As per section 2(34) of the companies Act, 2013 “Director” means a director appointed to the board of a company. A Director is a person who is appointed to perform his duties and function in accordance with the provisions of companies Act, 2013.

• A director of the company shall be act in accordance with the articles of the company.
• A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, and the community and for the protection of environment.
• A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
• A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
• A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives , partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.
• A director of a company shall not assign his office and any assignment so 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.

 FAQs (Frequently Asked Questions)

Rajeev and his wife Surekha are the only two directors of Rajsur Pvt. Ltd. Rajeev went abroad for two months. Before going abroad, he registered a general power of attorney in favour of his son Ranbeer, aged 21 years, to execute all documents on his behalf as an individual as well as director of Rajsur Pvt. Ltd. Ranbeer signed a contract on behalf of Rajsur Pvt. Ltd. by exercising his power of attorney. Is this contract binding upon the company?

Section 166 (6) of the Companies Act 2013 prohibits assignment of office of director to any other person. Any assignment of office made by a director shall be void. Authorizing any person to sign a document as a director amounts to assignment of office of director. Hence, in the instant case Rajeev cannot assign his office of directorship in Rajsur Pvt. Ltd. to his son Ranbeer by a general power of attorney to sign documents on his behalf as director of the company. Contracts signed by Ranbeer on behalf of the company are void and not binding upon the company.

The Paid-up Capital of X Ltd. is `10 Crore and Reserve and Surplus are negative (due to huge losses since previous few years) amounting `300 Crore. To pay the dues to Creditors, the Board of Directors passed the resolution for borrowing of `50 Crore and got funded through Financial Institution in term of Medium Term Loan for 3 years. Entire amount was utilized to pay the Debts. The Financial Institution when got the information that such act was ultra vires transaction, filed a suit against the Directors of the Company. The Plea of the Directors were that Shareholders and Directors have limited liability and doctrine of indoor management is applicable. Therefore, they are not personally liable. Comment.

Section 180(1) (c) read with Section 179 of the Companies Act, 2013, provides that the Board of Directors can only with the consent of the company by a special resolution would borrow money, where the money to be borrowed, together with the money already borrowed by the company exceeds aggregate of its paid-up share capital, free reserves and securities premium, apart from temporary loans obtained from the company’s bankers in the ordinary course of business. Now, whether a transaction is ultra vires the company can be decided on the basis of the following: · if a transaction entered into by a company falls within the objects, it is not ultra vires and hence not void; · if a transaction is outside the capacity (objects) of the company, it is ultra vires; · if a transaction is in excess or abuse of the company’s powers, it is ultra vires and such transaction will be set aside by the shareholders or even ratification by the shareholders would not validate the acts done beyond the authority of the company itself.

Personal liability of Directors:

It is one of the duties of directors to ensure that the corporate capital is used only for the legitimate business of the company and hence if such capital is diverted to purposes alien to company’s memorandum, the directors will be personally liable to replace it.

In Jehangir R. Modi v. Shamji Ladha, [(1866-67) 4 Bom. HCR (1855)], the Bombay High Court held, “A shareholder can maintain an action against the directors to compel them to restore to the company the funds of the company that have by them been employed in transactions that they have no authority to enter into, without making the company a party to the suit”. In case of deliberate misapplication, criminal action can also be taken for fraud. While the doctrine of ‘constructive notice” seeks to protect the company against the outsiders, the principal of indoor management operates to protect the outsiders against the company. Hence, in the present case, the Board has taken loan exceeding the prescribed limit under section 180(c) of the Companies Act, 2013, therefore, Directors are personally liable to repay the loan to financial institution.

The directors of XYZ Limited are responsible for calling a general meeting and having failed to call such a meeting and thereby contravened section 166 of the Companies Act. They however preferred to file annual return with the concerned Registrar of Companies. Explain as to whether is it a condition precedent to hold the general meeting and then to file the annual return.

The directors of the company are responsible for calling a general meeting and having failed to call such a meeting, and thereby contravened Section 166 of the Companies Act, 2013. So, they cannot be permitted to take advantage of their own wrong and then plead that they could not file the annual return because no meeting was called.

Moreover, Section 92(4) of the Companies Act, 2013 specifically requires that even where no annual general meeting is held in any year, the company shall still file its Annual Return with the Registrar of Companies within 60 days from the date on which the annual general meeting should have been held together with the statement specifying the reasons for not holding the annual general meeting. Hence, it is clear that holding of an annual general meeting is not a condition precedent to filing of annual return.

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