CS LLM Arjun Chhabra

(Law Maven)
Mo: 62 62 62 143 8 / 9552 52 143 8

What’s App/Call: 62 62 62 143 8 / 9552 52 143 8

www.arjunchhabratutorial.com

CS LLM Arjun Chhabra

(Law Maven)
Mo: 62 62 62 143 8 / 9552 52 143 8
 CS LLM Arjun Chhabra
(Law Maven)
Mo: 62 62 62 143 8 / 9552 52 143 8

CMA Inter Business Laws and Ethics June 24 – Marathon

Schedule
Starting from 1st May 2024

Schedule & Details of Marathon – Free Live Stream on

YouTube
Date Time Lecture YouTube Link
st
1 May 2024 04: 00 PM The Indian Contract Act, 1872 https://youtube.com/liv
(Unit 1 to 3) e/3MlfFu91Yjs?feature=
share
2nd May 2024 04: 00 PM The Indian Contract Act, 1872 https://youtube.com/liv
(Unit 4 to 6) e/rRrjcxmnZwU?feature
=share
3rd May 2024 04: 00 PM The Indian Contract Act, 1872 https://youtube.com/liv
(Unit 7 to 9) e/usY6ysQNHK8?feature
=share
4th May 2024 04: 00 PM The Sale of Goods Act, 1930 https://youtube.com/liv
e/zuRe8kwuRFs?feature
=share
5th May 2024 04: 00 PM The Indian Partnership Act, 1932 https://youtube.com/liv
e/6Kh1pYymTFY?feature
=share
6th May 2024 04: 00 PM The Companies Act, 2013 and LLP https://youtube.com/liv
Act, 2008 e/qa_U8l7g5fs?feature=
share
7th May 2024 04: 00 PM The Negotiable Instruments Act, https://youtube.com/liv
1881 and Indian Regulatory e/O3Zpm5xy2vc?feature
Framework =share
16th May 04: 00 PM Director https://youtube.com/liv
2024 e/SXCLiE-
73Ls?feature=share
17th May 04: 00 PM Industrial Law https://youtube.com/liv
2024 e/Y2MZ6ta7ogI?feature
=share
Corporate Law Playlist https://youtube.com/pl
aylist?list=PLaUTqfiLWyK
TMR9hC-
CS LLM Arjun Chhabra
(Law Maven)
Mo: 62 62 62 143 8 / 9552 52 143 8
 CS LLM Arjun Chhabra
(Law Maven)
Mo: 62 62 62 143 8 / 9552 52 143 8

hp81TZNAejhRlnq&si=lO
wqmG8ZB_t8QfkB
Ethics https://youtube.com/pl
aylist?list=PLaUTqfiLWyK
TmJvbS2JMSrfcZhaUlEkL
b&si=i22S1zZSv0DhqjYN
Notes of Corporate Law:
Telegram Channel name: ACT-Arjun Chhabra Tutorial
Telegram Channel Link : https://t.me/ACTArjunChhabraTutorial
Arjun Chhabra Tutorial’s Gallery
1. FULL VLOG | CA INTER MAY 24 BATCH CONCLUSION DAY | CELEBRATION | DINNER |
MOVIE | WITH STUDENTS: https://youtu.be/47BxbHL_qc0?si=lmpo7hsjuOcZERBY
2. FULL VLOG | WET & JOY WATER PARK | ARJUN CHHABRA TUTORIAL | CA INTER MAY
2024: https://youtu.be/l45jh_hHVvY?si=Anyrn3AYFQX-jqvT
3. CMA FINAL playlist:
https://youtube.com/playlist?list=PLaUTqfiLWyKTc1gAgbNMCbL_LpDDpzRB6&si=lLg
SQVh0jjs-hqmP

CS LLM Arjun Chhabra

(Law Maven)
Mo: 62 62 62 143 8 / 9552 52 143 8
 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

Directors
Need for directors
1. Company is an artificial person
• On incorporation, a company becomes a legal person.
• A company is not a natural person, i.e. it has no mind or body of its own, it has no eyes to see, no
ears to hear, no hands to sign and no brain to think and take decisions. Therefore, a company
cannot act by itself and consequently it has to depend upon some human agency to act in its name.
• The two human agencies, through which a company acts, are the members of the company and
the Board of directors. In other words, the decision-making powers of a company are vested in its
two organs, viz. the members of the company and the Board of directors. The Board is the
managerial body to whom is entrusted the whole of the management of the company. It is
constituted by the members. Directors are accountable to the members in as much as members
are empowered to appoint them and remove them.

2. Separation of ownership from management

• The members have no inherent right to participate in the management of the company. They
generally lack the expertise to manage the affairs of a company.
• Therefore, a specialised body of persons, called as directors are appointed by the members to
manage the affairs of the company.

3. Statutory requirement to have directors

• As per section 149(1), every public company shall have a minimum of 3 directors,
• every private company shall have a minimum of 2 directors and
• every one Person Company shall have a minimum of 1 director.
• The maximum number of directors shall be fifteen. A company may appoint more than 15 directors
after passing a special resolution.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

Meaning of 'director' and 'Board of directors' [Section 2(34) and Section 2(10)]
As per Clause (34) of Section 2 of the Companies Act, 2013, 'director' means a director appointed to the
Board of a company.

Here Appointed means:

1. A resolution has been passed to appoint a director.
2. Proposed person has consented to become director.
3. He has assumed the office of director i.e he is acting as director.

It means that a person shall be regarded as a director only if he is appointed as a director by the company.
In other words, if a person occupies the position of a director (i.e. he functions as a director), but is not
appointed as a director, he shall not be regarded as a director.

Mere designation of director does not satisfy the term ‘’appointed’’

As per Clause (10) of Section 2 of the Companies Act, 2013, 'Board of Directors' or 'Board', in relation to a
company, means the collective body of the directors of the company.

All the powers vested in the Board of directors are exercisable by the directors collectively, i.e. by the
Board. An individual director has no authority to act on behalf of the company, unless he is so authorised
by the Act, articles, a resolution of the Board of directors or a resolution of the members.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Only individuals to be directors (Sections 149)
• The Board of directors of every company shall consist of individuals only. Thus, no body corporate,
association, firm or Limited Liability Partnership (LLP) shall be appointed as a director.
• The reason behind the provision is that the office of a director is similar to a trust. So, there should be
somebody readily available who can be held responsible for the failure to carry out obligations of such
an office.
Question 1:
Write short notes on Director Identification Number [5 Marks – Dec 19] [5 Marks – Dec 17]

Answer:
1. Director Identification Number is allotted by the central government to every individual who is to be
appointed as director of a company after receiving the application form in prescribed Form No. DIR-
3 along with the fees for the same.
2. The form shall be attested by a chartered accountant in practice or a company secretary in practice
or a cost accountant in practice.
3. The central government shall process the application form within one month of receiving the same
and allot the Director Identification Number to the applicant after approving the application or give
intimation of rejection of the application.
4. The DIN once allotted shall remain valid for the life time of the director and it will not be allotted to
any other person.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
5. The director on allotment of DIN is to intimate the company.
6. Every company shall within 15 days of the receipt of intimation furnish the same with the Registrar.
7. If any company fails to furnish the Director Identification Number under sub -section (1), such
company shall be liable to a penalty of twenty-five thousand rupees and in case of continuing failure,
with further penalty of one hundred rupees for each day after the first during which such failure
continues, subject to a maximum of one lakh rupees, and every officer of the company who is in
default shall be liable to a penalty of not less than twenty-five thousand rupees and in case of
continuing failure, with further penalty of one hundred rupees for each day after the first during
which such failure continues, subject to a maximum of one lakh rupees.
Question 2:
What are the disqualifications of a person for the appointment as a director under the Companies Act,
2013? [8 Marks – Dec 19] [10 Marks – June 18] [8 Marks – MTP Dec 23 Syllabus 2016] [7 Marks MQP Set
1 Syllabus 2022]
Answer:
Grounds of disqualification [Sec. 164(1)]
A person who/against
(a) Unsound mind: Declared by a Court
(b) Undischarged insolvent
(c) Applied to be adjudicated as an insolvent + Application is pending
(d) Convicted by a Court for any offence (whether involving moral turpitude or otherwise)
+
Imprisonment (6 months or more)
✓ Disqualified for 5 years (from the expiry of sentence)
Convicted by a Court for any offence (whether involving moral turpitude or otherwise)
+
Imprisonment (7 years or more)
✓ Disqualified for lifetime.
(e) an order disqualifying him for appointment as a director has been passed by the Court or Tribunal
and the order is in force.
(f) he has not paid any calls in respect of any 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.
(g) he has been convicted of the offence dealing with related party transactions under Section 188 at any
time during the last preceding five years.
(h) he has not obtain DIN.
(i) Not complied with Sec. 165(1) [i.e. his directorships exceed the limit specified u/s 165(1)]

Provided that the disqualifications referred to in clauses (d), (e) and (g) of sub -section (1) shall continue to
apply even if the appeal or petition has been filed against the order of conviction or disqualification.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
(2) No person who is or has been a director of a company which—
(a) has not filed
➢ financial statements
or
➢ annual returns
➢ for any continuous period of three financial years; or
(b) has failed to
➢ repay the deposits accepted by it
or
➢ pay interest thereon
or
➢ to redeem any debentures on the due date
or
pay interest due thereon
or
➢ pay any dividend declared
and
such failure to pay or redeem continues for one year or more, shall be eligible to be re-appointed as
a director of that company or appointed in other company for a period of five years from the date on
which the said company fails to do so.

Provided that where a person is appointed as a director of a company which is in default of clause (a) or
clause (b), he shall not incur the disqualification for a period of six months from the date of his
appointment.

(3) A private company may by its articles provide for any disqualifications for appointment as a director in
addition to those specified in sub-sections (1) and (2).

Test Yourself:
State with reference to the relevant provisions of the Companies Act, 2013 whether the following persons
can be appointed as a director of a public company:
(i) Mr. A, who has huge personal liabilities far in excess of his assets and properties, has applied to the
Court for adjudicating him as an insolvent and such application is pending.
(ii) Mr. B, who was caught red-handed in a shop lifting case 2 years ago, was convicted by a Court and
sentenced to imprisonment for a period of 8 weeks.
(iii) Mr. C, former bank executive, was convicted by a Court 8 years ago for embezzlement of funds and
sentenced to imprisonment for a period of 1 year.
(iv) Mr. D is a director of DLT Ltd., which has not filed its annual returns pertaining to the annual general
meetings held in the calendar years 2014, 2015 and 2016.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Answer:
(i) As per Section 164(1), Since, Mr. A has himself applied to the Court for adjudicating himself as an
insolvent, he is disqualified to be appointed as director, even if his application is pending.
(ii) As per Section 164(1), In the present case Mr. B was caught red-handed in a shop lifting case and
was sentenced to imprisonment for a period of 8 weeks i.e. less than 6 months, he is not disqualified and
can be appointed as director.
(iii) As per Section 164(1), if any person has been convicted by a Court of any offence, whether involving
moral turpitude or otherwise, and sentenced to imprisonment for 6 months or more, he is disqualified to
be appointed as director for next 5 years from the date of expiry of the sentence. Since, more than 5 years
has been elapsed form the date of expiry of the sentence, Mr. C can be appointed as a director.
(iv) As per Section 164(2); a person who is or has been a director of a company shall not be eligible to be
re-appointed as a director of that company or appointed in other company for a period of 5 years which
has not filed financial statements or annual returns for any continuous period of 3 financial years. Since,
Mr. D has not filed annual returns for continuous period of 3 financial years; he is disqualified to be
appointed as director for next 5 years.
Question 3
Discuss the procedure for Rotation of Directors and re-appointment of directors. [8 Marks – MTP June
20] [5 Marks – June 23 Syllabus 2022] [MQP Set 2 Syllabus 22] [10 Marks – MQP]

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ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

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ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

Total Directors 3 4 5 6 7 8 9 10 11 12 13 14

Rotational Directors Total Director x 2/3 (rounded up 2 3 4 4 5 6 6 7 8 8 9 10

to next)

Non-Rotational Directors Total Director - Rotational 1 1 1 2 2, 2 3 3 3 4 4 4

directors

Director that retire at AGM Rotational Directors * 1/3 1 1 1 1 2 2 2 2 3 3 3 3

(rounded to nearest)

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ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Question 4:
Can a director be removed? If so give the procedure in detail. [10 Marks – MTP June 20] [Dec 22 – 10
Marks]

Answer:

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

Under Section 242 of the Companies Act, 2013, where an application has been made to the Tribunal under
Section 241, against oppression and mismanagement of a company's affairs, the Tribunal may
➢ order for the termination or setting aside of an agreement which the company might have made
with any of its directors.
➢ It may also order the removal of any of the directors of the company.

A director so removed shall not be entitled to claim any compensation from the company for the loss of
office under Section 243.

Additionally such a director shall not be entitled to serve as a manger, managing director or director of the
company without leave of the Tribunal for a period of five years from the date of Tribunal's order
terminating or setting aside his contract with the company

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Question 5:
Discuss the powers of the Board of Directors of a company as per the Companies Act, 2013. [10 Marks –
Dec 18] [MQP Set 2 Syllabus 2022]
Answer:
Powers of the Board: Section 179

Section 179 of the Act deals with the powers of the board; all powers to do such acts and things for which
the company is authorised is vested with board of directors.

But the board can act or do the things for which powers are vested with them and not with general
meeting.

The following (section 179(3) read with Rule 8 of Companies (Management & Administration) Rules, 2014
powers of the Board of directors shall be exercised only by means of resolutions passed at meetings of the
Board, namely:-

(1) to make calls on shareholders in respect of money unpaid on their shares;

(2) to authorise buy-back of securities under section 68;
(3) to issue securities, including debentures, whether in or outside India;
(4) to borrow monies;
(5) to invest the funds of the company;
(6) to grant loans or give guarantee or provide security in respect of loans;
(7) to approve financial statement and the Board’s report;
(8) to diversify the business of the company;
(9) to approve amalgamation, merger or reconstruction;
(10) to take over a company or acquire a controlling or substantial stake in another company;
(11) to make political contributions;
(12) to appoint or remove key managerial personnel (KMP);
(13) to appoint internal auditors and secretarial auditor;

The Board may, by a resolution passed at a meeting, delegate to any committee of directors, the managing
director, the manager or any other principal officer of the company or in the case of a branch office of the
company, the principal officer of the branch office, the powers specified in (4) to (6) above on such
conditions as it may specify.

The banking company is not covered under the purview of this section.
The company may impose restriction and conditions on the powers of the Board.

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ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
The remuneration payable to the directors of a company, including any managing or whole-time director,
shall be determined,
➢ in accordance with the provisions of Companies Act
➢ either by the articles of the company,
➢ or by a resolution (special resolution if the articles so require), passed by the company in general
meeting and
➢ the remuneration payable to any such director determined as per the said provisions shall be inclusive
of the remuneration payable to such director for services rendered by him in any other capacity.

Section 197 lays down the overall maximum of managerial remuneration which can be paid by public
company or a subsidiary of a public company. The total managerial remuneration payable to directors or
manager in respect of a financial year
➢ shall not exceed eleven per cent of the net profits of the company.
➢ But sometimes a company may make no or inadequate profits in a financial year.
➢ This does not mean that its directors shall remain unpaid.
➢ In such a case, the company may, in accordance with schedule V part II, pay by way of minimum
remuneration any sum as may be authorized.

As per Section 2(78) of the companies Act, 2013 'Remuneration' defined as any money or its equivalent
given or passed to any person for services rendered by him and includes perquisites as defined under
income tax Act, 1961.

As per Section 197 of the Act,

➢ the total managerial remuneration payable by a public company,
➢ to its directors, including managing director, whole time director and its manager,
➢ in respect of any financial year
➢ shall not exceed 11% of the net profits of that company.
➢ Accordingly, a public company can pay remuneration to its directors including executive directors
and non-executive directors within the limits of 11% of the net profits and this limits can only be
exceeded with the prior approval of the members of the company by an special resolution.
➢ The remuneration payable to a director shall be inclusive of the remuneration payable to him for
the services rendered by him in any other capacity.
➢ So, even if a director is paid remuneration for special services apart from directorial services, such
amount must also be included in the total remuneration in order to ascertain the limits of 11% of
net profits as prescribed under Section 197(1) of the Act.
➢ However, the only exception is when remuneration paid for professional services rendered by a
director to the company without any limit is not included in the limit, if the following two conditions
are satisfied:
➢ The services rendered are of a professional nature and;
➢ In the opinion of the Nomination and Remuneration Committee the director possesses
the requisite qualification for the practice of the profession.
➢ If the company does not require to have such a committee under section 178, the
board can form this opinion.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Question 6:
Which will not form part of the remuneration of a director? [8 Marks – MTP Dec 23 – Syllabus 2016]
Answer:
Section 197 (1) provides that the total managerial remuneration payable by a public company to its
directors, including Managing Director and a Whole time director in respect of any financial year shall not
exceed 11% of the net profits of the company. The company, in general meeting may, authorize the
payment of remuneration exceeding 11% of the net profits of the company. Where the company has
defaulted in payment to bank/PFI or NCD or any secured creditor, prior approval of the bank/PFI shall be
obtained before the special resolution.

If any director draws or receives, directly or indirectly, by way of remuneration any such sums in excess of
the limit prescribed or without approval required under this section, he shall refund such sums to the
company and until such sum is refunded hold it in trust for the company.

Remuneration to MD or WTD
The second proviso to Section 197(1) provides that the remuneration payable to any one Managing
Director or whole time director or manager shall not exceed 5% of the net profits of the company. If there
are more than one whole time director remuneration shall not exceed 10% of the net profits to all such
directors and manager taken together.

Remuneration payable to directors

The remuneration payable to directors, who are neither Managing Directors nor Whole Time directors,
shall not exceed 1% of the net profits, if there is a Managing Director or Whole time director or manager.
In other cases, it shall not exceed 3% of the net profits.

Remuneration when there is no profit

Section 197(3) provides that if, in any financial year, a company has no profits or its profits are inadequate,
the company shall not pay to its directors including Managing Directors or whole time director by way of
remuneration any sum exclusive of any fees payable. Remuneration may be payable in such a situation in
accordance with the provisions of Schedule V

Sitting fees
A director may receive fee for attending the meetings of the Board or Committee thereof or for any other
purpose whatsoever as may be decided by the Board. Such fees shall not exceed one lakh rupees per
meeting of the Board or Committee thereof. The independent directors and women directors may receive
the fees not less than the fee payable to other directors.

Professional fee
Any remuneration for services rendered by any such director in other capacity shall not be included if the
services rendered are of a professional nature and in the opinion of the Nomination and Remuneration
Committee or the Board of Directors, the director possesses the requisite qualification for the practice of
the profession.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Periodicity of payment
Section 197(6) provides that a director may be paid remuneration either by way of monthly payment or at
a specified percentage of the net profits of the company or partly by one way and partly by other.

Insurance premium
Section 197 (13) provides that where any insurance is taken by a company on behalf of its managing
director, whole time director for indemnifying any of them against any liability in respect of any negligence,
default, misfeasance, breach of duty or breach of trust for which they may be guilty in relation to the
company, the premium paid on such insurance shall not be treated as part of the remuneration payable
to such director. If such person is proved to be guilty, the premium paid on such insurance shall be treated
as part of remuneration.
Question 7:
Mr. A, a national of Nepal, intends to be appointed as a Director of ABC Ltd., an Indian Company. He is
desirous of making an application to the Central Government for allotment of DIN (Director Identification
Number). State the procedure for Allotment or Rejection of DIN to Mr. A [MTP June 23 – 10 Marks]
Answer:
According to section 154, the Central Government shall allot a Director Identification Number (DIN) to Mr.
A in the prescribed manner within one month from the receipt of application.

Rule 10 of the Companies (Appointment and Qualifications of Directors) Rules, 2014 provides the following
procedure for rejection or allotment of DIN:

(i) Generation of application number- On the submission of the Form DIR-3 on the portal and on payment
of the requisite fees, an application number shall be generated by the system automatically.

Provided that no application number shall be generated in case of the person applying for Director
Identification Number is a national of a country which shares land border with India (i.e. China, Bhutan,
Nepal, Pakistan, Bangladesh, and Myanmar), unless necessary security clearance from the Ministry of
Home Affairs, Government of India has been attached along with application for Director Identification
Number.

(ii) Communication of issue of DIN- After generation of application number, the Central Government shall
process the applications received for allotment of DIN and decide on the approval or rejection thereof and
communicate the same to the applicant along with the DIN allotted in case of approval by way of a letter
by post or electronically or in any other mode, within a period of one month from the receipt of such
application.

(iii) In case of defective/incomplete application- If the Central Government, on examination, finds such
application to be defective or incomplete in any respect, it shall give intimation of such defect or
incompleteness, by placing it on the website and by email to the applicant who has filed such application.
The applicant shall be directed to rectify the defects or incompleteness by resubmitting the application
within a period of 15 days of such placing on the website and email.

It is provided that the Central Government shall –

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
(a) reject the application and direct the applicant to file fresh application with complete and correct
information, where the defect has been rectified partially or the information given is still found to be
defective;

(b) treat and label such application as invalid in the electronic record in case the defects are not removed
within the given time; and

(c) inform the applicant either by way of letter by post or electronically or in any other mode.

(iv) In case of rejection or invalidation of application, the fee so paid with the application shall neither be
refunded nor adjusted with any other application.

Note 1: All DINs allotted to individual(s) by the Central Government before the commencement of these
rules shall be deemed to have been allotted to them under these rules.

Note 2: The DIN so allotted under these rules is valid for the life-time of the applicant and shall not be
allotted to any other person.

Since Mr. A is a national of Nepal, which shares land border with India, necessary security clearance from
the Ministry of Home Affairs, Government of India needs to be attached along with application for Director
Identification Number for the generation of Application Number.

For knowledge: The security clearance process involves verifying the background of the individual to
ensure they do not pose a threat to national security. This verification may include checks on criminal
records, involvement in any anti-national activities, connections to terrorist organizations, or any other
factors that could compromise national security.
Question 8:
What are the different duties of a director in a company as per the Companies Act, 2013? [7 Marks – Dec
19] [RTP-Dec 2018] [RTP-Dec 2018] [6 Marks – Dec 21] [8 Marks – Dec 17]
Answer:
To act
1. in accordance with the articles
2. in good faith
to promote the objects of the company for the benefit of its members
in the best interests of the company, its employees, the shareholders, the community and for the
protection of environment.
3. To exercise his duties with due and reasonable care, skill and diligence and shall exercise independent
judgment.
4. Not to get involved in a situation where his interest may conflict with the interest of the company.
5. Not to achieve undue gain or advantage either to himself or to his relatives, partners, or associates. If
found guilty, then, liable to pay the amount of gain to the company.
6. Not to assign his office. Any assignment of office shall be void.
7. Contravention: Min Fine: 1 Lakh | Max Fine: 5 Lakhs.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Prohibition of assignment of office (Section 166)
• No director shall assign his office to any other person. Any assignment of office made by a director shall
be void.
• If a director of the company contravenes the provisions of section 166, he shall be punishable with fine
which shall not be less than Rs. 1 lakh but which may extend to Rs. 5 lakh.

X' was appointed as a director for life by the articles of association of a private company incorporated on
1st June, 2014. The articles also empowered 'X' to appoint a successor. 'X' appointed, by will, 'G' to succeed
him after his death. Can 'G' succeed 'X' as a director after the death of 'X'?

Ans. No director shall assign his office to any other person. If he does, the assignment shall be void (Section
166).

In the given case, the articles of a company empowered its director to appoint a successor. The director
appointed, by his will, Mr. G to succeed him as a director after his death. The Court observed that a director
is prohibited from assigning his office. The word 'his' used in section 166 indicates that the prohibition
applies only when an office held by a director is assigned to any other person. Where a director dies, the
office held by him becomes vacant and therefore, such office cannot be assigned to any other person.
Therefore, appointment of a new person in such office does not amount to an assignment within the
meaning of section 166 [Oriental Metal Pressing Pvt. Ltd. v B.K. Thakoor (1961) 31 Comp Cas 143].

The facts of the given case are identical to the facts discussed in the above case. Accordingly, it can be said
that appointment of 'G' is valid and it does not amount to an assignment of office by 'X'.

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 ARJUN CHHABRA TUTORIAL
Of Arjun Chhabra
(CS LLB LLM)
Law Maven
Question 9:
"Directors are agents of the company." — Discuss. [5 Marks – June 18]
Answer:
The company can act only through Directors, and so the relationship between the company and the
Director is that of Principal and Agent. Contract entered into by a person as a director of a company, will
be binding on the Company. However, Directors are not agents of members of the company.

Directors have personal liability: They would be personally liable under the following circumstances:
• Director acts in his own name,
• Director enters into an agreement/ contract which does not state clearly as to whether the Director
signing in his personal capacity or in his representative capacity as an Agent of the Company.

Rights of the Company:

• Contract executed by the Director in excess of his authority, is binding on the Company. However, the
Company may claim damages from the Director for breach of implied warranty of authority.
• When Directors act properly on behalf of the Company, they do not incur personal liability; they do not
exceed their powers.

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