Background Hitherto, directors had negligible guidance under company law as regards their duties and liabilities. The preexisting Companies Act, 1956 (the 1956 Act) did not explicitly stipulate directors’ duties, which made it necessary to fall back on common law principles (to be articulated by courts while delivering specific decisions). The statutory uncertainty was compounded by the absence...
Companies Act, 2013: Directors’ Duties and Liabilities
The NSE Centre for Excellence in Corporate Governance (CECG) has issued its most recent quarterly briefing titled “Directors’ Duties and Liabilities in the New Era”. The executive summary is as follows: – Since directors and the board play a pivotal role in corporate governance, the law foists duties and liabilities on them; – The Companies Act, 2013 has brought about a paradigm shift...
Guest Post: Directorship in a Company: Cap of Thorns
[The following post is contributed by Nidhi Bothra and Abhirup Ghosh at Vinod Kothari & Co. They can be contacted at [email protected] and [email protected] respectively] The Companies Act, 2013 (CA, 2013) brings about a sea change in the way the charter guiding corporate India will look like. The existing Act of 1956 has been the guiding force for nearly 60 years now but the...
Duties of Directors: a Recent Judgment
The judgment of the English High Court in Madoff Securities v. Stephen Raven [2013] EWHC 3147 (Comm) was delivered last week, and is now available on BAILII. There is plenty of interesting dicta on the duties of directors. In England, the duties are codified in s. 172 of the UK Companies Act. 2006. (The new Indian Act also has a partial codification: see for example, s. 166 of the Companies Act...
Remedies against Directors’ Undue Gains: Personal or Proprietary?
What is the appropriate remedy against a director who makes secret profits? Should the remedy be merely a personal one, or should it be a proprietary one? This issue is one of great importance and several jurisdictions have been debating the issue for years now. The rules against conflict and profit are at the core of a director’s duties; and it is essential for a legal system to provide a...
Directors’ Right to Information
Earlier this month, the Delaware Chancery Court ruled on the extent to which a director of a company can seek to obtain information from the company in order to discharge applicable duties. In Kalisman v. Friedman, the court was concerned whether Jason Kalisman, a director of Morgans Hotel Group Co., was entitled to certain information regarding the company. Kalisman was a representative of OTK...
Shareholder Activism Enters the Boardroom
Over the last month or so, an interesting debate has surfaced that takes shareholder activism to the next level. As the Deal Professor column notes, two hedge funds have initiated proposals whereby they have promised to pay their nominees, if elected to the board of the investee company, director compensation linked to the profitability of the company as if they were executives. The promised...
Indemnity clauses and criminal proceedings
Earlier this week, the Court of Appeal decided another interesting case involving contractual interpretation – this time interpreting and determining the scope of an indemnity clause. The case was one of the many fall-outs of the ongoing News of the World (“NOTW”) saga, and involved a claim brought by Mr Coulson, former editor of NOTW, against his former employers. On the termination of Mr...
Low Take-up Rate on D&O Insurance Policies
The Mint has a report today stating that “only 5-6% of publicly traded companies in India have taken D&O insurance policies, compared with nearly 95% of Fortune 500 companies”. This seems striking considering the fear that various corporate governance episodes in India have generated among directors and managements. One of the key reasons for lack of D&O insurance policies is generally...
MCA Circular on Prosecution of Directors
One of the disincentives that operate against directors, particularly non-executive directors, is that they are often susceptible to prosecution for offences committed by the company that it not within their knowledge. Occasionally, innocent directors have been subject to victimization by requiring to answer allegations that are often frivolous in nature. This concern has now been addressed, at...
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