Obligations of Directors and Managers

INTRODUCTION

Every person comes into this world with some duties and responsibilities to perform, no one can live in this world without performing duties and responsibilities. Duties and responsibilities are an essential part of life. The same situation takes place in the corporate world. The directors are fundamentally fiduciary agents who are hired by the company. The well-being of the company lies in the hands of the directors, who are also accountable for the firm’s and the shareholder’s interests. Directors are hired by the company‘s shareholders to administer the company’s operations in the best interest of the shareholders. Directors are fundamentally fiduciary agents who owe a responsibility to the company. The directors and managers of the company become part of the company with some of the duties and responsibilities. These duties are obligatory in nature. Furthermore, no company can achieve success without having excellent and honest directors and managers. Therefore corporate can only be reached if the company’s directors and managers fulfill their obligations. The Companies Act 2013 has guaranteed that this balance of power and duties is preserved to the greatest degree possible for the benefit of the company.

DEFINITION OF DIRECTOR

 The term “director” is defined under Section 2 (34) of the Companies Act 2013 as “a director appointed to the Board of a company,” where “Board of Directors” or “Board” in relation to a Company refers to the collective body of the firm’s directors. According to Chapter XISection 149 of the Companies Act 2013, every company must have a Board of directors, the composition of which should be as follows:

1.      Public Company: A minimum of three and a maximum of fifteen directors should be appointed. Also, at least one-third of the directors must be independent.

2.    Private Company: Minimum of two and a maximum of fifteen directors are required for a private company.

DUTIES OF DIRECTORS ACCORDING TO SECTION 166 OF THE COMPANIES ACT 2013

4.1 Section 166 of the new Act provides that a director of a company (including a private company) shall act in accordance with the Articles of the company. His duties have listed the section:

 (i) He has to act in good faith in order to promote the objects of the company for the benefit of its members as a whole.

(ii) He has to act in the best interest of the company, its employees, shareholders, and community and for the protection of the environment.

 (iii) He has to carry on his duties with due and reasonable care, skill and diligence and exercise independent judgment.

 (iv)  He shall not be involved in a situation in which he may have a direct or indirect interest that conflicts or is likely to conflict with the interest of the company.

 (v) He shall not achieve or attempt to achieve any undue gain or advantage either to himself, his relatives, partners or associates.

 (vi)   He shall not assign his office to any other person.

OBLIGATIONS OF DIRECTORS AND MANAGERS AS PER SECTION 286

— In the case of a limited company, any person who is or has been a director or manager, whose liability is unlimited under the provisions of this Act, shall, in addition to his liability, if any, contribute as an ordinary member, be liable to make a further contribution as if he were at the commencement of winding up, a member of an unlimited company: Provided that —

 (a) a person who has been a director or manager shall not be liable to make such further contribution if he has ceased to hold office for a year or upwards before the commencement of the winding up;

 (b) a person who has been a director or manager shall not be liable to make such further contribution in respect of any debt or liability of the company contracted after he ceased to hold office; 172

 (c) subject to the articles of the company, a director or manager shall not be liable to make such further contribution unless the Tribunal deems it necessary to require the contribution in order to satisfy the debts and liabilities of the company, and the costs, charges, and expenses of the winding up.

This section particularly explains that in any limited company, the liability of the director and manager is unlimited. That means he is required to pay debts and liabilities in case any situation can arise. Apart from that it also explains that the director or manager is not liable to make further contributions if in case he ceased to hold office in the company for a year or upward. He /she only makes that contribution if the NCLT ( National Company Law Tribunal) deems it necessary to do so.

CONCLUSION

Therefore, this section of the Companies Act 2013 explains that the directors and managers are very crucial to the company. Their liability is unlimited and they are required to pay debts and liabilities of the company in case of requirement. In case they leave the office after 1 year, they are not required to pay any debts. They are required to pay only if NCLT deems it necessary to do so.

REFERENCES

Section – 166 of the Companies Act 2013

Section – 286 of the Companies Act 2013

section 2 (34) of the Companies Act 2013

chapter 11 section 149 of the Companies Act 2013

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