CORPORATE LAW

Class III
Distance Education Program
National Law School of India University

Aditya Kamath, BA. LLM

Unit 3- Management
 Introduction- Management as opposed to joint
running of business.
Includes:
i) determination of objectives;
ii) designing the policy;
ii) determining the plan of action;
iv) stipulating the procedure;
v) devolving appropriate authority to the lower level of
management; and
vi) Receiving the accomplishment account and fixing the
accountability.

 Directors- Constitute Management of Company with
Manager and Shareholders in AGM.
 2(34) ““director” means a director appointed to the
Board of a company;”
 Powers of Board (S:179)(R :8)
 “The Board of Directors of a Company shall be entitled
to exercise all the powers and to do all the acts as the
Company is authorised to exercise”
 Old Act “any person occupying the position of a
Director by whatever name called”.
 Only Natural person- Oriental Metal Pressing
Works (P.) Ltd. v. B.K Thakoor [1961]31 Comp.
Cas.143.
 Dale & Carrington Investment (P.) Ltd. v. P.K
Prathapan [2004] 54 SCL 601 (SC).- Fiduciary- all
actions to be in Interest of company
1. Director as an Agent: Acts on behalf of company-
liable where agent liable- if liability ought to pass to
Principal, company liable.
2. Director as a Trustee- Not fully accurate and causes
confusion- merely the fiduciary element carries-
Gower : (1) fiduciary duties of loyalty and good faith
(2) duties of care and skill.
 (i) duty to act bona fide (ii) duty to disclose self interest
(iii) duty of unfettered discretion and (iv) duty to
confine within the purposes of the company for which
it was constituted. Percival Vs. Wright- No
Fiduciary duty towards shareholders.
Appointment of Directors
 Section 152 (1) Where no provision is made in the
articles of a company for the appointment of the first
director, the subscribers to the memorandum who are
individuals shall be deemed to be the first directors of
the company until the directors are duly appointed
and in case of a One Person Company an individual
being member shall be deemed to be its first director
until the director or directors are duly appointed by
the member in accordance with the provisions of this
section.
 Appointment in general meeting only.
 DIN and NO disqualification.
1. Share Qualification- Prescribed by Articles- to have
within 2 months of appointment- willingness
mandatory
2. Disqualification- Unsound mind- insolvency-
conviction for moral turpitude > 6 mts- 5 yrs not
elapsed.
3. Restriction- no more than 20 companies at once.
Who Appoints:
1. 1st board- AOA, if not then signatories to MOA
become.
2. By AGM- 2/3 to retire and can be re-appointed- Inst.
Directors and nominated do not retire.
 As per Section 149(1): Every Company shall have a
Board of Directors Consisting of Individuals as
directors. {The Board shall consist of individuals not
of Firms, LLP, Companies, gods or other legal
persons.}
 Minimum No. of Directors as per Section 149(1)(a):
 Three in case of Public Company.
 Two in case of Private Company.
 One in case of One Person Company.
 Maximum 15 Directors (If a company wants to
appoint more than 15 directors, it needs a Special
Resolution Required in a General meeting)
Categories of Directors:
 Resident Director: As per Section 149 sub section 3 of
Companies Act 2013, Board of Directors of a company,
must have at least one resident director i.e. (A person
who has lived at least 182 days in India in the previous
calendar year)
 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 cr. or more, or
 Turnover of Rs. 300 cr. or more.
 Nominee Director:
 As per Section 161(3). Subject to AOA of company,
the Board May appoint any person as a director
nominated by any institution in pursuance of the
provisions of any law for the time being in force or of
any agreement or by the Central Government or the
State Government by virtue of its shareholding in a
Government company.
 Independent Director:
 149 (4) Every listed public company shall have at least
one-third of the total number of directors as
independent directors and the Central Government
may prescribe the minimum number of independent
directors in case of any class or classes of public
companies
 Who Is An Independent Director?
 Section 149 (6): Independent Director means a director other than a
managing director or whole time director or a nominee director,
 a) Who, in the opinion of the Board, is a person of integrity and
possesses relevant expertise and experience;
 b) (i) Who is or was not a promoter of the company,
 (ii) Who is not related to promoters or directors in the company
 c) Who has or had no pecuniary relationship with the company
 d) None of whose relative has or had pecuniary relationship or
transaction with the company.
 e) Who, neither himself nor any of his relative:
 (i) Holds or has held the position of a key managerial personnel
 (ii) Is or has been an employee or proprietor or a partner, in any of the
three financial years proceeding.
 (iii) Holds together with his relative two per cent or more of the total
voting power of the company; or
 (iv) Is a Chief Executive or director, of any non-profit organization, or
who possesses such other qualifications as may be prescribed.
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.
Number of directorships- Section 165
 Maximum number of directorships, including any
alternate directorship a person can hold is 20. It has
come with a rider that number of directorships in
public companies/ private companies that are either
holding or subsidiary company of a public company
shall be limited to 10. Further the members of a
company may restrict abovementioned limit by
passing a special resolution.
 REMOVAL OF DIRECTORS
 Sec. 169- Simple resolution by body of shareholders. Does
not apply to directors of a private company who hold office
for life- or a public company that has 2/3 proportional
representation. Unfettered power.
 LIC vs. Escorts- SC- Albeit not conclusive- no reasons
required- in this case, minority wished to thwart decision
of majority.
 Queens Kuries and Loans Pvt. Ltd Vs. Sheena Jose:
Reasons to be stated as it is a matter of substance and not
of form an right to defend exists.
 Schindler Vs. North Raincoat- AOA allowed removal by
chairman- director challenged- relied on AOA for
appointment- cant- if amended – can.
 Bushnel Vs. Faith- Private company- 284 applies –
AOA gave Treble voting rights to the director sought to
be removed- upheld by house of Lords in Appeal.
 Read Material for Powers of the Board- Powers of
Directors- Liability of Directors. Independent
Director- Audit committee.
 Duties of a Director Sec 166
 — Act in accordance with the articles of the company.
 — Act in good faith in order to promote the objects of
the company for the benefit of its members as a whole,
and in the best interests of the company, its
employees, the shareholders, the community and for
the protection of environment.
 — Exercise his duties with due and reasonable care,
skill and diligence and shall exercise independent
judgment.
 — 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.
 — 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.
 — 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 Rs. 1,00,000 but
which may extend to Rs. 5,00,000
Powers of the board
 The general management power vested in the board
cannot be usurped by the shareholders.
 Automatic Self-cleaning Filters Syndicate
Company v. Cunningham Can board be compelled
to do certain things though resolution at GM?
 In a number of cases, however, it was decided that
general meeting of shareholders may make regulations
for the guidance of directors, but cannot invalidate
their prior actions.
 Scott v. Scott: Instituted a case- members passed
resolution against- court held: the powers are vested in
the directors they and they alone can exercise this
power.
 Murarka Paint And Varnish Works vs Mohanlal
Murarka where the court held that the powers of the
management being vested in the board and in exercise
of these powers the board instituted a case,
shareholders had no right to question the directors
decision in this respect.
 According to Section 179: the board of directors is
empowered to exercise all powers of the company. It
includes the power of suing for and on behalf of the
company.
 NO SUCH power to any individual unless special
circumstances.
 Especially where BOD fails to protect the interests of
the company the This is known as derivative action.
 Sometimes shareholders in general may have
grievance against the company which is taken up by a
few. This is known as representative action.
 Estmenco (Killer House) Ltd. v. Greater Indian Council-
derives right from company.
 Brich v. Sullivan- To show that right ot sue exists-
failure