Saturday, February 21, 2015

Can a "Director" under the Companies Act, 2013 be called by whatever name



Clause (34) of Section 2 of the Companies Act, 2013 reads as follows:

““director” means a director appointed to the Board of a company;”

It may be noted that the language of the definition of a ‘director’ under the Companies Act, 2013 has undergone a change in comparison to that of Clause (13) of Section 2 of the Companies Act, 1956, which defined a ‘director’ as,– "director" includes any person occupying the position of director, by whatever name called.  A moot question that arises as a consequence is whether the absence of the words, “whatever name called”, in the definition of a ‘director’ in the Companies Act, 2013 would imply that under the Companies Act, 2013, a director would not be at liberty to be called by any other name such as ‘governors’ or ‘managers’ and the like.

Sub-section (2) of Section 266 of the Companies Act, 2013 provides, in relevant part, that, “If the Tribunal is satisfied on the basis of the information and evidence in its possession with respect to any person who is or was a director .  .  . of a sick company, that such person by himself or along with others had diverted the funds or other property of such company for any purpose other than the purposes of the company or had managed the affairs of the company in a manner highly detrimental to the interests of the company, the Tribunal shall, by order, direct the public financial institutions, scheduled banks and State level institutions not to provide, for a maximum period of ten years from the date of the order, any financial assistance to such person .  .  . or any company .  .  . of which such person is a director, by whatever name called, .  .  .”

It is pertinent to note the words, “or any company .  .  . of which such person is a director, by whatever name called”, occurring in sub-section (2) of Section 266 of the Companies Act, 2013.  The company that is being referred to herein, as per the definition in clause (20) of Section 2 for purposes of the Companies Act, 2013, would mean a company incorporated under this Act or under any previous company law.  It follows that the words, “a director, by whatever name called”, occurring in Section 266(2) would also refer to a director of a company incorporated under the Companies Act, 2013.  Consequently, the absence of the words, “whatever name called”, in the definition of a ‘director’ in the Companies Act, 2013 would not imply that under the Companies Act, 2013, a director would not be at liberty to be called by any other name such as ‘governors’ or ‘managers’ and the like.

Further, when clause (34) of Section 2 of the Companies Act, 2013 uses the words, ““director” means a director, in relation to the word ‘director’ occurring therein, the intention of the legislature does not appear to refer to in terms of the nomenclature, but refers to in terms of the ‘nature’ and ‘functions’ of a director.  In other words, there could be directors of a company who are de jure as well as de facto, in which case, for the purposes of the definition of a director under clause (34) of Section 2 of the Companies Act, 2013 which would be applicable to the provisions relating to directors such as age limit, minimum number of directors, directors’ qualification shares and the like, only those directors who are appointed on the Board shall be considered.  The word appointment here means lawful appointment.

Moreover, it may also be noted that the Companies Act, 2013 has not provided any penal consequences for calling the directors by whatever name.  A moot point that arises is whether the provisions of Section 450 of the Companies Act, 2013, which provides that for Punishment where no specific penalty or punishment is provided, would be attracted if the directors are called by whatever name.

Section 450 of the Companies Act, 2013 begins with the words, “If a company or any officer of a company or any other person contravenes any of the provisions of this Act .  .  .”.  In order to attract the provisions of Section 450 of the Companies Act, 2013, there has to be a contravention of any provision of the Act in the first place.

Black’s Legal Dictionary, Ninth Edition defines the term, “Contravene”, at 377, as,– “To violate or infringe;”.  P. Ramanatha Aiyar’s The Major Law Lexicon, 4th Edition 2010 quotes from Ballentine’s Law Dictionary, 3rd Edition, the meaning the term, “Contravene”, at 1495, as,– “To go against;”.

The Supreme Court of India, in State Of Kerala v. Unni, AIR 2007 SC 819, at 827, has held that “A penal provision must be definite.”.  In G P Singh’s Principles of Statutory Interpretation, 12th Edition 2010, at 893-894, it has been stated that “Clear language is now needed to create a crime.  A statute enacting an offence or imposing a penalty is strictly construed.”

In view of the above, inasmuch as there is no express requirement to call or refrain from calling a director by whatever name in the Companies Act, 2013, as also in view of the absence of any penal provision expressly provided in the Companies Act, 2013 for calling the director by whatever name, the question of contravention of any provision under the Companies Act, 2013 for calling the director by whatever name whereby Section 450 of the Companies Act, 2013 being attracted does not arise.  Consequently, a director under the Companies Act, 2013 may be called by whatever name, as long as all requirements with respect to such director’s appointment are duly complied with.
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