The new Companies Act expects a lot of discipline from the Directors. Explicit provisions relating to duties of Directors have been introduced for the first time which attempts to create high responsibility on Directors.
With the requirement of inducting Independent Directors with enhanced eligibility norms, Women Directors, Resident Directors on the Boards of the Companies, the Board is also likely to see major changes in its constitution. The punishment for offence committed by the Directors as well as Company has also increased significantly.
- WHO WILL BE CALLED A DIRECTOR?
Section 2(34) defines the word ‘DIRECTOR’ as a person appointed to the Board of the Company.
As per Section 2(10), Board of Directors or Board in relation to Company means the collective body of Directors
Who can be regarded as a Director? Now, every Director must be expressly appointed to the Board of the company in the capacity of a Director [Sec 2(34)]. Unlike, earlier certain persons were designated as Directors (executive positions) without being appointed to Board.
- OPTIMUM CONSTITUTION OF THE BOARD
The Companies Act, 2013, has made a significant change in the number of Directors that should be inducted to constitute a effective Board. Though it is mandatory that at least one Director in the Board must be a resident in India for a minimum period of 182 days during the preceding calendar year.
Why Woman Director needs to be on the Board? All listed companies and certain other classes of companies as prescribed under Section 149(1) would also need to appoint at least one woman Director on their Board. Ministry has recently notified to extend the appointment of such person before 01st April, 2015 due to revised Clause 49. However, now the transition period for appointment of Woman Director on the Board will be same for other class of companies also.
Who will be called as Independent Director? The person who will be appointed as Independent Director shall satisfy all conditions and criteria as defined under Section 149 of the Companies Act and rules made there under. The Act expressly excludes the Nominee Director from the list of Independent Director.
How many Independent Directors should be appointed? All listed companies and companies satisfying certain thresholds are now required to have at least one third of their Board comprising of “Independent Directors”.
- HOW IS A KEY MANAGERIAL PERSONNEL (KMP) DIFFERENT FROM A DIRECTOR
KMP vs Director? Key Managerial Personnel (KMP) are a particular class of ‘officers’ of the company who hold certain key executive positions but not necessarily be a Director as appointed by Board. Although, as per Section 2(59) of Companies Act, 2013, an “officer” includes any director, manager or key managerial personnel or any person in accordance with whose directions or instructions, the Board of Directors or any one or more of the directors is or are accustomed to act, but the key difference remains as to what designation he holds in a Company.
Who are KMP’s? Section 2(51) of Companies Act, 2013 defines a KMP in relation to a company to include the following:
- CEO or Managing Director or Manager
- Company Secretary
- Whole-time Director
- Chief Financial Officer
- Such other officer as may be prescribed by Central Government time to time
Conclusion? In the light of above definitions we can say that every Whole Time Director will be regarded as Key Managerial Personnel, but non-executive Directors will not be covered as KMP. That means, certain conditions need to be satisfied to regard a Director as Key Managerial Personnel (KMP)
The above all positions are defined under the statue, however it may be possible that a Director may hold other organizational defined positions.
- HOW CAN A DIRECTOR TAKE BUSINESS DECISION FOR COMPANY?
- DO’s FOR A DIRECTOR
- Issue of Certificate of Independence to all companies in which Director has been appointed as Independent Director
- Abide by Code of Conduct in case the company has a policy of code of conduct for Directors
- Declaration by Director to the company in which he declares that he is not disqualified to become a Director
- Submission of Consent Letter on or before appointment in any company in Form DIR-2
- Intimation of DIN-Director Identification Number (if not available earlier) to all companies where he is a Director, within 1 month of receipt of DIN
- Mentioning of DIN while signing and furnishing any statutory return, information or particulars
- Capping the total number of Companies where a Director can hold such position shall not exceed:
- 10 Public Companies
- 20 Private Companies
- 20 mix of both Public & Private Companies
- Filing of Resignation by Director who has resigned from the Company is required to file his resignation in Form DIR-11 within a period of 30 days to the Registrar along with the prescribed fees
- Disclosure of Interest in other companies or body corporate(s), firms, or other association of individuals has to be disclosed at the first Board Meeting in which he participates as Director. Henceforth, the disclosures will be made at the first Board Meeting of every financial year or whenever there is any change in the disclosures already made, then at the first Board meeting held after such change.
Hope the above information provides some insight on provisions related to Directors under Companies Act, 2013. Our team is prepared to take care of the implementation of these changes and help regularize the gaps, if any.
You may get back to us for any more details on above provisions or any other matter related to Companies Act, 2013 at below mentioned contact details-
Malavika Bhatia | <malavika.bhatia@bluelotusstrategy.com> | M +91 98733 18440
Monika Bhardwaj | <monika.bhardwaj@bluelotusstrategy.com> |M +91 98915 60525
We will do our best to assist you with the compliances and removal of doubts / queries. However, please note that since the Act is new, certain clarifications are needed as there are lot many areas where operational issues are to be sorted out.
In case of queries that require clarification from Ministry of Corporate Affairs, we will come back to you after seeking necessary clarifications from the Ministry.
