Introduction to Director Duties
Being appointed to a company's board of directors is a position of considerable responsibility. Under the Companies Act, 2013, directors owe duties not only to the shareholders who appoint them but also to the company itself and, in certain circumstances, to creditors and the wider public.
Duty of Care and Skill
A director must act with the care, skill, and diligence that can reasonably be expected of a person with the same knowledge and experience. This means staying informed about the company's affairs, attending board meetings, and asking probing questions when presented with significant decisions. Ignorance of the company's financial position is no defence.
Fiduciary Duty: Acting in Good Faith
Directors must act in good faith and in the best interests of the company as a whole — not in their own interests or those of a particular shareholder group. This duty encompasses the obligation to avoid conflicts of interest and to disclose any personal interest in a proposed transaction or arrangement before the board considers it.
Duty to Act Within Powers
A director must act in accordance with the company's articles of association and exercise powers only for the purposes for which they are conferred. Acting outside the scope of one's authority — or exercising a power for an improper purpose — can expose a director to personal liability.
Disclosure of Interests
Section 184 of the Companies Act, 2013 requires every director to disclose their concern or interest in any company, body corporate, firm, or other association of individuals at the first board meeting of the year and whenever a new interest arises. Failure to disclose is a criminal offence.
Liability for Wrongful Trading
If a company continues to incur liabilities when a director knew or ought to have known that insolvency was unavoidable, the director may be held personally liable for those liabilities under the Insolvency and Bankruptcy Code, 2016. Early legal advice when financial difficulties emerge is therefore critical.
Best Practices for Boards
Robust corporate governance includes maintaining proper board minutes, implementing a conflict-of-interest policy, conducting annual reviews of directors' declarations, and seeking independent legal advice on significant transactions. Satya Shastra advises boards, audit committees, and individual directors on all aspects of corporate governance.