Directors

Duties of directors
 Duty to act in accordance with Articles of Association or to say not ultra vires;
 Duty to act in good faith toward the company and to promote its object to ultimately benefit its
members as a whole;
The directors ought to act towards the best interest of the company in every company dealings. The
duty to act in good faith is imposed upon directors so that they do not not misuse their position of
influence for personal gain or undue advantages over others. Companies' interests should be above
the self-interest of directors. This is also a general duty of the director arising as to the existence of a
fiduciary relationship between the company and its directors.
 Duty to consider the best interest of the company, its shareholders, employees, communities and the
working environment;
 Duty to exercise due diligence, care and caution along with reasonable and independent judgement;
A director must always display care and caution in the dealings of the company. As much care is
required of the director as a man of ordinary prudence would exercise in a similar situation.
For example- When a shortage of funds is discovered during winding up of the company due to bad
investment and misappropriation of funds. Directors will be made liable for the lack of care and
diligence.
 Duty to avert any kind of conflict of interest within a company;
 Duty of not indulging in any nefarious activities of taking undue advantages or gain either for
himself or any relative including associates or partners in the company; and
 Duty not to delegate his powers to anybody in the form of transferring the office.
After any contravention to the said duties, the director shall be imposed with a fine of not less than Rs. 1
lakh which may extend to Rs. 5 lakhs.

 Duty to attend board meetings

The powers of the company are exercised by its directors in their meetings held from time to time.
Directors are obligated to attend these meetings.

 Duties in voluntary winding up

When a voluntary wind-up is proposed the majority of directors in the meeting of the board owe a
duty to declare it. This declaration should be accompanied by an affidavit stating that they have
inquired about every affair of the company. After such inquiry, they opined that the company is
either free from debts or it will be able to pay up every debt by soldering its assets.

 Duties of directors to assist in the inspection

In case of a call for documents or papers by the registrar, directors under Section 207 of the
Companies Act are duty bound to produce such documents along with the statement to assist the
inspector or registrar with their inspection.

Position of directors
Directors are neither agents, nor trustees nor managing partners in the popular and legal sense of the terms.
But they have in them the elements of agency, trusteeship and partnership. But none of these terms can
describe directors in their totality. Directors are, after all, shareholders, proprietors and principals in respect
of the company.

1. Directors as agent
A company incorporated under the Companies Act is considered a separate legal entity, having its own
artificial legal personality. However, it does not have a mind or body of its own. Therefore, when the
question is about liability or exercising rights it has to act through other professional people who are obliged
to see through the matters and dealings of the company. These professional people are the directors of the
company.

In the landmark English case of Ferguson v. Wilson (1866) LR 2 Ch App 77 while describing a director of
the company it was held by the Court of Appeal in Chancery that, “directors are agents of the Company. As
the Company cannot act in its own person because it is not a natural person. It has to only act through
Directors and thus form a relationship of principal-agent.” This principle is validated by the Indian
judiciary from time to time. As recently held by the Delhi High court in Tristar Consultants vs. Vcustomer
Services India Pvt. Ltd., 2007 that “directors of the company are agents to the extent they have been
authorised to perform certain acts on the behalf of the company.”

2. Director as trustee
Directors of the company are often regarded as ‘trustees’ because of the power vested in them to administer
the assets and to perform duties in the interest of the company rather than doing it for personal gain.

Directors are the trustees of the company and not of individual shareholders. This principal was laid down in
the case of Percival V. Wright(1902). Negotiations for the sale of a company’s undertaking were on foot and
without disclosing this, the directors purchased shares from the plaintiff shareholder. The plaintiff claimed
that the non-disclosure was a breach of the fiduciary duty. But the court held that there was no such fiduciary
duty towards individual shareholder and therefore, the directors were not bound to disclose negotiations.

3. Directors as managing partner

n a company the management is in the hands of plural executives. So, the directors are managing partners
(the term partner used in the sense of the Partnership Act).

Powers of directors
General Powers of the Board (Section 291)
The powers of the Board of directors are co-extensive with those of the company. This proposition is,
however, subject to two conditions:
First, the Board shall not do any act which is to be done by the company in a general meeting

Second, the Board shall exercise its powers subject to the provisions contained in the Companies Act, or in
the Memorandum or the Articles of the company or in any regulations made by the company in general
meeting.

Powers to be exercised at Board meetings (Section 292)

The Board of directors of a company shall exercise the following powers on behalf of the company by
means of resolutions passed at the meetings of the Board, viz, the power to-

 (a) make calls on shareholders in respect of money unpaid on their shares

 (b) issue debentures
 (c) borrow money otherwise than on debentures
 (d) invest the funds of the company
 (e) make loans

Powers to be exercised with the approval of company in general meeting
 (a) sale or lease of the company’s undertaking
 (b) extension of the time for payment of a debt due by a director
 (c) investment of compensation received on the acquisition of the company’s assets in securities
other than trust securities
 (d) borrowing of money beyond the paid-up capital of the company
 (e) contributions to any charitable fund beyond Rs.50,000 in one financial year or 5% of the
average et profits during the preceding three financial years, whichever is greater.

DISQUALIFICATION (S.164)
1) A person shall not be eligible for appointment as a director of a company, if —

(a) he is of unsound mind and stands so declared by a competent court;

(b) he is an undischarged insolvent;

(c) he has applied to be adjudicated as an insolvent and his application is pending;

(f) he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly
with others, and six months have elapsed from the last day fixed for the payment of the call;

(h) he has not got the DIN.

Disqualification by Court

(d) he has been convicted by a court of any offence, whether involving moral turpitude or otherwise,
and sentenced in respect thereof to imprisonment for not less than six months and a period of five years
has not elapsed from the date of expiry of the sentence.
If a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period
of seven years or more, he shall not be eligible to be appointed as a director in any company;

(e) an order disqualifying him for appointment as a director has been passed by a court or Tribunal

and the order is in force;

(g) he has been convicted of the offence dealing with related party transactions under section 188 at any
time during the last preceding five years; or

 Provided that the disqualifications referred to in clauses (d), (e) and (g) of sub-section (1) shall not
take effect—

(i) for thirty days from the date of conviction or order of disqualification;

(ii) where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting in
sentence or order, until expiry of seven days from the date on which such appeal or petition is disposed off;
or

(iii) where any further appeal or petition is preferred against order or sentence within seven days, until such
further appeal or petition is disposed off.

Non-filing financial statement

An additional disqualification is provided in sub section (2) of Section 164 relating to consequences of non
filing of financial statements or annual returns.

Any person who is or has been director of any company which has not filed any financial statements and
Annual Return for 3 continuous financial year or has defaulted in payment of debentures/deposit/dividend
etc, shall also not be eligible for appointment as director of any public company and for re- appointment in
the same company for a period of five years from the date on which the said company fails to do so.

VACATION OF OFFICE OF DIRECTOR (S.

167)
The office of a director shall become vacant in case—

(a) He incurs any of the disqualifications specified in section 164;

(b) He absents himself from all the meetings of the Board of Directors held during a period of twelve
months with or without seeking leave of absence of the Board;

(c) He acts in contravention of the provisions of section 184 relating to entering into contracts or
arrangements in which he is directly or indirectly interested; (personal interest)

(d) He fails to disclose his interest in any contract or arrangement in which he is directly or indirectly
interested

(e) He becomes disqualified by an order of a court or the Tribunal;

(f) He is convicted by a court of any offence, whether involving moral turpitude or otherwise and sentenced
in respect thereof to imprisonment for not less than 6 months;Provided that the office shall be vacated by the
director even if he has filed an appeal against the order of such court;

(g) He is removed in pursuance of the provisions of this Act;