LEGAL POSITION OF DIRECTORS WITH THE COMPANY UNDER THE
COMPANIES ACT, 2013
Under the Companies Act, 2013, directors are seen as important individuals who are
responsible for managing the affairs of the company. However, their legal position can vary
depending on the nature of their role. Courts and legal experts have described directors in
different ways:
1. Directors as Agents
Directors act as agents of the company.
The company, being an artificial person, can only act through directors.
When directors make decisions or sign contracts on behalf of the company, it is
the company (not the directors personally) that is bound by those actions.
Example: If a director signs a supply contract for the company, it is the company that is
responsible for fulfilling it, not the director personally.
2. Directors as Trustees
Directors are also considered trustees of the company's property and assets.
They must protect and manage the company's assets for the benefit of
shareholders.
They owe fiduciary duties (duties of honesty, loyalty, and care) toward the
company.
Example: Directors must not misuse the company's funds for personal gain.
3. Directors as Officers
Under the Companies Act, directors are treated as officers of the company.
They have statutory duties and responsibilities, such as maintaining records, filing
returns, ensuring compliance with laws, etc.
Failure to perform these duties can result in penalties or prosecution.
Example: If a company fails to file its annual returns, directors may be fined.
4. Directors as Employees (in special cases)
Normally, directors are not employees.
However, a Managing Director or a Whole-Time Director may have a contract of
employment and work full-time for the company.
In such cases, they act both as directors and employees.
Example: A Whole-Time Director drawing a monthly salary under a contract of
employment.
DUTIES OF DIRECTORS
A director of a company shall:
1. Act in accordance with the articles of the company
2. 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.
3. Exercise his duties with due and reasonable care, skill and diligence and shall exercise
independent judgment.
4. 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.
5. 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.
6. Not assign his office and any assignment so made shall be void.
POWERS OF DIRECTORS
Board of Directors can exercise all such powers and do all such acts as the company is
authorized to exercise and do.
Board cannot exercise those powers which the Companies Act, Memorandum of
Association or Articles of Association require to be exercised by the shareholders in
the general meeting.
According to Companies Act, 2013, the following powers of the company can be exercised
only by means of resolutions passed at the meeting of the Board:
1. to make calls on shareholders in respect of money unpaid on their shares;
2. to authorise buy-back of securities;
3. to issue securities, including debentures, whether in or outside India;
4. to borrow money;
5. to invest the funds of the company;
6. to grant loans or give guarantee or provide security in respect of loans;
7. to approve financial statement and the Board’s report;
8. to diversify the business of the company;
9. to approve amalgamation, merger or reconstruction;
10. to take over a company or acquire a controlling or substantial stake in another
company;
In addition to these powers, the following powers shall also be exercised by the Board of
Directors only by means of resolutions passed at meetings of the Board:
1. to make political contributions;
2. to appoint or remove key managerial personnel (KMP);
3. To fill casual vacancies in the board;
4. to appoint internal auditors and secretarial auditor;
5. to take note of the disclosure of director’s interest and shareholding;
6. to buy, sell investments held by the company (other than trade investments),
constituting five percent or more of the paid up share capital and free reserves of the
investee company;
7. to invite or accept or renew public deposits and related matters;
8. to approve quarterly, half yearly and annual financial statements or financial results as
the case may be
