Directors & Key Managerial Personnel

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Directors & Key Managerial Personnel — Key Facts for CS Executive

Types of Directors — Quick Overview

• Executive Director (Whole-time Director): Engaged in day-to-day management; has a service agreement; receives salary/remuneration
• Non-Executive Director: No management role; appointed for oversight; receives sitting fees + commission
• Independent Director: Non-executive with no business relationship with company; ≥50% of board should be independent for listed companies
• Nominee Director: Appointed by a specific shareholder/financial institution; represents their interest; not required to be independent
• Woman Director: Mandatory for listed companies and public companies with ≥3 directors (Section 149(1))

DIN — Director Identification Number

• Mandatory for every director under Section 153
• 8-digit unique number; applied via DIR-3 form on MCA portal with KYC verification
• Cannot hold more than 20 directorships across all companies (Section 165)
• Allotment within 1-2 days if KYC documents are in order
• DIN must be quoted on all documents signed by director

KMP Definition (Section 2(51)) — Key Managerial Personnel The following constitute KMP:

1. Managing Director (MD) — appointed under Section 196; whole-time; controls board
2. Whole-time Director (WTD) — executive director with substantial time commitment
3. Chief Executive Officer (CEO) — top executive reporting to board
4. Chief Financial Officer (CFO) — head of finance function
5. Company Secretary (CS) — compliance officer; KMP for listed + public companies with ≥₹50 lakh capital
6. Such other officer — as notified by Central Government

Board Composition Rules

• Listed companies: ≥50% independent directors; minimum 3 directors (≥6 for certain listed companies under SEBI LODR)
• Public companies (unlisted) with ≥₹10 crore paid-up capital: At least 1 woman director; minimum 3 directors
• Private companies: Minimum 2 directors; no independent director requirement (unless opted in)

Appointment of Directors

• First directors: Named in AoA or appointed by subscribers at incorporation (Form DIR-12)
• Subsequent directors: Appointed by shareholders in AGM by ordinary resolution
• Individual director appointment: Requires special notice (Section 160 — 14 days’ notice to company; company must inform shareholders 7 days before meeting)

Vacation of Office (Section 167) A director vacates office if:

1. He/she fails to attend board meetings for 12 consecutive months ← most commonly tested ground
2. He/she becomes disqualified (Section 164)
3. He/she resigns by written notice to company
4. He/she is removed by shareholders in general meeting
5. He/she becomes of unsound mind
6. He/she is declared insolvent
7. The company is wound up

Key Powers of Board (Section 179) Board collectively can:

• Exercise all powers of company except those reserved for shareholders
• Borrow money, invest funds, grant loans
• Approve financial statements and annual report
• Appoint CEO, CFO, Company Secretary
• Open/close bank accounts
• ⚡ Exam tip: Directors CANNOT unilaterally approve: related party transactions above threshold, sale/disposal of >33% of assets, change in nature of business — these require shareholder approval under Section 180

Board Meetings — Minimum Requirements

• Minimum 4 meetings per year (1 per quarter)
• Maximum gap between meetings: 120 days
• Quorum: 1/3 of total directors or 2, whichever is higher
• Voting: Majority decision; casting vote only for chairman
• Notice: 7 days minimum (or shorter if consented by all directors)

Disqualifications of Directors (Section 164) A person cannot be appointed director if:

1. Unsound mind — declared by court
2. Insolvent — undischarged insolvent
3. Convicted of offense involving moral turpitude (5-year cooling period from date of conviction)
4. Non-payment of calls — shares not fully paid for 12 months
5. Removed by court/NCLT for breach of duty
6. Not having DIN — DIN cancelled/deactivated
7. Constitutional disqualifications — convict under Section 447 (fraud), fugitive economic offender
8. Disqualified under Section 164(2): Persons already director in 3 defunct companies where they were director at time of winding up

⚡ Exam tip: A director not attending board meetings for 12 consecutive months vacates office AUTOMATICALLY under Section 167 — this is a favourite exam question! The office is deemed vacant from the date of the 12th consecutive missed meeting.

Related Party Transactions

• Any contract/arrangement with director, relative, or associate
• Must be disclosed to board (Section 184)
• If exceeds ₹1 crore or 10% of turnover (whichever is lower) → requires shareholder approval by ordinary resolution
• Section 188(1) — requires prior approval of board + shareholders for certain related party transactions
• ⚡ Exam tip: RPT approval is a frequently tested corporate governance provision; always check both Section 184 (disclosure) and Section 188 (approval requirements)

Quick Memory Mnemonic — Board Quorum: “1/3 or 2 — quorum is whichever is HIGHER”

• 9 directors → quorum = 3 (1/3 of 9 = 3)
• 5 directors → quorum = 2 (1/3 of 5 = 1.67, rounded up to 2)

Quick Memory Mnemonic — Director Disqualifications: “Unsound, Insolvent, Convicted, Calls unpaid, Declared disqualified”

• U = Unsound mind
• I = Insolvent (undischarged)
• C = Convicted (moral turpitude — 5 year cooling)
• C = Calls unpaid (12 months)
• D = Disqualified by Court/NCLT

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Directors & Key Managerial Personnel — CS Executive Study Guide

DIN — Director Identification Number (Detailed)

• Legal basis: Section 153 — every director must have DIN
• Application: DIR-3 form on MCA portal with:
  • Photograph
  • PAN card copy (mandatory — DIN is PAN-based)
  • Address proof (Aadhaar/Voter ID/Passport/Driving Licence)
  • DIN KYC: directors must validate DIN every year via DIR-3 KYC or face deactivation
• Unique number: 8-digit; format: XXXXXXXX
• DIN allotment: Within 1-2 working days (STP processing)
• Limitation: Cannot hold more than 20 companies as director (Section 165)
  • 10 public companies + 10 private companies (or any combination)
  • Cannot be director in more than 10 public companies
• Cancellation: DIN cancelled if: (a) death of director, (b) director disqualified under Section 164, (c) company dissolved, (d) director fails to complete DIN KYC
• ⚡ Exam tip: DIN is PERMANENT — even after a company is dissolved, the director’s DIN record remains. If a director is appointed in a new company, same DIN is used.

Types of Directors — Detailed Analysis

1. Managing Director (MD) — Section 2(54) and Section 196

• An individual appointed as Managing Director who is entrusted with substantial powers of management
• Must be a natural person (not a company, not a minor)
• Appointed for term up to 5 years; eligible for re-appointment
• Receives remuneration as per agreement and within Schedule V limits
• Cannot hold office in a competing company without prior approval of board
• Vacation of office: resignation, death, bankruptcy, disqualification, removal by shareholders, vacation under Section 167
• ⚡ Exam tip: MD is always an executive director (whole-time) — cannot be non-executive

2. Whole-time Director (WTD) — Section 2(94)

• Director in whole-time employment with the company
• Similar powers and responsibilities as MD but may have narrower scope
• Appointed for term up to 5 years
• Receives remuneration within limits prescribed by Schedule V

3. Chief Executive Officer (CEO)

• Not defined in Companies Act — derived from general corporate practice
• Appointed by board under Section 179 (powers of board)
• KMP under Section 2(51) definition
• Not required to be a director — can be a non-director executive

4. Chief Financial Officer (CFO)

• Head of finance function
• KMP under Section 2(51)
• Responsible for: financial planning, management of financial risk, financial reporting, compliance with Chapter III of Companies Act (Accounts)
• Must sign financial statements along with director (Section 134)

5. Company Secretary (CS) — Section 2(24) and Section 203

• KMP for: (a) every listed company, (b) every public company with paid-up capital ≥₹50 lakh
• Qualifications: Must be member of ICSI (Institute of Company Secretaries of India); Associate/Fellow of ICSI
• Whole-time employment required for KMP designation
• Duties:
  • Ensure compliance with Companies Act and other statutes
  • File annual returns (MGT-7) and financial statements (AOC-4)
  • File event-based filings: DIR-12 (changes in directorship), INC-28 ( AGM/EGM outcomes), MGT-4 ( scrutiny report), etc.
  • Maintain statutory registers (Register of Directors, Register of Members, Register of Charges)
  • Conduct board meetings and general meetings; ensure proper minutes
  • Advise board on legal matters and SEBI compliance (for listed companies)
• ⚡ Exam tip: A CS in whole-time practice can also serve as CS for a company — but cannot be KMP in more than one company unless they are part of the same group

6. Independent Director — Section 2(47) and Schedule IV

Definition: Independent director means a non-executive director other than:

• A promoter or related to promoters
• Related to any director or KMP
• Has been an executive/KMP in last 3 years
• Has material pecuniary relationship with company (other than sitting fees)
• Is a substantial shareholder (>2% holding)
• Is a partner/director of a firm that is a statutory auditor or internal auditor of company

Appointment Requirements:

• Appointed for a fixed term of 5 years (not liable to retire by rotation)
• Eligible for re-appointment for another term of 5 years after a 1-year gap
• Listed companies: ≥50% of board must be independent directors
• For unlisted public companies with ≥3 directors: at least 1 independent director (Section 149)

Responsibilities under Schedule IV:

1. Act in good faith to promote company objects
2. Exercise care, skill, and diligence of a reasonably prudent person
3. Constructively challenge and scrutinize management proposals
4. Strive to attend all board meetings
5. Where concerns exist, ensure these are recorded in minutes
6. Be independent in judgement

Woman Director — Section 149(1)(b)

• Mandatory for:
  • Listed companies (all — regardless of capital)
  • Other public companies with paid-up capital ≥₹50 crore OR turnover ≥₹200 crore OR net worth ≥₹1,000 crore
• For other public companies: recommended but not mandatory unless they voluntarily opt in

Nominee Director — Section 161(3)

• Appointed by: (a) financial institutions (lending banks), (b) investing institutions (venture capital, private equity), (c) government (in government companies)
• Not required to be independent — represents the appointing entity’s interest
• Usually not liable for acts done in good faith in the interest of appointing institution
• Vacates office when appointing institution withdraws nomination

Alternate Director — Section 161(2)

• Appointed by board when a director is out of India for ≥3 months
• Holds office only during the original director’s absence
• Vacates when original director returns to India
• Must have DIN; appointment notified to RoC within 30 days

Appointment of Directors — Section 152

Individual director appointment in public company:

• Requires special notice of 14 days to company (Section 160)
• Company informs all shareholders of the nomination at least 7 days before meeting
• Shareholder resolution appointing the director
• Director must give consent in Form DIR-2 before appointment
• Director must give declaration in Form DIR-8 confirming no disqualification

First director at incorporation:

• Named in Articles of Association (AoA) OR
• Appointed by subscribers in Form DIR-12 at the time of filing SPICe+
• Subscriber can appoint himself/herself as first director

DIN Allotment Process:

1. File DIR-3 on MCA portal
2. Attach: PAN (mandatory), Address proof, Photograph, Identity proof
3. Pay fee (₹500 for individual, ₹1000 for foreigners)
4. MCA processes and allots DIN within 1-2 days
5. DIN valid for life unless cancelled

Board Powers (Section 179) — What Board Can Do Without Shareholders:

1. Borrow money: Can authorise borrowing up to limits set by shareholders in shareholders’ meeting (Section 180)
2. Invest funds: Can invest in shares, securities, mutual funds up to limits set by shareholders
3. Grant loans: Can give loans to other companies/persons (subject to Section 185 restrictions)
4. Approve financial statements: Board approves FS before placing before AGM
5. Declare dividend: Board recommends dividend; shareholders approve in AGM
6. Appoint CEO, CFO, CS: As KMP under Section 203
7. Call general meetings: Board can convene AGM/EGM under Section 98
8. Fill casual vacancy: Board can appoint director to fill casual vacancy (Section 161(4))

Limitations on Director Powers (Section 180) — Requires Shareholder Approval:

1. Sale/lease/disposal of >33% of assets: Requires special resolution
2. Borrowing beyond paid-up capital + free reserves: Requires special resolution (but existing borrowings from banks can continue)
3. Investments in subsidiary/associate beyond limits: Special resolution required
4. Loans to directors/relatives: Section 185 — absolutely prohibited (unless loan to wholly-owned subsidiary)

Disqualifications in Detail (Section 164):

Ground	Detail	Consequence
Unsound mind	Declared by competent court	Cannot hold office
Insolvent	Undischarged insolvent	Cannot hold office
Conviction	Offense involving moral turpitude	5-year cooling period from conviction
Non-payment of calls	Shares not fully paid for 12 months	Cannot hold office
Court/NCLT order	Removed for breach of fiduciary duty	Cannot hold office
No DIN	DIN cancelled/deactivated	Cannot act as director
Section 164(2)	Already director in 3 defunct companies	Cannot be appointed in new company
Fraud conviction (Section 447)	Imprisonment + fine	Permanent disqualification
Fugitive economic offender	Proclaimed fugitive	Cannot hold office

Vacation of Office (Section 167) — Detailed Triggers:

1. Non-attendance — fails to attend board meetings for 12 consecutive months
   • ⚡ Exam tip: This is VACANT by operation of law — no board resolution needed; automatic from the date of 12th consecutive absence
2. Disqualification — becomes disqualified under Section 164
3. Resignation — gives written notice; effective from receipt by company
4. Removal — removed by shareholders in general meeting (with special resolution; director has right to be heard)
5. Insolvency — declared bankrupt
6. Unsound mind — court declaration
7. Death — vacancy arises on death

Resignation of Director (Section 168):

• Director can resign by giving notice in writing to company
• Company must intimate RoC within 30 days (Form DIR-12)
• Director remains liable for acts done while serving as director
• If no replacement appointed, board can fill casual vacancy OR call EGM to appoint

Related Party Transactions — Sections 184 and 188

Section 184 — Disclosure:

• Every director must disclose his/her interest in any contract/arrangement at the FIRST board meeting held after appointment
• Also: any change in interest must be disclosed at the first board meeting after such change
• Director with interest cannot participate or vote on that transaction

Section 188 — Approval Requirements:

• Related party contract/arrangement must be approved by:
  • Board (majority of disinterested directors)
  • If ≥₹1 crore or 10% of turnover → also requires ordinary resolution of shareholders
• Exceptions where shareholder approval NOT required:
  • Transactions in ordinary course of business at arm’s length
  • Transactions with wholly-owned subsidiaries
  • Director’s remuneration approved under Section 197/Schedule V
  • Transactions below threshold
• ⚡ Exam tip: Always check BOTH board approval (Section 188) AND disclosure (Section 184) for related party transactions

Board Committees — Detailed:

1. Audit Committee (Section 177 and Companies (Meetings of Board and its Powers) Rules, 2014):

• Composition: ≥3 directors; majority must be independent directors; at least one director with finance/accounting expertise
• Chairman must be independent director
• Terms of reference:
  • Oversee financial reporting process
  • Recommend appointment/removal of auditor
  • Review internal audit reports
  • Approve related party transactions
  • Review financial statements (quarterly, annually)
  • Interact with internal/external auditors
  • Evaluate internal financial controls
• Quorum: 2 independent directors minimum

2. Nomination and Remuneration Committee (NRC) — Section 178:

• Composition: ≥3 non-executive directors; chairman is non-executive
• Listed companies: majority should be independent directors
• Terms of reference:
  • Formulate criteria for appointment of directors/KMP
  • Specify manner for effective evaluation of board performance
  • Review compensation (sitting fees, commission, salary) of directors/KMP
  • Develop and maintain:
    • (a) Desirable qualifications — for appointment of directors (technical expertise, experience, integrity)
    • (b) Positive attributes — independence, leadership, commitment to company
    • (c) Core competencies — required for the role

3. Stakeholders Relationship Committee (SRC) — Section 178(5):

• Required when company has >1,000 shareholders/debenture holders
• Composition: chairperson (usually non-executive) + such members as board decides
• Terms of reference:
  • Resolve grievances of shareholders/debenture holders
  • Review complaints: share transfers, non-receipt of annual report, non-receipt of dividend
  • Report to board on complaint status

Remuneration of Directors — Sections 196, 197, 198 and Schedule V:

Executive Directors (MD, WTD, CEO):

• Remuneration approved by board AND shareholders (ordinary resolution)
• Must be within limits of Schedule V or as approved by Central Government
• Components: Salary, Perquisites, Commission (on net profits)
• If no profits or inadequate profits: remuneration within Schedule V limits
• Schedule V limits for managerial remuneration:
  • Where effective capital is ≤₹5 crore: max ₹60 lakh per year (or ₹5 lakh per month)
  • Where effective capital is ₹5-100 crore: max ₹84 lakh per year (or ₹7 lakh per month)
  • Plus: perquisites as specified

Non-Executive Directors:

• Sitting fees: Max ₹1 lakh per meeting of board/committee (Companies Act limit; SEBI LODR may set lower limit)
• Commission: Up to 1% of net profits for all non-executive directors combined
• Listed companies: sitting fees + commission as approved by shareholders

MD/WTD Remuneration Limits (Schedule V):

• Minimum remuneration: As per agreement subject to ceiling in Schedule V
• If profits insufficient: Minimum remuneration within Schedule V limits without Central Government approval
• If profits adequate: Remuneration as per agreement and shareholders’ approval

Disclosure of Remuneration:

• In Board Report: details of remuneration of each director
• Ne ratio disclosure (Section 197(12)): Ratio of median remuneration of employees to managerial remuneration
• For listed companies: must disclose in annual report and on company website

⚡ Exam tip: Schedule V has two Parts — Part I (remuneration limits) and Part II (conditions for appointment without Central Government approval). Key conditions: no profitable alternative use of funds, no default in tax/statutory dues, disclosure in board report.

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Directors & Key Managerial Personnel — Comprehensive CS Executive Notes

Section 149 — Appointment of Directors (Comprehensive)

Section 149(1) — Mandatory Composition:

• Every company must have minimum 3 directors (public), 2 directors (private)
• Every company must have at least 1 woman director if: listed OR (unlisted public company with paid-up capital ≥₹50 crore OR turnover ≥₹200 crore OR net worth ≥₹1,000 crore)
• At least 2 directors where paid-up capital ≥₹100 crore OR turnover ≥₹300 crore OR net worth ≥₹1,000 crore

Section 149(2) — Resident Director:

• Every company must have at least 1 director who has stayed in India for ≥182 days in previous calendar year
• Requirement: at least 1 director on board must be Indian resident

Section 149(3) — Independent Directors (Listed Companies):

• Listed companies must have ≥50% independent directors
• Unlisted public companies: independent directors not mandatory unless they opt in

Section 150 — Independent Directors Register:

• Every independent director must be included in databank maintained by:
  • IICA (Indian Institute of Corporate Affairs) for individuals
  • Databank accessible to public
• Independent directors must undergo online training (min 8 hours) within 3 months of appointment

Section 151 — Small Shareholders’ Director:

• Listed companies may have a Small Shareholders’ Director
• Appointed by small shareholders (shareholders holding ≤0.5% of paid-up capital)
• Holds office for 3 years; eligible for re-appointment once
• Same duties/rights as other directors

Section 152 — Individual Appointment:

• Appointed by shareholders in general meeting
• Name of proposed director proposed and seconded
• Special notice of 14 days required (Section 160)
• Director must give consent in Form DIR-2

Section 153 — DIN Mandatory:

• Every director must have DIN
• Allotted by MCA under STP within 1-2 days
• DIN is 8-digit; PAN-based; unique for life

Section 154 — Director Need Not Be Member:

• A person who is not a member can be appointed director
• But once appointed, a director automatically becomes a member (to the extent of qualification shares if any)

Section 155 — Director Cannot Act Without DIN:

• Any person acting as director without DIN is punishable with fine up to ₹10 lakh + imprisonment up to 6 months

Section 156 — Company Cannot Appoint Director Without DIN:

• Company appointing a director without DIN is punishable with fine up to ₹50,000

Section 160 — Special Notice for Director Appointment:

• 14 days’ notice required to company for proposing a director’s appointment
• Company must inform all shareholders at least 7 days before meeting

Section 161 — Alternate Director, Nominee Director, Casual Vacancy:

Alternate Director (Section 161(2)):

• Appointed when original director is out of India for ≥3 months
• Holds office only during original director’s absence
• Vacates when original director returns OR original director vacates office
• Must have DIN; appointment notified to RoC within 30 days

Nominee Director (Section 161(3)):

• Appointed by: financial institution, creditor, government, or any shareholder pursuant to agreement
• Not required to retire by rotation
• Cannot be removed except by appointing authority
• Vacates when appointing authority withdraws nomination

Casual Vacancy (Section 161(4)):

• Board can fill casual vacancy by appointing qualified person
• Director so appointed holds office only until original term
• But such director is also eligible for re-appointment
• Must be reported to RoC via DIR-12

Section 162 — Rotation of Directors:

• At every AGM, 1/3 of directors (excluding independent directors if not liable to retire) must retire by rotation
• Retiring directors are eligible for re-appointment
• Managing Director and Whole-time Directors are NOT subject to rotation (if appointed for fixed term)

Section 163 — Sitting of Directors:

• Directors may fix their remuneration (as sitting fees or otherwise)
• Sitting fees for each meeting of board or committee: max ₹1 lakh per meeting

Section 164 — Disqualifications (Full Text): A person is disqualified from being a director if:

1. He/she is of unsound mind and declared so by court
2. He/she is an undischarged insolvent
3. He/she has been convicted of an offense involving moral turpitude or fraud — 5-year cooling period from date of conviction
4. He/she has failed to pay calls on shares for 12 months preceding appointment
5. He/she has been removed by court or NCLT for breach of duty
6. He/she is not having DIN or DIN has been cancelled
7. He/she is a fugitive economic offender
8. He/she has been convicted of Section 447 (fraud) — permanent disqualification
9. He/she was a director of a company that was dissolved due to inability to pay debts — not eligible for 5 years after such dissolution (if wound up by NCLT)

Form DIR-8:

• Director must file DIR-8 with company confirming no disqualification
• Company must file DIR-8 with RoC along with annual return (MGT-7)
• If director furnishes false DIR-8 → liable for fraud under Section 447

Section 165 — Multiple Directorships:

• Cannot hold directorship in more than 20 companies
• Cannot be director in more than 10 public companies
• Calculation: including private companies and LLPs
• Private companies (holding/subsidiary) count towards limit
• If a person exceeds limit due to inheritance (e.g., inherited directorship): 6-month cure period

Section 166 — Duties of Directors: Directors must:

1. Act in accordance with Articles of Association
2. Act in good faith to promote the success of company for benefit of members as a whole
3. Exercise independent judgment
4. Exercise care, skill, and diligence of a reasonably prudent person
5. Not involve in situation where personal interest conflicts with company’s interest
6. Not make secret profits
7. Not accept bribes or commissions from third parties
8. Not misuse company’s confidential information
9. Not misuse company’s position

Key fiduciary duties:

• Duty of loyalty — act in company’s best interest
• Duty of care — objective standard
• Duty of disclosure — full transparency
• No conflict of interest
• No insider trading (SEBI regulations)

Section 167 — Vacation of Office (Full):

Office of director vacated if:

1. Absence from board meetings for 12 consecutive months — ⚡ CRITICAL: automatic by operation of law
2. Disability declared by court (unsound mind)
3. Bankruptcy/insolvency
4. Resignation accepted by board
5. Disqualification under Section 164
6. Removal by shareholders in general meeting
7. Death

Consequences of Vacation:

• Person cannot claim any compensation for loss of office
• But: can claim for breach of contract (if service agreement existed beyond the directorship)
• Vacation does not affect company’s obligations to third parties

Section 168 — Resignation:

• Resigns by giving written notice to company
• Company must intimate RoC within 30 days (Form DIR-12)
• Resigning director must also file DIR-11 (notice of resignation) with RoC
• Director remains liable for acts during tenure

Section 170 — Register of Directors:

• Company must maintain Register of Directors in Form DIR-12
• Contains: DIN, name, father’s name, residential address, nationality, occupation, date of appointment, other directorships
• Open for inspection by members (free; others on payment of fee)

Section 171 — Membership of Directors:

• Director automatically becomes member if he/she holds qualification shares
• But director need not be member (Section 154) — can be director without holding shares
• Director’s name appears in Register of Members if shares held

Section 173 — Board Meetings:

• Minimum 4 meetings per year (quarterly recommended)
• Maximum gap: 120 days between consecutive meetings
• Can be held anywhere in India or abroad
• Notice: 7 days minimum (or shorter if consented by all directors)
• Participation via video conferencing allowed (except for certain restricted items)
• Board can pass resolutions without meeting (circulation — Section 175)

Section 174 — Quorum:

• Quorum = 1/3 of total directors or 2 directors, whichever is higher
• If quorum not present within 30 minutes of scheduled time, meeting stands adjourned
• Quorum must be maintained throughout meeting
• Interested directors excluded from quorum calculation for that item

Section 175 — Circulating Resolutions:

• Board can pass resolution by circulation if:
  • All directors sign the draft resolution OR
  • Majority of directors entitled to vote consent in writing
• Resolution passed by circulation is as valid as board resolution
• But: if any director objects within 7 days, the resolution is NOT passed — must be tabled at board meeting
• ⚡ Exam tip: Cannot be used for: (a) items requiring board meeting by law, (b) items where video conferencing is prohibited, (c) certain financial transactions above threshold

Board Meeting Voting:

• Each director has 1 vote
• Ordinary business: simple majority
• Special business: may require special resolution at board level (rare — most board items are ordinary business)
• Casting vote: Chairman has casting vote ONLY if there is a tie AND chairman is present in the meeting

Secretarial Standard-1 (SS-1) — Board Meetings:

• Notice: Minimum 7 days; sent to all directors at registered address or email
• Agenda: Comprehensive agenda prepared by Company Secretary
• Minutes: Record within 15 days; signed by chairman; circulated to all directors
• Matters reserved for board: All significant decisions
• Committees: Subject to SS-1 with modifications

Section 179 — Powers of Board (Comprehensive):

Board can exercise ALL powers of company except those required by law to be exercised in general meeting:

1. To borrow money: Subject to Section 180 limits
2. To invest funds: Subject to Section 179(3) — cannot invest in company’s own shares
3. To grant loans: Subject to Section 185 — no loans to directors/relatives
4. To approve financial statements: Board approves before placing at AGM
5. To recommend dividend: Board recommends; shareholders approve
6. To appoint CEO, CFO, CS: As KMP under Section 203
7. To convene general meetings: Board can convene AGM/EGM under Section 98
8. To fill casual vacancy: Appointment of director to fill vacancy
9. To approve related party transactions: Up to thresholds
10. To authorize buyback: Subject to Section 68
11. To create/registerschafes: Subject to Section 77
12. To alter share capital: Subject to Section 61
13. To commence new line of business: Subject to objects clause

Section 180 — Limits Requiring Shareholder Approval:

Board cannot without shareholder resolution (special resolution in most cases):

1. Sell/lease/dispose of whole/substantially whole undertaking (>33% of assets)
2. Borrow money beyond paid-up capital + free reserves
3. Invest in shares/debentures of other bodies corporate beyond specified limits
4. Guarantee obligations of third parties beyond limits
5. Loans to directors/relatives — PROHIBITED absolutely (Section 185)

Section 184 — Disclosure of Interest by Directors:

Every director must disclose:

• At first board meeting after appointment: nature and extent of interest in any contract/arrangement
• At first board meeting after any change in interest
• Director with interest cannot participate or vote on that transaction
• Violation: Fine up to ₹50 lakh for company; director liable for fraud under Section 447

Disclosure format (Section 184(2)):

• General notice: Director gives standing notice of interest (e.g., “I am interested in all contracts with XYZ company”)
• Specific notice: Particular transaction notified to board

Section 188 — Related Party Transactions (Full):

Transactions requiring PRIOR approval:

Transaction type	Listed companies	Unlisted public companies	Private companies
Related party contract (≥₹1 crore or 10% turnover)	Board + Shareholder (ordinary resolution)	Board + Shareholder (ordinary resolution)	Board approval
Related party with director’s relative (≥₹1 crore)	Board + Shareholder	Board	Board
Sale/purchase of assets (≥₹1 crore)	Board + Shareholder	Board	Board
Selling goods >25% of turnover	Board + Shareholder	Board	Board

Exemptions (Section 188(3)):

• Transactions in ordinary course of business AND at arm’s length
• Transactions with wholly-owned subsidiaries
• Director’s remuneration approved under Section 197 -Transactions below threshold amounts
• Payment of sitting fees
• Reimbursement of expenses

⚡ Exam tip: For listed companies, SEBI LODR imposes stricter requirements than Companies Act — always check both!

Section 196 and 197 — Managerial Personnel:

Section 196 — Appointment of MD/WTD:

• Must be natural person, not minor, not undischarged insolvent
• Appointed for term up to 5 years
• Reappointment must be before expiry of current term
• Requires: (a) ordinary resolution of shareholders, (b) Form DIR-12, (c) DIR-2 consent, (d) DIR-8 declaration

Section 197 — Overall Managerial Remuneration:

• Total managerial remuneration (MD/WTD + all directors) cannot exceed 11% of net profits
• If exceeds: requires Central Government approval
• Schedule V provides safe harbour for remuneration even if no profits (government approval not needed within limits)

Schedule V — Remuneration Limits:

For companies with profits:

• Maximum remuneration: ₹11 lakh per month OR ₹84 lakh per year (or higher if approved by shareholders)
• As per effective capital slabs

For companies WITHOUT profits (or inadequate profits):

• Minimum remuneration within Schedule V limits without Central Government approval
• slabs based on effective capital:
  • ≤₹5 crore: max ₹60 lakh per year
  • ₹5-100 crore: max ₹84 lakh per year

  • ₹100 crore: max ₹120 lakh per year

• Plus perquisites

Conditions for Schedule V Remuneration (without government approval):

1. Company has no profit OR inadequate profit
2. Remuneration within Schedule V limits
3. Approval by board and shareholders
4. Director has no profitable alternative use of funds
5. No default in repayment of debt/obligation to banks
6. No tax dues in arrears
7. Disclosure in Board Report

Section 198 — Profit Calculation for Remuneration:

• Net profits calculated as per Section 198
• Certain items excluded (e.g., loss on sale of fixed assets above threshold)
• Commission calculated on net profits

Director’s Liability — Comprehensive:

Civil Liability:

1. Breach of fiduciary duty — acting in personal interest rather than company’s interest
2. Negligence — failure to exercise care and skill
3. Ultra vires acts — authorizing acts beyond company’s objects
4. Misfeasance (Section 340) — breach of duty, misapplication of funds; NCLT can order repayment

Criminal Liability:

1. Section 447 — Fraud: Imprisonment up to 10 years + fine
   • Fraud means any intentional act of deception for gain
   • Applies to: filing false documents, making false statements, omitting material facts
2. Section 172 — acting as director when disqualified
3. Section 155 — acting without DIN
4. Section 184 — failure to disclose interest
5. Section 188 — entering into related party transaction without approval

Tortious Liability:

• Directors can be personally sued for negligence in tort
• e.g., if director’s negligent driving in company car causes accident → personal liability

Section 212 — Fraudulent Action by Company:

• Every person including director can be prosecuted if company commits fraud
• Applies when fraud is committed for fraudulent purpose

Key Cases:

1. IOC v. Common Cause (1999) 4 SCC 242:

   • Supreme Court held that sitting fees paid to directors are subject to Section 309 restrictions
   • Sitting fees must be within prescribed limits

2. GEC (India) Ltd v. R.N. Trivedi (1996) SCC OnLine Bom:

   • Court held that independent directors must maintain independence; cannot be dominated by management

3. CIT v. SIP Cotton (India) Ltd:

   • Related party transactions scrutiny — courts look at substance over form

4. Peer General Finance Ltd. v. Tara Chand (1997):

   • Director’s fiduciary duty — cannot make secret profits; any profit must be disclosed

Corporate Governance — SEBI LODR Requirements (Listed Companies):

Board Composition (SEBI LODR Reg 17):

• ≥50% independent directors (including woman independent director)
• Minimum 6 directors (maximum 12 unless shareholders approve higher)
• At least 1 woman independent director
• Resident director (≥182 days in India)
• Quorum: ≥50% of board present; at least 2 independent directors for certain items

Committees (SEBI LODR):

• Audit Committee: ≥3 directors; all non-executive; majority independent; at least 1 with finance expertise
• NRC: ≥3 non-executive directors; majority independent
• SRC: As per Section 178

Related Party Transactions (SEBI LODR Reg 23):

• All material RPTs require prior approval of Audit Committee
• Material RPTs (>₹1 crore or 10% of consolidated turnover — whichever is lower) also require shareholder approval
• All RPTs disclosed in annual report

Corporate Governance Report (Reg 27(2)):

• Listed companies must disclose corporate governance compliance in annual report
• Includes: board composition, committees, director attendance, remuneration details

Ne ratio Disclosure (Section 197(12)):

• In Board Report: ratio of median remuneration of employees to managerial remuneration
• For listed companies: disclosed on company website

Key Managerial Personnel (Section 203) — Appointment and Remuneration:

Appointment:

• Every listed company MUST have: Managing Director/CEO + CFO + Company Secretary
• Other public companies with paid-up capital ≥₹50 crore must have: MD/CEO/CFO + CS (if listed: mandatory CS)
• Appointment by board under Section 203

Removal:

• KMP can be removed by board for cause
• Removal of MD/WTD requires shareholder approval (ordinary resolution) if contract exists

Managerial Remuneration — Detailed Calculation:

For profitable companies:

• MD/WTD/Manager: Up to 5% of net profits (each); all directors together: up to 11%
• Commission: Non-executive directors: up to 1% of net profits
• Sitting fees: Separate from profit-based commission

For companies without adequate profits:

• Remuneration as per Schedule V limits (no profit no problem — within limits permitted)
• If exceeds Schedule V: requires Central Government approval

Comparison: Executive vs Non-Executive vs Independent Director:

Feature	Executive Director	Non-Executive Director	Independent Director
Management role	Yes (whole-time)	No	No
Sitting fees	No (salary only)	Yes	Yes
Commission on profits	Yes	Yes (up to 1%)	Yes (up to 1%)
Subject to rotation	If liable to retire	Yes	Not in first 5 years; then 1-year gap
Business relationship	Yes	May have	Must not have
Eligible for independent status	No	No	Yes
Fiduciary duty	Yes	Yes	Yes
Can vote on interested transactions	No	If disinterested	If disinterested
Subject to Section 180 limits	Yes	Yes	Yes

⚡ Exam tip — Frequently Tested Combinations:

1. DIN is mandatory — Section 153; without DIN → Section 155 liability
2. Independent director — Schedule IV duties; 3-year cooling period
3. Related party — Section 184 disclosure + Section 188 approval + SEBI LODR
4. Vacation — 12 months absence automatically vacates office (Section 167)
5. Board quorum — 1/3 or 2, whichever is higher (Section 174)
6. KMP appointment — Section 203; removal needs board + shareholder approval
7. Fraud — Section 447: up to 10 years imprisonment + fine

CSR and Directors:

• Companies with ≥₹5 crore net profit in preceding financial year must constitute CSR Committee
• CSR Committee: ≥3 directors; at least 1 independent director (for listed companies)
• Board must disclose CSR policy and activities in annual report

Director’s Liability in Winding Up:

• If company is wound up, liquidator can sue directors for:
  • Fraudulent trading (Section 339): If business carried on with intent to defraud creditors
  • Wrongful trading (Section 340): If director knew or ought to have known no reasonable prospect of avoiding winding up
  • Misfeasance (Section 341): Breach of duty, misapplication of funds

Key Points for Examination:

1. Appointment sequence: DIR-2 (consent) → DIR-3 (DIN) → DIR-12 (appointment intimation) → MGT-7 (annual return)
2. Disqualification triggers: Always check Section 164; especially 12-month non-attendance and DIN validity
3. Related party flowchart: Does director have interest? → YES → Section 184 disclosure → Will transaction exceed ₹1 crore/10% turnover? → YES → Board approval + Shareholder approval → Ordinary resolution
4. KMP mandatory for: Listed companies (MD+CEO+CFO+CS), public companies with ≥₹50 lakh capital (CS)
5. Board composition: Listed → ≥50% independent; Unlisted public → recommend independent; Private → no mandate
6. Remuneration limits: Schedule V provides safe harbour — use this for no-profit scenarios
7. Loans to directors: PROHIBITED absolutely under Section 185 (no exceptions even with shareholder approval)
8. Independent director: Cannot be in same group as promoter; no material pecuniary relationship; 5-year term; 1-year gap for reappointment

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