Friday, 2 September 2016


Under the Companies Act, 2013 director means ‘a director appointed to the Board of a company’. The definition suggests that a person not appointed to the Board of company is not a director. In these terms, the appointment to the Board of a company becomes essential to call a person as a director. Mere nomination by a nominator as a director will not be enough. It requires specific act of appointment on the Board either by the company or by the Board of Directors under the provisions of the 2013 Act, as the case may be. The director can be defined on the basis of his roles, responsibilities, liabilities, duties and the position he occupies in a company.

The Companies Act 2013 refers to the following two specific categories of Directors:

·         Managing Director: A Managing Director is one who is responsible for overall management and operation of the company. A company can have more than one managing director. There are, however, restrictions on appointment of a person as a managing director in more than one public company.   

Managing Director is a Director who has substantial powers of management of the affairs of the company subject to the superintendence, control and direction of the Board in question. Substantial powers of management of the affairs of the company indicate overall management of the company’s affairs.

A managing director falls within the category of an executive director and managing director is considered as the Key Managerial Person under the Companies Act, 2013.

·         Whole-time Director: Whole-time Director is a Director who is in the whole-time employment of the company, devotes his whole-time of working hours to the company in question and has a significant personal interest in the company as his source of income.

A whole-time director looks after functional areas of the company’s management and is not entrusted with overall management of the company’s affairs.

Whole-time director is also an executive director and whole-time director is also considered as one of the Key Managerial Person under the Companies Act, 2013.
Every listed company and every other public company, having a paid-up share capital of ten crore rupees or more (Rs. 10,00,00,000/-) shall have a Managing or Whole-time Director or a Manager.

Classification of Directors                                                                                                                   

I.            On basis Circumstance of Appointment

·         First Directors: Subject to any regulations in the Articles of a company, the subscribers to the Memorandum of Association, or the company's charter or constitution ("Memorandum"), shall be deemed to be the Directors of the company, until such time when Directors are duly appointed in the annual general meeting ("AGM").

·         Casual vacancies: In the case of a public company, if the office of any director appointed by the company in General Meeting is vacated before his term of office expires in the normal course, the resulting vacancy may, subject to the Articles, be filled by the Board. Such person so appointed shall hold office up to the time which the Director who vacated office would have held office if he or she had not so vacated such office.

·         Additional Directors: If the Articles specifically so provide or enable, the Board has the discretion, where it feels it necessary and expedient, to appoint Additional Directors who will hold office until the next AGM. However, the number of Directors and Additional Directors together shall not exceed the maximum strength fixed in the Articles for the Board.

·         Alternate Director: If so authorized by the Articles or by a resolution passed by the company in general meeting, the Board may appoint an Alternate Director to act for a Director ("Original Director"), who is absent for whatever reason for a minimum period of three months from the State in which the meetings of the Board are ordinarily held. Such Alternate Director will hold office until such period that the Original Director would have held his or her office. However, any provision for automatic re-appointment of retiring Directors applies to the Original Director and not to the Alternate Director.

·         '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. Thus, such a 'shadow' Director may be treated as an 'officer in default' under the Companies Act.

·         De facto Director: Where a person who is not actually appointed as a Director, but acts as a Director and is held out by the company as such, such person is considered as a de facto Director. Unlike a 'shadow' Director, a de facto Director purports to act, and is seen to the outside world as acting, as a Director of the company. Such a de facto Director is liable as a Director under the Companies Act.

·         Rotational Directors: At least two-thirds of the Directors of a public company shall be the persons whose period of office is liable to determination by retirement of directors by rotation. One-third of such directors are liable to retire by rotation. The directors retiring by rotation are known as Retiring Directors. Such retiring directors are eligible for re-appointment. If, for any reason, the vacancy of the retiring directors is not filled up at the annual general meeting or at adjourned meeting, then the retiring directors are deemed to have been reappointed.

·         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. The extent of a nominee Director's rights and the scope of supervision by the shareholders, is contained in the contract that enables such appointments, or (as appropriate) the relevant statutes applicable to such public financial institution or bank. However, nominee Directors must be particularly careful not to act only in the interests of their nominators, but must act in the best interests of the company and its shareholders as a whole. The fixing of liabilities on nominee Directors in India does not turn on the circumstances of their appointment or, indeed, who nominated them as Directors. Chapter 4 and Chapter 5 that follow set out certain duties and liabilities that apply to, or can be affixed on, Directors in general. Whether nominee Directors are required by law to discharge such duties or bear such liabilities will depend on the application of the legal provisions in question, the fiduciary duties involved and whether such nominee Director is to be regarded as being in control or in charge of the company and its activities. This determination ultimately turns on the specific facts and circumstances involved in each case.

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