Directors’ Duties

The Act had stipulated the following duties under section 166:

  • A director of a company shall act in accordance with the articles of a 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 the 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 of the company.
  • A director of a company shall not assign his office and any assignment so made shall be void.

 Directors’ Responsibilities

  • The company had filed annual returns & financial statements with ROC (Registrar of companies) in time and manner as specified in the act/rules.
  • The compliance of companies act provisions relating to Public offer, Buy back of securities etc
  •  Proper books of accounts has been maintained by the company and financial statements had been prepared in compliance with the notified accounting standards
  • The Dividend declared is paid in time (within 30 days).
  • Proper filing of resolutions and agreements with ROC in time and manner as specified.
  • DIN(Director Identification Number) of all directors is intimated to ROC
  • Furnish all information, explanation or produce any document to registrar as asked for
  • All directions issued by registrar are properly complied
  • That there is no wrongful withholding of properties of companies
  • Proper disclosures had been made with respect to all contracts or arrangements entered into by the company with other entities, where the officers have interest
  •  No wrongful trading of company securities or price sensitive internal information is not passed on.

Penalty & Imprisonment

A director of a company held negligent or responsible for any of the above specified defaults will be punishable by payment of fine or penalty and even imprisonment in certain cases.The fine or penalty will be ranging up to Rs.25 lakhsand/or the imprisonment period ranges from 1 to 3 years depending upon the nature and seriousness of the default.

Therefore becoming a company director has become a very serious business and should not be undertaken lightly or unadvisedly. So if you are invited to become a company director or are already a director, it is very important that you understand your duties and responsibilities and the potential consequences of their breach prescribed under the Companies Act, 2013.

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