Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
There were many judgements on the
role of directors and the responsibility of directors/Board of Directors in any
Company. In Private Limited Companies or the Public Companies, the role and
responsibility of the Directors or the Board of Directors depend upon the
regulations in the Articles of the Company and the provisions of the Companies
Act, 1956. When it comes listed Public Companies, other provisions like the
SEBI guidelines, regulations, provisions in the listing agreement etc. deserve
consideration. In Private Limited Companies or the closely held Companies, we
know that the company is actually run by the Directors and we know as to how
AGM’s are conducted in these companies in reality. It may not be the case when
it comes to listed Public Companies in view of various guidelines, regulations
and the provisions of listing agreement entered into with the Stock Exchange.
Directors or the Board of Directors has a very big role to play in any Company
and they conduct the day-to-day affairs of the Company and it may not possible
for the AGM to give directions to the Company from time to time though every
Company should act as per the provisions of the Companies Act, 1956 and certain
decisions can only be taken by the Shareholders in the Annual General Body
Meeting (AGM). Taking reality in the corporate world in consideration,
considering the legal provisions and on the role of the Directors or the Board
of Directors (BoD), the Hon’ble High Court of Delhi, in Crl. M.C. No. 2652 OF
2010, between Raj Travels & Tours Ltd. & Others Vs. Destination of the
World (Subcontinent) Private Limited, was pleased to observe as follows:
“7. It is a matter of common
knowledge that when companies are floated and public issues are brought, big
advertisements are issued giving big names as directors and promoters of the
company. These names are the names of successful CEOs, or directors who have
achieved success in other fields. Due to these names at the very inception and
formation of company, when there is no wealth or property of the company, the
share of the company is sold at a premium promising big business and success.
Once money is mopped up from the public, in all those cases where the companies
were created only for the purpose of mopping up hard earned money of public or
to befool them, it is found that those big names disappear and in almost every
litigation those directors who formed part of the core of the company and gave
promises that the Company would do roaring business quietly disappear from the
scene or take plea that they were not responsible for business of the company.
8. Let us examine the role of
Board of directors (BoD) in terms of Companies Act and other legal provisions.
Company is a legal personality and Board of Director acts as its body and mind.
Under Section 291 of the Companies Act, BoD is authorized to do what the
company is authorized to do, unless barred by restrictions on their power by
the provisions of the Companies Act. It is well settled that directors, while
exercising their powers, do not act as agents for the majority or even all the
members and so the members cannot by a resolution passed by a majority of even
unanimously, supersede the directors’ power and instruct them how they shall
exercise their power. The powers of management are vested in directors and they
and they alone can exercise these powers. The only way in which the General Body
of a company can overrule the BoD is altering the Articles and refusing to
re-elect the directors, whose actions they disapprove. The shareholders cannot
themselves usurp the powers, which by Articles are vested in the directors.
Thus the relationship of BoD with the shareholders is more of a federation than
that one of subordinate and superior.
9. Under the Companies Act, BoD
has powers to make calls on shareholders in respect of money unpaid on their
share, power to authorize the buy-back, power to issue debentures, power to
borrow moneys otherwise than on debentures, power to invest the funds of the
company and power to take and make loans. There is no doubt that BoD may, by a
resolution passed at a meeting, delegate to any committee of Directors, the Managing
Director, the Manager or any other principal officer of the company, the above
powers. However the principal power still vests in BoD and the Manager or
Managing Director acts only as an agent of the BoD. Apart from this, BoD has
power to form opinion about the solvency of the company in respect of buy back
shares (Section 77A), power to fill up casual vacancies in the office of
Directors (Section 262), power to constitute Audit Committee and specify terms
of reference thereof (Section 292A), power to make donation to political
parties [Section 293A(2)], power to accord sanction for specified contracts in
which one or more directors are interested [Section 297(4)], power to receive
notice of disclosure of director’s interest [Section 299(3)(c)], power to
appoint or employ a person as Managing Director or Manager [Section 316(2)],
power to invest in shares or debentures of any other body corporate (Section
372A), power to appoint or employ a person as its Manager [Section 386(2)],
power to make a declaration of solvency, where it is proposed to wind up the
company voluntarily [Section 488(1)], power to approve the text of advertising
for inviting public deposits [Section 58A r/w Rule 4(4)]. Some of the powers
can only be exercised by resolution passed at the meeting with consent of the
Directors present at the meeting.
10. Normally, the banks or other
financial institutions give huge loans to the companies and in order to protect
their interests, they nominate their Directors on the Board of Companies. These
directors are called nominee directors and the function of these directors is
to safeguard the financial interest of the institution who nominated them and
to ensure that no decision is taken by BoD which goes against the financial
institution. Such directors are not considered responsible for the business of
the company.”
Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
