Directors — Appointment, Position, Duties and Removal — Company Law Notes

Directors — Appointment, Position, Duties and Removal

Directors sit in a curious seat. They are not the company’s employees, not exactly its trustees, and not quite its agents — yet a bit of all three. Because they hold other people’s money and power, the law binds them with the highest duty known to commercial life: loyalty. Take a secret benefit and, like the promoter, you must hand it back.

Who is a director?

A director is a person appointed to the Board to direct, control and manage the company’s affairs. Collectively they form the Board.

Section 2(34): “director means a director appointed to the Board of a company.”

Position of a director — the classic description is that directors are agents, trustees and officers of the company, but not fully any one:

Agents — they contract for the company, which is bound (not them personally), but they are agents of the company, not of the members.
Trustees — they hold the company’s money and powers in trust, and owe fiduciary duties, though they are not trustees in the strict property sense.
Officers — they are “officers” liable under the Act for defaults.

Types of directors: executive/whole-time, managing director (s.2(54)), independent director (s.149(6)), nominee, additional (s.161(1)), alternate (s.161(2)), casual-vacancy, small-shareholders’ director, and (mandatorily for certain companies) a woman director (s.149(1)).

Appointment (ss.152, 149–151, 161)

Directors are usually appointed by the members in general meeting (s.152); the first directors are named in the articles.
A director needs a Director Identification Number (DIN) (s.153) and must file consent.
Minimum numbers: 3 (public), 2 (private), 1 (OPC); at least one director must have stayed in India ≥182 days.
The Board may appoint additional, alternate, casual-vacancy and nominee directors (s.161).

Qualification & disqualification (s.164). A person is disqualified if he is of unsound mind, an undischarged insolvent, convicted of certain offences, or has not filed the company’s returns, etc.

Number of directorships (s.165). A person can hold at most 20 directorships, of which not more than 10 may be public companies. This is the answer to the “15/20 companies” problem.

Duties of directors (s.166)

The Act codifies the duties for the first time:

act in accordance with the articles;
act in good faith to promote the objects of the company for the benefit of members as a whole;
exercise due and reasonable care, skill and diligence;
not to have a conflict of interest; not to make any undue gain or secret profit; not to assign his office.

Underlying these are the fiduciary duties — loyalty and no secret profit (like the promoter). A director who diverts a company’s opportunity to himself must account for the profit (Cook v Deeks; Regal (Hastings) v Gulliver).

Removal (s.169)

A director (other than one appointed by the Tribunal or certain proportional-representation directors) may be removed before the expiry of his term by an ordinary resolution of the company in general meeting, after giving him a reasonable opportunity of being heard (special notice required). But the articles can entrench a director with weighted voting on a removal resolution — Bushell v Faith (1970).

Section 165(1): “no person… shall hold office as a director… in more than twenty companies at the same time… the maximum number of public companies in which a person can be appointed as a director shall not exceed ten.”

In Simple Terms: Directors are the elected managers — part-agent, part-trustee. The Act (s.166) demands good faith, care and loyalty, and forbids secret profits. A person may direct at most 20 companies (10 public). Members can sack a director mid-term by ordinary resolution after a hearing (s.169).

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    ROOT["Directors"]:::root
    ROOT --> A["Appointment: members s.152; Board s.161; DIN s.153"]:::leaf
    ROOT --> B["Position: agent + trustee + officer"]:::leaf
    ROOT --> C["Duties s.166: good faith, care, no secret profit"]:::mid
    ROOT --> D["Limit s.165: 20 (max 10 public)"]:::leaf
    ROOT --> E["Removal s.169: ordinary resolution + hearing"]:::leaf
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    classDef mid fill:#DCFCE7,stroke:#166534,color:#000;
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🧩 WORKED EXAMPLE — director of 15 companies wants one more

Facts. A person already holds directorships in 15 companies and wants to become a director of another.

Rule. Section 165 caps directorships at 20 in total, with not more than 10 public companies.

Apply. He is within the overall ceiling of 20 (15 < 20). The only question is whether the public-company sub-limit (10) is breached — so check how many of the 15 are public.

Conclusion. He may accept the additional directorship if it keeps his total ≤ 20 and his public-company count ≤ 10; otherwise he must first vacate one. Advise on that basis.

Case Laws

[C-12] Cook v Deeks (1916) — directors who divert a company’s contract to themselves hold the profit in trust for the company.
Regal (Hastings) Ltd. v Gulliver (1942) — directors must account for profits made from their position, even in good faith.
[C-13] Bushell v Faith (1970) — articles may give a director weighted votes to defeat his own removal.

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