duties of shareholders companies act 2013

Some of such offences are listed below: Furnishing of any false or incorrect particulars of any information or suppressing any material information in any of the documents filed with the Registrar of Companies in relation to the registration of a company (Section 7 (6); Including in the prospectus any statement which is untrue or misleading in form or context in which it is included or where any inclusion or omission of any matter is likely to mislead (Section 34); Fraudulently inducing persons to invest any money (Section 36); Default under Section 56 relating to transfer and transmission of shares with an intent to defraud; Offences relating to reduction of share capital (Section 66). It is pertinent to note here that the term ‘officer in default’ now seeks to implicate every director (including nominee director) who is aware of the contravention. This article provides an insight on the duties and liabilities of the directors under the 2013 Act and the practical measures which may be adopted by them, for complying with these duties. A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company. Section 76 of the Act addresses the standard of conduct The 2013 Act provides for different categories of directors, including, whole time directors, managing directors, independent directors, nominee directors, alternate directors and women directors. • They’re easy to understand and I appreciate that they are only as long as necessary to cover the essentials. for Corporate/M&A work. (2) A director of a company shall act in good faith in order to promote the objects of thecompany for the benefit of … Such practical situations would make balancing act difficult for directors. Here are some of practical recommendations which directors may find useful, whilst discharging their duties: All directors (including independent directors) need to attend as many board meetings as possible to ensure that they are fully aware of the company’s business. The provisions of this Section apply to all categories of directors, including independent directors. The duties set out in this Section are not exhaustive. They will need to ensure that they always act in the best interest of all stakeholders. Most of the offences leading to imprisonment under the 2013 Act are non-cognizable (that is would need warrant to arrest) but there are certain serious offences which are cognizable in nature and would not require a warrant to arrest. If you are invited to become a company director or are already a director, it is very important that you understand your duties and responsibilities and the potential consequences of their breach. With the legal sector working digitally, it's a great time to review your current content marketing strategy and see where you can get the best ROI from your existing content. Earlier, only the listed companies were required to get its annual returns signed by the company secretary. A director of a company shall not assign his office and any assignment so made shall be void. Now, according to new companies act, many industries are added to do the same. In case of default on the part of the Company, there are several instances where the complainant as a strategy, would make all the directors party to the suit, to put pressure on the company. Stipulation and elucidation of the duties and responsibilities of the directors of a company, especially the public limited companies, are welcome and great contribution of the new company law of India, the Companies Act of 2013, to better corporate governance and security, and the best possible growth and prosperity in the corporate world of India.
Although employees and creditors interests were recognized in matters pertaining to insolvency, but the law was settled that a director should primarily act in the best interests of all shareholders. The duties which have been listed in Section 166 are essentially codification of the existing equitable and common law principles of the fiduciary duties of directors. Hence, it increases the role of the Company Secretary in the organization. Not to disclose confidential information, including commercial secrets, technologies, unpublished price sensitive information, etc., unless such disclosure is expressly approved by the board or is required by law. Becoming a company director has become a very serious business and should not be undertaken lightly or unadvisedly.

He specialises in domestic and cross border mergers and acquisitions, private equity investments, transactional documentation work and advises on all aspects of foreign investments (both inbound and outbound) and regulatory approvals.

Keeping well informed about the company and the external environment in which it operates. He has advised several multinationals and Indian companies on complex and big-ticket M&A transactions. Regulation 4(2)(f) of LODR (1) Subject to the provisions of this Act, a of a shall act in accordance with the of the company. Though the idea may seem convincing from a corporate governance perspective, several practical difficulties could arise. Rabindra has been acknowledged for his experience and expertise and been recommended by several leading publications including IFLR, Asialaw, Chambers and Partners, Legal 500 and PLC Which Lawyer? This carve out has been provided to independent directors considering the limited degree or involvement of an independent director in the day to day affairs of the company.

It would be difficult for a nominee director to act where the instructions of his nominating shareholder run inconsistent with the interests of a class of stakeholders. To minimize risks, the board should consider seeking inputs from its different categories of stakeholders to identify what stakeholders believe may be an appropriate course of action. Various penal provisions in the 2013 Act, which seek to penalize a company’s officers would accordingly include company’s directors and charge them for offences committed under the Act. Section 166 of the 2013 Act stipulates the following: (a) Subject to the provisions of this Act, a director of a company shall act in accordance with the articles of a company. Directors should read all necessary papers and relevant background information made available to them for meetings to enable their meaningful participation and contribution. Major Roles of Company Secretary according to Companies Act, 2013. Also, since the 2013 Act also requires the director to take into account environmental and community concerns, will an interpretation that a director who is on the board of a tobacco company or cigarette manufacturing company is in breach of the provisions of the 2013 Act right from day one, hold good?

Not to unfairly obstruct the functioning of a proper board or committee. 1. Considering the stringent penal provisions imposed even for not so grave non-compliances, it is necessary that directors adopt an extra cautious approach. The 2013 Act has introduced several measures which have the effect of considerably enhancing the duties and liabilities of directors and imposition of stringent penal provisions in case of breach of any statutory provisions. Set out below is the list of few contraventions, where the penalties are Rs 1 crore or more: Violation of provisions relating to not-for-profit companies (Section 8); Violation of provisions relating to subscription of securities on private placement (Section 42); Issue of duplicate share certificates with an intent to defraud (Section 46 (5)); Failure to repay deposits within specified time (Section 74 (3)); Contravention of provisions relating to insider trading (Section 195 (2)). Understand your clients’ strategies and the most pressing issues they are facing.

Rabindra Jhunjhunwala is a Partner at Khaitan & Co, Mumbai office. INTRODUCTION. Introducing PRO ComplianceThe essential resource for in-house professionals. “I have found the articles in Lexology/Newsstand to be closely related to the topics I am interested in. Once a director is made a party, he will have to go through the time consuming and cumbersome court procedures to prove his innocence.

Corporate failures in the recent past such as Satyam, Sahara, Kingfisher brought out the fact that the Companies Act, 1956 (“1956 Act”) which existed over a period of 50 years was ineffective at handling some of the present day challenges of a growing industry and interests of  increasing classes of sophisticated stakeholders.

The term ‘attributable through Board processes’ would normally be interpreted to mean that a director would be deemed to have knowledge of all matters that are taken at the board level. While some of the requirements already existed for listed companies as part of the Listing Agreement, the new requirements under the 2013 Act apply to all companies. To ensure that the company has an adequate and functional vigil mechanism and also to ensure that the interests of a person who uses such mechanism are not prejudicially affected on account of such use.

These offences are mainly connected to fraud or intent to defraud. Rotation of audit firms under the Companies Act, 2013 – a closer look, Companies Act 2013: greater emphasis on governance through the board and board processes, Independent directors- under the Companies Act, 2013, Officers in default - SEBI provides respite to independent directors, The duties and liabilities of directors of limited companies incorporated in the UK, Company directors' general duties under the English Companies Act 2006.

The company has the right to initiate legal action against directors, in case of breach of their duties. The Companies Act 2013 (“2013 Act”) has been enacted with a view to meeting the present day challenges of corporate governance arising from stakeholders’ expectations. Accordingly, the courts will need to rely on ‘reasonability test’ and will need to consider the facts and circumstances of each case, whilst pronouncing judgment. Directors need to ensure that they have obtained directors’ and officers’ liability insurance to provide them with some degree of comfort. The selection feature during registration helps in increasing the relevance of the content of the emails. Companies Act 2013 is a revolution in corporate law development in India. I would recommend it to other attorneys.”, © Copyright 2006 - 2020 Law Business Research. To pay sufficient attention and ensure that adequate deliberations are held before approving related party transactions and assure himself that the same are in the interest of the company. Also, in view of the aforesaid provisions, a director needs to ensure that any objection raised by him at a board meeting is duly recorded in the minutes. Apart from the duties mentioned above, which are applicable to all directors, independent directors are also additionally required to comply with code of conduct specified under Schedule IV of the 2013 Act.
As seen from the above, various duties and responsibilities have been cast on independent directors, including protecting interests of minority shareholders, harmonizing conflict of interests of stakeholders, acting as a mediator in cases of conflicting interests etc considering the importance of their role from a corporate governance perspective. Keep a step ahead of your key competitors and benchmark against them. The next generation search tool for finding the right lawyer for you.

A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain of the company. 166. With the 2013 Act, there is an attempt to shift the focus for directors from looking solely at shareholders’ interests to taking account interests of other stakeholders as well. Become your target audience’s go-to resource for today’s hottest topics. Stipulation and elucidation of the duties and responsibilities of the directors of a company, especially the public limited companies, are welcome and great contribution of the new company law of India, the Companies Act of 2013, to better corporate governance and security, and the best possible growth and prosperity in the corporate world of India.

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