CHAPTER 3: MANAGEMENT

• Definition:- As per Section 2(34) of Companies

Act 2013 Director means a director appointed
to the Board of a Company.

Share qualification of directors: ONLY in 1956 Act

✓Articles
✓2 months after appointment
✓Not exceeding Rs.5000
✓ Penalty 500
 Frequency of Board Meeting:

– First Meeting: First Meeting of Board of Directors within 30 (Thirty)

days from the date of Incorporation of company. –
– Subsequent Meetings:
One person Company, Small company and Dormant company:
• At least one meeting of Board of directors in each half of calendar
year - meetings
• Minimum Gap B/W two meetings at least 90 days. MAX 120 days
Other than Companies mentioned above:
• Minimum No. of 4 meetings of Board of Director in a calendar year
• Maximum Gap B/W two meetings should not be more the 120
days.
Minimum Directors Required in Company:-
i. One Person Company:- One Director.
ii. Private Limited Company:- Two Directors.
iii. Public Limited Company:- Three Directors.
Maximum 15 directors can be appointed in any
format of Company (OPC, Public, Private).
Bypassing Special Resolution Company can
increase the number of Directors beyond 15. Out
of appointed directors one director should be
resident in India for more than 182 days in
previous calendar year.
 Managerial Remuneration

https://www.indiafilings.com/learn/managerial-remuneration-directors-salary-
companies-act/
Provisions of Schedule V:
Provided further that, except with the approval of the company in general
meeting,—
(i) the remuneration payable to any one managing director; or whole-time
director or manager shall not exceed five per cent. of the net profits of the
company and if there is more than one such director remuneration shall not
exceed ten per cent. of the net profits to all such directors and manager taken
together;
(ii) the remuneration payable to directors who are neither managing directors
nor whole-time directors shall not exceed,—
(A) one per cent. of the net profits of the company, if there is a managing
or whole-time director or manager;
(B) three per cent. of the net profits in any other case.
 Director Identification Number (DIN)
• Many a times it is seen that a company is created and it raises money from
investors and public and vanishes with the Director and are not been
traceable. The main purpose of introducing Director Identification Number
(DIN) was to keep a Data base of the Directors of the incorporated
companies and to keep complete information about the Directors so that
they dont cheat anyone and in case they do, can be traceable.
• Director Identification Number (DIN) not only helps fixing the identity of
the Director but also relates his participation in others companies, past
and present. In case any change of address or particular is faced by the
DIN holder, they are suppose to inform the central government about
the same. So this keeps the database ‘live’ always.
• As per the recent amendment in the Companies Act, DIN has become
mandatory for all the directors. DIN is individual specific and not
company specific, so only one DIN is required per director/person
irrespective of how many companies he is managing. This is a pre-
requisite to incorporate a new company.
 Types of Director
1. Residential Director:- As per Section 149(3) of Companies Act,2013
every company shall at one director who has stayed in India for a total
Period of not less than 182 days in the Previous calendar year.
2. Independent Director:- As per section 149(6) an independent
director in relation to a company, means a director other than a
Managing Director, Whole Time Director Or Nominee Director.
Companies which have to appoint Independent Director:-
As per Rule 4 of Companies Rules,2013 the following class of
companies have to appoint atleast two independent directors:-
A} Public Companies having Paid-up Share Capital-Rs.10 Crores or
More;
B} Public Companies having Turnover- Rs.100 Crores or More;
C} Public Companies have total outstanding loans, debenture and
deposits of Rs. 50 Crores or More.
 3. Small Shareholders Directors:- A listed Company may have one
director elected by small shareholders. May appoint upon notice of
not less than 1000 Shareholders or 1/10th of the total
shareholders, whichever is lower have a small shareholder director
which elected form small shareholder.
4. Women Director:- As per Section 149 (1) (a) second proviso
requires certain categories of companies to have At Least One
Woman director on the board. Such companies are any listed
company, and any public company having-
• Paid Up Capital of Rs. 100 crore or more, or
• Turnover of Rs. 300 crore or more.
5. Additional Directors: Any Individual can be appointed as Additional
Directors by a company under section 161(1) of the New Act by
passing special resolution.
6. Alternate Directors:- As per Section 161(2) A company May appoint, if
the articles confer such power on company or a resolution is passed (if
an Director is absent from India for atleast three months).
An alternate Director cannot hold the office longer than the term of the
Director in whose place he has been appointed.
Additionally, he will have to vacate the office, if and when the original
Director returns to India.
Any alteration in the term of office made during the absence of the
original Director will apply to the original Director and not to the
Alternate Director.
7. Shadow Director:- A person, who is not appointed to the Board, but on
whose directions the Board is accustomed to act, is liable as a Director of
the company, unless he or she is giving advice in his or her professional
capacity.
8. Nominee Directors:- They can be appointed by certain shareholders,
third parties through contracts, lending public financial institutions or
banks, or by the Central Government in case of oppression or
mismanagement.
9. Difference Between Executive and Non-Executive Director:- An Executive
Director can be either a Whole-time Director of the company (i.e., one who devotes
his whole time of working hours to the company and has a significant personal
interest in the company as his source of income),

or a Managing Director (i.e., one who is employed by the company as such and has
substantial powers of management over the affairs of the company subject to the
superintendence, direction and control of the Board).

In contrast, a non-executive Director is a Director who is neither a Whole-time

Director nor a Managing Director.
 BASIS FOR
MANAGER DIRECTOR
COMPARISON
Meaning A manager is the person who is in charge of A director is a person appointed by the shareholders
the specific unit or department of the to monitor and regulate the company's activities, as
organization and is responsible for its per the vision of the company.
performance.

Leadership A manager provides leadership to its A director provides intrinsic leadership and
subordinates, by guiding what to do, when direction.
to do and by whom it is to be done.

Level of management Middle-level management Top-level management

Responsible for Management Administration

Role Executive Decisive
Basic function Implementation of plans and policies. Formulation of plans and policies.

Planning Short-term planning Long-term planning

Accountable to Directors Stakeholders

Ethics and Values The managers enact the ethics and values in The directors determine the ethics and values of the
the organization, formulated by the organization.
directors.

Provisions on insolvency There are several duties and responsibilities No such statutory provisions are imposed on
levied on the managers, at the time of directors, when the company becomes insolvent.
insolvency of the company.
 MORE INFORMATION
Shadow Directors:

MEMBERS who are not a member of Board of Directors, yet maintain

complete control over the affairs of the company. Such directors are
circumstantially categorized under the Companies Act, 2013, as
“Person in accordance with whose instructions the board is
accustomed to act” and can also be deemed to be Director of a
Company. However, in commercial phraseology, such persons are
defined as a “Shadow Director”.

A Shadow Director is an “officer” within the definition of the terms in

Section 2 (59) of the Companies Act, 2013, as it includes, “any person
in accordance with whose directions or instructions the Board of
Directors or any one or more of the Directors is or are accustomed to
act”.
WHO CAN BECOME A DIRECTOR OF A COMPANY ?
• Director identification number (DIN) shall be a
precondition for appointment as director.
• Every person proposed to be appointed shall furnish
a declaration that he is not disqualified to become a
director under this Act. However, consent to act as
director may be given after appointment but before
any act as director.
 DUTIES OF DIRECTORS
THE NEW INDIAN COMPANIES ACT 2013
The duties and responsibilities of directors stipulated by the Indian
Companies Act of 2013, can broadly be classified into the following
two categories: -
[i] The duties and liabilities which encourage and promote the
sincerest investment of the best efforts of directors in the efficient
and prudent corporate management, in providing elegant and swift
resolutions of various business-related issues including those which
are raised through "red flags", and in taking fully mature and wise
decisions to avert unnecessary risks to the company.

[ii] Fiduciary duties(ethical relationship of trust ) which ensure and

secure that the directors of companies always keep the interests of
the company and its stakeholders, ahead and above their own
personal interests.
 The following duties and liabilities have been imposed on the directors of companies,
by the Indian Companies Act of 2013, under its Section 166: ---
• A director of a company shall act in accordance with the Articles of Association
(AOA) of the company.
• A director of the company shall act in good faith, in order to promote the objects of
the company, for the benefits of the company as a whole, and in the best interests
of the stakeholders of the company.
• A director of a company shall exercise his duties with due and reasonable care, skill
and diligence and shall exercise independent judgment.
• A director of a company shall not involve in a situation in which he may have a direct
or indirect interest that conflicts, or possibly may conflict, with the interest of the
company.
• A director of a company shall not achieve or attempt to achieve any undue gain or
advantage either to himself or to his relatives, partners, or associates and if such
director is found guilty of making any undue gain, he shall be liable to pay an
amount equal to that gain to the company.
• A director of a company shall not assign his office and any assignment with out
approval so made shall be void.
• If a director of the company contravenes the provisions of this section such director
shall be punishable with fine which shall not be less than one Lakh Rupees but
which may extend to five Lac Rupees.
DISQUALIFICATION OF DIRECTORS (SECTION
164):
This section bracketed disqualification in three different
classes; primary disqualifications, disqualification due to
corporate in actions, and additional disqualifications.
Primary disqualifications (Sub – section 2 of section
164):
A person shall not be eligible for appointment as a
director of a company, if —
(a) he is of unsound mind and stands so declared by a
competent court;
(b) he is an un-discharged insolvent;
(c) he has applied to be adjudicated as an insolvent and
his application is pending;
(d) he has been convicted by a court of any offence, whether
involving moral turpitude or otherwise, 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.
If a person has been convicted of any offence and sentenced in
respect thereof to imprisonment for a period of seven years or more,
he shall not be eligible to be appointed as a director in any
company;
(e) an order disqualifying him for appointment as a director has been
passed by a 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; or
(h) he has not been allotted a director identification number.

The disqualifications referred to in clauses (d), (e) and (g) of sub-

section (1) shall not take effect—
(i) for thirty days from the date of conviction or order of
disqualification;
(ii) where an appeal or petition is preferred within thirty days as
aforesaid against the conviction resulting in sentence or order, until
expiry of seven days from the date on which such appeal or
petition is disposed off; or
(iii) where any further appeal or petition is preferred against order
or sentence within seven days, until such further appeal or petition
is disposed off.
 Disqualification due to corporate in action (Sub –
section 2 of section 164):

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 after a period of five years from the date
on which the said company’s director fails to do so.

A private company has power to provide any additional

disqualification.
 Vacation of office of director
The office of a director shall become vacant in case—
(a) he incurs any of the disqualifications specified in section 164;
(b) he absents himself from all the meetings of the Board of Directors held
during a period of twelve months with or without seeking leave of absence of
the Board;
(c) he acts in contravention of the provisions of section 184 relating to
entering into contracts or arrangements in which he is directly or indirectly
interested;
(d) he fails to disclose his interest in any contract or arrangement in which he
is directly or indirectly interested, in contravention of the provisions of section
184;
(e) he becomes disqualified by an order of a court or the Tribunal;
(f) he is convicted by a court of any offence, whether involving moral turpitude
or otherwise and sentenced in respect thereof to imprisonment for not less
than six months:
CONT…
Provided that the office shall be vacated by the director even if
he has filed an appeal against the order of such court;
(g) he is removed in pursuance of the provisions of this Act;
(h) he, having been appointed a director by virtue of his holding
any office or other employment in the holding, subsidiary or
associate company, ceases to hold such office or other
employment in that company.

• IF NOT-UPTO 1 YEAR AND FINE MORE THAN 1

lakh LESS THAN 5 lakh
A director of a company can be
removed by

1. Shareholders

2. Central Government

3. CLB/Tribunal
 Procedure for removal of director

1. A (Special notice) of the intension to move a resolution for the removal

of director be furnished by No. of members (according to requirement of
Section- 115 of Companies Act, 2013) to the company at least 14 days
before the meeting at which it is to be moved, exclusive of the day on
which the notice is served and the day of the meeting.
2. The company shall, immediately after the notice of the intention to
move any such resolution has been received by it, give its members
notice of the resolution in the same manner as it gives notice of the
meeting.
3. If is not possible for the company to give notice to all the members,
publish by advertisement in the newspaper having an appropriate
circulation not less than 7 days before the meeting.
4. The company must give intimation to the concerned director of the
intended resolution by sending a copy of the special notice received by it,
forthwith on receipt thereof. The director shall have the right to be heard on the
resolution at the meeting
5. The director, who is sought to be removed, can make a representation in
writing against his removal and request the company to notify it to the
company’s members [section 169]. If the director requests the company to notify
the members of the company his representation against his removal and the
representation is of reasonable length and it has been received not too late, the
company must
(a) Mention in the notice of the resolution to be moved at the annual general
meeting, the fact of the representation having been received; and
(b) Send a copy of the representation to every member along with the notice
of the meeting if the representation has been received before sending the notice of
the meeting or separately if the representation has been received after sending the
notice of the meeting.
If the representation could not be sent to the members because it was received too
late or because the company made a default in sending it, the company must read
out the representation at the annual general meeting, if the director requires it
to do so. In addition, director can make oral representation at the annual
general meeting.
6. Hold and convene a General meeting to discuss besides others
the following matters: To pass a [Ordinary resolution] for the
removal of director.
7. In case of listed companies, file a copy of the proceeding of
the general meeting in the Stock exchange (s) where the
securities of the company are listed.
8. File [e-form no. 12] with the Registrar of Companies within 30
days of passing the resolution.
9. Pay the requisite fees, as prescribed by the Companies
(Registration Offices and Fees) Rules, 2014.
10. Fees can be paid through Credit Card / by cash / by cheque in
favour of “MCA Collection Account”
 Central government
• The companies act enables the central government to remove
managerial personnel (including a director) from office on the
recommendation of the high court. The central government
may refer to the high court cases against managerial person on
any of the ground mentioned in the Act. Every such reference
will be made in the form of an application which must
contain a statement of material facts. The person against
whom such reference is made must be joined as a respondent
to the application.
Removal of director by CLB/Tribunal

• Regarding oppression and mismanagement under section 397/398 the

CLB/Tribunal has the power to reconstitute the Board of a company by
removal of director.

• On an application to the court for prevention of oppression and

mismanagement. the CLB or court may terminate or set aside or
modify any agreement between the company and the managing
director, or any other director or manager.
On such termination, the director cannot serve the company in a
managerial capacity for a period of five years from the date of the
order of termination, without the permission of the court.

The director on removal cannot sue the company for damages or

compensation for loss of office.
THANK YOU