Companies drive economic growth for the country which leads to societal progress and development by contributing significantly to various sectors like employment, logistics, raw material etc. A healthy economy is often attributed to the number of successful businesses in a country. Their existence maintains regular flow of funds in various sectors including the sector in which they operate and also the other sectors which directly or indirectly work with these companies. In these circumstances, it becomes pertinent that these companies must act responsibly. They must have efficient management and fair practices. Directors have big responsibilities in this setup.
India being one of the developing nations is a home to various national as well as multinational companies. It has taken various steps to ease the way of doing business for these companies. India has various laws to guide good company governance and director duties. The Companies Act of 2013 is the primary law which prescribes responsible corporate governance practices. It sets clear rules for governance and duties of the director in a company.
Directors form the backbone of the company. It is the decisions of the directors that impact the company significantly. Any wrong decisions may lead the company to invite onerous legal scrutiny and penalties or force the winding up of its operations. Hence, directors must work with due care and diligence. They must act in the company's best interests.
Directors must put the company first. This basically means that they should try their best to protect the interest of the company. When their own interest and the interest of the company is at stake, they must prioritize company interest over their own.
They should avoid conflicts of interest. As per Section 166 of the Companies Act, 2013, every Director of a Company is duty bound to act in good faith in order to promote the objects of the company for the benefits of its members and in the best interests of all the stakeholders as well as the environment and also exercise independent judgment.
A director of a company shall exercise his duties with due and reasonable care, skill and diligence. He must not be involved 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 of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such 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 of a company shall not assign his office and any assignment so made shall be void. If a director of the company contravenes the provisions of this section, such director shall be punishable with fine which shall not be less than INR 1 lakh but which may extend to INR 5 lakhs.
Directors are presumed to be officers in default and may be tried for any company law, foreign exchange or tax related violations by regulatory authorities such as Ministry of Corporate Affairs, SEBI, RBI, Income-tax Authorities etc.
Existing laws and regulations have improved to promote good corporate governance, but challenges remain. Recent scams like Punjab National Bank fraud case and IL&FS crisis have highlighted the need for continuous monitoring and enforcement to comply with corporate governance rules and obligations. Considering this situation, aligning the interests of various stakeholders such as shareholders, employees, customers and vendors play an important role. By engaging with stakeholders and encouraging activism, companies and their directors can be held accountable, transparency can be increased and positive changes can be made in corporate governance.
For businesses to thrive, it is essential to have strong corporate governance and directors to diligently carry out their duties. By following the law and creating a stable and ethical work environment, companies can establish trust, create value over the long term, and help advance economic and social development.