Company Law

1. Company Law - Part II
Unit II

2. Managerial Personnel : Directors &
Managers
• Sec 2 (13) of Companies Act 1956, ‘Director’
includes any person occupying the position of
director by whatever name called.
• Minimum number of Directors : Atleast 3 (Public
Company); Atleast 2 (Private Company)
• Maximum number of Directors :
– A company can by ordinary resolution passed in general
meeting increase or decrease the number
– Public Company or a Private Company which is a
subsidiary of a Public Company cannot increase beyond
the maximum specified in Articles without the approval
of the Central Govt.

3. Appointment of Directors
• By the Articles as regards first Directors
• By the Company in General Meeting
• By the Directors
• By third parties eg., lending institutions for
nominee directors
• By the principle of proportional
representation
• By the Central Government

4. Legal Position of Directors
• Directors are not the company’s employees
nor its servants
• They are treated as Officers of the Company
for certain matters under Companies Act
• They are Trustees of Company’s money and
property and the powers entrusted to them
• They control the affairs of the Company
(artificial person governed by human agency)
as its Agents; they are accountable to the
company

5. Legal Position of Directors
• They are protected by an Indemnity Clause in the
Articles of Association
• Penalties imposable on Directors for the
contravention or defaults are of two types
– Those imposable on them directly as ‘Directors’
– Those imposable on them directly as ‘Officers who are in
default’
• Share Qualification : Articles requires that the
qualification of a Director shall be holding of a
specified number of shares known as Qualification
shares; nominal value not to exceed Rs.5000

6. Disqualification of Directors
• Circumstances in which a person cannot be
appointed as a director
– Unsound mind
– Insolvent
– Convicted of an offence involving moral issues and
sentenced to imprisonment for a period not less
than 6 months and 5 years had not elapsed since
the expiry of his sentence
– Has not paid any call on shares held for 6 months
from the last day fixed for payment
– Disqualified by order of Court

7. Restriction or Ceiling on number of
directorships
• After Amendment Act 2000, a person can be a
director of not more than 15 companies
• Companies excluded in calculating the number of
companies of which a person may be a director
– A private company which is neither a subsidiary nor a
holding company of a public company
– An unlimited company
– An association not carrying on business for profit
– A company in which such person is only an Alternate
Director

8. Vacation of Office by Directors
• Director’s office become vacant if
– He ceases to hold the share qualification required of him
by the Articles of Association
– Found to be Unsound mind by competent court
– Insolvent
– Convicted of an offence involving moral issues and
sentenced to imprisonment for a period not less than 6
months and 5 years had not elapsed since the expiry of
his sentence
– He absents himself from 3 consecutive meetings of the
Board of directors or from all meetings of the Board for
continuous period of 3 months without obtaining leave
of absence from Board

9. Public Company
• Atleast 3 directors
• With paid up capital of 5 Crores or more and
1000 or more small share holders : Atleast 1
director elected by small shareholders
(shareholder holding shares of value less than
Rs.20000), elected in a prescribed manner
• Removal of Directors :
– Share Holders
– Central Government
– The Court of Law

10. Remuneration of Managerial
Personnel
• Total Managerial Personnel Remuneration :
Not exceed 11% of net profit for that financial
year; Fees payable to directors for attending
Board meetings is not included

11. Remuneration of Managerial
Personnel
• Not exceeding ceiling limit of Rs.24,00,000 per annum or
Rs.2,00,000 per month
– Less than Rs. 1 crore : Rs. 75,000
– Rs. 1 crore or more but less than Rs. 5 cr. : Rs. 1,00,000
– Rs. 5 crore or more but less than Rs. 25 cr. : Rs.1,25,000
– Rs. 25 crore or more but less than Rs. 50 cr. : Rs.1,50,000
– Rs. 50 crore or more but less than Rs. 100 cr. :
Rs.1,75,000
– Rs. 100 crore or more : Rs. 2,00,000

12. Remuneration of Managerial
Personnel
• Provided that the ceiling limits specified under
this sub-paragraph shall apply, if –
– Payment of remuneration is approved by a
resolution passed by the Remuneration
Committee;
– The company has not made any default in
repayment of any of its debts (including public
deposits) or debentures or interest payable
thereon for a continuous period of thirty days in
the preceding financial year before the date of
appointment of such managerial person.

13. Remuneration of Managerial
Personnel
Where the effective capital of company is Monthly remuneration payable
shall not exceed
i) Less than Rs. 1 crore Rs. 1,50,000
ii) Rs. 1 crore or more but less than Rs. 5 crore Rs. 2,00,000
iii) Rs. 5 crore or more but less than Rs. 25 crore Rs. 2,50,000
iv) Rs. 25 crore or more but less than Rs. 50 crore Rs. 3,00,000
v) Rs. 50 crore or more but less than Rs. 100 crore Rs. 3,50,000
vi) Rs. 100 crore or more Rs. 4,00,000

14. Remuneration of Managerial Personnel
• Provided that the ceiling limits specified under this
sub-paragraph shall apply, if –
– payment of remuneration is approved by a resolution
passed by the Remuneration Committee;
– the company has not made any default in repayment of
any of its debts or debentures or interest payable for a
continuous period of thirty days in the preceding
financial year before the date of appointment of such
managerial person;
– a special resolution has been passed at the general
meeting of the company;
– a statement along with a notice calling the general
meeting is given to the shareholders containing the

15. Remuneration of Managerial
Personnel
• A Statement along with a notice calling the
general meeting is given to the shareholders
containing the following information
• General Information
• Information about the Appointee
• Other Information
• Disclosures

16. Remuneration of Managerial
Personnel
• Sitting Fee
– Payable to director for each meeting
– Not exceed ceiling prescribed by Central
Government (presently Rs.5000)

17. Directors Responsibility Statement
• Applicable accounting standards have been
followed in preparing annual accounts
• Such accounting policies are selected and applied
consistently
• Have taken proper and sufficient care
– For maintenance of adequate accounting records
– For safeguarding assets of the company
– For preventing and detecting fraud and other
irregularities
• Have prepared the annual accounts on a Going-
concern basis

18. Meetings of the Board
• Atleast 1 in every 3 months
• Atleast 4 in every year
• Notice of meeting should be given in writing to
every director
• Quorum for a meeting is 1/3rd of its total
strength
• If meeting could not be held for want of
quorum, then it would automatically adjourned
to same day next week

19. Powers of Board
• General Powers
– All such powers and do all such acts and things, as
company is authorized to exercise and do
• Powers to be exercised by Board only at
meeting
– Power to make calls
– Issue debentures
– Power to borrow money other than issue
debentures
– Power to invest the funds of the company

20. Duties of Directors
• Exercise some degree of skill and diligence
• Act honestly in performance of his duties
• Must perform their duties personally; not
delegate to some other person
• Is not bound to give continuous attention to
the affairs of his company
• Not bound to examine individual entries in the
books of accounts

21. Liabilities of Directors
• Liability to Outsiders
– Not personally liable to outsiders if they act within
powers vested
– Shall be personally liable if
• They contract in their personal capacity
• Act as agents of an undisclosed principal
• Enter into contract on behalf of a prospective company
• Contract is ultra-vires the company

22. Liability to Company