DUTIES OF DIRECTORS UNDER THE NEW
INDIAN CA-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 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 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.
DUTIES OF INDEPENDENT DIRECTORS
The liability regime of the CA-2013 not only imposes the
above-mentioned duties and responsibilities on the directors of Indian
companies, but also advocates for independence and equitableness of the board
of a company, especially a public limited company. Consequently, the roles,
duties, and responsibilities of the Independent Directors have also been
stipulated by the new Indian Companies Act of 2013. An Independent Director is
that member of the board of a company, who does not possess any financial
relationship with the company (except the sitting fees), nor can own shares in
the company. The earlier Indian Companies Act of 1956 had no explicit
provisions for the independent directors, and only the Old Clause 49 of the
Listing Agreement of SEBI contained prescriptions for induction of independent
directors to the listed companies.
The new Indian Companies Act of 2013 dictates that every
listed company must contain at least one-third of the total magnitude of its
directors, as the independent directors; and it also empowers the Government of
India to include other categories of companies within the scope of this
provision or requirement (Section 149 of the CA-2013). Public limited companies
composited as per the former CA-1956, are granted a transition period of one
year for making strict compliance with this mandatory provision. Again, the
independent directors are not permitted to hold office for more than two
consecutive terms of five-year periods.
In the new regime, the roles and duties of the independent
directors attained significant expansion, and many new other areas have been
prudently covered. Broadly, they are intelligently assigned the highly
responsible role of the arbiters among various constituencies within the
corporation. Hence, the new provisions for the independent directors of the
limited companies are certainly very constructive for transparent and sound
corporate governance, and are hugely beneficial to the company and its all
shareholders. Some of the most significant functions, duties, and liabilities
of the independent directors, are the following (as per the Schedule IV of the
CA-2013): ---
- To assist in forwarding equitable and independent judgment to the board
- To secure and promote the interests of all stakeholders of the concerned company, particularly of the minority shareholders
- To conciliate and balance the conflicting interests of the stakeholders
- To attend actively and constructively most of the board and committee meetings
- To pay proper and adequate attention to Related Party Transactions (RPTs)
- To report concerns honestly and impartially about any unethical behavior, violation of the code of conduct, or any suspected fraud in the company
