Rights of Directors, and the Registers Kept About Them
Chapter Sixty-One
Syllabus topic 3.1, labels: "Rights of Directors", "Register of directors and key managerial personnel and their shareholding"
Pages 416 to 422 of 830
In one line
A director has rights the Act gives him personally, chiefly to be told about meetings, to see the books and to be paid, and the company must keep a public register of who its directors are and what they own.
In exam wording: the Act confers on a director, among others, the right to notice of Board meetings under section 173(3), the right of inspection of the books of account under section 128(3), the right to participate and vote, the right to be heard before removal under section 169, and the right to remuneration under section 197. Section 170 requires a register of directors and key managerial personnel and their shareholding, section 171 gives members a right to inspect it, and section 172 supplies the residual penalty for Chapter XI.
Why the law has this at all
A director's duties in section 166 are demanding, and several of them are impossible to discharge without corresponding rights.
He must act with due and reasonable care, skill and diligence. He cannot, unless he is told when the Board meets and can see the books. So section 173(3) gives him seven days' notice and section 128(3) gives him access.
He must exercise independent judgment. He cannot, unless he may speak and vote and, when the company turns against him, be heard before he is removed. So section 169(1) and (3) protect him.
The registers exist for the opposite reason. A director's rights are personal; the register is public. Anybody dealing with a company needs to know who its directors are and what they hold, and section 170 read with section 171 makes that discoverable, by the members free of charge and, through the section 170(2) return, by the world through the Registrar.
Some words this chapter uses
Key managerial personnel is defined in section 2(51). Securities held means the shares, debentures and other securities a director or KMP holds. An extract is a copy of part of a register. Residual penalty means one that applies where no other is provided. Free of cost means without charge, which is unusual: most inspections in the Act carry a prescribed fee.
The rights of a director, gathered
The Act has no single section of rights, so an answer must assemble them and cite each.
1. The right to notice of Board meetings. Section 173(3): not less than seven days' notice in writing to every director at his registered address, by hand, post or electronic means. The officer whose duty it is to give notice and fails is liable to twenty-five thousand rupees under section 173(4). A meeting at shorter notice for urgent business needs at least one independent director present, or ratification afterwards.
Rights of Directors, and the Registers Kept About Them
2. The right to participate and to vote. A director participates in person or by video conferencing or other audio visual means under section 173(2), and his presence counts towards the quorum under section 174(1). He votes at the meeting; he cannot appoint a proxy, because the office is personal, which is the same principle as section 166(6).
3. The right to inspect the books of account. Section 128(3): the books maintained within India shall be open for inspection at the registered office or the other place in India by any director during business hours, and where financial information is kept outside the country, copies shall be produced for inspection by any director. The proviso limits it: inspection of a subsidiary's books is only by the person authorised by a Board resolution. Under section 128(4) the officers and employees must give all assistance the company may reasonably be expected to give.
4. The right to a resolution being put to a meeting. Under section 175(1)'s proviso, where not less than one-third of the total number of directors require that a resolution under circulation be decided at a meeting, the chairperson shall put it to a meeting of the Board.
5. The right to have dissent recorded. Section 118(4)(b) requires the minutes of a Board meeting to contain, for each resolution, the names of the directors dissenting from or not concurring with it. That entry is a director's protection, and it is a right in substance.
6. The right to be heard before removal. Section 169(1): removal requires a reasonable opportunity of being heard; and section 169(3) and (4) give him the right to have a written representation circulated to members, or read out at the meeting.
7. The right to remuneration. Section 197, dealt with in [Remuneration of Managerial Personnel]. Note section 197(5), under which a director may receive sitting fees for attending meetings, of such sum as may be decided by the Board within the prescribed limit.
8. The right to resign. Section 168(1): by notice in writing, effective on receipt or on the date he specifies, whichever is later, and he may himself send reasons to the Registrar within thirty days.
9. The right, for an independent director, to a limited liability. Section 149(12) confines his liability to acts which occurred with his knowledge, attributable through Board processes, and with his consent or connivance, or where he had not acted diligently.
The register: section 170
Section 170(1). Every company shall keep at its registered office a register containing such particulars of its directors and key managerial personnel as may be prescribed, which shall include the details of securities held by each of them in:
Rights of Directors, and the Registers Kept About Them
- the company;
- its holding company;
- its subsidiary;
- a subsidiary of the company's holding company; and
- its associate companies.
Note the five levels. The register does not stop at the company: it reaches across the whole group, so a director's holding in a sister company is disclosed too. That is what makes it useful for detecting related party dealing.
Section 170(2): the return. A return containing the prescribed particulars and documents shall be filed with the Registrar within thirty days from the appointment of every director and key managerial personnel, and within thirty days of any change taking place.
Two thirty-day periods: one on appointment, one on any change.
Members' right to inspect: section 171
Section 171(1). The register kept under section 170(1):
- (a) shall be open for inspection during business hours, and the members shall have a right to take extracts from it, and copies shall, on a request by the members, be provided to them free of cost within thirty days; and
- (b) shall also be kept open for inspection at every annual general meeting, and shall be made accessible to any person attending the meeting.
Two features that are asked. Copies are free of cost, unlike almost every other inspection right in the Act, which carries a prescribed fee. And at the annual general meeting the register is open not merely to members but to any person attending.
Section 171(2): the remedy. If inspection under clause (a) is refused, or a copy is not sent within thirty days of the request, the Registrar shall, on an application made to him, order immediate inspection and supply of the copies required.
Note who gives the remedy here: the Registrar, not the Tribunal. Compare section 119(4), where refusal of the minute books goes to the Tribunal. It is worth keeping the two apart.
The residual penalty: section 172
If a company is in default in complying with any of the provisions of this Chapter and for which no specific penalty or punishment is provided therein, the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees, and in case of continuing failure, with a further penalty of five hundred rupees for each day during which such failure continues, subject to a maximum of three lakh rupees in case of a company and one lakh rupees in case of an officer who is in default.
It is a sweeper. Chapter XI runs from section 149 to section 172, and several of its sections create obligations without stating a penalty. Section 172 supplies one: fifty thousand rupees, plus five hundred rupees a day, capped at three lakh for the company and one lakh for an officer in default.
Rights of Directors, and the Registers Kept About Them
And note the words "for which no specific penalty or punishment is provided". Where a section has its own penalty, such as section 157(2) for the DIN return or section 166(7) for breach of duty, section 172 does not apply.
A worked example
Ms Deshpande is appointed a director of Ahmednagar Foods Limited on 5 May 2028.
The register. The company must record in its register of directors and key managerial personnel at the registered office the prescribed particulars about her, including the securities she holds in the company, its holding company, its subsidiaries, a subsidiary of its holding company, and its associate companies: section 170(1).
The return. It must file a return with the Registrar within thirty days of her appointment, and again within thirty days of any change: section 170(2).
Her rights, as she starts work. She is entitled to seven days' written notice of every Board meeting at her registered address: section 173(3). She may attend in person or by video conferencing, and her attendance counts towards the quorum: sections 173(2) and 174(1). She may inspect the books of account at the registered office during business hours, and the officers must give her all assistance: section 128(3) and (4).
A subsidiary. She asks to inspect the books of the company's subsidiary. She may not, unless she is authorised by a Board resolution: proviso to section 128(3).
A circulated resolution. The Board proposes to approve a large borrowing by circulation. She and two other directors, together one-third of the total number of directors, require it to be decided at a meeting. The chairperson shall put it to a meeting: proviso to section 175(1).
Her dissent. At that meeting she votes against. The minutes must record her name as dissenting: section 118(4)(b).
A member asks. A shareholder asks to see the register of directors and their shareholding. He may inspect it during business hours, take extracts, and require copies free of cost within thirty days: section 171(1)(a). At the annual general meeting the register is open to any person attending, not merely members: section 171(1)(b).
The company refuses. No copy comes within thirty days. On the member's application the Registrar shall order immediate inspection and supply of the copies: section 171(2). Had the refusal concerned the minute books instead, the application would have gone to the Tribunal under section 119(4).
Rights of Directors, and the Registers Kept About Them
A default with no stated penalty. Suppose the company fails to keep the register at its registered office at all. Section 170 states no penalty, so section 172 supplies it: fifty thousand rupees on the company and on every officer in default, plus five hundred rupees a day, capped at three lakh and one lakh respectively.
Removal. Two years later the majority wishes to remove her. She is entitled to a reasonable opportunity of being heard, and to have her written representation circulated to the members or read out at the meeting: section 169(1), (3) and (4). Her removal is without prejudice to any compensation or damages payable under a contract of service: section 169(7).
Distinctions that carry marks
| Right | Section | Content |
|---|---|---|
| Notice of Board meetings | 173(3) | Seven days, in writing, to his registered address |
| Participate and count for quorum | 173(2), 174(1) | In person or by video conferencing; no proxy |
| Inspect books of account | 128(3) | At the registered office or other place in India, during business hours; a subsidiary's only on Board authority |
| Force a circulated resolution to a meeting | Proviso to 175(1) | On the requirement of one-third of the directors |
| Dissent recorded | 118(4)(b) | Names of dissenting directors in the Board minutes |
| Be heard before removal | 169(1), (3), (4) | Reasonable opportunity, and representation circulated |
| Remuneration and sitting fees | 197 | Including sitting fees under section 197(5) |
| Resign | 168 | Effective on receipt or the stated date, whichever is later |
| Register of directors, section 171 | Minute books, section 119 | |
|---|---|---|
| Who may inspect | Members, and any person attending the AGM | Members only |
| Cost of inspection | Free | Free |
| Cost of a copy | Free of cost, within thirty days | On payment of the prescribed fees, within seven working days |
| Remedy on refusal | The Registrar orders immediate inspection and supply | The Tribunal orders immediate inspection or despatch |
| Penalty | Where |
|---|---|
| Chapter XI defaults with no specific penalty | Section 172: fifty thousand rupees, plus five hundred a day, max three lakh company and one lakh officer |
| DIN return not furnished | Section 157(2), its own penalty |
| Breach of directors' duties | Section 166(7), its own fine |
What this does NOT mean
It does not mean the Act contains a section headed "rights of directors". They are scattered, and an answer should cite each by its own section.
It does not mean a director may inspect anything in the group. A subsidiary's books need a Board resolution authorising him.
It does not mean copies of the register cost money. Section 171(1)(a) requires them free of cost within thirty days.
It does not mean section 172 applies everywhere. It is residual, operating only where the Chapter provides no specific penalty or punishment.
Rights of Directors, and the Registers Kept About Them
Quick revision
- Rights, with their sections: notice of Board meetings, 173(3); participation and quorum, 173(2) and 174(1); inspection of books, 128(3), a subsidiary's only on Board authority; forcing a circulated resolution to a meeting, proviso to 175(1); dissent recorded, 118(4)(b); hearing and representation before removal, 169; remuneration and sitting fees, 197; resignation, 168; limited liability of an independent director, 149(12).
- 170(1): register at the registered office of directors and key managerial personnel, including securities held in the company, its holding, its subsidiary, a subsidiary of its holding company, and its associate companies.
- 170(2): return to the Registrar within thirty days of appointment and within thirty days of any change.
- 171(1): open for inspection in business hours, members may take extracts, copies free of cost within thirty days; open at every AGM to any person attending.
- 171(2): on refusal or failure to supply within thirty days, the Registrar shall order immediate inspection and supply.
- 172: residual penalty for Chapter XI where none is provided: fifty thousand rupees on the company and every officer in default, plus five hundred rupees a day, maximum three lakh and one lakh.
Test yourself
1. Name five rights of a director and give the section for each. Notice of Board meetings, section 173(3); inspection of the books of account, section 128(3); requiring a circulated resolution to be decided at a meeting, the proviso to section 175(1); a reasonable opportunity of being heard before removal, section 169(1); and remuneration including sitting fees, section 197.
2. What must the register under section 170 contain? Such particulars of the company's directors and key managerial personnel as may be prescribed, including the details of securities held by each of them in the company, its holding company, its subsidiary, a subsidiary of its holding company, and its associate companies.
3. Within what time must the return be filed? Within thirty days from the appointment of every director and key managerial personnel, and within thirty days of any change taking place: section 170(2).
4. What are a member's rights over that register? To inspect it during business hours, to take extracts, and to be provided with copies free of cost within thirty days of a request; and the register must also be open at every annual general meeting, accessible to any person attending: section 171(1).
5. What happens if the company refuses inspection? On an application made to him, the Registrar shall order immediate inspection and supply of the copies required: section 171(2). Note that for the minute books the corresponding remedy under section 119(4) lies to the Tribunal.
Rights of Directors, and the Registers Kept About Them
6. What is section 172 for? It is the residual penalty for Chapter XI. Where a company is in default of any provision of that Chapter for which no specific penalty or punishment is provided, the company and every officer in default are liable to fifty thousand rupees, plus five hundred rupees for each day of continuing failure, subject to a maximum of three lakh rupees for the company and one lakh rupees for an officer in default.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.