Director Meaning, Definition, Director Identification Number, Position, Rights

10/10/2022 0 By indiafreenotes

The term director is a title given to the senior management staff of businesses and other large organizations.

The term is in common use with two distinct meanings, the choice of which is influenced by the size and global reach of the organization and the historical and geographic context. further to this, the term is also used in reference to various technical (legal) definitions specific to corporate governance legislation in individual countries.

Thus, a director can be any of:

  • A person appointed to act as the most senior manager of the company itself (managing director) or of a key function (finance director, operations director, etc.), in which case the title is analogous to and replaces the “c-suite” titles, this might be considered as the british english meaning of the word.
  • A person from a group of managers who leads or supervises a particular area of a company, which might be considered to be the american english meaning of the word.
  • A person holding a “directorship” in a legal sense, who has specific legal duties and responsibilities for management of the company which they have been appointed to the board of.

Larger businesses and organizations will form a clear board structure as the following:

  • Chairman: this particular role within the company is often a non executive role that also has the task of overseeing the entire business or organization.
  • Managing director (md): a managing director is employed by the business, often by the chairman. Other roles include running the business and producing salaries. The managing director works along with the board of directors and oversees the performance of the business, thus reporting back to the chairman.
  • Executive directors: a group of executive directors who each play a significant role within the company. They maintain full responsibility over their respective departments such as finance, marketing and sales. each director manages their department ensuring that tasks and objectives are being met. executive directors also sit on the board.
  • Non-executive directors: these advise the business by proposing different forms of strategy and also decide remuneration of the executive directors.

Having a clear structure within the business has a positive impact on the employees and it also helps to organize the business. By having a team of executive directors, employees can report to their executive directors if a problem or an issue occurs.

Director identification number

Din is a unique director identification number allotted by the central government to any person intending to be a director or an existing director of a company.

Usage of din

Whenever a return, an application or any information related to a company will be submitted under any law, the director signing such return, application or information will mention his din underneath his signature.

DIN application procedure and relevant forms

  • spice form: application for allotment of dins to the proposed first directors in respect of new companies shall be made in spice form only.
  • dir-3 form: any person intending to become a director in an already existing company shall have to make an application in eform dir-3 for allotment of din.
  • dir-6 form: any changes in the particulars of the directors shall be filed in form dir-6.

Reasons for surrendering or cancelling the din

The central government may cancel the din due to the following reasons:

  • If a duplicate din has been issued to the director
  • Din was obtained by fraudulent means
  • On the death of the concerned person
  • The person has been declared unsound mind by the court
  • The person has been adjudicated as insolvent

Director position

It is difficult to define the exact legal position of the directors of a company. The companies act makes no effort to define their position. They have at various times been described by judges as agents, trustees or managing partners. In the words of bowen, l.j.:

“Directors are described sometimes as agents, sometimes as trustees and sometimes as managing partners. But each of these expressions is used not as exhaustive of their powers and responsibilities but as indicating useful points of view from which they may for the moment and for the particular purpose to be considered.”

Directors as agents

Directors may correctly be described as agents of the company. Cairns, l.j. Observed: “the company itself cannot act in its own person; it can only act through directors, and the case is, as regards those directors, merely the ordinary case of principal and agent”. The ordinary rules of agency will, therefore, apply to any contract or transaction made by them on behalf of the company. Where the director’s contract in the name and on behalf of the company it is the company which is liable on it and not the directors.

Thus, where chief executive of company executed promissory note and borrowed amount for company’s sake, it could not be said that amount was borrowed by him, in his personal capacity kirlampudi sugar mills ltd. V. G. Venkata rao [2003] 42 scl 798 (ap).

But, where surety was furnished by directors in their personal capacities and not for and on behalf of company, company could not be sued for amount of surety h.p. State electricity board v. Shivalik casting (p.) Ltd. [2003] 115 comp. Cas. 310 (h.p.).

Directors as agents make the company liable even for contempt of court [vineet kumar mathur v. Union of india [1996] 20 cla 213 (sc)]. However, directors incur a personal liability in the following circumstances:

  • Where they contract in their own names;
  • Where they use the company’s name incorrectly, e.g., by omitting the word ‘limited’;
  • Where the contract is signed in such a way that it is not clear whether it is the principal (the company) or the agent who is signing; and
  • Where they exceed their authority, e.g., where they borrow in excess of the limits imposed upon them weeks v. Propert [1873] lr 8 cp 427.

Ratification of unauthorised acts of directors

A transaction by the directors which is beyond their powers but within the powers of the company can be ratified by a resolution of the company or even by acquiescence bhajekar v. Shinkar [1934] 4 comp. Cas. 434 (bom.).

Shareholders can by their assent ratify acts of directors which are intra vires company, though they may not be intra vires the board of directors – sri balasaraswathi ltd. V. A. Parameswara aiyer [1956] 26 comp. Cas. 298 (mad.).

A non-existent entity cannot ratify any action which it could not have initiated. Therefore, where on the date of presentation of the suit, the company was admittedly struck off the register and dissolved, there could be no question of ratification of an action which a non-existent entity could not have initiated in the first instance floating services ltd. V. Mv ‘san fransceco dipalola’ [2004] 52 scl 762 (guj.).

Directors as trustees

A trustee is a person in whom is vested the legal ownership of the assets which he administers for the benefit of another or others. Directors are regarded as trustees of the company’s assets, and of the powers that vest in them because they administer those assets and perform duties in the interest of the company and not for their own personal advantage. In ramaswamy iyer v. Brahmayya & co. [1966] 1 comp. Lj 107 (mad.), the madras high court held that “the directors of a company are trustees for the company, and with reference to their power of applying funds of the company and for misuse of the power they could be rendered liable as trustees and on their death the cause of action survives against their legal representatives”.

Besides, almost all the powers of directors, e.g., of allotting shares, making calls, forfeiting shares, accepting or rejecting transfers, etc., are powers in trust. “they have been made liable to make good money which they have misapplied, upon the same footing as if they were trustees.”

fiduciary capacity, within which directors have to act, enjoins upon them a duty to act on behalf of a company with utmost good faith, utmost care and skill and due diligence and in interest of company they represent dale & carrington investment (p.) ltd. v. p.k. prathapan [2004] 54 scl 601 (sc).

Directors as managing partners

The persons holding this view consider a company as large partnership, directors being charged with the responsibility of managing the affairs. The other shareholders are virtually dormant partners. By virtue of the various provisions in the memorandum and articles, they enjoy vast powers of management and act as the supreme policy and decision making body.

Director rights

  • Director’s individual rights
  1. Inspection of books of accounts.
  2. Right to receive board meeting notices.
  3. The right to obtain circular resolution draft.
  4. The right to a sitting fee.
  5. The right to speak in general meetings.
  6. Inspection of board meeting minutes is a legal right.
  7. He has the right to record his dissent.
  8. Right to vote and participate in board meetings.
  9. The ability to claim travel, lodging, and other expenditures.
  10. The right to call board meetings.
  11. Right to request an alternate director from the board of directors.

  • Collective rights in a company
  1. Right to prohibit share transfers
  2. The right to choose a chairman
  3. Right to nominate a managing director and make dividend recommendations
  4. Investment approval authority.