing with the affairs of a company. However, certain powers are also given to directors so that they contribute best to the company.

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