flowchart LR
A[Director] --> B[Categories]
A --> C[Lifecycle]
A --> D[Duties]
A --> E[Liability]
B --> B1[Executive]
B --> B2[Non-Executive]
B --> B3[Independent]
B --> B4[Nominee]
B --> B5["Additional / Alternate / Casual"]
B --> B6["Small Shareholder / Woman"]
C --> C1[Appointment]
C --> C2[Retirement by Rotation]
C --> C3[Resignation]
C --> C4[Removal]
C --> C5[Disqualification]
D --> D1["Section 166 <br> Statutory Duties"]
D --> D2["Common Law <br> Fiduciary Duties"]
D --> D3[Specific Responsibilities]
E --> E1[Civil Liability]
E --> E2[Criminal Liability]
E --> E3["s. 149(12) Liability Shield"]
%% Style
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class A,B,B1,B2,B3,B4,B5,B6,C,C1,C2,C3,C4,C5,D,D1,D2,D3,E,E1,E2,E3 dark;
8 Duties and Responsibilities of Directors
ImportantLearning Objectives
By the end of this chapter, the reader will be able to:
- Identify the principal categories of directors recognised under the Companies Act, 2013, including executive, non-executive, independent, nominee, additional, alternate, casual vacancy, small shareholder, and women directors, and apply the statutory criteria for each.
- Explain the procedure for the appointment, retirement, resignation, removal, and disqualification of directors under Sections 149 to 169 of the Companies Act, 2013.
- State and apply the seven statutory duties of directors codified in Section 166 of the Companies Act, 2013, and locate them within the underlying common law fiduciary duties developed in cases such as Re City Equitable Fire Insurance (1925), Regal (Hastings) Ltd. v. Gulliver (1942), and Boardman v. Phipps (1967).
- Identify the principal civil and criminal liability exposures of directors under the Companies Act, 2013, including the liability limitation for independent directors and non-executive directors under Section 149(12).
- Evaluate the practical operation of directors’ duties through the lens of contemporary Indian episodes, including the role of independent directors in failures such as Satyam, IL&FS, Yes Bank, and the principal-principal disputes that have shaped Indian governance jurisprudence.
8.1 Introduction
The director is the principal human agent through whom the company acts. The company, being an artificial legal person without a physical body, requires natural persons to take decisions, sign contracts, and conduct affairs on its behalf. The board of directors, collectively, bears the legal responsibility for the management of the company; individual directors share that responsibility in varying degrees according to the nature of their office and the duties they have undertaken.
The duties of directors in Indian corporate law have a dual provenance. The first is the common law of England and Wales, received into Indian law during the colonial period and developed through Indian decisions over the past century and a half. The common law imposed on directors a complex of fiduciary duties, including the duty of loyalty, the duty to act for proper purposes, and the duty of care, skill, and diligence. The second is the statutory regime, codified for the first time in Section 166 of the Companies Act, 2013. Section 166 represents the legislative compilation of the common law duties, with adjustments to reflect the contemporary expectations of the Indian regulatory framework.
This chapter sets out the architecture of directors’ duties and responsibilities. The first half deals with the constitutional questions: who is a director, how is a director appointed, when does directorship cease. The second half deals with the substantive questions: what duties does a director owe, what liabilities attach to those duties, and how are the duties enforced. The treatment is consciously integrated with the material in Chapters 6 and 7, where the broader corporate governance framework was set out.
8.2 The Concept and Categories of Directors
A director, defined in Section 2(34) of the Companies Act, 2013 simply as “a director appointed to the board of a company”, is the natural person who, by virtue of appointment, becomes a member of the board and shares in the responsibility for the management of the company. The simplicity of the definition conceals a substantial taxonomy of directorial categories, each with its own appointment process, statutory characteristics, and duty profile.
8.2.1 Executive and Non-Executive Directors
An executive director is one who is also engaged as a senior executive of the company. The Managing Director, defined in Section 2(54), and the Whole-Time Director, defined in Section 2(94), are the two principal forms of executive director. The Managing Director is entrusted with substantial powers of management; the Whole-Time Director devotes substantially the whole of his or her time to the company. Both are subject to the statutory provisions on managerial remuneration in Sections 196 and 197 and to the requirement of approval at the general meeting.
A non-executive director is one who is not engaged in the day-to-day management of the company. Non-executive directors are typically expected to bring an external perspective, to monitor the conduct of the executive cadre, and to exercise independent judgment on matters before the board.
8.2.2 Independent Directors
The independent director is the most consequential category of director in contemporary Indian corporate governance. Section 149(6) of the Companies Act, 2013 defines an independent director by reference to a comprehensive set of negative criteria.
NoteSection 149(6): The Definition of an Independent Director
A director is independent only if all of the following conditions are satisfied:
the director is a person of integrity and possesses relevant expertise and experience;
the director is not, and was not, a promoter of the company or its holding, subsidiary, or associate company, and is not related to such a promoter or director;
the director has no pecuniary relationship with the company, its holding, subsidiary, or associate company, or their promoters or directors, during the two immediately preceding financial years or during the current financial year, other than remuneration as such director;
none of the director’s relatives has or had any pecuniary relationship of the prescribed character with the company;
the director is not, and was not in any of the three immediately preceding financial years, an employee, proprietor, or partner of an audit firm, secretarial firm, or legal consultancy firm of the company;
the director does not hold, together with relatives, two per cent or more of the total voting power of the company;
the director is not a chief executive or director of any non-profit organisation that receives twenty-five per cent or more of its receipts from the company, its promoters, or directors; and
the director possesses such other qualifications as may be prescribed.
The Section 149(6) framework was substantially strengthened by amendments in 2019 and 2020. The Companies (Appointment and Qualification of Directors) Rules, 2014 require every individual whose name is included in the data bank of independent directors maintained by the Indian Institute of Corporate Affairs to pass an online proficiency self-assessment test, unless exempt by reason of substantial prior experience as a director. The test is designed to ensure that independent directors have a working familiarity with the corporate law framework within which they will operate.
Section 149(10) provides that an independent director may serve for a term of up to five consecutive years, and may be reappointed for one further term of up to five consecutive years. Subsequent reappointment requires a cooling-off period of three years.
8.2.3 Nominee Directors
A nominee director is a director appointed under Section 161(3) by a financial institution, a contract, or by the central or state government, to represent the appointing entity’s interest on the board. Banks and other lenders frequently appoint nominee directors as a condition of significant credit exposure; venture capital and private equity investors typically appoint nominee directors as a condition of equity investment.
The position of a nominee director raises a tension. The director is appointed to represent the appointing entity but, as a member of the board, owes fiduciary duties to the company itself. The Indian courts have resolved the tension in favour of the company, holding that the nominee director’s primary duty is to the company, not to the appointing entity, although the director is entitled to take into account the legitimate interests of the appointor in exercising his or her independent judgment.
8.2.4 Additional, Alternate, and Casual Vacancy Directors
Section 161 of the Companies Act, 2013 provides for three categories of director appointed otherwise than at a general meeting:
NoteSection 161: Special Categories of Directors
Additional director (Section 161(1)) — appointed by the board to fill a vacancy or to expand the board, holds office until the next annual general meeting.
Alternate director (Section 161(2)) — appointed by the board to act in place of a director who is absent from India for a period of not less than three months, holds office for the duration of the absence.
Casual vacancy director (Section 161(4)) — appointed by the board to fill a casual vacancy, that is, a vacancy that arises during the year between two annual general meetings, otherwise than by retirement.
8.3 Appointment, Disqualification, and Cessation
The lifecycle of a directorship begins with appointment, may be punctuated by retirement and reappointment, and ends with resignation, removal, disqualification, or expiry of the term.
8.3.1 Appointment of Directors
The principal mode of appointment is by the members in general meeting. Section 152(2) provides that, save as otherwise expressly provided in the Act, every director is to be appointed by the company in general meeting. Section 152(3) requires that no person be appointed as a director unless the person has been allotted a Director Identification Number under Section 154.
Section 149(1) prescribes the minimum and maximum number of directors. Every company must have a minimum of three directors in the case of a public company, two in the case of a private company, and one in the case of a One Person Company. The maximum number is fifteen, although a company may, by special resolution, appoint more than fifteen directors.
The first directors of a company are typically appointed under the company’s articles or, in default, by the subscribers of the memorandum.
8.3.2 Disqualifications
Section 164 of the Companies Act, 2013 lists the disqualifications for appointment as a director. The principal grounds are:
NoteSection 164: Disqualifications for Appointment
A person is disqualified for appointment as a director if:
the person is of unsound mind and has been so declared by a competent court;
the person is an undischarged insolvent;
the person has applied to be adjudicated as an insolvent and the application is pending;
the person has been convicted by a court of any offence (whether involving moral turpitude or otherwise) and sentenced to imprisonment for not less than six months, and a period of five years has not elapsed from the date of expiry of the sentence;
an order disqualifying the person for appointment as a director has been passed by a court or tribunal;
the person has not paid any call in respect of any shares of the company held, whether alone or jointly, and six months have elapsed since the last day fixed for payment;
the person has been convicted of an offence dealing with related-party transactions under Section 188 at any time during the preceding five years; or
the person has not been allotted a Director Identification Number.
Section 164(2) introduces a further category of disqualification of substantial practical consequence. A person who is or has been a director of a company that has not filed financial statements or annual returns for any continuous period of three financial years, or that has failed to repay deposits or pay declared dividends, is disqualified for appointment as a director of any company for a period of five years from the date of default. The provision has been the subject of substantial litigation, particularly in connection with the disqualification of directors of struck-off companies.
8.3.3 Cessation: Retirement, Resignation, and Removal
A director ceases to hold office on the occurrence of any of the following:
NoteModes of Cessation
Retirement by rotation (Section 152(6)) — At the AGM of a public company, one-third of the directors who are liable to retire by rotation must retire, with the directors longest in office retiring first. A retiring director is eligible for reappointment.
Resignation (Section 168) — A director may resign by giving notice in writing to the company. The resignation takes effect on receipt of the notice or on the date specified, whichever is later. The resignation must be intimated to the Registrar within thirty days.
Removal (Section 169) — The members may, by ordinary resolution, remove any director, other than a director appointed by the National Company Law Tribunal, before the expiry of the term. Special notice of the resolution must be given, and the director sought to be removed must be given an opportunity to be heard.
Vacation of office (Section 167) — A director’s office is vacated automatically on the occurrence of any of the events specified in Section 167, including disqualification under Section 164, absence from all board meetings for twelve months without leave of absence, conviction by a court, and certain other events.
Disqualification — As described above.
Expiry of term — In the case of an independent director or other director appointed for a specified term.
8.4 Statutory Duties of Directors: Section 166
Section 166 of the Companies Act, 2013 is the central provision codifying the duties of directors. It marks the first comprehensive statutory statement of directors’ duties in Indian law and replaces the patchwork of common law principles that had previously governed the area.
NoteSection 166, Companies Act, 2013: The Seven Statutory Duties
A director shall act in accordance with the articles of the company.
A director 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, the community, and for the protection of the environment.
A director shall exercise his duties with due and reasonable care, skill and diligence, and shall exercise independent judgment.
A director shall not involve himself 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 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 shall not assign his office, and any assignment so made shall be void.
A director who contravenes the provisions of this section shall be punishable with a fine which shall not be less than ₹1 lakh but which may extend to ₹5 lakh.
Each of the seven duties has a body of judicial and academic explication. The principal contours are set out in the sub-sections that follow.
8.4.1 To Act in Accordance with the Articles
The duty to act in accordance with the articles requires the director to confine his or her conduct to the powers conferred by the articles and to comply with the procedural requirements they impose. An act outside the articles is not necessarily ultra vires the company in the sense examined in Chapter 3 (which is concerned with the boundary set by the memorandum), but it may be ultra vires the directors and capable of ratification by the members in general meeting. The director who acts beyond the articles risks personal liability for any loss resulting from the breach.
8.4.2 Good Faith and the Best Interests of the Company
The duty of good faith requires the director to act in what the director honestly believes to be the best interests of the company. The Indian formulation, in Section 166(2), is significant for its expansive list of intended beneficiaries: the members, the employees, the shareholders, the community, and the environment. The Indian provision is therefore broader than its English common law antecedent, which is confined to the interests of the company as understood through its members.
TipSection 166(2) Embeds Stakeholder Theory in the Statutory Duty
The expansive list of beneficiaries in Section 166(2) is the closest the Indian Companies Act comes to embedding the stakeholder theory of corporate governance, examined in Chapter 6, into the doctrinal duties of directors. A director must, in deciding what is in the company’s best interests, consider not only the financial returns to the members but also the welfare of employees, the impact on the community, and the protection of the environment. The implication is that a director who narrowly maximises member returns to the prejudice of any of these other interests is in breach of statutory duty.
8.4.3 Care, Skill, Diligence, and Independent Judgment
The duty of care, skill, and diligence is the modern formulation of the long-standing common law duty of care. Its content has evolved over time.
NoteRe City Equitable Fire Insurance Co. (1925): The Old Standard
The Court of Appeal in England articulated the historical standard of directorial care: a director need exercise only the degree of care that may reasonably be expected from a person of his knowledge and experience. The standard was largely subjective and required no minimum level of competence.
The standard has since evolved in both the English and Indian common law, and the Section 166 formulation now requires care, skill, and diligence assessed against an objective baseline as well as the director’s actual knowledge and experience.
The duty of independent judgment requires the director to form his or her own view on each matter requiring board action and to vote accordingly. A director who simply defers to the views of others, including a controlling shareholder or a fellow director, without applying his or her own mind, is in breach of the duty.
8.4.4 Conflicts of Interest and Undue Gain
The duties to avoid conflicts of interest and to avoid undue gain are the modern statutory formulations of the long-standing common law duties of loyalty.
NoteRegal (Hastings) Ltd. v. Gulliver (1942): The No-Profit Rule
The directors of Regal (Hastings) Ltd subscribed personally for shares in a subsidiary of the company because the company itself was unable to provide the necessary capital. They subsequently sold the shares at a substantial profit. The House of Lords held that the directors must account to the company for the profit, even though the company itself could not have made the gain and the directors had acted in good faith. The fundamental rule was that a fiduciary may not profit from a position of trust without the informed consent of the beneficiary.
NoteBoardman v. Phipps (1967): The No-Conflict Rule
A solicitor and a beneficiary of a trust used information acquired in the course of acting for the trust to acquire shares in a private company that the trust was unable to acquire. The shares appreciated substantially. The House of Lords held that the solicitor and beneficiary must account to the trust for the profit, even though they had acted with the knowledge of the trustees, on the ground that they had placed themselves in a position of conflict of interest.
The Indian provisions are operationalised through Section 184 of the Companies Act, 2013, which requires every director to disclose his or her interest in any contract or arrangement to the board, and through Section 188, examined in Chapter 7, which regulates related-party transactions. The interaction of these provisions creates a comprehensive framework for the management of conflicts.
8.4.5 The Non-Assignability of Office
Section 166(6) prohibits the assignment of office by a director. The director’s office is personal, and the discretion entrusted to the director cannot be delegated to another person without the express authority of the company. The provision reflects the underlying conception of directorship as a personal trust.
8.5 Specific Responsibilities of Directors
Beyond the general duties under Section 166, directors bear a number of specific responsibilities prescribed by particular provisions of the Companies Act, 2013 and other legislation.
8.5.1 Financial Reporting
Section 134 of the Companies Act, 2013 requires the directors to attach a board’s report to the financial statements and to include in that report a Directors’ Responsibility Statement affirming, among other matters, that the applicable accounting standards have been followed, that the directors have selected such accounting policies as are reasonable and prudent, that the directors have taken proper and sufficient care for the maintenance of adequate accounting records, that the financial statements have been prepared on a going concern basis, and that the directors have devised proper systems to ensure compliance with all applicable laws.
The directors’ responsibility statement is the legal anchor of director accountability for financial reporting and is one of the principal points of liability exposure where a financial statement is later found to be defective.
8.5.2 Internal Financial Controls
Section 134(5)(e) requires the directors of every listed company to confirm that they have laid down internal financial controls to be followed by the company and that such controls are adequate and operating effectively. The provision is the Indian counterpart of the internal controls regime introduced in the United States by the Sarbanes-Oxley Act of 2002, and it imposes a substantive obligation on the directors of listed Indian companies.
8.5.3 Disclosure of Interest
Section 184 requires every director, at the first meeting of the board in which he or she participates, and at the first meeting of the board in each financial year, to disclose his or her concern or interest in any company, body corporate, firm, or other association of individuals. The disclosure is recorded in a register maintained under Section 189.
8.5.4 Insider Trading Restrictions
Directors of listed companies are designated persons under the SEBI (Prohibition of Insider Trading) Regulations, 2015. They are subject to the trading window restrictions, the pre-clearance requirements, and the disclosure obligations of the regulations. Insider trading by a director is both a breach of statutory duty under the SEBI regulations and a breach of fiduciary duty under the Companies Act framework.
8.5.5 Code of Conduct
Section 149(8) read with Schedule IV of the Companies Act, 2013 prescribes a code of conduct for independent directors. The code addresses the duties, responsibilities, and standards of conduct expected of independent directors, and it is supplemented by the listed entity’s own code of conduct under SEBI LODR Regulation 17(5).
8.6 Liability of Directors
The liability of directors arises from breach of statutory duty, breach of fiduciary duty, statutory provisions imposing personal liability, and certain provisions of allied legislation. The liability may be civil or criminal, and it may be imposed on the director personally or vicariously.
8.6.1 Civil Liability
A director who breaches the duty under Section 166 is liable to the company for any loss caused by the breach and may be required to account for any profit made in breach of the duty. Where the director has acted in concert with others, the liability may be joint and several. The remedy is sought through a civil suit in the appropriate court or, in suitable cases, through an oppression and mismanagement application under Section 241 or a class action under Section 245, examined in Chapter 7.
8.6.2 Criminal Liability
Several provisions of the Companies Act, 2013 impose criminal liability on directors for specified offences. The principal categories include false statements in a prospectus (Section 34), fraudulent conduct of business (Section 339), failure to maintain registers (various sections), and contraventions of specific provisions including Section 166 itself, which carries a fine of between ₹1 lakh and ₹5 lakh. The 2020 amendments to the Act decriminalised a number of formerly criminal provisions, recognising that monetary penalties are often a more effective response to procedural defaults.
8.6.3 The Liability Shield for Independent and Non-Executive Directors
NoteSection 149(12): The Independent Director Liability Shield
Section 149(12) provides that, notwithstanding anything contained in the Act, an independent director and a non-executive director not being a promoter or key managerial personnel shall be liable only in respect of:
such acts of omission or commission by a company which had occurred with his knowledge attributable through board processes; and
where he had not acted diligently.
The provision was enacted in response to the difficulty of attracting senior professionals to serve as independent directors in light of the personal liability exposure they faced. It has been refined by subsequent guidance from the Ministry of Corporate Affairs and by judicial interpretation.
WarningThe Section 149(12) Shield Is Not Absolute
A frequent misconception, particularly in early-stage briefings to prospective independent directors, is that Section 149(12) confers a comprehensive immunity. It does not. The shield applies only to liability arising from the company’s acts; it does not protect against the director’s own misconduct, against breaches of duty under Section 166, or against personal failures of diligence. The 2020 Ministry of Corporate Affairs circular clarifying the operation of the shield emphasised that ordinary diligence is the precondition for invoking the protection.
8.6.4 Vicarious Liability under Allied Legislation
Several pieces of allied legislation impose personal liability on directors for offences committed by the company. The principal examples are Section 141 of the Negotiable Instruments Act, 1881 (cheque dishonour), Section 278B of the Income Tax Act, 1961 (tax offences), and provisions of various labour, environmental, and consumer protection legislation. The provisions typically fasten liability on every person who, at the time the offence was committed, was in charge of and responsible to the company for the conduct of the business of the company. The director who can show that the offence was committed without his or her knowledge or that he or she had exercised all due diligence to prevent the offence may escape liability.
8.7 Case Studies
8.7.1 Case Study 1: The Independent Directors of Satyam and the Question of Effective Oversight
The independent directors of Satyam Computer Services Limited at the time of the 2009 fraud included several persons of substantial professional standing, including a former dean of the Indian School of Business, a former cabinet secretary, and a former senior diplomat. None of the independent directors had any prior knowledge of the falsification of the financial statements, and none was directly implicated in the criminal proceedings that followed. Yet the episode raised in acute form the question of how independent directors could have been associated with a company in which a fraud of such magnitude had been concealed for years without their detection.
The investigations that followed indicated that the audit committee had received the audited financial statements in routine form, that the auditor had issued unqualified opinions throughout the period of the fraud, and that the warning signs apparent in retrospect had not been apparent at the time to the persons exercising the standard of care prevailing in the Indian board culture of the period. The Satyam episode was therefore a major impetus for the strengthening of the independent director regime in the Companies Act, 2013, including the codification of the duties under Section 166, the negative-criteria definition under Section 149(6), the proficiency test for new directors, and the liability shield under Section 149(12) for independent directors who exercise the requisite diligence.
Discussion Questions
- To what extent should the independent directors of Satyam be considered to have breached the duty of care, skill, and diligence as it stood under the common law in 2008?
- How would the duty under Section 166 of the Companies Act, 2013, and the Schedule IV code of conduct, apply to the same circumstances if they were to recur today?
- What features of the post-2013 framework are most likely to prevent a recurrence, and what features remain limited by the inherent constraints of part-time monitoring of a determined fraud?
8.7.2 Case Study 2: The Tata–Mistry Removal and the Procedure for Removal of Directors
The removal of Cyrus Mistry as chairman and as a director of Tata Sons Private Limited and of several listed Tata group operating companies between October 2016 and February 2017 was the subject of prolonged litigation that touched, among other things, the procedure for removal of directors, the role of nominee directors of the holding company on the boards of operating subsidiaries, and the protection of minority shareholders against decisions of the controlling shareholder. The litigation reached the National Company Law Tribunal, the National Company Law Appellate Tribunal, and ultimately the Supreme Court of India, which delivered its judgment in Tata Consultancy Services Ltd. v. Cyrus Investments Pvt. Ltd. in March 2021.
The Supreme Court’s judgment addressed a number of doctrinal issues bearing on directors’ duties. The court held that the procedure for removal of a director under Section 169 had been substantially complied with, that the conduct of the controlling shareholder did not amount to oppression and mismanagement under Section 241, and that the directors had acted within their bona fide judgment of the company’s interest. The decision reaffirmed the substantial discretion afforded to directors acting within the framework of the Companies Act and clarified the threshold for judicial intervention in board-level decisions.
Discussion Questions
- What does the Tata–Mistry litigation teach about the procedural protections available to a director facing removal under Section 169?
- How should the duties of nominee directors of a holding company be reconciled with the duties of those directors when they sit on the boards of listed operating subsidiaries?
- What is the appropriate standard of judicial review of board-level decisions, and where does the Supreme Court’s 2021 judgment locate that standard?
8.7.3 Case Study 3: The Independent Directors of IL&FS and the Limits of Diligence
The independent directors of Infrastructure Leasing & Financial Services Limited at the time of its 2018 default included senior professionals with expertise in finance, audit, and infrastructure. The ensuing investigation by the new government-appointed board revealed that the independent directors had not been provided with comprehensive consolidated information on the financial position of the IL&FS group, that the rating agencies had continued to rate the group at investment grade until shortly before the default, and that the audit and risk committees had not been alerted to the deteriorating financial position with the urgency required.
The Serious Fraud Investigation Office subsequently filed proceedings against several directors of IL&FS, including some independent directors, alleging breaches of duty. The independent directors invoked the Section 149(12) shield, and the matter has continued through the legal system. The episode illustrates the practical operation of the shield: it is available only where the independent director can demonstrate that the act or omission did not occur with his or her knowledge through board processes and that the director had acted diligently.
Discussion Questions
- What standard of diligence is reasonable to expect of an independent director of a complex financial group such as IL&FS, and how does that standard differ from the standard for a simpler operating company?
- To what extent should independent directors be entitled to rely on the representations of executives, auditors, and rating agencies, and at what point does that reliance become a breach of the duty of independent judgment?
- What changes to the operation of audit and risk committees might better support the independent director in discharging the duties under Section 166?
Summary
| Concept | Description |
|---|---|
| Categories of Directors | |
| Director (s. 2(34)) | Statutory definition of a director as a person appointed to the board of a company, providing the elementary anchor of all subsequent provisions |
| Managing Director (s. 2(54)) | An executive director entrusted with substantial powers of management, subject to the managerial remuneration regime of the Act |
| Whole-Time Director (s. 2(94)) | An executive director who devotes substantially the whole of his or her time to the affairs of the company |
| Independent Director (s. 149(6)) | A director who satisfies an eight-part negative-criteria test of independence and is subject to tenure rules and a proficiency test |
| Nominee Director (s. 161(3)) | A director appointed by a financial institution, contract, or government to represent the appointor's interest, with the primary duty to the company itself |
| Additional Director (s. 161(1)) | A director appointed by the board to fill a vacancy or expand the board, holding office until the next AGM |
| Alternate Director (s. 161(2)) | A director appointed by the board to act in place of a director absent from India for at least three months |
| Casual Vacancy Director (s. 161(4)) | A director appointed by the board to fill a casual vacancy that arises mid-year, holding office until the next AGM |
| Woman Director (s. 149(1)) | Mandatory category of director for listed and certain large public companies, with an independent woman director required for the top 1000 listed entities |
| Small Shareholder Director (s. 151) | Optional category of director, elected by small shareholders of a listed company, used sparingly in Indian practice |
| Lifecycle of a Directorship | |
| Director Identification Number (s. 154) | Mandatory unique identification number for every director, the procedural precondition of any directorial appointment |
| Disqualifications (s. 164) | Statutory grounds disqualifying a person from appointment, including unsoundness of mind, insolvency, conviction, unpaid calls, and conviction for related-party offences |
| Retirement by Rotation (s. 152(6)) | Mandatory annual rotation under which one-third of the directors liable to retire must retire at each AGM, with eligibility for reappointment |
| Resignation (s. 168) | Cessation of office on the director's notice in writing to the company, intimated to the Registrar within thirty days |
| Removal (s. 169) | Members' power, by ordinary resolution and special notice, to remove any director other than one appointed by the Tribunal, with an opportunity to be heard |
| Vacation of Office (s. 167) | Automatic vacation of office on the occurrence of statutory events including disqualification, conviction, and twelve-month absence from board meetings |
| Statutory Duties under Section 166 | |
| Section 166: The Seven Statutory Duties | Statutory codification of the duties to act per the articles, in good faith for stakeholders, with care, skill, diligence, and independent judgment, avoiding conflict and undue gain, and not assigning office |
| Common Law Foundations | |
| Re City Equitable (1925) | Foundational common law authority on the duty of care of directors, articulating the historical subjective standard subsequently strengthened by statute |
| Regal (Hastings) v. Gulliver (1942) | House of Lords authority establishing the no-profit rule that a fiduciary may not profit from a position of trust without the informed consent of the beneficiary |
| Boardman v. Phipps (1967) | House of Lords authority establishing the no-conflict rule, requiring a fiduciary to account for profits made in a position of conflict of interest |
| Specific Responsibilities | |
| Disclosure of Interest (s. 184) | Statutory requirement that every director disclose interest in any contract, arrangement, body corporate, firm, or association at prescribed times |
| Directors' Responsibility Statement (s. 134) | Statement attached to the financial statements affirming compliance with accounting standards, prudent policies, going-concern preparation, and adequate compliance systems |
| Internal Financial Controls | Listed company requirement that the directors confirm the laying down and effective operation of internal financial controls, the Indian counterpart of Sarbanes-Oxley Section 404 |
| Liability of Directors | |
| Section 149(12) Liability Shield | Limited liability protection for independent directors and non-executive non-promoter, non-KMP directors, conditional on diligence and absence of board-attributable knowledge |
| Vicarious Liability under Allied Laws | Personal liability of directors for offences of the company under provisions such as Section 141 of the Negotiable Instruments Act and Section 278B of the Income Tax Act |