Sections 166 and 167 of the Companies Act, 2013: Duties of Directors and Vacation of Office
Sections 166 and 167 of the Companies Act, 2013 deal with two connected aspects of directorship. Section 166 sets out the statutory duties that a director must observe, while Section 167 specifies circumstances in which the office of a director becomes vacant.
Section 166 - Duties of directors
Section 166 codifies important statutory duties owed by a director in the performance of the office. In practical terms, it requires a director to align conduct with the company's constitutional documents and interests, while exercising care and independent judgment.
- Act according to the articles: the director must act in accordance with the articles of the company, subject to the Companies Act.
- Act in good faith: the director must promote the objects of the company for the benefit of its members as a whole and have regard to the best interests identified by the section, including the company, employees, shareholders, community and protection of the environment.
- Care, skill and diligence: duties must be exercised with due and reasonable care, skill and diligence, together with independent judgment.
- Avoid conflicts: a director must not enter a situation involving a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
- No undue gain: a director must not obtain or attempt to obtain undue gain or advantage for the director or the persons covered by the provision. Where undue gain is established, an amount equal to the gain is payable to the company.
- No assignment of office: a director cannot assign the office; an attempted assignment is void.
Contravention of Section 166 attracts the monetary punishment specified in sub-section (7): a fine of not less than Rs. 1 lakh and up to Rs. 5 lakh.
Section 167 - Vacation of office of director
Section 167 provides for automatic vacation of a director's office when one of the statutory grounds applies. The provision should be read together with Section 164, which deals with disqualification for appointment as director, and Section 184, which deals with disclosure of interest.
Main grounds under Section 167(1)
| Ground | Effect |
|---|---|
| Disqualification under Section 164 | The office becomes vacant as provided by Section 167(1)(a). Where the disqualification arises under Section 164(2), the statutory proviso addresses vacation in companies other than the company in default. |
| Absence from all Board meetings for 12 months | Vacation may occur whether or not leave of absence from the Board was sought. |
| Contravention connected with Section 184 | Acting contrary to the interest-related restrictions, or failing to disclose the relevant interest, can result in vacation. |
| Disqualification by court or Tribunal order | The office becomes subject to the statutory vacation rule and the protective periods provided in the proviso to clauses (e) and (f). |
| Conviction and sentence of at least six months | The provision applies to conviction for an offence and the prescribed term of imprisonment, subject to the statutory appeal-related proviso. |
| Removal under the Act | Removal in accordance with the Companies Act results in vacation of office. |
| Cessation of qualifying office or employment | If appointment as director depended on holding an office or employment in a holding, subsidiary or associate company, cessation of that position triggers the provision. |
Appeal-related protection for clauses (e) and (f)
The present statutory proviso delays vacation in the circumstances covered by clauses (e) and (f) for 30 days from the relevant order or conviction. If an appeal or petition is filed within that period, the protection continues in the manner and for the periods specified in the proviso, including where a further appeal or petition is filed within the prescribed seven-day period.
Other provisions of Section 167
If a person continues to function as a director while knowing that the office has become vacant under Section 167(1), Section 167(2), as amended, provides for a fine of not less than Rs. 1 lakh and up to Rs. 5 lakh. If all directors vacate office under Section 167(1), the promoter, or in the promoter's absence the Central Government, appoints the required number of directors until appointments are made by the company in general meeting. A private company may also provide in its articles additional grounds for vacation of office.
How Sections 164, 166, 167 and 184 interact
Section 164 identifies statutory disqualifications affecting eligibility to be appointed or continue in the relevant directorship context. Section 167 connects those disqualifications to vacation of office and adds separate vacation grounds. Section 184 governs disclosure of a director's interest and is expressly linked to Section 167(1)(c) and (d). Section 166, meanwhile, imposes broader conduct duties, including good faith, care, independent judgment and avoidance of conflicts.
The consequence of a particular disqualification can depend on the precise statutory clause, the company in which the default occurred, the date of the event, and any applicable court or Tribunal order. The current statutory text and relevant notifications or judgments should therefore be checked for case-specific advice.
Penalties and practical compliance
For Section 166, directors should ensure that Board materials, disclosures, minutes and decision-making records demonstrate attention to the company's articles, conflicts, independent judgment and the statutory standard of care. For Section 167, companies should monitor director disqualifications, Board attendance, interest disclosures and events such as convictions, Tribunal orders, removal, or cessation of qualifying employment.
The Companies (Amendment) Act, 2020 removed imprisonment from Section 167(2). The current consequence under that sub-section is the prescribed fine for knowingly continuing to function after the office has become vacant.
Official legal resources
For the authoritative text and subsequent amendments, consult the official Ministry of Corporate Affairs and India Code resources. These official links are provided as reference sources and are not part of the site's main navigation.
Ministry of Corporate Affairs - Companies Act, 2013
India Code - Central legislation database
This article is a general legal information resource. Statutory provisions should be read with applicable amendments, rules, notifications and judicial decisions.