Directors Duties in India A Practical Guide to Corporate Governance

Accepting a directorship means taking responsibility for decisions made in the company’s name. This applies even when a director is appointed by a family member or investor. A practical governance system helps directors understand the business, identify conflicts and make informed decisions.

Understand the core duties

Section 166 of the Companies Act, 2013 requires compliance with the articles, good faith, due care, skill and diligence, and independent judgment. It addresses conflicts and undue gain. Directors should therefore consider the company’s interests rather than treating an appointing shareholder’s instructions as sufficient justification.

Ask for information before approving

Read the proposal and supporting documents before the meeting. For a significant transaction, request an explanation of the commercial purpose, costs, risks and alternatives. Seek specialist input when the matter requires it. If the information is incomplete, record the questions and consider whether the decision should be deferred.

Identify interests early

Section 184 governs disclosures of directors’ interests. Section 188 addresses specified related-party transactions. Approval and participation requirements depend on the facts, applicable rules and exemptions. A family connection or an associated business should prompt a legal review rather than an assumption that the transaction is automatically permissible or prohibited.

Make records useful

Minutes should accurately record the decision, material disclosures, relevant discussion and dissent where applicable. Supporting papers should be retained in an accessible form. A signed resolution alone may not explain why the board considered a proposal appropriate. Avoid creating records retrospectively that misrepresent what actually happened.

Use a calendar with named responsibilities

Maintain a company-specific schedule for meetings, financial reporting, filings and other obligations. Identify who prepares each item, who checks it and who escalates delays. Company secretaries, accountants and legal advisers can support this process, but directors should still receive enough information to exercise oversight.

Respond to warning signs

Unexplained transactions, repeated missed filings, pressure to sign incomplete papers and refusal to provide accounts deserve attention. Request a written explanation and supporting records. Consider an independent review where appropriate. Remaining silent after a concern is raised can leave the underlying issue unresolved and make the director’s own position harder to explain.

A question directors often ask

Does resignation erase earlier exposure? No. Section 168 preserves liability for offences occurring during a director’s tenure. Liability for any particular matter still depends on the applicable law and facts. Resignation should be documented and the required corporate process followed; it is not a substitute for addressing existing concerns.

About the author: Parul Tuli is the founder of Ensaphe Law Group. This article forms part of the firm’s business law knowledge series.

This article provides general information on Indian law and is not a substitute for advice on a specific matter.

Legal references

Companies Act, 2013, sections 166, 168, 184 and 188. India Code: https://www.indiacode.nic.in/bitstream/123456789/2114/5/A2013-18.pdf