Directors’ Fiduciary Duties and Statutory Liabilities under the Companies Act, 2013

Section 166 of the Companies Act, 2013 codified for the first time in Indian statutory law the fiduciary duties of directors. A director of a company is mandated to act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment.

Core Statutory Obligations

• Exercise of Due and Reasonable Care: Directors must exercise their duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
• Conflict of Interest: A director shall not involve 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.
• Prohibition on Secret Profits: A director shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates.

Contravening Section 166 attracts punitive consequences, including fines ranging from one lakh to five lakh rupees, alongside potential corporate governance actions before the NCLT.