After the new law – the Companies Act, 2013- was introduced; it has become the priority for everyone to clearly understand the rights as well as liabilities of a director of the company. As per the rules of the Companies Act, 2013, the board of directors can face a legal proceeding. Therefore, every individual should clearly understand their duty and responsibilities before accepting the post of a director in a company.
A person is designated as a director by virtue of the Companies Act, but his responsibilities as the board of directors will not be restricted for violations as stated in the Companies Act but will also apply to the criminal offense under the other legislations as well as the Negotiable Instruments Act, 1881, Tax Act (Income and Indirect), and labour law legislation.
Section 166. Functions of director:-
1. Subject to the other provisions of this Act, a director of a company shall behave in accordance in articles of the company.
2. A director of a company shall behave honestly for attaining the aims of the company on account of its members at large, and in best of interest of the company, its employees, the shareholders and the community, for the conservation of the environment.
3. Every director of a company should do all work on account of skill and care at an appropriate level and would keep separate decision
4. The director should not be entangled in any occasion where he could get Direct or Indirect gain conflict, maybe or not, that the interest of the company with respect to direct and indirect interest.
5. The director will not gain directly or indirectly to an extent unrequired for him or to his spouse, partners, relations and should return money on account thereof if found Guilty that he earned unwarranted gain; such remuneration is on par to said gain and would be handed to company.
6. The director should not hand over duty; if so, the gift is void.
7. This shall not be considered as guilty for violation, if the director has received a fine not less than one lakh INR up to 5 lakhs INR.
LIABILITY OF DIRECTORS OF COMPANY
Various provisions in the Companies Act, 2013 discuss the directors liability; there are criminal liability, liability to others including the company for their conduct and for fraud, for breach of statutory duties as also for acts or default of the directors. The following heads show directors: Liability to Company The directors have liability towards the company i.e Breaching fiduciary duty.
ULTRA VIRES ACT: Negligence.
Mala fide act. Where directors are acting fraudulently on the company. It will be a breach of fiduciary duly. ULTRA VIRES:- directors acts must be within the bounds and scope laid by the Memorandum and articles of association.
If they exceed the powers given to them in the memorandum and article then for such they have to be made personally.
Responsibility of directing, protecting and managing properties and interests of the company is in fact part and parcel of the job and if they do not act in a proper way they are regarded as being negligent and responsible for such acts.
Officer in Default
“officer” in-sensitive expression to include the empowered employees,Auditors and Holding Company as well. Director should be natural person -Oriental Metal Processing Works(P)Ltd v Bhaskar Kashinath Thakore (AIR SC 573) “Officer in default” include as KMPs ,WTD , any person on whose advice Board act as also director for whose default there is any breach or non-compliance is the concern on meeting with notice without raise. Responsibility of – Officer who is in default Mens rea-no longer need be prove- to blame anybody under section 5 of act 1956 .( Sukhbir Saran Bhatnagar v ROC)(42 Com Cases 408).