WHO IS AN INTERESTED DIRECTOR?

INRODUCTION

The directors of the company are the key managerial persons. They are professional men hired by the company to direct its affairs[1]. The directors are sometimes described as agents, trustees or managing partners of the company who work for the benefit of the company as well as its shareholders. Since the success of the company largely depends upon the competence of its directors, it becomes an obligation to the directors to fulfil their roles and responsibilities in the prescribed manner. A company consists of different types of directors namely, independent directors, first director, non-executive director, interested director, and managerial or whole- time director. This article aims at interested directors, their appointment, roles, duties and removal.

INTERESTED DIRECTOR

Section 2(49) of the Companies Act, 2013[2] before the Amendment Act defined interested director as a director who is in any way whether by himself or through any of his relatives or firm, body corporate or other associations of individuals in which he or any of his relatives is a partner, director or a member interested in a contract or arrangement entered into or to be entered into by or on behalf of the company.

APPOINTMENT OF DIRECTORS

The appointment of director as a chairman or a managing director is not such an interest and the appointment will therefore be valid even if the director to be appointed was present at the meeting and voted. As per Section 152 of the Companies Act, 2013[3], directors may be appointed according to the provision under the act but in case no specific procedure is mentioned related to a director that director may be appointed by the company in the general meeting subject to the provisions of the articles of the company.

QUORUM OF DIRECTORS

According to Section 174 of the Companies Act, 2013 the quorum for a meeting of the Board of Directors of a company shall be one-third of its total strength or two directors whichever is higher. In case at any time the number of interested directors exceeds or is equal to two third of the total strength of Board of Directors, the number of directors who are not interested directors and present at the meeting should be less than two during that time. An interested director who is appointed as a managing director or chairman is not such an interest the appointment will be held valid even if he voted. It also stated that mere voting by an interested director could not render the contract void or voidable unless is in the absence of that vote, there would have been no quorum qualified to contract.

In the case of Ramaswami Iyer v Madras Times Printing & Publishing Co[4], under a company’s articles two directors constituted a quorum for a meeting of the Board. Two were present and they appointed one of themselves as managing director and co-editor of the paper run by the company. The appointments were held to be invalid as when the vote of the interested director was excluded there was no quorum to make the appointment in each case. 

REMOVAL OF DIRECTORS

The Companies Act, 2013 provides provisions for removal of directors. Directors may be removed before the expiration of their period by the shareholders or Company Law Tribunal or by resignation. In order to remove a director a special resolution must be passed in the general meeting of the company and valid reasons must be given for the removal of that director. Once a director has been removed by the company he cannot be reappointed except in certain circumstances as may be provided by the company.

  1. Removal by shareholders- Section 169 of the Act provides that a company remove a director by passing an ordinary resolution before the expiration of his term. This section does not apply in case a director is appointed by the Tribunal or if the company has adopted the system of electing two- third of its directors.
  2. Removal by Company Law Tribunal- According to Section 242 (2) of the Act, the Tribunal has the power to remove a director if he is found to be a part of mismanagement in the company. When the appointment of a director is terminated then he cannot serve the managerial position of any company for five years without leave of the Tribunal.
  3. Resignation- Section 168 provides that a director may resign from his office before the expiry of the term. Once a director has given a notice of resignation of his office, he is not entitled to withdraw that notice but in case if it is withdrawn it mut be done with the consent of the company.

DUTY OF INTERESTED DIRECTORS

  1. The first and foremost duty of an interested director is to disclose his interest at the meeting of the full Board of Directors duly convened and not merely to the sub-committee of directors.
  2. A director has to disclose his concern or interest in any company or companies or bodies corporate, firms or other association of individuals.
  3. His disclosure has to include the shareholding in such manner as may be prescribed.
  4. The disclosure has to be made at the first meeting of the Board in which he participates as a director and if any changes occur in the disclosures already made such disclosures must be disclosed at the first meeting of the Board after that change was made.
  5. The disclosure made by the director has to be renewed in every financial year.
  6. Every director of the company who is any way directly or indirectly interested in an actual or proposed contract or arrangement has to disclose the nature of his concern[5].

In the case of Aberdeen Railway Ltd v Blaikee Bros[6], there was a conflict of interest as chairman and director of the company and managing partner of a firm which supplied office furniture to the company. Blaikee had an interest as a partner in the firm to sell as high as possible but an interest as director of the company to purchase as low as possible. The failure or otherwise of the     was irrelevant, the court considered the possibility of unfairness.

CONCLUSION

Directors are the persons who are responsible for the functioning of the company. They take important decisions for the betterment of the company and its members. A director is entrusted with a wide range of powers specially an interested director who has major in the company. His powers are similar to that of the other directors and may also be removed if he is found to be guilty of committing fraud against the company.

REFERENCES


[1] AVTAR SINGH, COMPANY LAW 325 (Eastern Book Company 2018).

[2] The Companies Act, 2013, § 2(49) No. 18, Acts of Parliament, 2013 (India).

[3] Id.

[4] Ramaswami Iyer v Madras Times Printing & Publishing Co, AIR 1915 Mad 1179.

[5] AVTAR SINGH, COMPANY LAW 297 (Eastern Book Company 2018).

[6] Aberdeen Railway Ltd v Blaikee Bros, (1854) 1 Macq 461.

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