By Legum Pacific Editorial ·
A common situation
Suppose you are named as a director of a private company. You attend board meetings, sign contracts and hold some shares. Later, questions arise about conflicts of interest, an unexplained payment, or your sudden absence from meetings.
What does the law say about a director’s duties?
Section 166 of the Companies Act, 2013 sets out duties for directors.
- A director must act in accordance with the company’s articles (the written rules that govern the company).
- A director must act in good faith to promote the objects of the company for the benefit of its members as a whole. The director must act in the best interests of the company, its employees, the shareholders, the community and for the protection of the environment.
- A director must exercise duties with due and reasonable care, skill and diligence and must exercise independent judgment.
- A director must not involve himself in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
- A director must not achieve or attempt to achieve any undue gain or advantage for himself or for his relatives, partners, or associates. If a director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.
- A director must not assign his office; any assignment is void.
The Act states a penalty where a director contravenes section 166: a fine of not less than one lakh rupees, which may extend to five lakh rupees.
Which situations make a director’s office vacant?
Section 167 lists the cases in which the office of a director shall become vacant.
The office of a director shall become vacant where any of the following occurs:
- the director incurs any of the disqualifications specified in section 164;
- the director absents himself from all the meetings of the Board of Directors held during a period of twelve months, with or without seeking leave of absence of the Board;
- the director acts in contravention of the provisions of section 184 relating to entering into contracts or arrangements in which he is directly or indirectly interested;
- the director fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested, in contravention of section 184;
- the director becomes disqualified by an order of a court or the Tribunal;
- the director is convicted by a court of any offence and sentenced to imprisonment for not less than six months; the office is vacated even if the director has filed an appeal against the order of such court;
- the director is removed in pursuance of the Act; or
- the director, having been appointed by virtue of his holding any office or other employment in the holding, subsidiary or associate company, ceases to hold such office or other employment in that company.
The Act also states that if a person functions as a director knowing that the office held by him has become vacant under these grounds, he shall be punishable with imprisonment for a term which may extend to one year, or with a fine not less than one lakh rupees but which may extend to five lakh rupees, or with both.
What does the Act say about resignation and removal?
Resignation is covered by section 168.
- A director may resign by giving a notice in writing to the company. The Board must take note of the resignation.
- The company shall intimate the Registrar in the prescribed manner, within the prescribed time and form, and shall place the fact of resignation in the directors’ report at the immediately following general meeting.
- The resigning director shall forward a copy of his resignation along with detailed reasons for the resignation to the Registrar within thirty days of resignation in the prescribed manner.
- The resignation takes effect from the date on which the notice is received by the company or the date specified by the director in the notice, whichever is later.
- A director remains liable even after resignation for offences which occurred during his tenure.
Removal is covered by section 169.
- A company may, by ordinary resolution, remove a director before the expiry of his term, after giving him a reasonable opportunity of being heard.
- A special notice is required for a resolution to remove a director or to appoint somebody in his place at the meeting where he is removed.
- On receipt of such notice, the company shall forthwith send a copy to the director. The director is entitled to be heard at the meeting.
- If the director makes a written representation and asks for it to be sent to members, the company must, if time permits, include the fact of the representation in the notice and send a copy to every member. If it cannot be sent for lack of time, the director may require that the representation be read at the meeting.
- The Tribunal may order the company’s costs against the director if the Tribunal is satisfied that the rights conferred are being abused to secure needless publicity for defamatory matter.
- A vacancy created by removal may be filled at the same meeting if special notice of the intended appointment has been given; the newly appointed director holds office only until the date his predecessor would have held office.
- A director removed under section 169 shall not be re-appointed by the Board.
What records must the company keep about directors?
Section 170 requires every company to keep at its registered office a register containing particulars of its directors and key managerial personnel as may be prescribed. The register shall include details of securities held by each of them in the company, its holding company, its subsidiaries or its associate companies.
The Act also requires a return containing such particulars and documents as may be prescribed to be filed with the Registrar within thirty days from the appointment of every director.
Key points
- Section 166 sets duties: act per articles, in good faith, with care, skill and independent judgment, avoid conflicts, and not make undue gains.
- Section 167 lists the specific grounds on which the office of a director shall become vacant and prescribes penalties for knowingly acting when the office is vacant.
- Section 168 describes resignation procedure and the director’s continuing liability for offences committed while in office.
- Section 169 allows removal by ordinary resolution with special notice and a right to be heard; rules govern filling the vacancy.
- Section 170 requires a register of directors and filing of prescribed returns within thirty days of appointment.
Laws referred to
- Companies Act, 2013 - Section 165 (provisions on limits of directorships and penalties referred in excerpt)
- Companies Act, 2013 - Section 166 (Duties of directors)
- Companies Act, 2013 - Section 167 (Vacation of office of director)
- Companies Act, 2013 - Section 168 (Resignation of director)
- Companies Act, 2013 - Section 169 (Removal of directors)
- Companies Act, 2013 - Section 170 (Register of directors and key managerial personnel and their shareholding)
Official sources
This guide explains what the law itself says. Court rulings interpreting these provisions can also affect how they apply in a particular case. It states the position under the official texts listed above, as at 22 October 2026.