disqualifications of directors

7/31/2019 Disqualifications of Directors

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AND

POWERS OF DIRECTORS


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DISQUALIFICATION OF DIRECTORSINTRODUCTION

Section 274 of the Companies Act, 1956 as amended by the

Companies (Amendment) Act, 2000 provides fordisqualifications of directors of the company. This sectioncame to fame and at the same time created confusion anduncertainties with the insertion of clause (g) to sub-

section (1) by the Companies (Amendment) Act, 2000publicized w.e.f. 13.12.2000. Let us have an analysis of thesection with emphasis on clause (g) of sub-section(1) ofsection 274of the companies Act.


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PROVISIONSection 274(1) reads as under:

A person shall not be capable of being appointeddirector of a company, if-

(a) he has been found to be of unsound mind by a courtof competent jurisdiction and the finding is in force;(b) he is an undercharged insolvent;(c) he has applied to be judged as an insolvent and

his application is pending;(d) he has been convicted by a court of any offence involvingand sentenced in respect thereof to imprisonment for notless than six months and a period of five years has notelapsed from the date of expiry of the sentence;


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(e) he has not paid any call inrespect of shares of the companyheld by him, whether alone or

jointly with others, and sixmonths have elapsed from the

last day fixed for the payment ofthe call; or

(f) an order disqualifying him forappointment as director hasbeen passed by a court in

pursuance of section 203 and isin force, unless the leave of thecourt has been obtained for hisappointment in pursuance ofthat section;


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(g) such person is already a director of a public companywhich-

(A) returns for any continuous three financial yearscommencing on and after the first day of April, 1999; or

(B) has failed to repay its deposits or interest thereon ondue date or redeem its debentures on due date or paydividend and such failure continues for one year or more:

Provided that such person shall not be eligible to beappointed as a director of any other public company for aperiod of five years from the date on which such public

company, in which he is a director, failed to file annualaccounts and annual returns under sub-clause (A) or hasfailed to repay its deposit or interest or redeem itsdebentures on due date or paid dividend referred to in

clause (B).


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MEANINGThere is absolutely no lack of clarity in clauses (a) to (f) but in

clause (g) there appears to be unusuality. It is settled that theoffice of the director will not get vacated due to the

application of Section 274; instead he will become incapableof being re-appointed. A plan reading of clause (g) of sub-section (1) gives the meaning that where a person is adirector of a public limited company which has committedthe violation as specified in sub-clause (A) and (B), he shall

not be capable of being re-appointed as director after theexpiry of his tenure. But the provison to clause (g) says thatsuch director shall not be eligible to be re-appointed asdirector of any other public company for a period of five yearsfrom the date on which such violation was committed by the

public limited company, in which he is a director.


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CONCLUSIONA clarification on the subject is required to understand

the intention as well as objective of the Legislature andto avoid any misinterpretation. In case, the intentionof the Legislature is different than what can bereasonably analyzed then the clause needs to besuitably amended.


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POWERS OF DIRECTORS

According to Section 291, subject of the articles of the

company and provisions of the Act, the Board ofDirectors of a company shall be entitled toexercise all such powers, and to do all such actsand things as the company is authorized to

exercise and do.


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INTRODUCTIONSection 291 of Companies Act, 1956 provides for general

powers of the Board of directors. It mandates that theBoard is entitled to exercise all such powers and do allsuch acts and things, subject to the provisions of theCompanies Act, as the company is authorized toexercise and do. However, the Board shall not exerciseany power and do any act or things which is requiredwhether by the Act or by the memorandum or articlesof the company or otherwise to be exercised or done bythe company in general meeting.


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GENERAL POWERS All powers of the management of affairs of the company

are vested in the Board of Directors.

Once specific powers of management & control have been

granted by the company to its directors, the company cantwithout justification impose its will at a general meeting.

The shareholders cant dictate to the directors the mannerin which their executive authority is to be employed.

If shareholders are unhappy with the boards action, theycan alter the articles to restrict their powers or refuse to re-elect them, but cant seize the powers vested in board.


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STATUTORY POWERS The following powers can be exercised only by

resolution passed at board meetings & not bycirculation, by the Board:

1) The power to make calls on shareholders in respectof money unpaid on their shares

2) The power to authorize the buy back

3) The power to issue debentures4) The power to borrow money otherwise than on

debentures.


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5) The power to invest the funds of the company6) The power to make loans

However, the board may delegate the following powersto any committee of directors or other principalofficers of the company, by a resolution passed at ameeting of BOD

A) Power to borrow money

B) Power to make investmentc) Power to make loans

disqualifications of directors

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