This article has been written by Mr. Abhishek Sinha
INTRODUCTION- Role of Director
A company’s management and affairs are overseen by the Board of Directors, which has supreme executive authority. In a company, majority shareholders at their wish can appoint a director during the incorporation of the company. Notice to the Board members can be used to call an Annual General Meeting if the shareholders wish to change the director expressing their opinion. Under the Companies Act, 2013, the MoA and AoA of the company, Directors are allowed to enforce their powers.
There is no exhaustive definition given in the Companies Act, 2013. As per Section 2 (34) of the Companies Act, 2013 – a “Director” is one who has been appointed to the Board of Directors. He is the individual who is assigned to carry out the responsibilities and functions of a company’s director in accordance with the Companies Act of 2013.
Lord Reid in the case of Tesco Supermarkets Ltd. v. Nattraso[1] held that “A living person has a mind which can have knowledge or intention and he has hands to carry out his intention. A corporation has none of these it must act through living persons.” As per the Supreme Court, it is important to appoint an individual as a director in the company as the director’s office is the office of trust and if someone fails to carry out this trust then someone should be held responsible.[2] Section 149 of the Companies Act, 2013 states that the Board of Directors shall consist of individuals as directors. Lord Bowen held that the Board of Directors are the brain of the company and the company does act only through them. [3]
To learn more about the Companies Act and the roles of a Director, explore the Certificate course in Understanding Companies Act, 2013.
WHAT ARE THE ROLES OF DIRECTOR?
As a member of the Board of Directors, he is in charge of the company’s management, supervision, and direction. Directors are said to be the agents of the company, officers of the company and also trustees of the company. Professional men are hired by the company to direct the affairs of the organisation still they are not called the servant of the company.[4] But through a separate service agreement, a director can offer his professional services to the company as a sole employee and sole director.[5] Regarding the position or role of directors in the company, there is mere silence in the Companies Act, 2013. As per Bowen LJ, “Directors are called as agents, MD or trustees. But these expressions are used as indicating useful points of view through which they may for that particular period and the particular purpose is considered instead of using it as exhaustive of their powers and responsibilities.”[6]
I. As Employee
If the Board of Directors appoints and the company’s shareholders approve any full-time director who manages the company’s day-to-day operations as an employee.
In the outline of the employment letter issued by the BoD, all the directors make go an organization.
II. As Officer
- High Court of Calcutta held that “Certain officials of the company should be treated as organs of the company so that for actions of that particular official company can be held liable just as a natural person is for the action of his limbs.”[7] The absence of the director can paralyze the company.
As per section 2 (59) of the Companies Act, 2013, the director is treated as an officer of the company on whose directions other directors or Board of Directors are accustomed to act. As per section 2 (60) of the Companies Act, 2013, the director is considered an “officer in default” and he is even punished as an officer in default for non-compliance with provisions.
III. As Agents of the Company
- As per the Observation of Lord Cairns who believed that Public Company Directors are the agents of the Company. The Company and Directors have a relation of Principal and Agent.[8]”
In an Agency a person is bound to form, Perpetuate a relationship of Principal with third parties, the role and powers they get from Memorandum and Articles of the Company, if their activities are outside the criteria given under MOA and AOA, it is beyond legal Power.
IV. As Trustee of the Company
- Based on an analogy Lindley LJ observed that Director is always considered and treated as trustees of the company as they have control of the company and they have been held liable to make good amounts of money since the invention of joint-stock companies.
They are considered the custodian of the assets of the company and are responsible to use the assets in the best interest of the company, as a trustee of the company. They would be held liable if they misuse or divert the assets in their vested interests.
To learn more about the Companies Act, explore the Certificate course in Understanding Companies Act, 2013.
DUTIES OF DIRECTORS AS PER LEGAL PROVISIONS UNDER THE COMPANY ACT, 2013
The Companies Act of 2013 categorises the duties and responsibilities of directors into two categories: —
[i] The responsibilities and liabilities that uplift and advance the investment of directors’ work bring good corporate governance, good management, and making fully-fledged and shrewd decisions to avoid unnecessary risks to the company.
[ii] Fiduciary duties guarantee and ensure that the directors of companies always protect and secure the interests of the company and its stakeholders, above their self-interests.
The duties of a director were not expressed in the 1956 Act, however, they are specifically stated in Section 166 of the Companies Act, 2013[9].
SECTION 166 of the companies Act, 2013 lay down the following Duties of the Directors of a Company
Directors of Company are bound to do the following Duties given Under Section 166 of the Companies Act, 2013
- Activities of the Director shall always be in accordance with the AoA[10].
- Director shall perform in good faith in order to uplift the objects of the organisation, for the profit of shareholders and for the well-being of the organization[11].
- He shall follow his duties with proper care and exercises independent judgment[12].
- He shall not perform any act which give rise to conflicts.
- Director shall be held liable to pay an equal amount to the gain if he found to be gaining any undue advantage[13].
ROLE OF DIRECTORS DURING THE PANDEMIC
Pandemic has affected most of the big companies and due to this, they have also suspended their work for the time being. As cases are reducing these days but still due to mass gathering companies are not able to work at full capacity. So here the role of directors during the pandemic is that he needs to take certain steps for the survival of the organization in this pandemic. Primary considerations of the directors are:
I. Procuring the shareholder’s interest
- As shareholders always look to have transparency and honesty from the companies’ end. The company shall inform the respective shareholders about the crisis plan which they are going to use to tackle the challenges caused due to covid-19. And directors should pay dividends to the shareholders if the company has a good amount of cash reserves. Director shall inform the current situation of the organisation.
II. Health and safety of employees
- Directors shall emphasize the safety and health of their workers, employees and suppliers. It’s their basic responsibility to build a safe environment during the lockdown. Work from Home should be allowed during the pandemic and in extreme cases, they shall be called to offices and factories. Director shall comply with the government circulars and advisories. To prevent data breaches or losses there shall be proper data security measures.
III. Avoid conflicts of interest
- The director shall avoid any personal interest while taking the decision for the company and he shall also not engage himself in an act which can give rise to a conflict of interest. All relevant information shall be disclosed by the director to the board as failing to do this can be a reason for dispute with shareholders and which can result in damage to long terms prospects.
IV. Independent decisions shall be made
- Director shall act in good faith to promote the long interest of the company. He should avoid making decisions which can affect the company in long run.
CONCLUSION
The Directors of the Company play a crucial role in the Company, They play an essential part in managing and directing the course of the Company.
The company’s main motive is to run in a successful manner, to hand over the management of the Company in the hand of a responsible person. In this regard Company has a Board of Directors who runs the Company with the greatest responsibility, if the Director’s action causes mismanagement in the Company then the Director is liable to the company for reimbursement of the loss.
To learn more about the Companies Act, explore the Certificate course in Understanding Companies Act, 2013.
[1] [1977] AC 153 at 170.
[2] Oriental Metal Pressing Works P. Ltd. v B. K. Thakoor, [1961] 31 Comp Cas 143.
[3] Bath v Standard Land Co.
[4] Moriarty v Regent’s Garage and Engg. Co., [1921] 1 KB 423.
[5] Lee v. Lee’s Air Farming Ltd., [1961] AC 12.
[6] Imperial Hydropathic Co. v. Hampson, [1882] 23 Ch. D. 1.
[7] Gopal Khaitan v State, AIR 1969 Cal 132.
[8] Ferguson v Wilson, [1886] LR 2 Ch 77.
[9] Section 166, Companies Act, 2013.
[10] Section 166(1), Companies Act, 2013.
[11] Section 166(2), Companies Act, 2013.
[12] Section 166(3), Companies Act, 2013.
[13] Section 166(4), Companies Act, 2013.