DUTIES OF DIRECTORS

TANMOY MUKHERJI INSTITUTE OF JURIDICAL SCIENCE

Dr. Tanmoy Mukherji

Advocate

DUTIES OF DIRECTORS-

Tanmoy Mukherji

Advocate

 

The duties of directors in India are primarily codified under Section 166 of the Companies Act, 2013. These duties are statutory in nature but are largely derived from equitable principles of fiduciary law developed through case laws.

→Directors occupy a fiduciary position. They must act honestly, loyally, and in the best interest of the company.

I?. STATUTORY DUTIES UNDER SECTION 166-

1.Duty to Act in Accordance with Articles (Sec 166(1))-

→A director must act in accordance with the Articles of Association of the company.

→If directors act beyond the Articles, their acts may be invalid.

Reference Case

2. Duty to Act in Good Faith (Sec 166(2))-

Reference Case

3. Duty to Exercise Due Care, Skill and Diligence (Sec 166(3))-

Reference Case

Modern law expects higher professional standards.

4. Duty to Avoid Conflict of Interest (Sec 166(4))-

Directors must not place themselves in a situation where:

→Personal interest conflicts with company’s interest.

Reference Case

5. Duty Not to Achieve Undue Gain (Sec 166(5))-

If a director makes undue gain:

→He must pay it back to the company.

→This reflects the strict “no-profit rule”.

6. Duty Not to Assign Office (Sec 166(6))-

A director cannot transfer his office to another person. Any such assignment is void.

II?. FIDUCIARY DUTIES (EQUITABLE PRINCIPLES)-

Even before codification, courts recognized fiduciary duties.

1. Duty of Loyalty

Directors must prioritize company’s interest above personal benefit.

Reference Case

2. Duty to Act for Proper Purpose

→Power must be exercised only for the purpose for which it was given.

Reference Case

3. Duty of Confidentiality

4. Duty to Attend Board Meetings

→A director must actively participate and cannot remain negligent.

→Passive directors may also be liable.

Reference Case

III?. DUTIES TOWARDS DIFFERENT STAKEHOLDERS-

Under modern corporate governance:

This reflects the concept of enlightened shareholder value.

IV?. CONSEQUENCES OF BREACH OF DUTIES-

If a director breaches duty:

→Compensation to company

→Disgorgement of secret profit

→Removal from office

→Criminal prosecution (in case of fraud)

→Disqualification under Sec 164

→Under Section 166(7), penalty may extend to fine.

V?. STANDARD OF CARE – EVOLUTION-

→Earlier law (City Equitable case) → Very lenient

→Modern law → Professional & objective standard

Today directors are expected to:

→Read financial statements carefully

→Question suspicious transactions

→Ensure statutory compliance

→Ignorance is no excuse.

The duties of directors are the backbone of corporate governance.

Their duties ensure transparency, accountability, and protection of shareholders and stakeholders.