Handbook on duties and responsibilities of Board of Directors


BOARD OF DIRECTORS AND THEIR RESPONSIBILITIES 

Purpose of this book is to highlight the general duties of Board of Directors in a Company. 

Directors might have noticed about the recent initiatives and actions of the Ministry of Corporate Affairs (MCA), few of which are DIN deactivation, Strike off the Companies, KYC, Show Cause Notices, etc. As the present business in India moves towards aligning its affairs with global standards, it is time, for Indian corporate, particularly, companies which are closely held by the family members, be it Private or Public, to change their mindset towards compliance regime. As per Companies Act, 2013, including the rules and regulations made thereunder, there are numerous provisions which shall be complied with and the prime responsibility of compliance lies with Board. 

Companies which have transparency in its business and timely compliance track-record, are always having the edge in the business environment. One of the best available tools to achieve "transparency and compliance" is to adhere to the provisions of law and to listen to independent professionals like auditors and Company Secretaries on Compliance. 

Though the Author has noticed that many of the Directors are true to the business and having great ethics and moral, in general, the Directors are either unaware or with half-way information on their responsibilities. The Directors are a bridge between the company and Stakeholders and they occupancy fiduciary duties. Any failure /delay/default in discharging the duties by a Director would lead not only penalty and punishment, but some occasions it touches the reputation. 

With the above background, this handbook is prepared to create an awareness of the duties and responsibilities of the Directors in the Company. 

Company & its evolving: 

The concept of 'Company' in business is not new and it was dealt with, in 4th century BC itself during 'Arthashastra' days. Its' shape got revamped over a period of time according to the needs of business growth. The history of Indian Company law began with Join Stock Companies Act,1850, which is basically an English Company Law and got introduced during the time of East India companies. 

How Company different from Proprietorship / Partnership Firm 

1. Company as an artificial person
2. Separate Legal Entity
3. Perpetual Succession (It never dies, unless it is wound-up)
4. Limited liability
5. Free and Easy Transferability of Shares
6. Owning Properties (no member or shareholder or Director can claim himself to be the owner of the company's property)
7. Can sue and can be sued
8. Dual Relationship
9. Company is not a citizen, but it has Nationality and Residence 

Board of Directors 

As company is an artificial person is managed by human beings. A company acts through its shareholders and Board of Directors. The boards of directors are in charge of the management of the company's business; they make the strategic and operational decisions of the company and are responsible for ensuring that the company meets its statutory obligations. Boards of Directors are elected representative of the shareholders. The directors play important role in the day to day functioning of the company. It is the board, which is responsible for company's overall performance. To attain the objectives prescribed in Memorandum of Association of the company, the company depends on Board (collectively) and directors (individually). Directors of a Company are its eyes, ears, brain, hands and other essential limbs. 

Directors 

Section 2(34) of the Act prescribed that "director" means a director appointed to the Board of a company. Section 2(10) of the Companies Act, 2013 defined that "Board of Directors" or "Board", in relation to a company, means the collective body of the directors of the company. The term 'Board of Directors' means a body duly constituted to direct, control and supervise the affairs of a company. As per Section 149 of the Companies Act, 2013, the Board of Directors of every company shall consist of individual only. Thus, no body corporate, association or firm shall be appointed as director. Again Section 166 of Companies Act, 2013, prohibits assignment of office of director to any other person. Any assignment of office made by a director shall be void. In nutshell, only Individuals can be Director and such appointed individual can't assign his office. 

Importance of Directors 

Directors are the face of the Company. The image and integrity of the company depend on the image of and integrity of the Directors. Even though, the shareholders are having ultimate authority to decide on the appointment and removal of Directors, running and managing day to day affairs of the company are in the hands of Board. 

If a company commits a default or non-compliances of any provisions of the Companies Act, 2013 , Company is liable for fine. As company, being an artificial person, cannot be sent to prisons in case of serious violations, which involve imprisonment. Who can be sent? Only the Board of Directors who are managing the affairs of the Company. Board of Directors are authorized to do what the company is authorized to do unless barred by restrictions on their powers by the provisions of the Companies Act, 2013, the Memorandum orArticles of the company. Except where express provisions are made that the powers of a company in respect of any matter are to be exercised by the company in general meeting, in all other cases the Board is entitled to exercise all its powers. The role and responsibility of a Director in a company are multifaceted. 

Duties and Responsibilities of Directors 

The directors are under an obligation to ensure that the company's affairs are managed in a most effective manner. It is not necessary that all the task to be completed by themselves. They can delegate certain responsibilities to the MD, CEO, CS, CFO etc. However, the ultimate responsibility always lies on the Directors. 

To view / download the handbook, click here

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P ESWARAMOORTHY 
on 11 January 2019
Published in Corporate Law
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