LEGAL POSITION OF THE DIRECTORS OF THE COMPANY
Mrs. Kamya Rani & Mrs. Sukhbir Kaur1
A company is an artificial person created by law. It functions through human agents who are collectively called Board of Directors. They are termed as Trustees of the assets of the company who sees that company business is carried on in accordance with the Memorandum and Articles of Association of the company. They decides policies of the company keeping in view the main objects for which the company was formed. Only an Individual is eligible for appointment as a Director of the company. There are various types of directors: 1.Executive Directors i.e Managing Director, Whole time director 2. Non Executive Director
Promotional Institutional Nominee
Lending Institutional Nominee
Holding company nominee
Government Nominee u/s. 48B
Debenture holder Nominee
The individual cannot be a director for more than 15 public limited companies. The Directors of the company are custodians of the interest of the stakeholders which includes: (i) Employees
It is not easy to explain the position that a director holds in a corporate enterprise. A director is not a servant of any master. He is the controller of the company’s affairs. Director of a company is neither an employee nor a servant to the company. They are professional people who were hired by the company to direct its affairs. However there is no restriction under the Act, that a director cannot be an employee to the company. In Lee v. Lee’s Air Farming Ltd 1961 AC 12, it was held that, a director may, however, work as an employee in different capacity. There is no definite definition for director under the Companies Act, 1956. Director includes any person who is occupying the position of a director, whatever name called. Director As Agents
In Ferguson v. Wilson (1866) 2 Ch App 77, the court clearly recognised that directors are in the eyes of law, agents of the company. It was held that, the company has no person; it can act only through directors and the case is, as regards those directors, merely the ordinary case of a principal and agent. When the directors contract in the name, and on behalf of the company, it is the company which is liable on it and not the directors. In Elkington & Co. v. Hurter 1892(2) CH 452, where the plaintiff supplied certain goods to a company through its chairman, who promised to issue him a debenture for the price, but never did so and company went into liquidation, he was held not liable to the plaintiff. Similarly, a director was held to be personally not liable in a suit against a private chit fund company. Attachment of the property of the director was held to be not permissible.
Like agents, directors have to disclose their personal interest, if any, in any transaction of the company. In Ray Cylinders & Containers v. Hindustan General Industries Ltd(2001) 103 CC 161, held that, the directors are the agents of the institution and not of its individual members, except when that relationship arises due to the special facts of the case. Also granted permission to file a suit against a company was not allowed to be treated as permission against directors as well. In Sarathi Leasing Finance Ltd v. B Narayana Shetty(2006) 131 CC 798, the articles of association empowered the managing director to represent the company in legal proceedings. It was held that a further authorization was not necessary to enable him to file a complaint for dishonor of cheque under Sec. 138 of Negotiable Instrument Act. Directors are the agents of a company. They are acting on behalf of the company. So the directors cannot be held personally liable for any default of the company. It was held that, for a loan...
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