Issue 15 (dated 10 September 2014). Contact us at contact.investments@ifmr.co.

in

In our previous newsletter, we presented an update RBIs recommendations for Credit Information Companies
to improve credit reporting and the impact that the recommendations have for MFIs. In this newsletter, we
present aspects of the Companies Act 2013 pertaining to governance.
Effective April 1, 2014, the Companies Act 1956 has been replaced by the Companies Act, 2013. The new Act
was assented by the President of India on August 29, 2013 and published in the Official Gazette on August 30,
2013. The new Act makes several changes in the governance framework of companies, requires additional
measures to be put in place and also aligns itself with certain good international practices. We propose to cover
some relevant topics of the Companies Act in this newsletter series. In one of our earlier newsletters we
covered the provisions of the CSR rules. In this edition we broadly cover the induction, duties, powers, liabilities
etc., of Directors1.
Appointment of a Director

DIN

The board candidate should possess a valid Director Identification

Number (DIN)

Consent to act as
Director

A letter of consent from the board candidate to be obtained prior to

appointment
Declarations under Sections 184 and 164 to be provided by the board
candidate prior to appointment

Appointment by the
Board

Board to appoint the candidate till the ensuing Annual General

Meeting (AGM) of the Company
Director's appointment to be ratified by the members at the next AGM

Wholetime and
Managing Directors

Cannot be appointed/re-appointed for a term exceeding 5 years at a

time
Age limit of 21 - 70 years applicable for wholetime / managing
directors

Limit on directorships

Overall directorships restrictred to 20, excluding foreign companies

Directorships in public limited companies (including private limited
companies that are either holding or subsidiary of a public limited
company) restricted to 10

Resident Director

At least one director should have stayed in India for 182 days or more
in the previous calendar year

Woman Director

Prescribed classes of companies to have at least one woman director

on their boards

Independent Directors*

The Act defines an independent director as a director other than the

managing director, whole time director or a nominee director

*This section will be covered in more detail in a forthcoming newsletter.

1

This is a compilation of relevant sections pertaining to Directors as per the Companies Act 2013. Not all of these sections may apply to directors of
private companies. This newsletter may be used for reference purposes and is not exhaustive. Kindly refer to the MCA website (www.mca.gov.in) for
the entire Act.

Issue 15 (dated 10 September 2014). Contact us at contact.investments@ifmr.co.in

Duties of directors as laid down under Section 166 of the Companies Act 2013:

A director shall act in accordance

with the Articles of the Company

A director shall act in good faith

and in the best interest of the
company, its shareholders,
employees and the community

A director shall exercise duties

with due and reasonable care,
skill and diligence, exercising
independent judgement as
required

A director shall avoid situations

of conflict of interest. In cases of
such conflicts, the director shall
disclose the same to the Board

A director shall not achieve or

attempt to achieve any undue
gain or advantage either to
himself or his relatives, partners
or associates

A director shall not assign his

office and any such assignments
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 lakh rupees.
Powers of directors as specified under Section 179 of the Companies Act 2013:

Entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to
exercise and do, subject to the provisions of the Memorandum and Articles of Association of the Company
and the applicable regulations and except those that require the specific consent of the shareholders
No new regulation made by the company in a general meeting shall invalidate any prior act of the Board
which would have been valid if that regulation had not been made

The Board of
Directors of a
company shall
exercise the powers
on behalf of the
company by means
of resolutions
passed at meetings
of the Board

to make calls on shareholders in respect of money unpaid on their shares;

to authorise buy-back of securities under section 68;
to issue securities, including debentures, whether in or outside India;
to borrow monies;
to invest the funds of the company;
to grant loans or give guarantee or provide security in respect of loans;
to approve financial statements and the Board's report;
to diversify the business of the company; and to approve amalgamation,
merger or reconstruction;
to take over a company or acquire a controlling or substantial stake in
another company;
any other matter which may be prescribed:

Circumstances that may lead to the vacation of office of director (Section 167 of Companies Act 2013):
If the director is disqualified as specified under section 164;
If the director absents himself from all the meetings of the Board held during the preceding twelve
months with or without seeking leave of absence;

Issue 15 (dated 10 September 2014). Contact us at contact.investments@ifmr.co.in

If the director acts in contravention of the provisions of Section 184 relating to entering into contracts or
arrangements in which he is directly or indirectly interested and fails to disclose his interest in such
contract or arrangement;
If the director becomes disqualified by an order of a court or the Tribunal;
If the director is convicted by a court of any offence, and sentenced to imprisonment for not less than
six months (office shall be vacated by the director even if he has filed an appeal against the order of
such court);
If the director is removed in pursuance of the provisions of the Companies Act;
If the director ceases to hold such office or other employment if he is appointed a director by virtue of
his holding such office or other employment in the holding, subsidiary or associate company
A private company may, by its Articles, provide any other ground for the vacation of the office of a
director

Resignation of director (Section 168 of Companies Act 2013):

A director may resign from his office by giving a notice in writing to the company and the Board shall
take note of the same. The company shall intimate the Registrar of the resignation in the prescribed
format within the stipulated time. The resignation shall form part of the report of directors laid in the
immediately following General Meeting by the company; The director shall also forward a copy of his
resignation along with detailed reasons for the resignation to the Registrar
The resignation of a director shall take effect from the date on which the notice is received by the
company or the date, if any, specified by the director in the notice, whichever is later: However, the
director who has resigned shall be liable even after his resignation for the offences which occurred
during his tenure
Where all the directors of a company resign from their offices, or vacate their offices under section 167,
the promoter or, in his absence, the Central Government shall appoint the required number of directors
who shall hold office till the directors are appointed by the company in general meeting

Issue 15 (dated 10 September 2014). Contact us at contact.investments@ifmr.co.in

Liabilities of a Director:
Section 129(1) -Financial
statements to give a true and
fair view of the state of
affairs of the company;
compliance with the
accounting standards.

Penalty: If the company contravenes ,all the directors shall be

punishable with imprisonment for a term which may extend to one
year or with fine which shall not be less than fifty thousand rupees
but which may extend to five lakh rupees, or with both.

Section 129 (2) - Failure to

lay financial statements at
the AGM and failure to
supply information to
auditors

Penalty: imprisonment for a term which may extend to one year

or with fine which shall not be less than fifty thousand rupees but
which may extend to five lakh rupees, or with both.

Section 134(3) - Failure to

attach to balance sheet a
report of the Board of
directors and statement on
declaration given by
independent directors.

Penalty - The company shall be punishable with fine which shall

not be less than fifty thousand rupees but which may extend to
twenty-five lakh rupees and every officer of the company who is
in default shall be punishable with imprisonment for a term which
may extend to three years or with fine which shall not be less
than fifty thousand rupees but which may extend to five lakh
rupees, or with both.

Sections 170 and 172 Failure to maintain registers

and disclose shareholdings
of Directors and Key
Managmeent Personnel and
filing of returns

Penalty - If a company contravenes, the company and every officer

of the company who is in default shall be punishable with fine
which shall not be less than fifty thousand rupees but which may
extend to five lakh rupees

Section 184 - Failure to

disclose interest in a
contract or arrangement

Penalty - Any director or any other employee of a company, who

had entered into or authorisedthe contract or arrangement in
violation of the provisions of this section shall be punishable with
fine which shall not be less than twenty-five thousand rupees but
which may extend to five lakh rupees

Section 305- False

declaration of company's
solvency

Penalty- Any director of a company making a declaration under

this section without having reasonable grounds for the opinion
that the company will be able to pay its debts in full from the
proceeds of assets sold in voluntary winding up shall be punishable
with imprisonment for a term which shall not be less than three
years but which may extend to five years or with fine which shall
not be less than fifty thousand rupees but which may extend to
three lakh rupees, or with both.

We welcome your feedback to us at contact.investments@ifmr.co.in and would be happy to revert in case you
need any further details.

Issue 15 (dated 10 September 2014). Contact us at contact.investments@ifmr.co.in