Powers, Duties, and Liabilities of Directors

5. Powers, Duties, and Liabilities of Directors

Powers of the Board [Section 179]: the Board of Directors is entitled to exercise all such powers

and do all such acts as the company itself is authorised to do, EXCEPT those powers the Act or the

company's Memorandum/Articles specifically require to be exercised by the company in general meeting

(by the members). Certain powers under Section 179(3) can be exercised by the Board only by passing a

resolution at a duly convened Board meeting (not by circulation) — for example, to make calls on

shares, authorise buy-back of securities, issue securities, borrow money, invest the funds of the

company, grant loans, approve financial statements, diversify the business, or approve mergers and

amalgamations.

Duties of directors [Section 166]: the Act codifies a director's duties in explicit statutory

language:

1. A director must act in accordance with the company's Articles of Association.
2. A director must act in good faith to promote the objects of the company, for the benefit of its members as a whole, and in the best interests of the company, its employees, shareholders, the community, and for the protection of the environment.
3. A director must exercise duties with reasonable care, skill, and diligence, and must exercise independent judgment.
4. A director must not involve himself in a situation of direct or indirect conflict of interest with the interest of the company.
5. A director must not achieve or attempt to achieve any undue gain or advantage, either to himself or to his relatives, partners, or associates; if such gain is made, the director is liable to pay an amount equal to that gain to the company.
6. A director must not assign his office to any other person — any such assignment is void.

Liabilities of directors: a director who contravenes these duties under Section 166 is

punishable with a fine that may extend from ₹1,00,000 to ₹5,00,000. Beyond this specific

provision, directors can also be held liable — civilly and, in serious cases, criminally — for acts

such as: misstatements in a prospectus; fraudulent conduct of the company's business; failure to …