Who can appoint a Director in the company? Explain the Conditions precedent to such an appointment. Discuss the duties of directors.

Question: Who can appoint a Director in the company? Explain the Conditions precedent to such an appointment. Discuss the duties of directors. [BJS 2021]

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Answer

A corporation is an intangible, artificial person. A living possessing a mind for decision-making and hands for carrying out his acts, as well as information and intention is required. However, because it is an artificial person, a corporate entity lacks all of these. Therefore, it must act via a living being. Directors are given responsibility for running the business of the company. A director is defined in Section 2(34) of the Companies Act of 2013.

Lord Reid in the case of Tesco Supermarkets Ltd. v. Nattrass, [1971] UKHL 1, held that

“A living person has a mind which can have knowledge or intention and he has hands to carry out his intention. A corporation has none of these it must act through living persons.”

As per the Supreme Court, it is important to appoint an individual as a director in the company as the director’s office is the office of trust and if someone fails to carry out this trust then someone should be held responsible. Section 149 of the Companies Act, 2013 states that the Board of Directors shall consist of individuals as directors.

Appointment of Director

The Companies Act states that only an individual may be chosen to serve on the board of directors. Typically, shareholders are the ones that choose the directors. Two-thirds of the directors in both public and private companies are chosen by the shareholders. The remaining one-third of the members are appointed in accordance with the rules outlined in the Articles of Association. A Private Company's Articles of Association may specify the procedure for electing any and all directors.

If the Articles remain silent, the shareholders must appoint the directors. The Companies Act also has a provision that allows a business to appoint two-thirds of its directors in accordance with the principle of proportional representation. If the business has implemented this policy, this occurs. To address malfeasance and mismanagement, nominee directors will be nominated by the government or by independent agencies. While carrying out their responsibilities on behalf of the organisation, directors have a responsibility to behave honestly and with reasonable care and skill.

A managing director can only be chosen for a maximum of five years and must be an actual person. As long as the board of directors of the original company is informed and approves of the new appointment, a managing director of an already-existing company may be appointed as the managing director of another company.

Conditions for Appointing Directors

The following conditions are applicable when appointing a director:

1. He or she should not have been sentenced to imprisonment for any period, or a fine imposed under a number of statutes.

2. They should not have been detained or convicted for any period under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.

3. He or she should have completed twenty-five (25) years of age, but be less than the age of seventy (70) years. However, this age limit is not applicable if the appointment is approved by a special resolution passed by the company in a general meeting or the approval of the Central Government is obtained.

4. They should be a managerial person in one or more companies and draws remuneration from one or more companies subject to the ceiling specified in Section III of Part II of Schedule XIII.

5. He or she should be a resident of India. ‘Resident’ includes a person who has been staying in India for a continuous period of not less than twelve (12) months immediately preceding the date of his or her appointment as a managerial person and who has come to stay in India for taking up employment in India or for carrying on business or vocation in India.

Role of a Director

He is in charge of managing, supervising, and directing the business in his capacity as a member of the Board of Directors. In addition to serving as the company's agents and officers, directors also serve as its trustees. Even if the corporation employs professional personnel to manage the organization's affairs, they are not referred to be the company's servants. However, a director can offer his professional services to the company as a lone employee and sole director through a separate service agreement. The Companies Act of 2013 is completely silent regarding the position or function of directors in the company.

• As Employee: If the Board of Directors appoints and the company’s shareholders approve any full-time director who manages the company’s day-to-day operations as an employee. In the outline of the employment letter issued by the BoD, all the directors make to an organization.
• As Officer: As per section 2(59) of the Companies Act, 2013, the director is treated as an officer of the company on whose directions other directors or the Board of Directors are accustomed to act. As per section 2(60) of the Companies Act, 2013, the director is considered an “officer in default” and he is even punished as an officer in default for non-compliance with provisions.
• As Agents of the Company: In an Agency a person is bound to form, Perpetuate a relationship of Principal with third parties, the role and powers they get from Memorandum and Articles of the Company, if their activities are outside the criteria given under MOA and AOA, it is beyond legal Power.
• As Trustee of the Company: They are considered the custodian of the assets of the company and are responsible to use the assets in the best interest of the company, as a trustee of the company. They would be held liable if they misuse or divert the assets in their vested interests.

Duties of Directors As Per Legal Provisions Under The Company Act, 2013

The Companies Act of 2013 categorises the duties and responsibilities of directors into two categories: —

1. The responsibilities and liabilities that uplift and advance the investment of directors’ work bring good corporate governance, good management, and making fully-fledged and shrewd decisions to avoid unnecessary risks to the company.

2. Fiduciary duties guarantee and ensure that the directors of companies always protect and secure the interests of the company and its stakeholders, above their self-interests. The duties of a director were not expressed in the 1956 Act; however, they are specifically stated in Section 166 of the Companies Act, 2013. Directors of the Company are bound to do the following Duties given Under Section 166 of the Companies Act, 2013:

• Activities of the Director shall always be in accordance with the AoA.
• The director shall perform in good faith in order to uplift the objects of the organisation, for the profit of shareholders and for the well-being of the organization.
• He shall follow his duties with proper care and exercises independent judgment.
• He shall not perform any act which gives rise to conflicts.
• The director shall be held liable to pay an equal amount to the gain if he is found to be gaining any undue advantage.

Any company's directors are a crucial component. Only a director of the company is authorised to carry out some duties. The Companies Act of 2013 governs concerns pertaining to directors. These directors are chosen by the Company's shareholders, and the Articles of Association of the Company details the qualifications and disqualifications of directors. To let a person with the necessary qualifications represent the Company, a stringent bar of five years is imposed. However, the Company Law also includes an appeal provision and a thirty-day period to correct any filing errors.

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