25 November 2010
Who is an Executive and Non-executive director? Which Act defines these terms? Also Part time Director et cetera? Yesterday many top notch Bankers were arrested by CBI. Among them their is a Chartered Accountant who is a director of Central Bank of India. On television the Chairman of Central Bank of India, S Sridhar was telling that the arrested director is a Part-time Non-executive Director under Chartered Accountant category and he was not an official of the bank. Also he stated that he did not have access to the books of accounts of the bank. i got confused after hearing this. Can somebody clarify this ?
The terms 'Executive' and Non-Executive' Director are not defined in the Companies Act, 1956 but Listing Agreement deals with these terms under Clause 49(I) regarding the Composition of Board of Directors of a Listed Company. As per the said Clause, Every Company must have an optimum combination of Executive and Non -Executive Directors with not less than 50% of the total number of Directors to be Non - Executive Directors.
These terms have not been defined anywhere but for your understanding:
1. Generally, Directors who have some executive powers in relation to the Management of the Company are referred to as the Executive Directors. Normally. Managing Director and Whole time Directors come within the ambit of the term 'Executive Director'. The term 'Managing Diretor' has been defined under section 2(26) of the Companies Act, 1956 and Whole Time Director means a Director who is in whole time employment of the Company i.e. devotes his entire time and energy to the Company.
On the other hand, Directors who do not have any executive powers in relation to the managment of the Company and are neither Managing Director nor in the whole time emplyment of the Company are treated as Non - Executive Directors. These are also referred to as part time directors since they are not in the whole time emplyment of the Company and simply attend the Board / Committee meetings and provide their independent comments.
Hence, a Non - Exceutive Director is also referred to as "Part-Time Directors".
Moreover as per section 209A of the Companies Act, 1956 Directors are not empowered to inspect the Books of Accounts and the same are available for inspection to Regsitrar, Persons authorised by the Central Government and SEBI only.
I hope i am able to clarify you on the topic.....
This explanation is only as per my understanding of the subject and views of eminent experts are welcome:-)
25 November 2010
Thanks Udith Sir...But Powers and responsibilities of board are defined by the Act, no? Also their liabilities are asper the statute. In this case how can the company restrict the power of a director? isnt it similar to restricting the scope of an auditor? Directors are responsible for preparing the books of accounts, no? then how can they not have access to the books?
25 November 2010
Continuing with the above answer, as per Listing Agreement an Executive Director can never be treated as an Independent Director. Non - Executive Director may or may not be an Independent Diretor. However, as per the definiton given in the Listing Agreement, an Independent Director will always be a Non - Executive Director.
I said a Director of the Company is not authorised to inspect the Books of Accounts under Section 209A of the Companies Act, 1956. This is what is given in the Act. Can u provide me the relevant section/case law which allows a Director of the Company to inspect the Books of Accounts of the Company\?????????????
25 November 2010
sir i thought that directors of the company are responsible for preparing the books of accounts of the company.what is the need for director to inspect his own books???
25 November 2010
But dear under which section it is provided that Director is responsible for preparation of Books of Accounts????????
In my opinion a Director is only responsible to get the Books of Accounts prepared and not himself responsible to prepare the same and if he is getting something done he will have to inspect the same or not????????
CAclubindia
