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Saturday, April 11, 2015

Managing Director, Manager and Board of Directors - Powers and Duties

Manager, Managing Direct and Board of Directors - Definition
According to Sec.2(53) of the Indian Companies Act “manager” means an individual who, subject to the superintendence, control and direction of the Board of Directors, has the management of the whole, or substantially the whole, of the affairs of a company, and includes a director or any other person occupying the position of a manager, by whatever name called, whether under a contract of service or not;

According to Sec.2(54) of the Indian Companies Act “managing director” means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.
For the purposes of this clause, the power to do administrative acts of a routine nature when so authorised by the Board such as the power to affix the common seal of the company to any document or to draw and endorse any cheque on the account of the company in any bank or to draw and endorse any negotiable instrument or to sign any certificate of share or to direct registration of transfer of any share, shall not be deemed to be included within the substantial powers of management;

According to Sec.2(10) of the Indian Companies Act “Board of Directors” or “Board”, in relation to a company, means the collective body of the directors of the company;

Powers and Duties of directors
Powers of directors: The powers of the Board of directors are co-extensive with those of the company. This proposition is, however, subject to two conditions:
First, the Board shall not do any act which is to be done by the company in general meeting
Second, the Board shall exercise its powers subject to the provisions contained in the Companies Act, or in the Memorandum or the Articles of the company or in any regulations made by the company in general meeting.

Powers to be exercised at Board meetings (Section 292)
The Board of directors of a company shall exercise the following powers on behalf of the company by means of resolutions passed at the meetings of the Board, viz, the power to-
(a)    make calls on shareholders in respect of money unpaid on their shares
(b)   issue debentures
(c)    borrow money otherwise than on debentures
(d)   invest the funds of the company
(e)    make loans

Powers to be exercised with the approval of company in general meeting
(a)    sale or lease of the company’s undertaking
(b)   extension of the time for payment of a debt due by a director
(c)    investment of compensation received on acquisition of the company’s assets in securities other than trust securities
(d)   borrowing of money beyond the paid-up capital of the company
(e)    contributions to any charitable fund beyond Rs.50,000 in one financial year or 5% of the average et profits during the preceding three financial years, whichever is greater.

Duties of the Directors
A. Fiduciary duties-as fiduciaries, the directors must-
(a)    exercise their powers honestly and bona fide for the benefit of the company as a whole; and
(b)   not place themselves in a position in which there is a conflict between their duties to the company and their personal interests. They must not make any secret profit out of their position. If they do, they have to account for it to the company.

B. Duties of care, skill and diligence- directors should carry out their duties with reasonable care and exercise such degree of skill and diligence as is reasonably expected of persons of their knowledge and status. He is not bound to bring any special qualifications to his office.

C. Standard of care-the standard of care, skill and diligence depends upon the nature of the company’s business and circumstances of the case. They are various standards of the care depending upon:
(a)    the type and nature of work
(b)   division of powers between directors and other officers
(c)    general usages and customs in that type of business; and
(d)   whether directors work gratuitously or remuneratively

D. Duty to disclose interest-where a director is personally interested in a transaction of the company, he is required to disclose his interest to the board. An interested director is neither to vote on the matter of his interest nor his presence shall count for the purposes of quorum.

E. Duty to attend board meetings-the Act only says that the office of a director is automatically vacated if he fails to attend three consecutive meetings of the board or all meetings for a period of 3 months, whichever is longer. Moreover, a director’s habitual absence may become evidence of negligence.

F. Duty not to delegate- a director should not delegate his functions to another person. But delegation of functions may be made to the extent to which it is authorized by the Act or the constitution of the company.