SRABANI PAL Law Presentation

8/9/2019 SRABANI PAL Law Presentation

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COMPANY MANAGEMENT

Name :- srabani Pal .

2nd sem , Sec :- A , Roll :- 23

IILM(BS) , Kolkata


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DirectorsDefinitionPosition of Directors

Qualifications of Directors Number of Directors Appointment of Directors Restrictions on appointment of directors ( Sec.266 ) Numbers of Directorships ( Sec.275 , 277 to 279 ) Vacation of office and removal of Directors Loans to Directors ( sec.295 ) Meetings of Directors ( Sec.285 to 288 ) Powers of Directors Political Contributions (sec.293-A ) Duties of Directors Contracts in which Directors are interested Liabilities of Directors Validity of acts of Directors ( Sec.290 ) Disabilities of Directors

AGENDA


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A Company in the eyes of law is an artificial person.It has no physical existence.It hasneither soul nor a body of its own.A Company never act in its own person.

The Directors are the brain of the company . Only individuals can be directors( Sec. 253 )

Newly inserted proviso to selection 253 makes it obligatory for companies to

ensure that the Directors have been allocated Director Identification Number(DIN) as

required under newly inserted section 266B of the act.

Who is the Director of a Company ?

What is the position of a Director in a company?

It is very difficult to pinpoint the exact legal position of the Directors in a company.We

may now consider the position of the directors from all this point of view

Directors as Officers.Directors as Employees.Directors as Trustees


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What is the Qualifications of a Director?

ADirector must be :- an individual

Competent to contract

Hold a share qualification, if so required by the articles.

What is the Disqualifications of a Director?

The following persons are disqualified for appointment as Directors of a company :-

A person of unsound mind.

An undercharged insolvent.

A person who has convicted by Court of any offence involving moral turpitude.

A person who is disqualified for appointment as director by an order of the Courtunder Sec.203 .


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Number of Directors

Every public company shall have at least three directors and every other company ( e.g. a

private company ) at least two directors.[Sec.252(1)]

However a public company having :-

a paid-up capital of Rs. 5 crore or more.

one thousand or more small shareholders.

May have one director elected by such small shareholders in the manner as may be

prescribed. Small Shareholder means a share holder holding shares of nominal value of Rs.

20,000 or less in a public company to which Sec. 252(1) applies.

Increase or reduction in number of Directors (Sec.258).. The numberso fixed may be increased or reduced within the limits prescribed by the Articles by an

ordinary resolution of the company in general meeting.

Sanction by the Central Government (Sec.259 )..Where the increase innumber does not make the total number of Directors more than 12 , no approval of the

Central Government is needed.


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Appointment of Directors

First directors (Sec.254 and clause 64 of Table A) The articles of a company usually name the first Directors by their

respective names If the first Directors are not named in the Articles,the number and

the name of the Directors shall be deteermined by the subscriber ofthe Memorandum.

If the first directors are not apponted in the above manner, thesubscribers of the Memorandum who are individuals become theDirectors of the company.

Appointment of Directors by the company (Secs.255 to 257 , 263 and 264) Appointment of Directors by Directors (secs.260 , 262 and 313

As additional Directors (Sec.260)

In a casual vacancy (Sec.262) As alternate Director (Sec.313)

Appointment of Directors by third parties Appointment by proportional representation (Sec.265) Appointment of Directors by the Central Government (Sec.408)


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Restrictions on appointment of Director (Sec.266)

A person shall not be capable of being appointed Director of a company by the

Articles and shall also not be named as a Director in a prospectus unless before theregistration of the Articles or the publication of the propectus,as the case may be , he

or his authorized in writing has :-

1. signed and field with the Register a consent in writing to act as suchDirector , and has

2. (a) signed the Memorandum for his qualification shares, if any ; or(b) taken his qualification shares, if any, from the company and paid or

agreed to pay for them;

OR.

i. signed and field with the register an undertaking in writing to take fromthe company his qualification shares, if any, and pay for them; or

ii. made and field with the Register an affidavit to the effect that hisqualification shares are registered in his name.

Sec,266 does not apply to a private company.


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Number of Directorships (Sec.275,277 and 279)

No person to be a director of more than 15 companies (Sec.275)..

Exclusion of certain Directorships (Sec.278) In calculating the numberof companies of which a person may be a director , the following companies shall beexcluded, viz.,

a) a private company which is neither a subsidiary nor a holding company

of a public company;b) an unlimited company;c) an association not carrying on business for profit or which prohibits the

payment of a dividend ; andd) a company in which such person is only a alternate director.

Choice of person becoming director of more than 15 companies(Sec.277) Where a person already a Director in 15 companies is appointed as a

Director of any other company, the appointment shall not effect unless such personhas, within 15 days of his appointment, effectively vacated his office as Director inany of company in which he was already a Director. The new appointment of suchperson as director shall take effect only in such choice is made ; and it shall become

void if the choice is not made within 15 days of the day on which the appointmentwas made.


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Vacation of Office and Removal of Directors

Vacation of office by Directors (Sec.283)...The office of a Director shall becomevacant if:-

a) He falls to obtain within 2 months of his appointment..

b) He is adjudged to be of unsound mind...

c) He applies to be adjudicated an insolvent..

d) He is adjudged an insolvent..

e) He is convicted by a court of any offence involving moral turpitude andsentenced in respect thereof to imprisonment for not less than 6 months..

f) He fails to pay any call in respect of shares of the company held by him within

6 months from the last date fixed for the payment of the call..

g) He absents himself from 3 consecutive meetings of the board of the Directors ..

h) He or any firm in which he is a partner or any private company of which he is a

Director, accepts a loan, or any guarantee or security for a loan..i) He fails to make disclosures to the Board of Director with regard to any

contracts with the company in which he is directly or indirectly interested..

j) He is removed before the expiry of his period of office by an ordinary

resolution..

k) Having been appointed a Director by vertue of his holding any office or other

employment in the company, he cases to hold such office or other employment inthe company..


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Removal of Directors :- Directors may be removed by :-1. Shareholders (Sec.284) :- The shareholders may remove a director before

the expiry of his period of office by passing an ordinary resolution,

a) apply to the case of a Director appointed by a Central Government under Sec.408.b) authorize

c) , in the case of a private company, removal of a Director holding office for life on April

1,1952.

d) apply to the case of a company which has adopted the system of electing 2/3rds of its

directors by the principle of proportional representation.

Right of the director to make representation :-when notice is given of aresolution to remove a Director, the Director concerned has a right to make

representations in writing.

Vacancy :- A vacancy created by the removal of a Director may be filled up in the samemeeting provided special notice of the proposed appointment was also given.

2. Central Government (Sec.388-B to 388-E) :- The centralgovernment may, in certain circumstances, remove managerial personnel from office

on the recommendation of the Tribunal.

Case to be made out against the managerial personnel (Sec.388-B)

3. Removal by Company Law Board (sec.402) :- Where, on an application to

the company Law Board for prevention of oppression(under Sec.397)or mismanagement(under Sec.398),the company Law Board finds that the relief ought to be granted.


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Loans to Directors (Sec.295)

A company ( referred to as the lending company) shall not, directly, make any loan to -

a) i. any Director of the leading company or ii. To the Directors of itsholding company oriii. To any partner or relative of any Director.

b) any firm in which any such director or relative is a partner.

c) any private company of which any such director is a director ormember.

d) any body corporate at whose general meeting any Director orDirectors controls orcontrol not less than 25% of the total voting power. And

e) anybody corporate whose Board of Directors or manager is accustomedto act in accordance with the Directors of the Board of Directors , orof any Director or Directors, of the lending company.


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Meetings of Directors (Sec.285 to 288)

The Companies Act contains the following provisions relating to Board Meetings :-

1. Number of meetings once in every 3 months (sec.285)Example :- The meetings of board of Directors of a

Microsoft Company, were held on1st Jan. , 30th June , 1st July

and 31st of December during the calendar year 2007.

2. Notice of meetings (Sec.286)Notice of every meeting of the Board of directors of a company

shall be given in writing to every director for the time being in India.

3. Quorum for meetings (Sec.287) The quorum for a meeting of the Board shall

be 1/3rd of its total strength , or 2 Directors, whichever is higher.

Want of quorum (Sec.288). If a meeting of the Board cant be held for wantof quorum, it shall automatically stand adjourned till the same day in the next week,

at the same time and place unless the Articles provide otherwise.


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Powers of Directors

General powers of the Board (Sec.291) The Board of Directors of a company isentitled to exercise all such powers and do all such acts and things as the company is

authorized to exercise and do.

Powers to be exercised at board meetings (Sec.292) the power to a. make call on shareholders in respect of money unpaid on their shares.

b. issue debentures.

c. borrow moneys otherwise than on debentures.d. invest the funds of the company.

e. make loans.

Sec.292 does not in any manner affected the right of the company ingeneral meeting to impose restrictions and conditions on the exercise bythe Board of any of the powers specified in sec.292.

Powers to be exercised with the approval of company in general meetings(Sec.293)

Political Contributions (Sec.293-A) With the view to permitting the corporatesector to play a legitimate role within the defined norms in the functioning of our

democracy, Sec.293-A Allows companies to make contributions to political parties or

for political purposes to any person, directly or indirectly, out off their profit..


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Duties of Directors

There are certain duties of a general nature of the following type :-

1. Fiduciary duties :- The Directors must a) Exercise their powers honesty and bona fide for the benefit of the company as a

whole

b) Not place themselves in a position in which there is a conflict between their duties

to the company and their personal interest.

Fiduciary duties owed to the company.The fiduciary duties of Directors areowed to the company and not to the individual shareholders. The leading case on the

point is Percival vs. Wright,(1902)2 Ch.421.

2. Duties of care, skill and diligence ;- Directors should carry out theirduties with reasonable care and exercise such degree of skill and diligence as is

reasonably expected of person of their knowledge and status.

Other duties of Directors.. The other duties of a directors are..I. to attend Board meetings..

II. not to delegate his functions except to the extent authorized by the Act.

III. to disclose his interest.

This duties have been discussed at appropriate places..


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Contracts in which Directors are interested

A Director stands in a fiduciary position towards the company . Therefore, if he hasany personal interest in contract entered into with the company, he must disclose it.

The principle behind a directors duty of disclose is that he is precluded from dealing

on behalf of the company with himself and from entering into engagements in which

he has a personal interest conflicting , or which possibly may conflict, with the interest

of those whom he is by fiduciary duty bound to protect.

[ North West Transportation Co. vs. Beatty(1887) 12 App. Cas.589]

Board sanction required (Sec.297)

Disclosure of interest by director (Sec.299)

Interested Director not to participate or vote in Boards proceedings (Sec.300

Register of contracts (Sec.301)


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Liabilities of DirectorsThe liabilities of Directors may be discussed under the following four heads :-

1) Liability to third parties :--

a. Under the Act.Liability of Directors to third parties may arise in connectionwith the issue of a prospectus which does not contain the particulars required by

the Companies Act. or which contains material misrepresentations.

b. Independence of the Act. Directors, as agents of a company , are notpersonally liable on contracts entered into as agents on behalf of the company.

2) Liability to the company :--The liability of Directors towards the company may arise from :-

a. Ultra vires acts Directors are personally liable to the company in respect of ultra viresact.

b. Negligence a Director may incur liability for the negligence in the exercise of the duty.c. Breach of trust Directors are liable to the company for any loss resulting from Breach

of trust.

d. Misfeasance In case of misfeasance proceedings Directors may apply for relief underSec.633.

3) Liability for breach of statutory duties

4) Liability for acts of his co-directors


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Disabilities of Directors

In order to protect the interest of a company and its shareholders.The Companies Act

has imposed the following disabilities on the Directors :-

1. Avoidance of provisions relieving directors ofliability (Sec.201)..

2. Undercharged insolvent disqualified from the beingappointed Director (Sec.274)..

3. No person to be a Director of more than 20companies (sec.275)..

3. Restrictions on powers of Board (Sec.293)..4. Loans to Directors (sec.295)..5. Boards sanction for certain contracts in which particular

Directors are interested (Sec.297)..

3. Prohibition of assignment of office by Directors (Sec.312)..4. Directors Act not to hold office or place of profit (Sec.314)..


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SRABANI PAL Law Presentation

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