CHAPTER-12 DIRECTORS

After reading this lesson, you will be conversant with:

12.1 Position Of Directors
12.2 Disqualifications Of A Director
12.3 Restrictions On Number Of Directorships
12.4 Number Of Directors
12.5 Directors Not To Hold Office Or Place Of Profit
12.6 Power To Increase The Number Of Directors
12.7 Powers Of Board Of Directors
12.8 Appointment Of Directors
12.9 Duties Of A Director
12.10 Liability Of Directors
12.11 Vacation Of Office Of Director
12.12 Resignation By The Directors
12.13 Removal Of Directors
12.14 Remuneration Of Directors

On incorporation, a company becomes a legal entity. Being a legal entity, it conducts its
business with the help of representatives chosen by the shareholders. These representatives are
termed as directors. Section 2(13) defines a director as including ‘any person occupying the
position of a director by whatever name called’. In order to determine if a person is a director
or not, it is important to see if that person is appointed and authorized by the articles to act on
behalf of the company. It should be noted that a person who performs all the functions of a
director, but who is not duly appointed as one cannot be considered as a director.

12.1 POSITION OF DIRECTORS

As a Trustee

A director of the company occupies a position of a trustee in relation to the company. As a

trustee, he should exercise his powers for the benefit of the company and its shareholders. The
fiduciary position of a director, makes it imperative on his part to strictly follow the provisions
of the articles and to exercise his power in a prudent manner.

As Agents

The relationship between the company and its directors can also be construed as one of
principal and agent. When the directors act on behalf of the company, the company is liable for
all the acts performed within the authority of the directors. However, the directors will be
personally liable for any acts performed in excess of their authority.

They will also be held personally liable when they

 a. Enter into contracts in their own names

b. When they use the name of the company incorrectly

c. When it is not clear as to who is signing the contract (that is, whether the
principal or the agent).

As Managing Partners

As they are entrusted with the responsibility of managing the affairs of the company, their
position can be likened to that of managing partners.
Qualification Shares

A director will have to take up qualification shares only if required by the articles of
association. According to Section 270, if the articles require a director to take up qualification
shares, then such a person to be eligible to act as a director must acquire such qualification
shares within two months of his appointment as director. On the expiry of two months, he
automatically vacates his office if he has failed to acquire these shares. The nominal value of
the qualification shares shall not exceed Rs.5,000 or the nominal value of one share where it
exceeds Rs.5,000. Also share warrants will not count for purposes of share qualification.
Section 270(2) specifies that any provision in the articles requiring a person to obtain
qualification shares before his appointment as director or within a period shorter than two
months of his appointment shall be void.

In a situation where a director is unable to take up qualification shares, because the company
has not issued a prospectus to the public or where a statement in lieu of prospectus has not been
filed with the Registrar within two months of the director’s appointment, it was held that shares
cannot be allotted to the director in contravention of Section 70.

The qualification shares to be taken up by the directors can be purchased from the open market
or from a friend and not necessarily from the company.

12.2 DISQUALIFICATIONS OF A DIRECTOR

Section 274 of the Companies Act, 1956 provides that the following persons shall not be
capable of being appointed as directors of any company:

a. A person found by a competent court to be of unsound mind and such finding

remaining in force,

b. An undischarged insolvent,

c. A person who has been convicted by court of an offense involving moral

turpitude and sentenced in respect thereof to imprisonment for not less than six months,
and a period of five years has not elapsed from the date of the expiry of the sentence,
 d. A person who has applied to be adjudged an insolvent,

e. A person who has not paid any call in respect of shares of the company held by
him, whether alone or jointly with others and six months have elapsed from the last date
fixed for the payment of the call,

f. A person who has been disqualified by a court in pursuance of Section 203,

which empowers the court to restrain fraudulent persons from managing companies,
unless the leave of court has been obtained for his appointment,

g. Such person is already a director of a public company which

a. Has not filed the annual accounts and annual returns for any continuous three
financial years commencing on and after the 1st day of April, 1999, or

b. Has failed to repay its deposit or interest thereon on due date or redeem its
debentures on due date or pay dividend and such failure continuous for one year or
more.
Acts Done by Director Prior to Disqualification Valid

Section 290 of the Act specifies that acts done by a person as a director shall be valid,
notwithstanding that it may afterwards be discovered that his appointment was invalid by
reason of any defect or disqualification or had terminated by virtue of any provision contained
in this Act or in the Articles. However, acts done by a director after his appointment if shown to
be invalid can be reversed. Also, any acts ultra vires the company and such other acts where the
third party was aware of the irregularity, shall not be entitled to be enforced against the
company.

12.3 RESTRICTIONS ON NUMBER OF DIRECTORSHIPS

Section 275 limits the number of companies in which an individual can hold directorship to
fifteen. Where a person holding directorships in more than fifteen companies, is appointed as
director of another company, such appointment shall take effect only if the director relinquishes
within fifteen days in his office as director from one of the companies in which he already was
a director. Where he fails to do so, the new appointment shall be void from the expiry of the
said fifteen days. Section 277(2) lays down that where the number of directorships held by a
person is fourteen or less and after the commencement of the Act he is appointed as a director
of other companies, he will have an option to choose the directorships he wishes to continue.
He should ensure that the total number of directorships he wishes to continue (both old and
new) does not exceed 15. All the new appointments made will be void if he does not exercise
his choice within 15 days of the day on which the last of them was made.

Section 278 specifies that in calculating, for the purposes of Section 275, 276 and 277, the
number of companies of which a person may be a director, the following companies shall be
excluded, namely:
 a. A private company which is neither a subsidiary nor a holding company of
public company,

b. An unlimited company,

c. An association not carrying on business for profit or which prohibits the

payment of a dividend, and

d. A company in which such person is only an alternate director, that is to say, a

director who is only qualified to act as such during the absence or incapacity of some
other director.

Section 279 levies a penalty of fifty thousand rupees in respect of each of these companies after
the first fifteen, if any person holds office, or acts as a director of more than fifteen companies
in contravention of the foregoing provisions.

12.4 NUMBER OF DIRECTORS

Section 252 of the Companies Act lays down that a public limited company shall have at least
three directors.

Companies other than a public limited company should have at least two directors. However, a
public company having, (a) a paid-up capital of 5 crore or more, (b) one thousand or more small
shareholders may have a director elected by such small shareholders in the manner as may be
prescribed. Here, small shareholders means a shareholders holding shares of nominal value of
Rs.20,000 or less in the public company.

However, the articles of the company usually fix the maximum and minimum number of
directors for the company. For ascertaining the maximum number of directors for purpose of
determining whether the number has crossed the limit as stated in the Articles or not, the
following are not taken into account:

a. Directors appointed by the Central Government under Section 408 of the Act or
by the Company Law Board under Section 397 or 398 of the Act,

b. Nominee directors appointed by the financial institutions, and

c. Special directors appointed by the Board for Industrial and Financial

Reconstruction under SICA.

12.5 DIRECTORS NOT TO HOLD OFFICE OR PLACE OF PROFIT

Section 314 imposes restrictions on the holding of office or place of profit in a company by the
directors and their associates. Under Subsection (3), any office or place of profit shall be
deemed to be an office or place of profit under the company within the meaning of the section:
 a. In case the office or place is held by a director, if the director holding it obtains
from the company anything by way of remuneration over and above the remuneration
to which he is entitled as such director, whether as salary, fees, commission, perquisites,
the right to occupy free of rent premises as a place of residence, or otherwise.

b. In case the office or place is held by an individual other than a director or by any
firm, private company or other body corporate, if the individual, firm, private company
or body corporate holding it obtains from the company anything by way of
remuneration whether as salary, fees, commission, perquisites, the right to occupy free
of rent any premises as a place of residence or otherwise.

12.6 POWER TO INCREASE THE NUMBER OF DIRECTORS

The articles of association usually fix the maximum and minimum number of directors, but in
no case should the minimum number fall below the statutory requirement as laid down in
Section 252, i.e., at least 2 in case of a private company and 3 in case of a public company.

The number of directors can be increased or decreased within the limits fixed by the articles in
that behalf by passing an ordinary resolution.

 Where the maximum number of directors as specified in the articles is 12 or less than
12, any increase in the number of directors up to 12, will require only an ordinary
resolution.

 Where the maximum number of directors as specified in the articles is 12 or less than
twelve, any increase in the number of directors to more than 12 will require an ordinary
resolution as well as the Central Government’s approval.

 Where the maximum permissible number as fixed by the articles is already more than
12, then only an ordinary resolution is required to increase the number within the
permissible limits fixed by the articles. However, where the increase is beyond that
permissible by the articles of association, then the Central Government’s approval is to
be obtained in addition to the member’s ordinary resolution.

12.7 POWERS OF BOARD OF DIRECTORS

An individual director cannot act on his own. All the decisions on behalf of the company have
to be routed through Board of Directors. Individual directors have only those powers as are
vested in them by the Memorandum or Articles. Thus, he has no authority to institute suit on
behalf of the company unless such a power is specifically conferred on the director. Also, the
decisions of the board of directors may be passed by a majority vote unless it is specifically
laid down by the Act that each director has to consent the decision.

The Board of Directors possess the following powers on behalf of the company:
 a. The power to make calls on shareholders in respect of money unpaid on their
shares.

b. The powers to issue debentures.

c. The power to borrow money otherwise than on debentures. However, a banking

company can borrow from other banking companies or from the Reserve Bank of India,
the State Bank of India or any other banks established by or under any Act.

d. The power to invest funds of the company. This power shall however be subject to the
provisions of Sections 293 and 372.

e. The power to make loans. Again this power is subject to the provisions contained in
Sections 295 and 370.
The decisions mentioned in (c), (d) and (e) may be delegated to any committee of
directors, managing director, the manager or any other principal officer of the company
or in the case of a branch office of the company, a principal officer of its branch by a
resolution passed at a meeting.

f. The power of filling casual vacancies in the Board.

g. Sanctioning of a contract in which a director is interested.

h. The power to recommend the rate of dividend to be declared by the company at the
Annual General Meeting, subject to the approval by the shareholders.

i. The power to appoint a person, a managing director or manager who is holding either
office in another company.

j. The power to invest in any shares of any other body corporate.

12.8 APPOINTMENT OF DIRECTORS

Directors may be appointed by,

a. Subscribing to the memorandum of association; Section 254, Regulation 64 of

Table A.

b. Shareholders in general meeting; Section 255, 256, 257, 265.

c. Board of Directors; Section 260, 262, 313.

d. Central Government; Sections 408, 409.

e. Third parties.
Each of the ways of appointing the directors is elucidated below.
Appointment of First Directors

According to Section 254, subject to the provisions of the articles, the subscribers to the
memorandum of association will be deemed to be the first directors of the company, until the
directors are appointed in accordance with Section 255.

This means that if the articles, do not name the first directors, then the subscribers to the
memorandum will automatically be deemed to be the directors, until such time as the directors
are appointed.
Appointment of Directors by the Members at the General Meeting

Section 255 provides for appointment and retirement by rotation of directors of a company.
Subsection (1) deals specifically with public companies and private companies which are
subsidiaries of public companies. Further, this subsection is not applicable if the articles of
association provide for retirement of all directors at every annual general meeting.

A careful reading of this subsection provides that not less than 2/3rds of the total number of
directors shall

a. Be persons liable to retire by rotation at an annual general meeting of the

company, and

b. Be appointed in a general meeting.

It is to be noted that directors liable to retire by rotation, are to retire at an annual general
meeting, whereas, they can be appointed either at the Annual General Meeting or at an
Extraordinary General Meeting of the company.
Appointment of Directors by the Board
The Board may appoint the following directors in certain exigencies:
(i) Appointment of Additional Directors: The Board may, if authorized by the articles,
appoint additional directors who hold office only up to the date of the next annual general
meeting. The appointment of additional director may be made either at a meeting of the Board
or by passing a resolution by circulation as provided in Section 289. If the power to appoint
additional directors has not been exclusively delegated to the Board by the articles, then they
can also be appointed by the company in general meeting.
(ii) Filling up Casual Vacancies: According to Section 262, if the office of a director
appointed in a general meeting is vacated before the expiry of his term either by reason of
death, resignation, disqualification, failure of a director to accept the office or for any other
reason except that of retirement by rotation, then subject to the articles, the board of directors
may fill the vacancy at a meeting of the Board. This provision is applicable to a public
company and a private company which is a subsidiary of the public company.
(iii) Alternate Directors: Section 313 lays down that the Board of Directors of a company can
appoint an alternate director in place of the original director during his absence for a period of
not less than three months from the date in which board meetings are held. This power can be
exercised, only if authorized by the articles or by a resolution passed by the company in a
general meeting.
Appointment by the Central Government

The Central Government has the power under Section 408 to appoint directors for the purpose
of prevention of oppression and mismanagement. This power comes into play when a petition
has been made to the National Company Law Tribunal (NCLT) for prevention of oppression
and mismanagement. Subsection (1) of Section 408 provides that the “Central Government
may appoint such number of persons as the NCLT may, by order in writing, specify as being
necessary to effectively safeguard the interest of the company, or its shareholders or the public
interest to hold office as directors thereof for such period, not exceeding three years on any one
occasion, as it may think fit, if the NCLT, on a reference made to it by the Central Government
or an application of not less than one hundred members of the company or of the members of
the company holding not less than one-tenth of the total voting power therein, is satisfied, after
such inquiry as it deemed fit to make, that it is necessary to make the appointment or
appointments in order to prevent the affairs of the company being conducted either in a manner
which is oppressive to any members of the company or in a manner which is prejudicial to the
interests of the company or to public interest”.
Appointment of Directors by Third Parties
The articles may give a right to financial institutions and debenture holders, to nominate
directors on the Board with a view to ensure that the funds lent by them are used for the
purpose for which they were borrowed. Normally, the nominee-directors are non-retiring.
12.9 DUTIES OF A DIRECTOR
The duties of a director may be classified into four categories, viz., (a) fiduciary duties, (b)
duties of care, (c) statutory duties, and (d) other duties.
Fiduciary Duties
The first duty or obligation of directors is not to exceed their authority and powers and to act
with honesty and in good faith. They should not engage in any activity which is ultra vires the
company or illegal. In Boston Deep Sea & Ice Co. vs. Ansell (1888), a director of a company,
being also the member of another company, earned bonuses from the other company by
providing some business facility of his company. He was held liable to account for such profits,
although the company had itself lost nothing and also could not have earned the bonus.
Duties of Care

A director of a company, like any other agent, is duty bound to exercise reasonable care in the
management of its affairs as is expected from the person occupying such position. A director is
not expected, however, to act in the best of skill and expertise. As long as the directors act with
conscientious fairness and morality, and are honest in purpose which the law imposes on those
who are under fiduciary obligations and responsibilities, they are not liable for want of
judgement or error of judgement. “Mere imprudence is not negligence” remains the principle
for determining whether the director has taken proper care or not. Therefore, a director may
(safely) be ignorant, inexperienced and lacking in judgement so long as he is honest and careful
or diligent. It is sufficient if the director exhibits in the performance of his duty the same degree
of care and prudence that he would exercise on his own affairs.
Statutory Duties
According to Section 297, a director of a company or his relative, a firm in which the director
or his relative is a partner, or any other partner of a firm in which such director is a member or
director should not enter into contracts with the company for sale, purchase or supply of any
goods, materials or services unless with the consent of the Board of Directors. [(Subsection (1)]
Other Duties

i. Duty not to delegate: Shareholders appoint a director because of their faith in

his skill, integrity and competence. Hence, the same faith cannot be delegated by the
director to another person on his own judgement. Delegation by director is permitted to
an extent u/s 292 by the Companies Act.

ii. Duty to attend board meetings: Directors are appointed by the shareholders to
manage the company. It is their duty to attend board meetings and review periodically
the progress of the company. Section 283(g) states that the office of a director will be
vacated if the director absents himself from three consecutive meetings of the board or
from all meetings of the board for a period of three consecutive months whichever is
longer, without obtaining the leave or absence of the board. Though it is not mandatory
for a director to attend all board meetings yet it is expected of the director to attend
whenever it is possible. Provisions of Section 283(g) attempt to negate habitual absence
by a director by stipulating stringent action viz. vacation of office.

iii. Convene Annual General Meeting (AGM), statutory and also extraordinary
meeting (Sections 165, 166 and 169): Calling of AGM, statutory and extraordinary
meeting is the duty and responsibility of the directors.

12.10 LIABILITY OF DIRECTORS

The liability of a Director to the company may arise from:

]Breach of fiduciary duty: Where a Director acts dishonestly to the interest of the company, he
will be held liable for breach of fiduciary duty. Most of the powers of Directors are powers in
trust and, therefore, should be exercised in the interest of the company and, not in the interest of
the Directors or, any section of members. Thus, in a case where the Directors, in order to
forestall a take-over bid, transferred the unissued shares of the company to trustees, to be held for
the benefit of the employees, and an interest-free loan from the company was advanced to the
trustees to enable them to pay for the shares, it was held to be a wrongful exercise of the
fiduciary powers of the Directors.

Ultra vires acts: Directors are supposed to act within the parameters of the provisions of the
Companies Act, Memorandum and Articles of Association, since these lay down the limits to the
activities of the company and, consequently, to the powers of the Board of Directors. Further, the
powers of the Directors may be limited in terms of specific restrictions, contained in the Articles
of Association. The Directors shall be held, personally, liable for acts beyond the aforesaid limits,
being ultra vires the company or the Directors. Thus, where the Directors pay dividends or
interest out of capital, they will be liable to indemnify the company for any loss or damage,
suffered due to such act.
Negligence: As long as the Directors act within their powers with reasonable skill and care, as
expected of them as prudent businessmen, they discharge their duties to the company. But, where
they fail to exercise reasonable care, skill and diligence, they shall be deemed to have acted,
negligently, in discharge of their duties and, consequently, shall be liable for any loss or damage,
resulting there from. However, error of judgment will not be deemed as negligence. The
Directors cannot be absolved of their liability for negligence by any provisions in the Articles of
Association.

Mala fide acts: Directors are the trustees for the money and property of the company, handled
by them, as well as for exercise of the powers, vested in them. If they dishonestly or in a mala
fide manner, exercise their powers and perform their duties, they will be liable for breach of trust
and, may be required to make good the loss or damage, suffered by the company by reason of
such mala fide acts. They are also accountable to the company for any secret profits they might
have made in course of their performance of duties on behalf of the company. Directors can also
be held liable for their acts of 'misfeasance', i.e., misconduct or willful misuse of powers.
However, misconduct, which is not willful, shall not amount to 'misfeasance'.

Where a Director misapplies or misappropriates the money or properties of the company or, has
been guilty of breach of trust or misfeasance, the Court may order him to repay the money or,
restore the property or, to pay compensation.

Can a Director be made liable for the acts of his Co-Directors?

A Director is the agent of the company, except for matters to be dealt with by the company in
General Meeting and, not of the other members of the Board. Accordingly, except in one
instance, nothing done by the Board can impose liability on a Director, who did not participate in
the Board's action or, did not know about it. To incur liability, he must either be a party to the
wrongful act or, later acquiesce (consent) to it. Thus, the absence of a Director from a meeting of
the Board does not make him liable for the fraudulent act of a co-Director, on the ground that he
ought to have discovered the fraud, except where he had the knowledge or, he was a party to
confirm that action.

Where a Director is made liable for the acts of a co-Director, he is entitled to contribution from
the other Directors or co-Directors, who were a party to the wrongful act. However, where the
Director, seeking contribution alone, benefited from the wrongful act, he is not entitled to
contribution.

12.11 VACATION OF OFFICE OF DIRECTOR

Section 283 says that the office of director shall become vacant if:

a. He fails to obtain within the time specified in Subsection (1) of Section 270, or
at any time thereafter ceases to hold, the share qualification, if any, required of him by
the articles of the company,

b. He is found to be of unsound mind by a Court of competent jurisdiction,

c. He applies to be adjudicated an insolvent,

 d. He is adjudged an insolvent,

e. He is convicted by a Court of any offense involving moral turpitude and

sentenced in respect thereof to imprisonment for not less than six months,

f. He fails to pay any call in respect of shares of the company held by him,
whether alone or jointly with others, within six months from the last date fixed for the
payment of the call unless the Central Government has, by notification in the Official
Gazette, removed the disqualification incurred by such failure,

g. He absents himself from three consecutive meetings of the Board of Directors,

or from all meetings of the Board for a continuous period of three months, whichever is
longer, without obtaining leave of absence from the Board,

h. He or any firm in which he is a partner or a private company of which he is a

director, accepts a loan, or any guarantee or security for a loan from the company in
contravention of Section 295,

i. He fails to disclose to the Board his interest in any contract or arrangement

entered into by the company as required by Section 299,

j. He becomes disqualified by an order of the Court under Section 203 which

restrains fraudulent persons from managing companies,

k. He is removed in pursuance of Section 284, or

l. Having been appointed a director by virtue of his holding any office or other
employment in the company he ceases to hold such office or other employment in the
company.

12.12 RESIGNATION BY THE DIRECTORS

A director may resign from the office in the manner prescribed in the articles. The Companies
Act does not mention anything relating to the resignation of his office by a director. If there is
no provision in the articles regarding the resignation of the director, the director may resign by
giving reasonable time to the company. In absence of any provision in the articles, a resignation
once made will take effect immediately when the intention to resign is made clear. Where a
director is elected or has contracted to act for a fixed period, his resignation, before the
expiration of the period, may make him liable for damages for breach of his contract, unless the
articles permit such resignation, or unless there is a ‘good cause’.

Where of the two directors, one died and the other wanted to resign, it was held that a letter of
resignation left at the office of the company under intimation to Registrar of Companies was
enough to make the resignation effective and it was not necessary that the surviving director
should first co-opt a director in exercise of power of co-option under the articles and then hand
over the resignation to him. [S.S. Lakshmana Pillai vs. ROC (1977)]
The directors do not have the power to refuse the resignation of co-director unless such a
provision is contained in the Articles of Association of the company.
12.13 Removal of Directors
BY THE SHAREHOLDERS

Under Section 284 a company may, by ordinary resolution, remove a director before the expiry
of his period of office, provided the director is not appointed by the Central Government in
pursuance of Section 408. Special notice shall be required of any resolution to remove a
director under this section, or to appoint somebody instead of a director so removed at the
meeting at which he is removed. On receipt of notice of a resolution to remove a director under
this section, the company shall forthwith send a copy thereof to the director concerned, and the
director shall be entitled to be heard on the resolution at the meeting.
BY THE CENTRAL GOVERNMENT
Under Sections 388B to 388E of the Companies Act, 1956, a director may be removed by the
Central Government on the recommendations of the NCLT. The Central Government has the
power to make a reference to the NCLT by stating a case against any person concerned or
connected with the conduct and management of the company, with a request to inquire into the
case and record its decision whether or not he is a fit and proper person to hold the office of a
director or other managerial office. The NCLT may direct by an interim order that the
respondent shall not discharge the duties of his office until further orders. At the conclusion of
the inquiry, if the decision is against the respondent, the Central Government shall by order
remove him from office.
BY THE NATIONAL COMPANY LAW TRIBUNAL (NCLT) (SECTION 402)
A director may be removed by the NCLT on an application to it for prevention of oppression
and mismanagement. When the appointment of a director is so terminated he cannot, except
with the leave of the NCLT, serve any company in a managerial capacity for a period of five
years. Nor can he sue the company for damages for compensation for loss of office.
12.14 REMUNERATION OF DIRECTORS

Payment of Managerial remuneration to the directors is guided by the provisions of Sections

198, 309, and 310.

The remuneration of directors (including the managing director and a wholetime director) will
be determined either by the articles, or by a resolution of the general body or by a special
resolution, if required by the articles. [Section 309(1)]

This remuneration will not include any amounts paid to the director for services rendered in
any other capacity if

a. The services rendered are professional in nature, and

b. If the Central Government is of the opinion that the director possesses the
requisite qualification for practice of the profession. [Section 309(1)]

The explanation for Section 198 mentions that remuneration includes:

 a. Any expenditure incurred by the company in providing any rent free
accommodation or any other benefit or amenity in respect of accommodation free of
charge and any other expenditure incurred by the company in providing any other
benefit or amenity free of charge or at a concessional rate.

b. Any expenditure incurred by the company in respect of any obligation or service

which but for such expenditure by the company, would have been incurred by any of
the persons aforesaid.

c. Any expenditure incurred by the company to effect any insurance on life of, or
to provide any pension, annuity or gratuity for, any of the persons aforesaid or his
spouse or child.

A director of a company may receive his remuneration in any of the following ways:

a. He is entitled to receive remuneration in the form of a fee for each Board

meeting attended by him.

However, if this fee was paid to him on a monthly basis before the commencement of the
Companies (Amendment) Act, 1960, then it may be continued to be paid on the same basis for
a period of two years after the commencement or for the balance period of his term as director,
whichever is less. [Section 309(2)]

b. According to Section 309(3) , a wholetime director or a managing director may

be paid remuneration either on a monthly basis or at a specified percentage of the net
profits of the company or partly by one way and partly by the other.

c. In the case of a director who is not a wholetime director nor a managing

director, remuneration may be paid either monthly, quarterly or annually with the
approval of the government. Remuneration may also be paid in the form of
commission, provided a special resolution is passed authorizing such payment. The
validity period of this special resolution is five years. However, the company may
renew this special resolution from time to time for periods not more than five years at a
time. [Section 309(4)].

Remuneration payable under Section II of Part II is as follows:

Where the Effective Capital of the Monthly Remuneration Payable shall

Company is Not Exceed

i. less than Rs.1crore Rs.40,000

ii. Rs.1 crore to Rs.5 crore Rs.57,000

iii. Rs.5 crore to Rs.15 crore Rs.72,000

iv. Rs.15 crore or more Rs.87,500