“A corporation is an artificial person being invisible, intangible and existing only in contemplation of law”.[i] A corporation has “no mind which can have knowledge or intention nor he has hands to carry out his intention and therefore, it must act through living persons”.[ii] Hence, there are directors in a company.
Directors are the professional men who are hired by the company. The position that the directors occupy in a corporate enterprise is not easy to explain.[v] Directors are not the servant of the company rather they are the officers of a company who directs the affairs of the company.[vi] However, a director may work as an employee in a different capacity.[vii]
As far as the definition of directors is concerned then the Companies Act, 1956 defines as “directors include person occupying the position of a director, by whatever name called” but if we see the Nigerian Act then it defines director as “persons duly appointed by the company to direct and manage the business of a company”,[viii] which is far much suitable.
TYPES OF DIRECTORS
In a company, there are different types of directors. They have a different role, work and different duties. This paper will deal each one of them.
“The Companies Act refers to the following two specific categories of Directors:
- A 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.
- A Whole-time Director includes 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”.
Every public company and a private company, which is a subsidiary of a public company, having a share capital of more than Five Crore rupees (Rs. 5,00,00,000/-) must have a Managing or Whole-time Director or a Manager.
FURTHER CLASSIFICATION OF DIRECTORS
Based on the circumstances surrounding their appointment, the Companies Act recognizes the following further types of Directors
- Small shareholder: A company may have a director elected by small shareholders, for this purpose small shareholder means a shareholder holding shares of nominal value of not more than Rs. 20000 or such as may be prescribed. [ix]
- Women Director: “Section 149 of the Companies Act, 2013 read with Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014 prescribes for every listed company and every public company having paid-up share capital of not less than Rupees one hundred crore or turnover of Rupees three hundred crore or more to appoint at least one woman director”.[x] “There is no prohibition for appointment of a female relative of a director on the board of a company. Further, there is no proposal to prescribe any such restriction”.[xi]
- Nominee Directors: Explanation of Sub-section 7 of the section 149 of the Act defines it as “A director nominated by any financial institution in pursuance of the provisions of any law for the time being in force, or of any agreement, or appointed by any Government, or any other person to represent its interests”.[xii] As far their appointment is concerned it is mentioned in the subs-section 3 of section 161 of the act.[xiii]
- First Directors: A person who is appointed by the subscribers of the memorandum of the company. They are generally listed in the articles of Association. They shall be deemed to be a director till the directors are appointed in the annual general meeting.[xiv]
- Casual vacancies: Where a Director appointed at the AGM vacates office before his or her 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.[xv]
- Additional Directors: Directors who are appointed by the Board if the need arises and the power has been provided under Articles of Association and also one thing to remember that the total strength must not exceed the number provided in the Articles[xvi]. They are appointed when the strength fell down below the legal minimum then appointment is valid.[xvii]
- Alternate Director: They are appointed, “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, 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”. “He will hold his office until such period that the Original Director would have held the office”. However, “any provision for automatic re-appointment of retiring Directors does not apply to the Alternate Director”.[xviii]
- ‘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 factoDirector”.
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”. They are liable as a Director under the Companies Act.
ON THE BASIS OF LISTING AGREEMENT
- Independent director: A listed public company to have atleast 1/3 of the total number of directors as independent directors. The minimum numbers of the independent directors are decided by the Central Government for the class or classes of public companies. The subsection 6 of section 149 of the Act explains who the independent directors are.[xix] It is important to keep in mind that they have to declare their independence in the first meeting of the board which he attends and also the first meeting of the board every financial year.[xx] The company and independent directors have to abide with the Schedule IV[xxi]. They hold office for 5 years and can reappoint by passing special resolution and they cannot have more than 2 consecutive terms on the Board. They are not entitled to any stocks. In Brirji Gopal Daga Case,[xxii] it was held they can be held liable only for the acts which occurred with their knowledge and consent.[xxiii]
- Executive and non-executive Directors: “An Executive Director can be either a Whole-time Director of the company or a Managing Director. In contrast, a non-executive Director is a Director who is neither a Whole-time Director nor a Managing Director”. Clause 49 of the Agreement states that the Board should have a combination of both with not less than fifty percent (50%) of the Board comprising non-executive Directors. Further, it is necessary to remember that “where the Chairman of the Board is a non-executive Director, at least one-third of the Board should comprise independent Directors and if he is an Executive Director, at least half of the Board should comprise independent Directors. Where the non-executive Chairman is a promoter of the company or is related to any promoter or person occupying management positions at the Board level or at one level below the Board, at least one-half of the Board of the company shall consist of independent Directors”.
It is quite obvious that the success of the company, depends upon the competency of the directors as they are the real mind who runs the company. It is, therefore, necessary that the management of the company should be given in the hands of the competent person.[xxiv] Due to this, their appointments should be regulated by the Act.
Keeping the importance of the director in a company the legislature done away with an evil which was in practice earlier which was, “company or a firm can also be the director of a company”. But, now it is, “no more there, no company or firm or association can be appointed as a director. No company is to appoint any individual as director unless he has been allotted a Director Identification Number under section 154”.[xxv]
As far as the synopsis is talking about the removal then they can removed by various ways and those ways have been explained in sections 169 and 242(2)(h) which talks about removal by CLT, then resignation under section 168. The powers of the directors are under section 179, 179(3), 180, 181, 182, and 183. The duties are mentioned in sections 166, 166(2), 166(3), 463, and 184. These are some relevant provisions which talks about the removal, powers and duties of a director of a company respectively.
[i] Mashall J. in Dartmouth College v. Woodward, 4 L. Ed. 629, 17 U.S. 518(1819), 636 cited in Laski, “The Personality of Associations”29 Harv. L. Rev. 404.
[ii] Tesco Supermarkets Ltd. v. Nattrass, 1972 A.C. 153. Lush J., 431.
[iii] Companies Act, 2013 §2 cl.34.
[iv] Companies Act, 2013 §2 cl.10.
[v] Ram Chand & Sons Sugar Mills (P) Ltd. v. Kanhayalal Bhargava, A.I.R. 1966 S.C. 1899.
[vi] Moriarty v. Regent’s Garage Co., (1921) 1 K.B. 423
[vii] Lee v. Lee’s Air Farming Ltd., 1961 A.C. 12.
[viii] Ameze Guobardia, “The Criminal Liability of Directors of Failed Banks in Nigeria”, (1998) J.B.L. 198.
[ix] Companies Act, 2013 §151.
[x] Companies Act, 2013 §149 read with Companies (Appointment and Qualification of Directors) Rules, 2014, Rule 3.
[xi] Companies Act, 2013 §149 cl. 1 proviso.
[xii] Companies Act, 2013 §149 cl. 7, Explanation.
[xiii] Companies Act, 2013 §161 cl. 3.
[xiv] Companies Act, 2013 §152.
[xv] Companies Act, 2013 §161 cl. 4.
[xvi] Companies Act, 2013 §161 cl. 1.
[xvii] Shailesh Harilal Shah v. Matushree Textiles Ltd., A.I.R. 1994 Bom. 40.
[xviii] Companies Act, 2013 §161 cl. 2.
[xix] Companies Act, 2013 §149 cl. 6.
[xx] Companies Act, 2013 §149 cl. 7.
[xxi] Companies Act, 2013 §149 cl. 8.
[xxii] Briji Gopal Daga v. State of Kerala, (2013) 181 Comp. Cas. 320 (Ker.).
[xxiii] Companies Act, 2013 §149 cl. 12.
[xxiv] Indian States Bank Ltd. v. Sardar Singh, A.I.R. 1934 All. 855.
[xxv] Companies Act, 2013 §152, cl. 3.
- Avtar Singh, Company Law (17 ed. 2018).
- Siddharth Raja, Classifications of DirectorsMondaq (2011), http://www.mondaq.com/india/x/151238/Corporate Governance/Classification of Directors (last visited Mar 25, 2018).
- Types of Directors, Forma Company, Siddharth Raja, Classifications of Directors Mondaq (2011), http://www.mondaq.com/india/x/151238/Corporate Governance/Classification of Directors (last visited Mar 25, 2018). (last visited Mar 28, 2018).
- Press Informatsion Bureau Government Of India, Ministry of Corporate Affairs(2016), http://pib.nic.in/newsite/mbErel.aspx?relid=148845 (last visited Mar 30, 2018).