Tuesday 21 July 2015

The Companies Act, 2013 DIRECTORS

1.      Role and responsibilities of Directors

  In view of the fiduciary position held by directors, explicit provisions prescribing directors duties have been added to the new Act. These include keeping away from situations in which they have conflicting interest with that of the company, duty to make good in monetary terms any undue gain/advantage on the part of the directors etc., similar to what was there in the old Act. There are also certain general duties, such as acting in good faith for the benefit of the company and to ensure that the company is filing its financials, annual return and payment of debentures in time. These amendments, though not substantial, have tried to shift the onus on the director for the loss/liability suffered by the company due to their lack of discipline by increasing the penalty and clearly codifying the role and duties.
·         Section 188 of the act restricts directors from buying, selling, leasing or disposing of any property, appointment of an agent and appointment in place of profit in the company or associate/subsidiary and, in all such cases, they are mandated to make a disclosure for these transactions. In case of non-disclosure by a director, he will indemnify the company against any loss incurred by it. The Act has codified and set high standards for a director's duty and liability towards the company.
·         Under section 134 every Directors report (except for One Person Company) shall provide various types of additional information like number of meetings of the Board, Company’s policy on directors’ appointment and remuneration explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the Company Secretary in his secretarial audit report, particulars of loans, guarantees or investments etc.
·         The Directors responsibility statement under section 134(5) shall now also provide for laying down of internal controls and compliance of all applicable laws”.
Section 164 that describes the disqualifications for appointment of a director has focused on corporate compliance. A director will not be re-appointed, or appointed in other company, if any of the companies in which he is a director has failed to file its annual returns or financial statements for three continuous years.