COMPANY MANAGEMENT

SHRUTI REDDY, UPES SOL

 DEFINITION AND QUALIFICATIONS
 Definition: S. 2 (34)- director means a director appointed to the Board of a company
 Who may be appointed?
 Only an individual (S. 149)
 Only a person with DIN no. issued u/S. 154 [S.152 (3)]
 Individual to apply to CG in prescribed form with fee (S. 153)
 CG within 01 month of receipt of appln. u/ S. 153- to allot DIN no. (S. 154)
 If DIN no. already allotted, fresh DIN no. shouldn’t be applied for (S. 155)
 Contravention of S. 155- director punishable with imprisonment upto 06 months OR fine upto
50,000 INR- continuing contravention- further fine of 500 INR everyday (S. 159)
 Qualifications
 No academic/ professional qualifications
 No share qualifications; unless AoA stipulates
 DISQUALIFICATIONS [S. 164 (1)]
A person who:
1. Is of unsound mind- so declared by a competent court
2. Is an undischarged insolvent
3. Has applied to be adjudicated as an insolvent and his application is pending
4. Has been convicted by a court of an offence- whether involving moral
turpitude/ otherwise- sentenced with imprisonment not less than 06 months-
disqualification lasts only upto 05 years from date of expiry of sentence- period
of imprisonment 07 years or more- not eligible at all
5. Is disqualified from appointment by a Tribunal and order is till in force
6. Has not paid calls- shares jointly/ individually held- 06 months have passed from
last day fixed for the payment of call
7. Is convicted for RPT u/ S. 188 at any time in last preceding 05 yrs
8. Has not complied with S. 152 (3)- not obtained DIN
 ADDITIONAL DISQUALIFICATIONS [S. 164 (2)]

 Person who is or has been a director of a company:

1. Which hasn’t filed financial statement/ annual returns for any continuous period
of 03 financial years; or
2. Which has failed to repay the deposits/ pay interest on deposits/ redeem
debentures on due date/ pay interest on debentures/ pay dividend declared and
such lapse continues for 01 year or more.
 Person ineligible for reappointment in that co. or appointment in any other co.
for 05 yrs from the date on which the co. fails to do so

 Private co.: AoA

 EFFECT OF DISQUALIFICATIONS

 U/ SS. 164 (1) (d), (e) and (g): disqualification shall not take effect
a. For 30 days from date of conviction/ order of disqualification;
b. Appeal/ petition preferred within 30 days as aforesaid against conviction
resulting in sentence or order- until expiry of 07 days from date on which
appeal/ petition is disposed of; or
c. Further appeal/ petition against order or sentence within 07 days until such
further appeal/ petition is disposed of.
 LEGAL POSITION OF DIRECTOR

 Position ambiguous
 Blend of agent, trustees, managing partners
 Agents: co. can’t act on its own, has to act though human agency; ordinary rule of
agency applicable; co. may be liable for contempt too; question to be clarified
whether act in personal capacity of director personally or co.
 Personal capacity may arise in following circumstances
a. Where contract in own name of director
b. Co.’s name incorrectly used
c. Contract ambiguous- whether co. or director as agent signing contract
d. Director exceeds authority
 Ratification: powers beyond directors, but, within the powers of MoA, may be
ratified by GM resolution
CONTD.

 Trustees: performance of duty in interest of co. and not for personal advantage;
powers in trust- allotting shares, making calls, forfeiting shares, accepting or rejecting
transfers; utmost good faith, utmost care and skill, due diligence
 Managing partners: large partnerships; others considered to be dormant partners
 Employees?: may be employee too, may be officers; directors enjoy wide powers
as appointed by shareholders; enjoy limited powers in capacity of employees-
contract of service, servant of co.
 APPOINTMENT OF DIRECTORS

1. First Directors (S. 152)

 Appointed by name in AoA or in manner provided in AoA
 AoA silent- subscribers of MoA whoa re individuals may be appointed- deemed to
be first directors, till directors are duly appointed
 OPC- individual members- deemed to be first directors, if AoA silent- till directors
duly appointed
 Individuals mentioned as first directors- do not assume office for any reason-
subscribers to MoA to convene meeting for appointment of first directors- such
person proposed to furnish DIN and declare he is not disqualified to become a
director
 No appointment without DIN [S. 154 (3)]
 Consent [S. 152 (5)]- to be field with RoC within 30 days of appointment
 Independent director- appointed in GM, requires explanatory statement annexed to
notice of GM, to include statement in opinion of BoD that he fulfills all conditions
for appointment [Proviso to S. 152 (5)]
CONTD.
2. Appointment of Directors at GM
 Every director to be appointed by co. in GM, except where Act provides otherwise
[S. 152 (2)]
 Public Company
• Unless AoA speaks of retirement of all directors at AGM, directors to retire on
rotational and non rotational basis
• Rotational director: not less than 2/3rd of total no. of directors (to exclude
independent directors) shall
a. Be persons whose period of office is liable to determination by retirement of
directors by rotation [implying 1/3rd directors retire on non rotational basis
(to be appointed in AGM)]; and
b. Be appointed by co. in GM except where otherwise provided by Act.
c. Of 2/3rd directors- 1/3rd directors retire every eyar
d. No. of directors- neither 03 nor multiples of 03- no. nearest to 1/3
e. Those who have had longest office- to retire first- appointment on same day-
by agreement or by lot
CONTD.

 Private Company: rotation not a mandate, unless a subsidiary of a pub. co. or

AoA so provides; otherwise not removed except with GM resolution under S.
169
 S. 152 (6) not applicable to
a. Govt. co. (where entire paid up capital is held by CG/ SG or by CG and one
or more SG)
b. Subsidiary of govt. co. (where entire paid up capital is held by CG/ SG or by
CG and one or more SG)
CONTD.
 Deemed reappointment of retiring director (S. 152)
 At the AGM at which director retires – co. may fill up vacancy by appointing retiring
director or some one else [S. 152 (6) (e)]
 Vacancy not filled & meeting hasn’t expressly resolved not to fill up vacancy-
meeting adjourned to next week, same day, place, time, if not a national holiday, till
next succeeding day not being a holiday [S. 152(7)]
 Adjourned meeting- same situation continues, retiring director deemed to be
reappointed at adjourned meeting
 Exceptions (S. 162)
a. at any prev meeting- resolution for reappointment was put to vote and lost; or
b. Retiring director has expressed unwillingness to continue; or
c. Disqualified for appointment; or
d. It is resolved to fill 02 or more vacancies by single resolution; or
e. Special/ ordinary resolution necessary for appointment.
CONTD.

 Appointment of director other than retiring director [S. 160 r.w. Rule 13
of Companies (Appointment and Qualification of Directors) Rules, 2014]
 Member/ person interested- to signify intention by giving 14 days notice to co.
before GM
 Co. to inform members atleast 07 days before GM
 Communication of information- individual notices and website/ newspaper
 Deposit of 01 lakh INR by member/ candidate; refund on election/ 25% or
more valid votes on show of hands/ poll
 Directors appointed by BoD u/S. 161- non rotational directors, must qualify all
conditions of S. 160
CONTD.
3. Appointment by BoD (S. 161)
i. Additional Directors
ii. Filling up of casual vacancy
iii. Alternate directors
iv. Nominee directors
 Additional directors: powers may be vested by AoA to appoint them; person who has failed to
be appointed as director in GM cannot be appointed as director- disqualification ;
applicable to all companies; Tenure- upto next AGM or last date on which AGM should have
been held, whichever is earlier; powers- same powers as other directors; Appointment either at
BoD meeting or by resolution by circulation; may be appointed as MD or WTD
 Filling up of casual vacancy [S. 161 (4)]: applicable to pub. co. ; vacancy arising other than
retirement or expiration of time fixed for appointment; office falls vacant in normal course- subject
to AoA; casual vacancy filled up by board in a meeting; Tenure- for entire period for which the earlier
person would have continued- but not entitled for reappointment unlike a retiring director; pvt. co.-
bound by AoA or appointed in GM- S. 161 not applicable; director appointed but office not assumed-
not casual vacancy; vacancy in office of non rotational directors- appointed otherwise than through
GM, can’t be regarded as casual vacancy u/S. 161
CONTD.

 Alternate Director: authorization by AoA/ resln. Passed in GM- co. may appoint
alternate director; to fill someone’s absence for a period not less than 03 months
from India; only 01 alternate directorship at a time; alternate director wrt
independent director- must possess same qualifications as alternate director; not an
agent of original director; consent- with RoC- continuation with regular
appointment, consent not required to be filed again [S. 152 (5)]; vacation from
office- not longer than duration of original person and when he returns to India-
non retiring director- continue indefinitely till he returns- rotational director-
reappointment applicable to original director, not alternate director
 Nominee director: usually appointed by creditors to secure interest by fair
representation on Board
CONTD.

4. Appointment of Resident Director

 At least one director [S. 149 (3)]
 Should have stayed in India for not less than 182 days in prev. calendar year
CONTD.
5. Independent Director [S. 149 (4)]
 Applicable to listed co.
 At least 1/3rd of total no. of directors
 CG may prescribe min. no. in any class/ classes of pub. co.
 CG- Rule 4, Companies (Appointment and Qualifications of Directors) Rules, 2014
prescribes the following conditions:
a. Following classes of co.s to have at least 02 directors as independent directors
i. Pub. co. having paid up capital of 10 crore INR or more; or
ii. Pub. co. Having turnover of 100 crore INR or more; or
iii. Pub. co. Having aggregate of outstanding loan, debentures and deposits
exceeding 50 crore INR or more
b. More no. of independent directors may be required depending on the composition
of audit committee
c. Vacancy- to be filled up by BoD not later than immediately next Board meeting or
03 months from date of vacancy, whichever is later
CONTD.

 Who is an independent director? [S. 149 (6)]

 Selection of independent directors [S. 150]
 Appointment of independent directors
 Reappointment: report of performance evaluation

 Remuneration:
a. S. 149 (9) r.w. 197 (7) subject to S. 197- sitting fee for Board/ Committee
meetings, reimbursement of expenses for participation in Board/ Committee
meetings, profit related commission
b. not entitled to stock option

 Resignation/ Removal:
a. Same manner as stipulated in Ss. 168 & 169
b. Resignation/ removal- to be replaced within a period of note more than 180
days from date of resignation/ removal
c. Criterion of minimum no. of independent directors fulfilled- requirement of
replacement not required to be fulfilled
 Separate Meetings:
a. One meeting in a year of independent directors, without attendance of non
independent directors and members of management
b. All to strive to be present
c. Meeting to discuss the following:
i. Review performance of non independent directors and Board as a whole
ii. Review performance of Chairperson of the company, taking view of
executive and non executive directors
iii. Assess the quality, quantity and timeliness of flow of info between
company management and Board necessary for effective and reasonable
performance of duties
 Evaluation Mechanism of independent directors:
a. Entire BoD, excluding the director being evaluated
b. Report of performance evaluation to determined further course of action

 Term of office [S. 149 (10) and (11)]:

a. 05 consecutive years
b. Eligible for reappointment on spl resln and disclosure of such appointment in
Board’s report
c. Not more than 02 consecutive terms; eligible for reappointment after cessation of
03 years
d. S. 152 (provisions for retirement of directors by rotation)- not applicable to
independent directors
 Liability of independent directors [S. 149 (12)]:
a. for such acts/ omissions by company which occurred with his knowledge,
attributable through board processes, and
b. with his consent/ connivance/ didn’t act diligently

 Compliance with the Company’s Code of Conduct

I. Guidelines on Professional conduct
II. Role and functions
III. Duties
 GUIDELINES ON PROFESSIONAL CONDUCT

i. Uphold ethical standards of integrity

and probity vi. Avoid abuse of position to the
ii. Act objectively and constructively detriment of the company or its
while exercising duties shareholders for the purpose of
gaining direct or indirect personal
iii. Exercise responsibility in bona fide advantage or any associated person
manner in interest of co.
vii. Refrain from any action that would
iv. Devote sufficient time and attention lead to loss of his independence
to professional obligations for
informed and balanced decision viii. If loss of independence occurs, to
making immediately inform BoD

v. Not allow any extraneous ix. Assist co. in implementing best

considerations that will vitiate corporate governance.
objective independent judgment in
the interest of co., while concurring/
dissenting from collective judgment
of the Board in its decision making
 ROLE AND FUNCTIONS

v. Safeguard interests of all stakeholders,

i. Independent judgment- strategy, sl. Minority shareholders
performance, risk management,
resources, key appointments, vi. Balance conflict of interests of
standard of conduct stakeholders
ii. Objective view- performance of vii. Determine appropriate level of
board and management remuneration of executive directors,
KMP and senior management,
iii. Scrutinize performance of including appointment and
management in meeting agreed goals recommendation of removal
and objectives and monitor the
reporting of performance viii. Moderate and arbitrate conflicts
between management and
iv. Integrity of financial information- to shareholders
be satisfied
 DUTIES
viii. Not to obstruct ongoing Board/
i. Undertake appropriate induction and other meetings
take up refresher sessions
ix. Carefully assess RPT and ensure that
ii. Diligent information procurement they are in the interest of the co.
iii. Attendance in meetings x. Ensure that co. has efficient and
iv. If Chairman of meetings- to sufficient vigil mechanism and to
participate constructively and actively ensure people using it don’t
experience prejudice
v. Attendance in GM
xi. Report concerns of unethical
vi. Doubts reg functioning of co. or behavior, actual is suspected fraud or
actions- to ensure the same is violation of company’s code of
addressed by Board, to the extent conduct or ethics policy
not resolved- to be recorded in
minutes xii. To act within the described authority
and in the interest of co. and all
vii. To be well informed about co. and stakeholders
the market trends
xiii. Not to disclose sensitive info
 APPOINTMENT OF DIRECTORS BY
PROPORTIONAL REPRESENTATION [ S. 163]

 By it AoA, co. may appoint not less than 2/3rd of total directors acc to principle of
proportional representation by single transferable vote/ cumulative voting/
otherwise
 Such appointment to be made once in every 03 years (tenure)
 Casual vacancy: to be filled by directors [S. 161 (4)]
 Not applicable to Govt co./ subsidiary of Govt. co.
 ASSIGNMENT OF OFFICE BY DIRECTOR
[S. 166]

 Assignment of office- prohibited- if assigned, then void[ S. 166 (6)]

 Assignment of office- punishable- fine not less than 01 lakh and may extend to 05
lakh INR [S. 166 (7)]
 Provision applicable to all companies
 MINIMUM AND MAXIMUM NO. OF DIRECTORS [S.
149 (1)]

 Every co. to appoint individuals to be appointed as directors

 Min. no. of directors in pub. co.- 03
 Min. no. of directors in pvt. co.- 02
 Min. no. of directors in OPC- 01
 Max. no. of directors in any co.- 15
 If more than 15 directors- spl. resln. is reqd.
 Woman director
 WOMAN DIRECTOR
 Second proviso, S. 149 (1) r.w. Rule 2 of the Companies (Appointment &
Qualifications of Directors) Rules, 2014
 At least 01 woman director in following companies:
a. Every listed company
b. Every other public company having:
i. Paid up share capital of 100 crore INR or more; or
ii. Turnover of 300 crore INR or more
 Compliance by new companies: within 06 months from date of incorporation
 Compliance by existing companies: within 01 year from commencement of
Act
 Casual Vacancy: to be filled asap, not later than next Board Meeting or 03 months
from date of vacancy, whichever is later
 APPOINTMENT OF DIRECTORS ELECTED BY
SMALL SHAREHOLDERS [S. 151]

 Small shareholder: holding shares of nominal value of not more than 20,000 INR or
such other sum as may be prescribed
 A public listed co. may appoint 01 director elected by small shareholders
 Rule 7, the Companies (Appointment & Qualifications of Directors) Rules, 2014:
a. Notice by not less than 1000 small shareholders OR 1/10th of total no. of such
shareholders , whichever is lower- pub. listed co. may appoint director elected
by them OR co. may appoint such director suo motu.
b. Notice to be served 14 days prior to GM- details of the person proposed to
be appointed and of shareholders who are proposing the name
CONTD.

iii. Notice to be accompanied by statement by person proposed as director,

containing following info:
a. DIN
b. He is not disqualified
c. His consent.
iv. Considered as independent director-thus, to meet requirements under S. 149
v. Appointment subject to S. 152, except the following:
a. Not to retire by rotation
b. Tenure not to exceed 03 consecutive years
c. Not eligible for reappointment
vi. Person proposed to fulfill all requirements of S. 164 (disqualifications)
CONTD.

vii. Vacation from office:

a. Disqualification under S. 164
b. Vacancy under S. 167
c. Loss of independence under S. 149
viii. Person not to hold same designation in more than 02 companies at a time;
second company not to be in competing business
ix. On completion of tenure, for 03 years from then- such person not to associate
with the co. in any capacity, directly or indirectly
 APPOINTMENT OF DIRECTORS BY THIRD PARTIES
(NOMINEE DIRECTORS) S.161(3)

 Clause reg such appointment is usually mentioned in the contract OR spl.

legislations governing public financial institutions (having an overriding effect on
Companies Act, MoA, AoA)
 Other cases- such appointment valid only is authorised by Companies Act/ MoA/
AoA
 Will be categorized as Director retiring on non-rotation basis
 Liability of nominee directors- same as other directors; but the financial
institutions are exempted from any liability
 Remuneration and sitting fee: like any other director; are they required to give
it to the financial institution?
 NUMBER OF DIRECTORSHIPS [S. 165]
 Not more than 20 companies, unless members by spl. resln. fix lesser no.
 Of the 20 companies, no. of pub. co. not to exceed 10, including pvt. co. as holding or subsidiary of a
pub. co.
 Directors holding position in co.s more than the stipulation, before commencement of Act, within a
period of 01 year from commencement:
a. Choose the co.s
b. Resign from other co.s
c. Intimate choice made by him
i. To each co.
ii. To the RoC
 Resignation- effective immediately on dispatch of resignation to the co.
 No person to hold position of director beyond the stipulated no.
a. after resignation is tendered
b. After expiry of one year from commencement of this Act, whichever is earlier
 Penalty: fine not less than 5,000 INR extendable upto 25,000 INR everyday after the first during
which contravention continues
 VACATION OF OFFICE OF A DIRECTOR [S. 167]

1. Disqualifications u/S. 164;

2. Absence from meetings: all BoD meetings for 12 months with/ without seeking
leave of absence of Board;
3. Failure to disclose/ acts in contravention of S. 184 (disclosure of interest in any
co.);
4. Disqualification acc. to order of court or tribunal;
5. Conviction for offence (imprisonment not less than 06 months); office to be
vacated even if appeal is filed;
6. Removal according to the Act;
7. If appointed by virtue of his holding any office/ employment in holding/
subsidiary/ associate co.-ceases- then he has to vacate this position too
CONTD.

 Penalty: imprisonment for a term upto 01 year OR with fine not less than 01 lakh
INR upto 05 lakh, or with both
 Disqualifications of all directors: promoter or CG may appoint directors, till
appointed by shareholders in GM
 Private Co.: may, by AoA, add additional disqualifications
 REMOVAL OF DIRECTOR

Removal of Directors by Shareholders (S. 169)

 Proof of mismanagement, breach of trust, misfeasance or other misconduct- not
reqd
 Removal by ordinary resolution; resolution requiring special notice (S. 115)
 Copy of notice to be sent to such director; opportunity of being heard in GM,
whether or not a member; if representation made in writing- provision where
representation is circulated and not circulated; instances where such right to make
representation may not be given
 Following directors can’t be removed:
a. Directors appointed by Tribunal
b. Directors appointed under system of proportional representation
CONTD.

 Filling up of vacancy: by shareholders in the same meeting where director is

removed, spl. notice of intended appointment to be given, such director’s tenure to
be the remaining tenure of prev. director; if vacancy not filled in GM, Board to fill it
u/S. 161, but Board can’t appoint the removed director
 Compensation for loss of office [S. 169 (8)(a)]: compensation or damage for
termination- Exceptions u/S. 202
CONTD.

 Exceptions: Such compensation not available to director in capacity of MD, WTD or Manager; not
available on following further grounds:
a. Resignation of director on ground of reconstruction
b. Resignation of director on any other ground
c. Vacation of office of director u/S. 167 (1)
d. Winding up of company- by tribunal or voluntary, provided the winding up is a result of
negligence or fault of the director
e. Guilty of fraud, mismanagement, breach of trust, gross negligence- co./holding/subsidiary co.
f. Director himself instigates removal, directly or indirectly
g. Winding up commences before or anytime within 12 months after removal- assets insufficient
to repay the shareholders
 Amount of compensation [S. 202(3)]: not to exceed remuneration which he would have earned
for remaining tenure or 03 years whichever is shorter on the basis of average remuneration actually
earned by him in 03 years preceding his removal/ such shorter period
CONTD.

Removal by Tribunal (S. 242)

 Application u/S. 241- oppression and mismanagement- such director not entitled for
compensation for loss of office [S. 243 (a)]; not eligible to be appointed as Manager/
MD/ director of the co., without leave of tribunal for 05 years from date of order [S.
243 (b)]- tribunal not to grant leave unless CG has been given an opportunity to be
heard in the matter
 Penalty: imprisonment which may extend to 06 months OR fine upto 05 lakh or
both
 RESIGNATION BY A DIRECTOR

 No direct provisions; may be deduced from S. 169 (no compensation on

resignation)
 Usually AoA provides for resignation- written notice to co.; if AoA silent on
resignation, director may still resign, if not forbidden by AoA
 Resignation to be addressed to the company and not third party
 Office vacated on the date BoD receives communication
 Tenure of fixed duration- damages will have to be paid by director for the
premature retirement
 Withdrawal of resignation- not except with the consent of the Board; if resignation
only with consent of Board- resignation may be withdrawn before Board consents
 POWERS OF BOD

 General powers (S. 179): subject to provisions of the Act, Board entitled to do
everything as company is authorised to do- subject to Act, MoA, AoA, Regulations
(Regulations can’t have retrospective effect to invalidate acts of Directors)
 Powers required to be exercised in GM by Act, MoA, AoA- may not be exercised
generally
CONTD.

 Right of shareholders to intervene?

 Exceptions:
1. Directors acting mala fide
2. Directors themselves wrongdoers
3. Incompetence of the Board
4. Deadlock in management

 Powers of individual directors: do not have any general powers, collective

power u/S. 179
 CONTD.

 Mode/ manner of exercise of power [S. 179 (3)]: following powers to be exercised by Board by
means of resolutions passed at meetings:
a. Make calls for unpaid amount on shares;
b. Authorize buy back of securities u/ S. 68;
c. Issue securities, including debentures, whether in/ outside India;
d. Borrow monies [excludes deposit received by banking company in ordinary course of business-
Proviso];
e. Invest funds of co. [subject to Ss. 180 & 186];
f. Grant loans/ give guarantee/ provide security in respect of loans;
g. Approve financial statement and Board’s report;
h. Diversify business of co.;
i. Approve amalgamation, merger or reconstruction;
j. Take over a company/ acquire controlling or substantial stake in another co.;
k. Any other matter which may be prescribed
 Delegation of Powers: only the ones mentioned under (d), (e) and (f)
 Restrictions on Powers [S. 179 (4)]
CONTD.
 Other powers:
1. Power to fill casual vacancies in Board [S. 161]
2. Sanctioning of a contract in which director is interested [S. 188]
3. Power to recommend rate of dividend to be declared by co. at AGM, subject to
approval by shareholders
4. Power to make political contribution [S. 182]
5. Power to appoint MD/ Manager holding either office in another company [S.
203]
6. Power to give loan to or invest in any shares of nay body corporate [S. 186]
7. Power to enter into a contract or arrangement with a related party [S. 188]
8. Power to appoint or remove KMP [The Companies (Meetings of Board and its
Powers) Rules, 2014]
9. Power to appoint internal auditors and secretarial auditor [The Companies
(Meetings of Board and its Powers) Rules, 2014]
 RESTRICTIONS ON POWERS OF BOD [S. 180]

 Following powers can’t be exercised without consent of shareholders by spl. resln.:

a. sell, lease, otherwise dispose of the whole, substantially the whole, or where co.
owns more than one undertaking, of the whole or substantially whole of any such
undertaking- conditions may be stipulated in resolution, including usage of proceeds;
not applicable to co. which in ordinary course of business sells/ leases; title buyer
who buys property in good faith is not affected;
b. invest otherwise in trust securities the amount of compensation received by it as a
result of any merger or amalgamation;
c. to borrow money, where the money to be borrowed, together with the money
already borrowed by the company will exceed aggregate of its paid-up share capital
and free reserves, apart from temporary loans obtained from the company’s bankers
in the ordinary course of business; to exclude banking companies (diff. between
trading and non trading co.);
d. remit, or give time for the repayment of, any debt due from a director.
CONTD.

 Temporary loans:
a. Loans payable on demand or within 06 months (short term loan, cash credit
arrangements, discounting of bills)
b. Loans of seasonal character
Note: excludes loans for capital expenditure
 Borrowing by company in excess of limit: invalid and ineffective, unless
creditor proves that loan was advanced in good faith and wasn’t aware that limit had
been exceeded [S. 180 (5)]
 Contribution to bona fide charitable funds [S. 181]: aggregate in a year not to
exceed 5% of avg. net profits for 03 years preceding the financial year; beyond this
approval of shareholders in GM reqd. by ordinary resln.
 POLITICAL CONTRIBUTIONS [S. 182]

 General meaning: Payment without consideration

 Political contribution includes:
a. A donation/ subscription/ payment by or on behalf of co. to political party/
person canvassing for a political party
b. Expenditure incurred in direct/ indirect expenditure by co. on advertisement in
any publication (souvenir, pamphlet, brochure) by or on behalf of political party
or for its advantage.
CONTD.

 Following companies not allowed to make political contributions:

a. Govt. co.
b. Co. in existence for less than 03 financial years.
 Other co. may make contribution subject to following conditions:
a. amount/ aggregate of amount in a financial year not to exceed 7 ½ % of
avg. net profits during 03 immediately preceding financial years;
b. Prior to contribution, BoD resln. reqd. authorising contribution;
c. Disclosure in profit and loss account reg. total amount contributed and
name of the party (not necessarily for a person unlike Companies Act,
1956) to whom contributed.
 Penalty: co. punishable with fine upto 05 times amount contributed and
every offr in default punishable with imprisonment up to 06 months and
fine up to 05 times the amount contributed
 RELATED PARTY TRANSACTIONS [S. 188]
 Definition of related party [S. 2 (76) r.w. Rule 3 of the Companies (Specification of definitions details)
Rules, 2014]: related party with reference to a company means
i. a director or his relative;
ii. a key managerial personnel or his relative;
iii. a firm, in which a director, manager or his relative is a partner;
iv. a private company in which a director or manager or his relative is a member or director;
v. a public company in which a director or manager is a director and holds along with his relatives, more than
two per cent of its paid-up share capital;
vi. any body corporate whose Board of Directors, managing director or manager is accustomed to act in
accordance with the advice, directions or instructions of a director or manager;
vii. any person on whose advice, directions or instructions a director or manager is accustomed to act:
that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a
professional capacity;
viii. any company which is—
A. a holding, subsidiary or an associate company of such company; or
B. a subsidiary of a holding company to which it is also a subsidiary;
ix. such other person as may be prescribed.
CONTD.

 Definition of relative [S. 2 (77) r.w. Rule 4 of the

Companies (Specification of definitions details) Rules, 2014]: wrt any
person, means anyone who is related to another if-
i. They are members of a Hindu Undivided Family;
ii. They are husband and wife; or
iii. One person is related to another as father (including step father), mother
(including step mother) or son (including step son), daughter (including step
daughter), daughter in law, son in law, brother (including step brother), sister
(including step sister).
CONTD.

 Restrictions under S. 188:

a. Requirement of consent of board and Rule 15 of the Companies (Meetings of Board and its
Powers) Rules, 2014- or else company shall not enter into any contract or arrangement with a
RP wrt:
i. Sale, purchase or supply of any goods or materials;
ii. Selling or otherwise disposing of, or buying, property of any kind;
iii. Leasing of property of any kind;
iv. Availing or rendering of any services;
v. Appointment of any agent for purchase or sale of goods, materials, services or property;
vi. Such RP’s appointment to any office or place of profit [Explanation (a) of S. 188] in the
company, its subsidiary, or associate company; and
vii. Underwriting the subscription of any securities or derivatives thereof, of the co. [ ordinary
resolution of shareholders in GM required in certain co.s where RP doesn’t vote].
 Contracts entered into in ordinary course of business shall not be affected by S. 188-
exception- arm’s length transactions [Explanation (b)]
CONTD.

b. Contract/ arrangement to be referred to in Board’s report along with justification for

entering into it;
c. Contract/ arrangement entered into by director/ employee, without consent of Board or
Ordinary resolution- later not ratified by Board/ shareholders within 03 months from date
of contract/ arrangement- contract/ arrangement voidable at the option of the Board-
contract/ arrangement with RP to any director/ authorised by any other director, such
director to indemnify the co. against the loss;
d. Co. may proceed against director/ employee who entered into such contract/ arrangement
in contravention of S. 188 for recovery of any loss sustained by it as a result of such
contract/ arrangement;
e. Director/ employee who entered into contract/ arrangement in contravention of S. 188
shall:
i. Listed co.: punishable with imprisonment- upto 01 yr OR fine not less than 25,000/-
INR, extendable upto 05 lakh INR, or with both; and
ii. Any otr. co.: punishable with fine not less than 25,000/- INR, extendable upto 05 lakh
INR.
 INTERESTED DIRECTOR

 Disclosure by a director to the Board wrt transactions in which he is interested [S.

184]
 First meeting as a director/ first meeting of Board in every financial year/ any change
in disclosures, first Board meeting after such change- disclose his concern/interest in
any co./ co.s/ body corporate/ firms/ other association of individuals
 Disclosure to disclose shareholding and to made in prescribed manner
CONTD.

 Disclosure of nature of concern/ interest at the BoD meeting in which the

contract/ arrangement is discussed- - Director- directly/ indirectly, concerned/
interested in a contract/ arrangement or proposed contract/ arrangement entered
into or to be entered into:
a. With a body corporate in which such director/ such director in association
with any other director holds more than 2% shareholding of that body
corporate, or is a promoter, manager, CEO of that body corporate; or
b. With a firm or other entity in which such director is a partner, owner or
member, as the case may be
Such director shall not participate in the meeting
CONTD.

 Director- not interested at the time of making contract/ arrangement- if interested

after entered into- disclosure to be made at the first meeting after such change
 Non- disclosure/ participation in meeting- renders contract voidable, not void [S.
184 (3)]
 Penalty: punishment with imprisonment for a term extendable upto 01 year OR
with fine not less than 50,000 INR extendable upto 01 lakh, OR with both
 Exception- S. 184 doesn’t apply to contract/ arrangement entered into or to be
entered into between 02 companies, where any directors of the one or 02 more
directors together hold/ holds not more than2% of the paid up share capital in the
otr. co.
 DUTIES OF DIRECTORS-
STATUTORY DUTIES AND GENERAL DUTIES

 Statutory Duties:
a. To file returns of allotments [S. 39 (4)]: within 30 days; failure- penalty- 1,000 INR
every day or 01 lakh, whichever is less
b. Duties under S. 166:
i. Subject to provisions of this Act, to act in accordance with AoA;
ii. To act in good faith and in the interest of the co. & others;
iii. To exercise duty with due and reasonable care, skill, diligence, independent
judgment;
iv. To avoid situation leading to conflict of interest- direct or indirect;
v. To avoid achieving/ attempting any undue gain/ advantage to himself/ relative/
partners/ associates; if found guilty to pay amount to co. equal to that gain;
vi. To avoid assigning office, if assigned- void
CONTD.
c. To disclose interest [S. 184]
d. To disclose receipt from transfer of property [S. 191]: disclosure and approval in GM, or
amount to be held in trust for co., includes money received as compensation for loss of
office or consideration for retirement, excludes such compensation/ consideration given
to MD/ WTD ; contravention- fine- not less than 25k INR extendable upto 01 lakh INR;
e. Duty to attend Board meetings [S. 167 (1) (b)]: absence from all meetings during a
period of 12 months with or without seeking leave of absence of the board, office to fall
vacant automatically;
f. To convene AGM and EGM [Ss. 96 & 100];
g. To prepare and place financial statements, auditors’ report, BoD report at the AGM [S.
134];
h. To authenticate annual financial statements [S. 134];
i. To appoint first auditor of the co. [S. 139];
j. To appoint cost auditor of the co. [S. 148];
k. To make a declaration of solvency in case of voluntary winding up [S. 307].
CONTD.

 General Duties:
a. Duty of good faith: should not make secret profits
b. Duty of care: doesn’t imply extra ordinary care; S. 463 (power of court to grant
relief in certain cases of negligence, misfeasance, default, breach of duty, breach
of trust
c. Duty not to delegate: except where Companies Act or AoA provides for it and
to other officials in case of any exigency
 LIABILITIES OF A DIRECTOR

1. Liability to the company: breach of fiduciary duty, ultra vires acts, negligence, mala
fide acts, misfeasance
2. Liability to the third parties:
a. Liability under Companies Act: Prospectus, (Ss. 26, 35) allotment (S. 39-
minimum application money), fraudulent conduct of business (personal liability
for debts or liabilities under Tribunal’s order u/ S. 339 at the time of winding up;
may also be punished under S. 447 for knowingly being a party to it)
b. Liability for breach of authority: personal liability for loss caused to third parties
3. Liabilities for breach of statutory duties
4. Liability for acts of co-directors
5. Criminal liability
 LOANS TO DIRECTORS (S. 185)

 Except according to provisions of Companies Act, a company is prohibited from directly/

indirectly advance any loan (including loan represented by book debt) to any of its
directors/ other persons in whom the director is interested in or give guarantee OR
provide security in connection to loan taken by him or such other person
 Exemption (MCA notification dated 05.06.2015):
1. Private company
a. In whose share capital no other body corporate has invested any money;
b. If borrowings of such co. from Banks/ Financial instns./ body corporate is less
than twice its paid capital or 50 cr INR, whichever is lower; and
c. Such co. is not in default in repayment of such borrowings outstanding at the
time of transaction under S. 185.
2. Government company: on approval of MCA or Dept. of CG/ SG which is
administratively in charge of co. before any transaction u/ S. 185
CONTD.

 “Person in whom the director is interested”:

a. Any director of lending co., or its holding co. or any partner/ relative of any
such director;
b. Any firm where director/ his relative is a partner;
c. Private co. of which such director is a director/ member;
d. Body corporate at a GM of which not less than 25% of total voting power may
be exercised/ controlled by any such director, or by two or more such
directors, together; or
e. Body corporate- BoD, MD, or Manager is accustomed to act in accordance
with directions/ instructions of the BoD/ any director/ directors, of lending co.
CONTD.

 Exceptions to S. 185:
a. Loan to MD or WTD- as a part of conditions of service extended by co. to all its
employees or pursuant to a scheme approved by members by spl. resln.; or
b. Giving loan/ guarantee/ securities for due repayment provided that lending co.
charges interest at a rate not less than bank rate declared by RBI;
c. Loan/ guarantee/ securities by holding co. to its wholly owned subsidiary co. [loan to
be used by subsidiary for its principal business activities- Companies (Amendment)
Act, 2015];
d. Guarantee/ security provided by holding co. wrt loan by bank/ fin. instn. To its
subsidiary co. [loan to be used by subsidiary for its principal business activities-
Companies (Amendment) Act, 2015].
 Penalty: co.- fine not less than 05 lac INR extendable up to 25 lac INR; director-
imprisonment up to 06 months OR with fine not less than 05 lac INR, extendable up to
25 lakh, OR both
 REMUNERATION OF DIRECTORS
(MANAGERIAL REMUNERATION)
 Significance of the term managerial personnel and managerial remuneration
 Section 197: not applicable to Government co. (vide notification in 2015)
 Managerial personnel- deciphered by S. 197- director, including MD or WTD and Manager;
does not include GM/ Functional Manager etc
 Managerial remuneration- monthly payments- salary/ specified % of net profits/
commission and/ or by sitting fee; partly by one way and partly by other [S. 197 (5) &(6)]; Rule
4, Companies (Appointment and Remuneration of Managerial Personnel), Rules 2014: sitting
fee not to exceed 01 lakh INR per meeting of Board/ Committee; sitting fee of all directors to
be same including independent and woman director
 Definition [S. 2 (78)]: remuneration means any money or its equivalent given or passed to
any person for services rendered by him and includes perquisites as defined under the Income
Tax Act, 1961.; Explanation B, Schedule V- remuneration to also include reimbursement of any
direct taxes to managerial personnel
 Exception [S. 197 (3)]: insurance taken by co. on behalf of MD/ WTD/ Manager/ CEO/
CFO/ CS for indemnifying them against liability wrt negligence/ default/ misfeasance/ breach of
duty or trust- premium paid on such insurance not to qualify as remuneration; but, if person
proved guilty, premium paid on insurance to be treated as insurance
CONTD.

 Overall limits to managerial remuneration [S. 197 (1)]: total remuneration

payable by pub. co. to its directors, including MD & WTD and Manager in any fin. yr.
not to exceed 11% of net profits of the company for a financial year (calculated as
per S. 198, remuneration of directors not to be excluded from gross profits of the
co.); 11% to exclude sitting fee; may be exceeded beyond 11% with approval of
CG and subject to Schedule V
 Determination of managerial remuneration [S. 197 (4)]: subject to S. 197,
by AoA/ resolution/ AoA requires by spl. resln. in GM; remuneration paid to be
inclusive of remuneration payable to him for services rendered by him in any other
capacity- to exclude professional capacity and if in opinion of Nomination and
Remuneration Committee (S. 178)/ BoD, the director possesses the requisite
qualification for the practice of the profession
CONTD.

 Individual Ceiling on Managerial Remuneration [Second proviso, S. 197 (1)]:

a. Remuneration payable to any one MD/ WTD/ Manager- not to exceed 5% of net
profits of co.; if more than one such director- remuneration not to exceed 10% of
net profits to all such directors and managers taken together;
b. Remuneration payable to directors who are neither MD/ WTD- not to exceed- 1%
of net profits of co. (if co. has MD/ WTD/ Manager) OR 3% of net profits in any
other case.
 Ceiling may be increased- approval in GM
 Remuneration payable to an independent director: sitting fee, (same as other
directors, not to exceed 01 lakh per Board/ Committee meeting) reimbursement of
expenses for meetings, profit related commission; not entitled to stock option [S. 197
(7)]
 Refund of excess remuneration: until then hold in trust for co. [S. 197 (9)]; such
recovery not to be waived unless permitted by CG [S. 197 (10)]
CONTD.

 Additional Remuneration [S. 197 (14)]: from holding or subsidiary company (except
director receiving remuneration as salary), subject to disclosure made in board
report
 Private companies: S. 197 (1) not applicable to private company
 MD AND KMP

 Meaning of MD [S. 2(54)]: director, who by virtue of the AoA/ agreement with company/
resolution passed in GM or BoD- entrusted with substantial powers of management of
affairs of co. and includes director occupying the position of MD, by whatever name
called
 Powers exercised under superintendence, control and direction of BoD; doesn’t exercise
powers except as a part of the Board
 Whether an employee? Employee State Insurance Corporation v. Apex Engineering (P.) Ltd.
[1988] 1 CLJ 10 (SC)
 Meaning of KMP [S. 2(51)]:
a. CEO/ MD/ Manager;
b. CS;
c. WTD;
d. CFO; and
e. Such other officer as may be prescribed.
CONTD.

 Appointment of MD
 S. 2 (54)- 04 ways
 Mandatory appointment [S. 203 r.w. Rule 8 of the Companies
(Appointment and Remuneration of Managerial Personnel) Rules, 2014]:
every listed company and every pub. co. having paid up capital of 10 crore or more
to have following whole time KMP:
a. MD/ CEO/ Manager and in their absence a WTD;
b. CS; and
c. CFO.
 Limitation in appointment of Chairperson as well as MD/ CEO: at the same
time on commencement of this Act- unless AoA provides for it OR co. doesn’t carry
multiple businesses; CG may by notification permit CEO-cum-Chairman/ MD-cum-
Chairman in co. having multiple business which has appointed CEO for each
business
CONTD.

 Either MD or Manager to be appointed by one co. at a time [S. 196 (1)]

 Appointment of whole time KMP- Board resolution including T&C and
remuneration [S. 203 (2)]
 Appointment of MD/ WTD/ Manager: T&C and remuneration- approved by BoD,
subject to approval by GM and CG [S. 196 (4)]
 Filing of return regarding appointment- to be filed with RoC within 30 days of
appointment
 Non- approval of appointment of MD/ Manager/ WTD: act done prior- not
to be deemed invalid [S. 196 (5)]; circumstances where approval is not required
CONTD.

 No. of companies of which one person may be appointed MD/ KMP [S. 203 (3)]
 Whole time KMP not to hold office in more than 01 company, except in subsidiary
at the same time
 Not disentitled from being a director of any company with permission of Board
 Whole time KMP holding office in more than 01 company- within 06 months of
commencement of Act, reqd. to choose one co.
 Appointment of MD of 2 companies: unanimous resolution of the Board
 Filling of vacancy [S. 203 (4)]: by BoD, within 06 months from date of vacancy
 Tenure of appointment [S. 196 (2)]: not for a term exceeding 05 years at a time; no
reappointment earlier than one year before expiry of term
 Remuneration
 Disqualification [S. 196 (3)]: age, undischarged insolvent, suspension in payment to
creditors or composition with them, conviction and sentenced for more than 06 months,
r.w. S. 164 and Schedule V
CONTD.

 Appointment of Manager
 Meaning (S. 2 (53): Individual, whole or substantial whole of management of
company, includes a director or any other person occupying the position of a
manager, by whatever name called and whether under a contract of service or not
 Disqualifications: same as MD
 Number of companies a person can be appointed a manager: same as MD
 Remuneration
 Prohibition of simultaneous appointment of different categories of KMP
(S. 196): of manager and MD, others permitted
 Difference between MD and manager
 Whole time Director [S. 2 (94)]: includes a director in whole time employment of
the company; all other provisions governing MD applicable to WTD too
THANK
YOU!