BOARD OF DIRECTORS

The management of a company is delegated to the Board of Directors. Directors are elected by the shareholders though some may be nominated by special interests like debenture-holders, etc. The Companies Act contains a number of provisions in respect of directors.

Directors must act as a Board, i.e., decisions arrived at only at meetings of the directors will be binding except that, depending upon Articles, and subject to Section 289 of the Act, resolutions may also be adopted by circulation. Individual directors have no powers unless specific powers are delegated at a properly held meeting of the Board of Directors.

The Board also has the power to appoint sub-committees to deal with specific matters. A meeting of the Board of Directors must be held once in every three calendar months. The Central Government has the power to exempt any class of companies from this provision. The quorum is two directors or one-third of the total number whichever is higher (not counting interested directors).

The directors are trustees for the company’s property and it is their duty to apply the property for company’s benefit alone. Any director using it for his personal benefit is guilty of breach of trust.

The Board is also in the position of an agent and hence contracts signed by the directors on behalf of the company are binding on the company as far as third parties are concerned, unless the contracts are beyond the powers of the company itself.

The directors are not responsible for any loss suffered by the company, if they exercise reasonable care and skill in the exercise of their powers and discharge of their duties. But if the directors are guilty of gross negligence or of breach of trust, they must compensate the company for damage suffered by it and any provision in the articles absolving the directors from such liability is invalid.

But if (according to section 633) the Court is satisfied that the director concerned acted honestly and reasonably and that, having regard to all the circumstances of the case, he ought fairly to be excused, the Court may relieve him, either wholly or partly, from his liability on such terms as it thinks fit.

The directors have the duty of general supervision of the affairs of the company even if there is a managing director.

The following powers must be exercised only by the Board at its meetings (section 292):

(i) The power to make calls;

(ii) The power to issue debentures;

(iii) The power to borrow moneys otherwise than on debentures;

(iv) The power to invest company’s funds; and

(v) The power to make loans.