Director’s Duties and Liabilities under the Companies Act, 2013

Being appointed as a director of a company is not just a title—it comes with a set of defined duties, responsibilities, and legal obligations under Indian law. Whether you are an executive director of a startup or a non-executive director of a large company, your role is governed by the Companies Act, 2013.

Understanding these duties not only protects directors from personal legal consequences but also promotes good governance and business credibility.

🧑‍💼 Who is a Director?

A director is an individual elected by the shareholders to manage the affairs of a company. Collectively, directors form the Board of Directors, which is responsible for decision-making and policy formulation.

Every private limited or public company must have a minimum number of directors:

• Private Limited: Minimum 2

• Public Company: Minimum 3

• One Person Company: Minimum 1

📜 Key Duties of Directors under Section 166

The Companies Act, 2013 clearly lays out the statutory duties of a director under Section 166:

1. Act in Good Faith

   Directors must act honestly in the best interest of the company, its employees, shareholders, and the community.

2. Exercise Duties with Due and Reasonable Care

   Directors must exercise independent judgment, care, diligence, and skill, similar to what a prudent person would use in their own business affairs.

3. Avoid Conflict of Interest

   Directors must avoid situations where their personal interests conflict with those of the company.

4. Not Achieve Undue Gain

   Directors are prohibited from gaining any undue advantage through their position. If they do, they must repay the gain to the company.

5. Not Assign Their Office

   A director cannot transfer or delegate their directorial position to someone else.

Non-compliance with these duties can lead to fines of up to ₹5 lakh or legal disqualification.

⚖️ Liabilities of Directors

Directors are liable in various capacities depending on the nature of the act or omission. Their liabilities may be:

🟡 

Civil Liabilities

• Misstatement in the prospectus

• Breach of trust or fiduciary duty

• Acts beyond powers of the company (ultra vires)

• Non-compliance with ROC filings

• Tax defaults or non-payment of statutory dues

🔴 

Criminal Liabilities

• Fraud (Section 447)

• Failure to repay deposits

• Non-maintenance of financial records

• Non-conduct of board or general meetings

• Wilful violation of environmental, labour, or corporate laws

Penalties can include fines, imprisonment, or both, depending on the severity and intent.

📘 Recent Examples of Director Accountability

• Directors of companies struck off due to non-compliance have been disqualified for 5 years

• Directors have been held personally liable in cases of PF, GST, and ESI defaults

• SEBI and NCLT have imposed penalties on directors for insider trading and financial misreporting

These examples highlight the importance of knowing and following your legal obligations.

🧾 Key Compliance Duties for Directors

• Attend board meetings regularly

• Ensure timely filing of ROC returns

• Oversee statutory audits and disclosures

• Maintain minutes and resolutions

• Ensure tax filings, employee compliances, and regulatory filings

• Act in line with the Articles of Association and board resolutions

👨‍⚖️ Why Choose Barowalia & Associates

Directors are the face of corporate responsibility. Whether you’re a new appointee or a seasoned executive, Barowalia & Associates helps you stay legally compliant and protected:

• ✅ Director onboarding, DIN registration, and KYC

• ✅ Advice on duties and disclosures under the Companies Act

• ✅ Guidance during board meetings, audits, and governance reviews

• ✅ Representation in cases of director disqualification or liability

• ✅ Legal opinions on conflict of interest, fiduciary duties, and more

From assisting directors in startups based in Shimla to advising boards of established firms across Himachal Pradesh, we ensure your role is both empowered and protected.