Section 166 of the Companies Act, 2013
Here is a detailed explanation of Section 166 of the Companies Act, 2013:
📘 Section 166 – Duties of Directors
Section 166 defines the statutory duties of directors in a company. It ensures directors act in the best interest of the company, its shareholders, and other stakeholders.
🔍 Key Provisions of Section 166
🧑⚖️ 1. Act in Good Faith (Clause 1)
A director must act in accordance with the Articles of Association of the company.
🤝 2. Promote the Company’s Objectives (Clause 2)
A director shall act in good faith to:
Promote the objects of the company,
Act in the best interest of:
The company,
Its employees,
Shareholders,
The community,
And for the protection of the environment.
💼 3. Exercise Duties with Care and Diligence (Clause 3)
A director must:
Exercise due and reasonable care, skill, and diligence,
Use independent judgment while discharging duties.
⚖️ 4. Avoid Conflicts of Interest (Clause 4)
A director must not be involved in any situation where:
He/she has a direct or indirect interest that conflicts with the company’s interest.
💰 5. Not to Achieve Undue Gain (Clause 5)
Directors must not attempt to gain any undue advantage or benefit for:
Themselves,
Their relatives,
Partners, or
Associates.
➡️ Penalty for violation: The director shall be liable to pay back an amount equal to the gain made to the company.
📜 6. Not to Assign Office (Clause 6)
A director must not assign his office to any other person.
➡️ Such assignment shall be void.
⚠️ Penalty for Contravention (Clause 7)
If a director violates any provision of Section 166:
They are liable to a fine of ₹1 lakh to ₹5 lakh.
🎯 Purpose of Section 166
To create a clear code of conduct for directors,
Promote ethical governance,
Ensure transparency, accountability, and stakeholder trust in the company’s functioning.
✅ Summary Table
| Duty | Description |
|---|---|
| Act as per AoA | Follow Articles of Association |
| Promote objectives | Act in good faith for the company’s interests |
| Care and diligence | Use reasonable care, skill, independent judgment |
| Avoid conflicts | Don’t enter situations of conflicting interest |
| No undue gain | Don’t seek personal or related party gain |
| No assignment | Can’t assign the director’s role to someone else |
| Penalty | ₹1 lakh – ₹5 lakh fine for violation |
RELATED Blog
0 comments