This article is written by Sisanda Hlatshwayo, University of KwaZulu-Natal.
Under the Companies Act 2013, Indian Corporate Law, the duties and responsibilities of the Board of Directors are emphasized in detail. The duties and responsibilities of the Board of Directors were implemented to ensure accountability, the protection of stakeholder interests, and corporate governance. The Board of Directors play a significant role in the guidance of companies and ensuring compliance. Understanding their duties and responsibilities ensures compliance with the Companies Act 2013.
Effective corporate governance is a crucial responsibility for the board of directors. The board of directors must ensure financial performance while also maintaining transparency and ethical conduct in a company. The failures of governance can result in the damage of a company’s reputation and financial loss. The board of directors have roles and responsibilities to manage those risks and ensure effective corporate governance.
The Significance and Importance of the Board of Directors in India
The board of directors plays a crucial role in guiding companies in India, ensuring compliance, and creating value for stakeholders and shareholders. They are important because they are the stakeholders and management in companies. They are the backbone of corporate governance. The board of directors serve as the ultimate decision-making authority in the corporate landscape.
Legal Framework Governing the Board of Directors
The legal framework governing the board of directors is based primarily on the Companies Act 2013. The Companies Act 2013 states the duties and responsibilities of the board of directors and their appointment. Section 166 of the Companies Act 2013 outlines the statutory duties of the board of directors, which are to avoid conflict of interest, to act in good faith, and to not derive undue gain.
According to the Companies Act 2013: the board of particular companies are required to have at least one-woman director, it is compulsory for listed and public companies who meet specific thresholds to appoint independent directors, and the establishment of board committees such as Audit, Nomination & Renumeration and Corporate Social Responsibility (CSR) is non-negotiable.
The Duties and Responsibilities of the Board of Directors
According to section 166 of the Companies Act 2013, the statutory duties of the board of directors are to act in good faith and in the best interest of the company and its stakeholders and shareholders. They must act with a sense of loyalty toward the company. The board of directors must have the appropriate skills, due diligence and expertise in their roles. If the board of directors do not have the appropriate skills, due diligence and expertise in their roles, they will be held personally liable for the losses sustained by the company.
The board of directors must act within their powers; they must exercise their powers consistently with the company’s constitution and in-accordance with the law. There are legal consequences for the misuse of authority. The directors have the duty of avoiding conflict of interest. Unavoidable conflict must be made known to the board.
Directors have the duty of disclosing interests, shareholding or notable transaction in order to remain transparent. It is crucial for directors to regularly attend board meetings as the Companies Act 2013 states that they must attend a meeting every one hundred and twenty (120) days, including a minimum of four (4) board meetings a year. The directors are responsible for making sure that the company complies with statutory and regulatory requirements. They are responsible for making sure that the company complies with Corporate Social Responsibility (CSR) obligations, and they hold the responsibility for risk management.
Case Laws
In the case of Shanti Prasad Jain v. Kalinga Tubes Ltd. (1965), the Supreme Court ruled that directors must exercise their power honestly and in the interests of the company. They must not exercise their power for personal purposes.
In the case of N. Narayanan v. Adjudicating Officer, SEBI (2013), the Supreme Court clarified that senior officers and director are unable to escape liability under the claim of lack of knowledge during serious regulatory violations. Senior officers and directors must exercise supervision and control.
In the case of N. Rangachari v. Bharat Sanchar Nigam Ltd. (2007), it was ruled by the Supreme Court that people who are responsible for the conduct of business are held personally liable for statutory violations.
Challenges and Way Forward
The board of directors find it challenging to balance diverse stakeholder interests because their interests are often competing. Shareholders usually seek short-term profitability. On the other hand, job security, fair wages, and career development are prioritized by companies. Meanwhile, quality products or services are demanded by customers, and communities anticipate companies to be socially responsible. Directors are expected to meet these demands. Otherwise, the reputation of the companies may be affected.
As a way forward, directors must prioritize long-term value creation instead of short-term profitability and avoid making decisions that will provide short-term profitability but negatively affect employee morale, the company’s reputation and the trust between the company and customers. They must prioritize customers’ needs and wants and the well-being of employees by ethically attending to their grievances, following labour laws, and ensuring that the company is socially responsible.
The board of directors find it challenging to ensure effective corporate governance because of the complication of maintaining transparency, accountability and compliance. The failures of governance can affect the reputation of the company and result in financial loss and legal consequences. Therefore, directors must implement ethical guidelines. As a way forward, the board of directors must manage risks such as compliance risks, ethical and conduct risks and regulatory risks.
Conclusion
The Companies Act 2013 governs the roles and responsibilities of the board of directors. The Board of Directors play a significant role in the guidance of companies and ensuring compliance. The board of directors are important because they serve as the ultimate decision-making authority in the corporate landscape. According to section 166 of the Companies Act 2013, the statutory duties of the board of directors are to act in good faith and in the best interest of the company and its stakeholders and shareholders. They must act with a sense of loyalty toward the company. The board of directors must have the appropriate skills, due diligence and expertise in their roles. directors must prioritize long-term value creation instead of short-term profitability and avoid making decisions that will provide short-term profitability but negatively affect employee morale, the company’s reputation and the trust between the company and customers.
Frequently Asked Questions
What is the board of directors?
The board of directors is the elected governing body of a company that represents shareholders.
Why is effective governance important for the board of directors?
Effective governance makes sure that the company is run in a transparent and lawful way. It ensures accountability and manages risks.
Why do failures of governance take place?
Failures of governance happen when policies are not practiced and when there is no verification of management.
How does good corporate governance benefit the company?
Effective corporate governance ensures that the company has a good reputation and builds trust among the company and stakeholders. Effective corporate governance ensures that the company can manage risks and remain transparent and accountable.
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