Duties and Liabilities of Directors

A director is “bound to take such precautions and show such diligence in their office as a
prudent man of business would exercise in the management of his own affairs.”

It is a democracy in company affairs and the members are the supreme power which
appoints its ministry in the form of directors to run the show. Accordingly, the
Directors are given necessary powers but obviously more responsibility. The
Companies Act 2013 has ensured this balance of Power vis-à-vis responsibilities is
maintained to most benefit to the members and ensure Corporate governance to the
maximum extent possible. It utilizes both regulatory measures as well as penal
measures including stringent judicial measures to ensure the regulations are properly
followed and to avoid any mishap in corporate governance and to maintain the legal
sanctity of the organization.

Duties of Directors:

Section 166 of Companies Act, 2013 specifically list down the duties of the directors
which are as below:-

(1) A director of a company shall act in accordance with the articles of the
company.
(2) He shall act in good faith in order 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, the shareholders, the community and for the protection of
environment.
(3) He shall exercise his duties with due and reasonable care, skill and diligence
and shall exercise independent judgment.
(4) He shall not involve in a situation in which he may have a direct or indirect
interest that conflicts, or possibly may conflict, with the interest of the company.
(5) He shall not achieve or attempt to achieve any undue gain or advantage
either to himself or to his relatives, partners, or associates and if such director is
found guilty of making any undue gain, he shall be liable to pay an amount equal
to that gain to the company.
(6) He shall not assign his office and any assignment so made shall be void.

If a director of the company contravenes the provisions of this section such director
shall be punishable with fine which shall not be less than one lakh rupees but which
may extend to five lakh rupees.

Liabilities of Directors:

The Companies Act has various penal provisions to ensure proper adherence to the
Duties and Responsibilities laid out. As per New Law, a Director is termed as “Officer
who is in Default” under lapse in duty in the circumstances that the officer is in default
for any provision of the act and is part of such contravention either self or participation
without objection shall be liable to penalty or punishment including imprisonment.
Accordingly, he has vicarious liability towards various stakeholders for infringement of
any provisions of law.

In view of foregoing, a Director is expected to be vigilant and operate in bonafide

interest of all the stakeholders.