A director may be an employee in any organisation and may draw a salary from that other organisation. However, there may be two different situations –
- Director is actually an employee of that other organization and nominated by that organisation as a director in this company by virtue of an agreement;
- Director is a promoter director of a company but due to some reason join another organisation under a contract of employment. His employer may or may not have knowledge of his directorship in any company.
Indian law does not prohibit outside employment by a director of a company outside its own company. The prospective employer will take a call whether one of its employees should continue to be a director in its own private company.
The prospective employer will pay the employee for his 100% quality working time and 100% quality services. Where prospective employer feels, the employees should not have any other responsibilities except that of employment and of personal life, it may ask the employee to resign from other responsibilities.
The underlying question shall always remain, will that employee be able to honestly devote his time and efforts for its prospective paymaster, the employer.
According to Section 166 of the Companies Act, 2013, a director has certain duties towards the company.
DUTIES OF DIRECTORS (SECTION 166):
- A director of a company shall act in accordance with the articles of the company.
- A director of a company shall act in good faith 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 the environment.
- A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
- A director of a company 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.
- A director of a company shall not make or attempt to make 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 one lakh rupees but which may extend to five lakh rupees.
Where a director took employment outside the company, he needs to be careful in the performance of his duties towards the company. He needs to answer the following question to himself:
a. can he exercise his independent judgement in the decision making the process of the company?
b. is there any conflict of interest?
If yes, I do not find any restriction on his gainful employment.
However, a company may by way of Articles of Association restrict its directors from outside employment.
However, one should not sail in two boats unless both boats are compatible.