Companies Act 1956

Directors: Appointment, power, duties and liabilities Winding up of company: meaning, modes

Sec 2(13) of companies act of 1956

Defines a director as any person occupying the position

of a director, by whatever name called

In general, a person is said to be occupying a position of

a director, if he has been charged with the responsibility of directing, conducting and controlling the affairs of a company

Disqualification of directors
A person with unsound mind An un discharged insolvent Person who has applied to be adjudicated as an insolvent and

his application is pending before court of law Person convicted by court for moral turpitude Person disqualified by order of an court to act as director A person who failed to pay call money, on his shares for six months from date the call became due

Disqualifications
a person who is already a director of a public company which,
(i)

has not filed the annual accounts and annual returns for any continuous three financial years commencing on and after the first day of April, 1999; or

(ii) has failed to repay its deposit or interest thereon on due date or redeem its debentures on due date or pay dividend and such failure continues for one year or more.

Qualification Of Director
Under the act, only individuals can become directors There is no academic, technical qualifications for a director Section 270 of act, requires a director to hold qualification shares in

the company, and it should be fixed by the articles of company The nominal or face value of the qualification shares of director fixed by articles should not exceed rs 5000. The qualification shares must be acquired by a person elected as a director within 2 months of his appointment As per section 149 , director appointed by promoters of a newly incorporated firm, director must pay for qualification shares before certificate to commence business is obtained

Contd..
For the purpose of the calculation of the qualification shares,

only shares included in the share certificate in the name of director are taken into account, share warrants in his name shouldnt be taken into account.

Qualification shares held by director should be disclosed in

the prospectus

With in two months of his appointment, he should file with

the registrar a declaration specifying the qualification shares held by him

Consequences of failure to acquire qualification shares

He ceases to be a director automatically, soon after the

prescribed period (2 MONTHS)

Even after expiry of the stipulated period, if he continues

to act as a director, he will be fined for period he was acting as a director.

He can be restrained from acting as a director of

company by an order of injunction issued by an competent court

Different Ways of Appointment Of Directors

By the promoters of company By the subscribers to memorandum of association By deeming the subscribers to the memorandum as the

first directors By the company in general meetings By the board of directors By third parties By the principle of proportional representation By the central government

Kinds of directorship
Whole-time Directorship

A person cannot be appointed as a whole-time director in more than one company.

Part-time Directorship

Not more than 15 companies excluding the directorships of, private companies [other than subsidiaries or holding companies of public company(ies)].

Contd.
i. i.

unlimited companies, associations not carrying on business for profit or which prohibit payment of a dividend, and alternate directorships (i.e., he is appointed to act as a director only during the absence or incapacity of some other director).

ii.

Duties of DIRECTORS
1. Fiduciary duty (relationship of legal and ethical trust)
Exercise powers honestly and bona fide for the benefit of the

company They must not make any secret profit out of their positions

2. Duties of care, skill and diligence

Directors should carry out their duties with reasonable care and skill, diligence Standard of care: depending upon nature of work, division of power, customs and remunerations

Other duties
To attend board meetings Not to delegate his functions except to the extent

authorized by the act or constitution of company

To disclose his interest

POWERS OF DIRECTORS
General powers of board Powers to be exercised at board meetings Powers to be exercised with the approval of company in

general meetings
Political contributions

Liabilities of directors
Liability to third party Liability to company Liability to breach of statutory duties Liability of acts of his co-directors

De facto and De jure liability

REMOVAL OF DIRECTORS
Directors can be removed by 1. 2. 3.

Share holders

Central government
Company law board

WINDING UP OF COMPANY
The legal process by which a joint stock company is brought

to an end, that is completely closed down, is called liquidation

In other words, Liquidation is a process by which a business

of company is wound up

And in the course of winding up, its assets are realized,

liabilities are paid off and the surplus if any, is distributed among the members in accordance with their rights

Modes of winding up
Compulsory winding up or winding up by order of the

tribunal
Voluntary winding up

Winding up subject to the supervision of the tribunal

Circumstances leading to Compulsory winding up

If the company has passed a special resolution that it should be

wound up by tribunal If a public company has failed to hold statutory meeting or file statutory report to registrar of companies If it has not commenced business within year of its incorporation If the number of members has fallen below seven in case of public company and below 2 in Pvt. Ltd. If the company is unable to pay debts If the tribunal is of the opinion that it is just and equitable that the company should be wound up

Voluntary winding up
Winding up which is brought about voluntarily without

interference of the tribunal of companies through any order, but winded up voluntarily by members of company or by the creditors Voluntary winding up is of 2 types:
Members voluntary winding up Creditors voluntary winding up

Circumstances of voluntary winding up

When company is solvent, and winding up decision is

brought in by members. When the period for which the company has been formed has expired and company has passed ordinary resolution When the event on happening of which the company should wound up has occurred and company has passed ordinary resolution When a company has passed a resolution that it should wound up voluntarily

Winding up subject to supervision

If a member or creditor puts an application for supervision of

tribunal, after company has passed special resolution for voluntary winding up, tribunal can entertain the same and pass such order to protect interest of, company, members and creditors. Tribunal can exercise full control over winding up of company Can appoint new liquidator in the place of existing liquidator Can put restrictions on existing liquidator Or appoint additional liquidator to act on behalf of tribunal, along with existing liquidator

Thank you