Chapter :-5

DIRECTOR

Meaning of Director as per the Companies Act, 1956

• A company is a legal entity and does not have any physical existence. It can act only through natural persons to run its affairs. The person, acting on its behalf, is called Director. A Director is any person, occupying the position of Director, by whatever name called. They are professional men, hired by the company to direct its affairs. But, they are not the servants of the company. They are rather the officers of the company.

Who can be a Director

• Section 253 of the companies act provides that no body corporate, association or firm can be appointed as the director of a company .only an individual can be appointed as director

Qualification of Directors

• The companies act has not prescribed any academic or professional qualifications for the directors .

• As per 66 of table A, a director must hold at least one share in the company .where a share qualification is fixed by the articles of the public company which is a subsidiary of a public company .section 270 provides that

• Each directors must acquire the qualification shares within two months after his appointment

• The nominal value of the qualification shares must not exceed 5000

• Shares warrants will not count for the purpose of share qualification

• In case of a joint shareholding only one of the shareholders can be said to possess share qualification expert where the articles provide other wise

• In the general meeting of X Ltd.held on 2 may 2000.Mr.A was appointed as a director. On that day he was not holding any equity shares in X Ltd . As per the articles of association of Ltd , the shares qualification is the holding of 500 equity shares . On 15 June 2000, M. A applied for 1000 equity shares were allotted on 10july 2000 Mr. A claims that he was holding the qualification shares with the time specified in companies Act . Discuss the validity

Disqualification of the Director – Section 274

• A person found to be of unsound mind by a Court of competent jurisdiction and the finding is in force

• An undischarged insolvent• A person who has applied to be adjudicated as an

insolvent and his application is pending• A person who has been convicted by a Court of any

offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months, and a period of five years has not elapsed from the date of expiry of the sentence

• A person who has not paid any call in respect of shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call

POSSITION OF A DIRECTOR• DIRECTOR AS AGENT: A company is an artificial person acts through its

directors. In the eye of law they are the agents. However they have certain independent powers and they need not consult the shareholders on all maters. Directors are NOT personally liable as agents provided they act within the scope of their authority and do NOT make contracts in personal names.

• PERSONAL LIABLITY: Companies contract made in their personal name, co. name used incorrectly, when they exceed their powers.

• DIRECTORS AS EMPLOYEES: They are not employees or servants of the co. However if they enter into a contract of service they can be treated as employees.

• Directors as officers: They can be treated as officers and are liable to certain penalties if the provisions of the Act is not complied with.

• DIRECTORS AS TRUSTEES: They are the trustees of Companies money & property. They are the trustees for the powers entrusted to them. We can say that they are quasi trustees only as they are not the owners and their functions and duties are not of trustees. TRUE POSITION IS THAT OF A FIDUCIARY RELATIONSHIP.

Appointment of Directors

1.Appointment of First directors – by the articles of association

2.Appointment at General Meeting 3.Appointment by Third Parties4.Appointment by Central government5.Appointment by the Board of Directors

1.Appointment of First directors – by the articles of association

• “First directors” mean those directors who hold office from the date of incorporation of the company. The first directors are usually named in the articles of association or are appointed by the directors

2.Appointment at General Meeting2/3 rds of the total number of directors shall be liable to

retire by rotation and out of this 1/3rd shall retire at every AGM. They are eligible for reappointment. 1/3 of the directors can be permanent directors. If new directors are to be appointed: 14 days notice in writing, Rs.500 deposit and consent to act as director to be given by them. The Co. to inform its members at least 7 days before meeting. Separate and ordinary resolution to be passed for each appointment. When a director who has to retire by rotation at the AGM and if NO AGM is held, he CANNOT continue in the office after the last day on which AGM should have been held.

In (P) Ltd Co. directors need NOT retire by rotation.

3.Appointment by Third Parties

• AOA may permit some times appointment of directors by Banks, Financial Institutions etc..

4.Appointment by Central government

• If deem fit in public interest the CG may appoint directors. They need not have qualification shares and need not retire by rotation.

• In (P) Ltd Co. directors can be appointed only in general meetings

Appointment by the Board of Directors

• As an additional director u/s 260• To fill a casual vacancy u/s 262• As an alternate director u/s 313

• ADDITIONAL DIRECTORS : Shall hold the office up to next AGM. If AGM is NOT held with in the time limit, director to vacate on the due date of AGM. CASUAL VACANCY : If a director vacates before the his term expires, the Board can fill the vacancy – to hold office only up to the date up to which the originally appointed can hold office. ALTERNATE DIRECTOR : To act as director in the place of a director during his absence for a period of at least 3 months.

Minimum and Maximum number of Directors

• Every public company must have at least three directors

• Private limited company should have minimum of two directors

Removal of Director

• Removal by the shareholders• Removal by the central government • Removal by the company law board

Remuneration: Director:1% of Net Profits3% of Net Profits if no MD

Managing Director:5% of Net Profits10% in case of 2 MDs

* Maximum remuneration should not exceed 11% of Net Profit

Managing Director

• Managing Director means a director who by virtue of an agreement with the company , or of a resolution passed by the company in general meeting or by its Board of Directors , or by the virtue of its memorandum or articles of association , is entrusted with substantial powers of management which would not otherwise be exercisable by him.

A managing director may be appointed in any of the following ways

• by agreement with the company;• by a resolution passed by the company in

general meeting;• by a resolution passed by the Board of

Directors;• by memorandum of associations;• by articles of association

Appointment of managing director or whole-time director: u/s 269, 268 & 317• On and from 5.06.1988, every public company, or a

private company which is a subsidiary of a public company, having paid-up share capital of rupees five crores more, shall have a managing or whole-time director

• Every application seeking approval to the appointment of a managing or whole-time director or a manager shall be made to the Central Government within a period of ninety days from the date of such appointment.

Disqualification of a managing director

• No company shall appoint or employ or continue the appointment of any person as a managing or whole-time director who:is an undischarged insolvent, or has at any time been adjudged an insolent;

• suspends or has at any time suspended payment to his creditors, or makes, or has at any time made a composition with them; or

• is or has at any time been convicted by Court of an offence involving moral turpitude