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Responsibilities of Directors under Companies Bill 2011

Yogesh Agarwal , Last updated: 26 December 2011  

The day has come when The Companies Bill 2011 has been tabled in the Parliament by the Corporate Affairs Minister Honourable Shri V. Moily.

There are so many new things added and removed to the / from the Bill in comparison to its predecessor still prevailing Corporate Law known as Companies Act 1956. In the said new bill so many duties and responsibilities has been prescribed very specifically which were earlier missing in the Companies Act 1956. The duties and responsibility of Auditors has been broadened with some new scheme of rotation of auditors of the companies.  

However, I am not going to discuss on that part but I will discuss the duties and responsibilities cast on the Directors of the Company under a new Companies Bill 2011. Earlier in Companies Act 1956 the same were not depicted and prescribed anywhere. Only the definition were provided of the Directors under Section 2(34) as "a director appointed by Board of the Company" and inturn the Board of the Directors defined under section 2(10) of the Act as "the collective body of the Directors of the Company". On reading these two definitions you will find that the same is defined in a contradictory manner. How a person be appointed by the person himself? However the same is used to be given in Article of Association but some legal clarity were felt necessary to be in existence. May be this is one of the reason for introducing the Clause 166 in the The Companies Bill 2011 wherein the duties of the Directors are broadly defined.

As per the clause 166 of the Companies Bill 2011 the Duties are stated below:

“(1) A director of a company shall act in good faith in order to promote the goals of the company and in the best interest of the company, its members as a whole, its employees, the shareholders, the community and for the protection of environment.

(2) A director of a company must exercise his duties with due and reasonable care, skill and diligence and must have an independent judgment.

(3) Directors of a company shall not involve themselves in a situation where they may have a direct or indirect interest that can conflict with the good of the company.

(4) The directors of a company must not misuse or attempt to misuse the resources of the company for any undue gain either for themselves or to their relatives, partners, or associates

(5) Directors of a company cannot decide the successor to their position. A director has to be elected democratically. Any such allocation shall be void.

(6) If a director of the company is found guilty of violating the provisions of this section such director shall be punished with a fine which shall not be less than Rs 5,000 and may extend to Rs 25,000 a day, for every day after the first day during which the violation continues."

Apart from that some more changes were introduced but one of them is that now some classes of companies have to have women directors compulsorily on their Board.

The J.J.Irani Committee has recommended that the Duties of the Directors should be Inclusive and not exhaustive in view of the fact that no rule of Universal Application can be formulated as to the duties of the directors.

Wish that the Companies Bill 2011 pass without delay. 


CA Yogesh Agarwal


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Yogesh Agarwal
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