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Himanshu Chopra
Kapil Agarwal
Karan Verma
Kushagra Goswami
Kushagra Mathur
Lokesh Chaudhary
Manu V.
Mathew Joseph
Mridul A. Greenwold
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a)c  & Appointed or elected member of the board of directors of a
firm who, with other directors, has the responsibility for determining
and implementing the firm's policy. He or she does not have to be a
stockholder (shareholder) or an employee of the firm, and may only
'hold the office' of the directors. Directors act by resolutions made at
directors' meetings, and derive their powers from the corporate
legislation and from the articles of association of the firm. As the firm's
agents, they can bind it with valid contracts, entered into with third-
parties such as buyers, lenders, and suppliers

b)c #c&cAccording to the Act ͛Director͛ includes ͞any person occupying

the position of the Director, by whatever name called͟. A company is an
artificial legal person and the directors as a body endow the artificial
legal person with human face that can act and react.

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The law relating to companies in India is contained in the Companies Act, 1956.
A company is a legal person who is leaving only in the eyes of law. It͛s a
creation of law which lacks both body and mind. It cannot act, just like a
human being. It can act only through some human agency. Di rectors are those
persons through whom company acts and does business. They are collectively
known as Board of Directors.

Section 252 ʹ 323 of the Companies Act, 1956 deal with the appointment of
directors, remuneration of directors, disqualification of d irectors, vacation of
office by directors, Meeting of Board of Directors.

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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. So in order to understand the position
of a director in a company we have to look in to various decided cases.

A director is sometimes described as agents, trustees, managing

partners etc. But each of these expressions is used not as exhaustiv e of
their powers and responsibilities, but as indicating useful points of view
from which they may for the moment and for the particular purpose be
considered.
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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 taken by a company,
the directors, who had not given any personal guarantee to the creditor,
could not be made liable merely because they we re directors.

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Directors are the trusties of the company͛s money, property and their
powers and such must account for all the moneys over which they
exercise control and shall refund any moneys improperly paid away, and
shall exercise their powers honestly in the interest of the company and
all the shareholders, and not their own sectional interest.

Directors are those persons selected to manage the affairs of the

company for the benefit of shareholders. It is an office of trust, which if
they undertake, it is their duty to perform fully and entirely. This
peculiar nature of their office is one of the reason why the directors
been described as trusties.

In the real sense the directors are not trustees. A trustee is the legal
owner of the trust property and contracts in his own name. On the other
hand, director is a paid agent or officer of the company and contracts for
the company12. In fact, the directors are commercial men managing a
trading concern for the benefit of themselves and o f all the shareholders
in it.

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Every public company, other than a public company which has become such by
virtue section 43 , shall have atleast 3 directors. Every other company shall
have atleast 2 directors.(Section 252).

However, with the commencement of Companies (amendment) Act, 2000, a

public company having ʹ

(a)cA paid up capital of 5 crore Rs or more ;

 (b)cOne thousand or more shareholders.

may have a director elected by such small share holders in the manner as may
be prescribed.

͞Small share holder͟ means a shareholder holding shares of nominal value of

Rs 20000 or less in a public company.

Where the number of directors falls below the maximum number, the
remaining directors cannot act. The purpose is to avoid one man control ove r
the company. Section 43 A can have minimum 2 Directors. The maximum
number of directors is fixed by the Articles. The maximum permissible limit of
directors is 12.

A Director can hold office of a maximum of 15 companies.

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A person shall not be capable of being appointed director of a company by the
articles, unless before the registration of the articles, the publication of the
prospectus, or the filing of the statement in lieu of prospectus, as the case may
be, he has, by himself or by his agent authorised in writing

(a) Signed and filed with the Registrar a consent in writing to act as such
director; and

(b) Either;-

i.c signed the memorandum for shares not being less in number or
value than that of his qualification shares, i f any, or
ii.c taken his qualification shares, if any, from the company and paid
or agreed to pay for them; or
iii. c signed and filed with the Registrar and undertaking in writing to
take from the company his qualification shares, if any, and pay for
them; or
iv.c made and filed with the Registrar an affidavit to the effect that
shares, not being less in number or value than that of his
qualification shares, if any, are registered in his name.

,


 c are the minimum number of shares a person must own,
as provided in the articles of the company, in order to qualify to become a
director of the company. Qualification shares must be acquired by a director
within 2 months of his appointment. c
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onless articles provides for retirement of all dire ctors at every AGM, not
less than 2/3 of total number of directors of public company shall be
persons whose period of office is liable to be determined by retirement of
directors by rotation.

-c Rotational directors are to be appointed by company in general meeting

and any fraction is to he rounded off to the next higher number.
-c Remaining directors and all directors of a Private Company shall also be
appointed by company in general meeting, subject to any regu lation by
articles.

In other words, mode of appointment, of non-rotational directors

(directors of Private Company) may be contained in the AOA.

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-c One-third of rotational directors must retire at every annual general

meeting. It follows that all rotational directors must retire in the course
of three years, one-third of them retire each year.
-c Those directors who have been longest in office since their appointment
shall retire first.
-c In case of persons who became directors on the same day, retirement is
to be determined by mutual consent (agreement b/w them) and where
no such agreement exists, by lots.



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-c Board of directors may appoint additional directors if authorized by AOA

-c Additional directors shall hold office only up to the date of the next
annual general meeting of the company:

It should be noted that the number of the directors and additional directors
together shall not exceed the maximum strength fixed for the Board by the
articles.

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-c Applicable only in the case of a public company or a private company
which is a subsidiary of a public company
-c if the office of any director appointed by the company in general
meeting is vacated before his term of office will expire in the normal
course, the resulting casual vacancy may be filled by the Board of
directors at a meeting of the Board.
-c Any person so appointed shall hold office only up to the date up to
which the director in whose place he is appointed would have held office
if it had not been vacated as aforesaid.

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-c The Board of directors of a company may appoint an alternate director

to act for a director (hereinafter in this section called "the original
director") during his absence for a period of not less than three months
from the State in which meetings of the Board are ordinarily held.
-c BOD may appoint alternate director only if authorized by its articles or
by a resolution passed by the company in general meeting,
-c An alternate director shall not hold office as such for a period longer
than that permissible to the original director in whose place he has been
appointed.
-c He shall vacate office if and when the original director returns to the
State in which meetings of the Board are ordinarily held.



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-c There may be occasions when directors represent certain third parties

on the Board. This usually happens when Government, Financial
Institutions, Banks, Holding Company or other lenders nominate a
director to represents their interest on the Board.
-c The rights and terms of nominating directors on the Boards of
Companies are usually contained in the agreement.
-c Nominee directors can be appointed if there is a provision in AOA of the
Company unless where a statute provides for such nomination.
-c As per section 255 of the Act it should be ensured that the total number
of non-rotational directors should not exceed 1/3 of the total strength of
the Board after the appointment of nominee directors.
-c Nominee directors may not be required to hold qualification shares
-c The nominee directors must be paid tees and expenditure to which the
other directors are entitled.


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The Central Government (CG) may appoint such number of persons as

directors as the CLB may by order in writing specify as being necessary to
effectively safeguard the interests of:

1.c the company, or

2.c its shareholders or
3.c the public interests.

to hold office for a period not exceeding 3 years on any one occasion.

CLB issues such orders after making such inquiry as it deems fit and:

-c On the reference made to it by the Central Government, or

-c On the application made to it by
'c Not less than 100 members of the Company, or
'c Members holding not less than 1/10th of total voting power.

Alternatively, the CLB may, if company itself has not availed the option
given u/s 265 (i.e. appointment of directors by proportional
representation), give direction to the Company to alter its AOA in the
manner provided in section 265 and make appointment in pursuance of
amended AOA with in specified period.



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A Public company having:

-c A paid-up share capital of Rs. 5 crores or more and

-c One thousand or more small shareholders,

may have a director elected by such small shareholders.

Small Shareholders: a shareholder holding nominal value of shares of Rs.

20,000 or less in a public Company.

The Government has prescribed the Companies (Appointment of Small

Shareholder͛s Director) Rules, 2001.

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-c A Company may act suo-moto (on its own) to elect a small shareholders͛
director from amongst small shareholders or upon notice of small
 shareholders, who are not less than 1/10 th of total small shareholders
and have proposed the name of a person who shall be the director.
-c The proposed candidates has to file his consent with the Company in
writing to act as a director
-c In case of listed Company the small shareholders͛ director shall b e
appointed through the postal ballot.
-c In case of unlisted Company such director shall be appointed if majority
of the small shareholders recommended his candidature.
-c Tenure of such director shall be for maximum period of 3 years and
same person can be re-appointed after 3 years if desired by the small
shareholders.
-c Such director need not to be retired by rotation
-c Such director shall be treated as director for all purposes except for
appointment as MD or WTD.

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A person shall not be eligible of being appointed as small shareholders͛

director if:

-c he has been found by a Court to be of unsound mind

-c he is an undischarged insolvent;
-c he has applied to be adjudicated as an insolvent and his application is
pending;
-c he has been convicted by a Cou rt of any offence involving moral
turpitude and sentenced him 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;
-c he has not paid any call in respect of 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; or
-c he has been disqualified him by a Court in pursuance of section 203
which empowers the court to restrain fraudulent persons from
managing the company

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Small Shareholders͛ Directors shall not hold office at the same time in more
than two Companies.

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ccc3
c+#c&cSection 284 recognizes the inherent right of
shareholders to remove the directors appointed by them. It is not even
necessary that there should be proof of mismanagement, breach of trust,
misfeasance or other misconduct on the part of the directors. Where the
shareholders feel the policies pursued by the directors or any one of them
are not to their liking, they have the option to remove the directors by
passing an ordinary resolution in the same way as they have the right to
appoint directors by passing an ordinary resolution. Secti on 284 provides
that a company may, by ordinary resolution passed in general meeting after
due receipt of a special notice remove a director before the expiry of his
term of office.

Inc=
  
   



cit was observed that
section 284 is designed to enable the share holders to control the directors
by their removal.2[8]c

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 : onder section [ , the central
Government has the power to make reference to the Company Law Board
against any managerial personnel. onder section [ , the Company Law
Board has the powers to pass an interim order suo moto or on application
of the central government, in the interest of members or creditors or in
public interest. c

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 #cc&cThe provision to subsection (4) provides
that the company or any other persons aggrieved may make an application
to the Company Law Board alleging that by such r epresentation the
Director is abusing the rights conferred by this section to secure needless
publicity for defamatory matters. The Company Law Board, on such
application, may order that the representation need not be circulated or
read out at the meeting and award costs against the Director though he is
not a party to the application. The requirement of intimating the members
about the representation having been made in the notice sent to members
and the right of the Director of being heard at the meeting can not be
dispensed with.3[11]

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The act is silent on the issue that shareholders must give reasons for
removal of director or not. So in such case view taken in England is
considered, that no reasons need b given.4[15] It would appear that to
confer a right on a Director to make representation and to be heard in
defense of his removal, without requiring shareholders to disclose reasons
in support of intended removal looks rather preposterous and unjust as
well.

IncÎ

    , the court said that when a meeting is
requisioned by some shareholders for the purpose of removing a director,
the requisitionists must disclose the grounds on which they want to
proceed against the director. This is necessary because the company has to
inform the director beforehand of the resolution to remove him so as to
enable him to exercise his statutory right of making representation to the
shareholders about the matter. The court held that the notice which did not
specify the grounds failed its purpose and the company would not be
compelled to call the meeting for the consideration of the resolution

In India it is now well settled by the decision of the Supreme Court in 
 



  cÎ

  cThat with regard to a
resolution proposed to be passed at a meeting requisitioned by the
shareholders for removal of a Director; no reasons in support thereof need
be given. The Supreme Court observed: ͞Thus; we see that every
shareholder of a company has the right. Subject to statutorily prescribed
procedural and numerical requirements; to call an Extraordinary General
Meeting in accordance with the provisions of the Companies Act. He
cannot be restrained from calling a meeting and he is bound to disclose the
reasons for the resolutions proposed to be moved at the meeting nor are
the reasons for the resolutions subject to judicial review.͟
3.,4'3..*$-

To remove a Director under section 284 certain essential requirements,

are to be fulfilled. The Director concerned, must be given a reasonable
opportunity to make representations against the proposal for his removal
and the shareholders of the company should also have adequate
opportunities of being acquainted with such representations before they
subscribe to a resolution for removal. The Articles sometimes provide the
office of a Director shall be vacated if he is requested in writing by all his
co-Directors to resign. In this way a power of removal can be conferred
upon the Board of Directors, in addition to the power of the shareholders
in general in General Meeting to remove a Director.

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Where a Director is to be removed, special notice must be given to that

effect, though the resolution is to be only an ordinary resolution. So also
where somebody else is to be appointed in place of the removed Director,
special notice must be given of such resolution. The company is also
required to send a copy of the representations to every member to who
notice of the meeting is sent. A significant right i s vested with every
member and that is that a member who is entitled to attend a general
meeting and move a resolution can give special notice of a resolution to
remove a Director at a general meeting or to appoint somebody instead
of the Director so removed. The grounds for removal of the directors are
required to be stated in the explanatory statement accompanying the
notice of the meeting.

Failure to comply with the requirements of notice would render the

removal, as well as the appointment of the Director in the meeting invalid.
So where a special notice of the resolution was not given; it amounted to a
serious lapse depriving the directors of their statutory right to make
representation. The special notice of resolution shall be served on the
company at least 14 days before the meeting exclusive of the day on which
it is served and the day of the meeting. Sub -section (3); when a special
notice of resolution is properly served on a company, a copy thereof shall
forthwith be sent to the Director concerned.

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 !$" cIn this
case, the respondents had failed to point out any special notice sent by
them. As such, in the absence of any notice, the removal of the petitioner
and his son from the directorship of the company was bad in law. The
respondents had failed to comply with the provisions of Section 284 (2) and
(3). Therefore, the resolution passed in the extraordinary General Meeting
of the shareholders of the company being illegal, and not in com pliance
with the provisions of the Act was liable to be set aside. Consequently, both
the petitioner and his son were restored to their original position as
Directors. All subsequent action taken by the company in this regard would
also be null and void.

3.(5c(6c '3. $(3-c'*c3'5$.c (*'.-

cThe section applies to all companies public and private. But, having regard
to the fact that Sections 85 to 89 do not apply to a private company, unless
it is a subsidiary of a public company, there is no reason why special voting
rights by issuing shares having extraordinary rights may not be validly given
under the Articles, so as to prevent the removal of a Director by resolution
at a General Meeting. The removal of a Director in a private company even
if it is lawful, may in circumstances constitute an act of oppression in
reference to the aggrieved Director and the Court may give him relief
under Section 397 read with Section 402 so as to put an end to the matter
complained of. Where a relief against oppression is not sufficient to
provide justice to the aggrieved Director, the Court may order the winding -
up of the company under the ͚just and equitable͛ clause under Section
433.5[29]

3'7$-c(6cc '3. $(3c6$.3c$.3'*$'(*c(6c '3. $(3-7'

The directors have a right of compensation or damages which are payable

to him in respect of the premature termination of the directorship, or of
any appointment terminating with that as Director.

Clause ˜
cof sub-section (7) of section 284 provide that removal of a

director would not deprive the person of any compensation or damage for
the termination of appointment as a director or for an appointment
terminating with that as director. However, section 318 does not provide
for payment of compensation for loss of office or any other payment for
loss of office or place of profit except the loss of office held by the director
in the capacity of managing director, whole time director or manager.
 Sub-section (7) provides for compensation or damages to a Director in the
case of wrongful removal. The Articles may confer on the company the
power to remove Directors from office, subject to any contract with the
company. The Articles may also be substituted by new Articles or may be so
altered as to cause a breach of an existing contract. In such a case, the
Director aggrieved can sue the company for damages for breach of
contract, but cannot obtain injunction to prevent the adoption of the new
or altered Articles. A Director, who is Ô
cremoved from the Board of
Directors, can sue for relief by injunction or by declaration and injunction.
Where, however, the member of the company in General Meeting resolve
not to have, a particular Director any longer in their company, the Director
concerned would not be granted an injunction in h is favour. He can claim
damages, if any, to which he is entitled if at all.

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Where the director resigns his office in view of the reconstruction or

amalgamation of the company and he is appointed in the company
resulting from the reconstruction or amalgamation.

Where the director otherwise resigns his office.

Where the office of the director is vacated by virtue of Section 203 or

under Section 283. Section 203 empowers the court to restrain frau -
dulent persons from managing companies and Section 283 provides
the circumstances in which the office of a director is vacated.

Where the company is being wound up and the winding up is due to

the negligence or default of the director.

Where the director has been guilty of fraud or breach of trust, or gross
negligence or mismanagement in the affairs of the company.

Where the director has instigated or has taken part in bringing about
the termination of his office.

Sub-section (4) of section 318 puts a ceiling on the amount of compensation

payable to a director eligible for compensation for loss of office. The sub -
section provides that any payment made to a managing or other director in
 pursuance of sub section (1) shall not exceed the remuneration which he
would have earned if he had been in office for the unexpired residue of his
term or for three years, whichever is shorter. The amount payable shall be
calculated on the basis of the average remuneration actually earned by him
during the period of three years immediately preceding the date on which
he ceased to hold the office. But, where he held the office for a lesser
period than three years, the amount shall be calculated with reference to
the period he actually worked.

The amount of compensation should not exceed the remuneration which

he would have earned for the unexpired residue of his term or for three
years, whichever is shorter. The amount should be calculated on the basis
of the average remuneration actually earned by him during a period of
three years before the termination, or where he held office for a lesser
period, during such a period. The case of a Managing director is outside the
section. He may be entitled to compensation in the capacity of an
employee.

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(1) A person shall not be capable of being appointed director of a company, if -

(a) he has been found to be of unsound mind by a Court of competent

jurisdiction and the finding is in force;

(b) he is an undischarged insolvent;

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

pending;

(d) he has been convicted by a Court of any offence involving moral

turpitude and sentenced in respect thereof to imprisonment for not less
to six months, and a period of five years has not elapsed from the date
of expiry of the sentence;

(e) he has not paid any call in respect of 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; or
 (f) an order disqualifying him for appointment as director has been
passed by a Court in pursuance of section 203 and is in force, unless the
leave of the Court has been obtained for his appointment in pursuance
of that section.

(g) such person is already a director of a public company which, -

(A) has not filed the annual accounts and annual returns for any
continuous three financial years commencing on and after the first
date of April, 1999; or

(B) has failed to repay its deposit or interest thereon on due date or
redeem its debentures on done date or pay dividend and such
failure continues for one year or more :

Provided that such person shall not be eligible to be appointed as a

director of any other public company for a period of five years from
the date on which such public company, in which he is a director,
failed to file annual accounts and annual returns under sub -clause
(a) or has failed to repay its deposit or interest or redeem its
debentures on due date or pay dividend referred to in clause (b).]

(2) The Central Government may, by notification in the Official Gazette,

remove-

(a) the disqualification incurred by any person in virtue of clause (d) of sub
section (1), either generally or in relation to any company or companies
specified in the notification; or

(b) the disqualification incurred by any person in virtue of clause (e) of

subsection (1).

(3) A private company which is not a subsidiary of a public company may, by its
articles, provide that a Person shall be disqualified for appointment as a
director on any grounds in addition to those specified in subsection (1).

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(1) subject to the provisions of this Act, the Board of directors of a company
shall be entitled to exercise all such powers, and to do all such acts and things,
as the company is authorised to exercise and do :
Provided that the Board shall not exercise any power or do any act or thing
which is directed or required, whether by this or any other Act or by the
memorandum or articles of the company or otherwise, to be exercised or done
by the company in general meeting :

Provided further that in exercising any such power or doing any such act or
thing, the Board shall be subject to the provisions contained in that behalf in
this or any other Act, or in the memorandum or articles of the company, or in
any regulations not inconsistent therewith and duly made thereunder,
including regulations made by the company in general meeting.

(2) No regulation made by the company in general meeting shall invalidate any
prior act of the Board which would have been valid if that regulation had not
been made

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(1) The Board of directors of a company shall exercise the following powers on
behalf of the company, and it shall do so only by means of resolutions passed
at meetings of the Board :-

(a) the power to make calls on shareholders in respect of mone y unpaid

on their shares;

(b) the power to issue debentures;

(c) the power to borrow moneys otherwise than on debentures;

(d) the power to invest the funds of the company; and

(e) the power to make loans

(2) Every resolution delegating the power re ferred to in clause (c) of subsection
shall specify the total amount å[outstanding at any one time] up to which
money may he borrowed by the delegate.

(3) Every resolution delegating the power referred to in clause (d) of sub -
section(1) shall specify the total amount up to which the funds may be
invested, and the nature of the investments which may be made, by the
delegate.
(4) Every resolution delegating the power referred to in clause (e) of sub -
section (1) shall specify the total amount up to which loa ns may be made by
the delegate, the purposes for which the loans may be made, and the
maximum amount of loans which may be made for each such purpose in
individual cases.

(5) Nothing in this section shall be deemed to affect the right of the company
in general meeting to impose restrictions and conditions on the exercise by the
Board of any of the powers specified in sub -section (1).

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(1) The Board of directors of a public company, or of a private company which

is a subsidiary of a public company, shall not, except with the consent of such
public company or subsidiary in general meeting, -

(a) sell, lease or otherwise dispose of the whole, or substantially the whole, of
the undertaking of the company, or where the company owns more than one
undertaking, of the whole, or substantially the whole, of any such undertaking;

(b) Remit, or give time for the repayment of, any debt due by a director

(c) invest, otherwise than in. trust securities, of any such undertaking as is
referred to in clause (a), or of any premises or properties used for any such
undertaking and without which it cannot be carried on or can be carried on
only with difficulty or only after a considerable time;

(d) borrow moneys after the commencement of this Act, where the moneys to
be borrowed, together with the moneys already borrowed by the company
(apart from temporary loans obtained from the company's bankers in the
ordinary course of business), will exceed the aggregate of the paid -up capital
of the company and its free reserves, that is to say, reserves not set apart for
any specific purpose; or

(e) contribute, after the commencement of this Act, to charitable and other
funds not directly relating to the business of the company or the welfare of its
employees, any amounts the aggregate of which will, in any financial year,
exceed )[fifty thousand rupees], or five per cent, of its average net profits as
determined in accordance with the provisions of sections 349 and 350 during
the three financial years immediately preceding, whichever is greater.
c

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8c
 arise from the following sources:

c the common law

c statutes
c the memorandum and articles of association of the compa ny
c service agreements specifically entered between the director and the
company
c resolutions passed at members͛ or directors͛ meetings
c the rules of a regulatory body, if any

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'Every director is bound at common law by a separate and 

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#ccc
 # (the term ͚fiduciary͛ being derived from the Latin
͚fiduciarius͛ meaning ͚of trust͛). Directors owe their fiduciary duty to the
company as a corporate being in its own right and not to the members
individually, not even to a member who is a majority shareholder. Even if a
director occupies his position on the board by virtue of another position he
holds (for instance, where he is appointed by a major shareholder or is entitled
to a seat on the board by virtue of an executive position in the company), a
director͛s fiduciary duties c c

cc c


 The fiduciary duty is
likewise not owed directly to creditors, employees or other stakeholders of the
company, although there is a range of circumstances in which a director may,
by virtue of the neglect of his fiduciary duty to the company, be held
 #c
+ to the company͛s stakeholders.' Ώ

In this fiduciary capacity, a director assumes two roles, as an "agent" acting on

behalf of the company, and cccc c
 #c

c
 
cc

A conflict may sometimes arise between a director͛s personal circumstances
and that of the company. The law is unequivocal as to the course of action a
director who has a conflict of interests must follow and a director may c
c
c
ccccc
 # he is entrusted to direct. A
director who does so may be liable to account to the company in respect of
any profits he makes as a result of such a transaction.

Directors
#c c
c cc+ccc

 and conflicts may
also arise between the divergent interests of these companies, thus presenting
a problem to the individual who sits on the boards of both companies. It is
important to note that where a director is simultaneously a director of a
holding company and its subsidiary, he ccc c

c

#c
#cc+c 

 as legal individuals in their own right. A director must
guard against a conflict of interests developing in a situation where he is a
director of both the holding company and a subsidiary. Should a conflict arise
which prevents him from discharging his duty to both companies properly, he
should consider resigning from either or both boards.

#ccc c
c

The degree of care and skill required is determined objectively by considering

how a reasonable person with similar knowledge and experience would h ave
acted, and then comparing this to the director͛s actions. Each case is
considered individually taking into account the nature of the business and the
director͛s specific obligations. As indicated earlier, no distinction is made
between executive and non-executive directors.

+cc-#c 
c&c

c
9c
c
c
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Directors have to comply with a number of obligations in terms of the



c

c 
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c

ccc

 
c c
cc



The

 
cc

 determines the scope of the company͛s
objects and powers, while the articles of association is a contract between
members themselves and between members and the company. The articles
therefore contain the internal rules by which a co mpany is governed. The
Companies Act provides a standard set of articles that many companies use as
a basis but may amend to meet their specific needs. The memorandum and
articles are integral to the company and directors should familiarise
themselves with their contents since they invariably impose duties on
directors.

c cc:c 

 c


c
#

The board may delegate certain powers to managers and at the same time
impose appropriate restrictions and conditions which can be vari ed or revoked
at any time. The directors have a #cc

c
 
 9c
 
and ensure that management work within their delegated power. In the
absence of specific cause for suspicion, directors are generally entitled to trust
management to perform their duties honestly and to accept and rely on the
judgment, information and advice of management when reaching their own
decisions. Directors should not lose sight of the fact, however, that they
remain ultimately liable, both jointly as a board a nd individually, for the well
being of the company.

8ccc+
cc

 #c

'Normally the powers and duties of directors are left undefined and it is
implied that directors cc necessary to enable them to direct
the affairs of the company. The articles may sometimes seek to limit these
powers or to specify particular duties, in which event these limitations must be
strictly complied with. A director may not enter into transactions on behalf of
the company which are +# cc conferred upon him by the
articles, the Act and common law.

In some circumstances where directors have acted beyond their powers as

directors, the shareholders may subsequently ratify their action by special
resolution. Ratification is not possible, however, where the action falls outside
the object of the company as defined in the company͛s memorandum of
association. Directors will bec
+ccc
 #cfor any financial losses
incurred by it as a result of them having acted outside the scope of their
authority. Any member of the company may institute action against any
incumbent or previous director where the company has suffered damages due
to a +ccccc ccby that director. [§266]

 cc


Loans made either directly or indirectly to directors are prohibited unless:

c all members give their consent

 c a special resolution approves a specific loan
c the loan is to enable a director to perform his or her duties
c the business of the company is to make loans
c the loan is to provide assistance to enable the director to participate in a
company͛s share incentive scheme
c the loan is for directors' housing
c the loan is made to a director of a subsidiary who is not also a director of
the lending company [§226]

c
' 

#
c


A company may take out
 cc


#c
c
cc
 for
negligence, default, breach of duty or breach of trust. [S247] This provision was
introduced by a 1999 amendment to the Companies Act and it is suggested in
King II that directors persuade their companies to take out this insurance.

' In terms of S248, if, in any proceedings for negligence, default, breach of duty
or of trust against a director, officer or auditor, it appears to the court that the
person has acted honestly and reasonably, the court may relieve him, wholly
or partially, of his liability. The burden of proof to show that he acted honestly
and reasonably in the context of surrounding circumstances is on the director
seeking relief.'

 
c


Where a director strongly disagrees with a board decision, he has several ways
to indicate this dissatisfaction. c
 
c
c
#&

c prepare a memorandum setting out his objections

c raise these concerns at a formal board meeting, requesting that a
meeting be convened if the matter needs urgent attention and the next
board meeting is too late to give proper attention to the issue
c insist on a full hearing at the meeting and request that detailed
objections be recorded in the minutes of the meeting
c seek professional advice if this is appropriate. (King II recommends that
the company should have a procedure for the director to be able to do
so at the expense of the company).

If the matter is not resolved at a board meeting, the dissenting director could
call a general meeting (if authorised by the articles) or rally shareholders to c
c c

 as the shareholders hold the ultimate power in the
company. If this is not possible and the director is not prepared to abide by the
majority board decision, he may have no alternative but to resign.

3
cc


Directors have the right to:

c inspect the company͛s accounting recor ds, assisted by an accountant

c claim reimbursement for expenses incurred
c discharge their duties without interference from co-directors
c participate in the strategic management of the company and attend and
vote at board meetings
c receive reasonable notice of meetings
c take independent professional advice at the expense of the company


+


cc
c

Director͛s liability arises because of their position as agents or officers of the

Company as also for being in the position of trustees or having fiduciary
relation with the Company or its shareholders.

Some of these liabilities are in contract, some are in tort, some are under the
criminal law and others are statutory, i.e., under the Companies Act, 1956 and
other laws. The courts have, in deciding the liability of Directors, taken into
consideration a director͛s position as a whole.

 c
+

#&c0

Directors are bound to use fair and reasonable diligence in discharging the
duties and to act honestly, and act with such care as is reasonably expected
from him, having regard to his knowledge and experience.
In R.K. Dalmia and others v. The Delhi Administration it was held th at "A
director will be personally liable on a company contract when he has accepted
personal liability either expressly or impliedly. Directors are the agents or the
trustees of a Company."

Express liability will usually arise only when a director has pers onally
guaranteed the performance of a contract. Implied liability will arise when a
director signs a contract for the Company or mentioning the name but failing
to add the vital word "limited" or its abbreviation. This rule rests on the
ordinary principle of agency that where an agent enters into a contract without
disclosing that he is acting as agent he accepts personal liability. In the case of
Penrose v. Martyr a bill was addressed to a company and omitted the word
"Limited" in describing it. The defendant (Secretary to the Co.) signed the
acceptance and was held to be personally liable by the Court of Exchequer
Chamber.

As far as fiduciary duties/obligations are concerned, any breach by any director

would visit them with liability. Our Supreme Court ha s considered this issue of
fiduciary liability. It has been observed in Official Liquidator vs. PA Tendulkar.

0c' 
 c
+

#0 A Company cannot make a contract before it is
incorporated because, before incorporation, it has no legal existence.
Therefore, a Company after incorporation cannot ratify a contract previously
made. It must make a fresh contract. But, those who act on behalf of the
unincorporated company may find themselves personally liable. In Kelner v.
Baxter the Court of Common Pleas held that where a person purports to sign a
contract as agent, but has no principle in existence at the time, he is personally
responsible.


+

#cc
cc$ccc
 #&c0
Directors as such are not liable for the torts or civil wrongs of their company.
To make a person liable for a tort, e.g. for negligence, trespass, nuisance or
defamation it must be shown that he was himself the wrongdoer or that he
was the employer or principal of the wrongdoer in relation to the act
complained of, or that the tort was committed on his instructions.


c
+

#ccc 
 # 0 director͛s liability to the Company may arise
where
(1) the directors are guilty of negligence,
(2) the directors committed breach of trust,
(3) there has been misfeasance and (4) the director has acted ultra vires and
the funds of the company have been applied for such an act.

A director is required to act honestly and diligently applying his mind and
discharging his duties as a man of prudence of his ability and knowled ge would
do. It has been explained in the duties of directors as to what is standard or
due care and diligence expected from him as explained by Justice Romer in Re
City Aquintable Fire Insurance Company.

Any willful misconduct or culpable negligence falls within the category of

misfeasance. It was held in Duomatic Ltd, Re-
"A director has to act in the way in which a man of affairs dealing with his own
affairs with reasonable care, and circumspection could reasonably be expected
to act....."

A Director is liable to make good with interest all amount paid from time to
time out of the funds of the company for the purchase of shares of the
company. He is not entitled to spend money for a purpose not covered by the
Memorandum of Association although such payme nt is sanctioned by the
Board of Directors and by the majority of shareholders. A shareholder can
maintain an action against the director to compel them to restore to the
company its funds employed in transactions that the directors have no
authority to enter into. The funds of the company cannot be used by the
Directors to pay their litigation costs, although these would not have been
incurred if they had not been directors. A Director will, however, not be liable
for any such unlawful act if he had no kno wledge of such payments.


+

#cc0
8c&c0
A director is bound by the
"

cc  0c.
Shareholders appoint him because of their faith in his skill, competence and
integrity and they may not have the same faith in a nother person.

It was held in the case of J.K. Industries v. Chief Inspector of Factories that the
directors being in control of the company͛s affairs cannot get rid of their
managerial responsibility by nominating a person as the occupier of the
factory. The rule is, however, not inflexible. The Act or Articles of Association
of the Company may make a delegation of functions to the extent to which it is
authorized. Also, there are certain duties, which may, having regard to the
exigencies of business, properly be left to some other officials. A proper degree
of delegation and division of responsibility is permissible but not a total
abrogation of responsibility. A director might be in breach of duty if he left to
others the matters to which the Board as a whole had to take responsibility.
Directors are responsible for the management of the company and cannot
divest themselves of their responsibility by delegating the whole management
to agent and abstaining from all enquiries. If the latter proves unfaithfu l, the
liability is that of the directors as if they themselves had been unfaithful.

$"c
+

#&0
onder Section 179 of the Income Tax Act 1961 , when any private company is
wound up and the tax assessed cannot be recovered, then every person who
was a director of the private company shall be jointly and severely be liable for
the payment of such tax. Where the bank account of a Director was frozen for
recovering income tax dues of the Company, it was held in Gurudas Hazra v.
P.K.Chowdhury that it was for the Director to show that the default on the part
of the company was not attributable to any breach of duty on his part. The
case of Peter J R Prabhu v. Asstt Commissioner of Commercial Taxes stated
that apart from any provisions of the taxing statute, arr ears of the tax amount
are not to be recovered from the directors personally.

c
c 


c
+

#&0
The liability of the directors like the shareholders is limited to the extent of the
shares held by them remaining unpaid. A limited liabilit y can make the liability
of any or all of its directors unlimited. A provision to this effect has to be
contained in the Memorandum. that a person who becomes director after
incorporation of such a clause will have unlimited liability.

-#c
+

#&c0


c0c
A director is liable to compensate a person who has subscribed shares on the
faith of a prospectus, which contained untrue statement. The Director should
compensate every such subscriber for any loss or damage he may have
sustained by reason of such untrue statement in an action in tort and also
under section 62 of the Act to pay compensate. If the Director discovers a
mistake in the prospectus, it is his duty to specifically point it out. The Director
may also have to face criminal prosecution for untrue statement in the
prospectus. He may be imprisoned for two years and fined Rs.5000.

' 
 cc
0
The Directors are liable to criminal prosecution for inducing or attempting to
induce a person by statement or even forecast which is false or misleading to
enter into or to offer to enter into any agreement to buy shares of the
company. They shall be punishable with imprisonment for a term which may
extend to five years, or with fine which may extend to Rs.10,000, or with both.


  ccc+cc &c0

Where directors manage a company then each director shall be responsible (if
there is no managing director) that the company should maintain and keep
proper books of account. Default or non-compliance will make the Director
punishable with imprisonment for a term not exceeding six months or fine of
Rs.100 or both. In the event of winding up, failing to keep proper accounts will
make him punishable with one-year imprisonment and for falsification of book
imprisonment for eight years.
 c c
&c0
Directors must hold the meeting even though the accounts are not ready or
the company is not functioning or the management of the business is vested in
the Central Government. The holding of the meeting must be within the period
of 15 months after the preceding annual general meeting (AGM). The Board of
Directors shall at the meeting lay a balance sheet and a profit and loss account
for the financial year. For default, the Directors are liable to be punished wit h
imprisonment for a term of six months and fine of Rs.1,000.


+

#c c

c&c0

A Director of a company in liquidation must co -operate with the liquidator in
realizing the assets of the company and distributing them among the creditors
and contributors of the company. If they fail to do so they are liable to
imprisonment, which may extend to five years and fine.

Therefore, Directors are liable for theft of the company͛s property or for false
accounting. Directors are liable to prosecution on severa l issues. There are
more than 150 sections dealing with criminal or penal liability of the Directors
and other officers of the company. Some of these provisions have been listed
and explained above.

-
c#c
 c
c
+

#&c0

The Act extends special protection against a liability that may have been
incurred in good faith. A good illustration here will be to cite an early case of
Claridge͛s Patent Ashphalt Co, Re where the Court said that the Directors were
acting for the benefit of the company and took the best advice from the
company͛s solicitor and thus were not held liable..

þºcc3
 
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The remuneration payable to the directors of a company, including any

managing or whole-time director, shall be determined, in accordance the
provisions given below either by the articles of the company, or by a resolution
( special resolution if the articles so require ), passed by the company in
general meeting and the remuneration payable to any such director
determined as per the said provisions shall be inclusive of the remuneration
payable to such director for services rendered by him in any other cap acity.
However, any remuneration for services will not be so included if the services
are of a professional nature and in the opinion of the Central Government, the
director possesses the requisite qualifications.

A director may receive remuneration by way of fees for attending each

meeting of the Board or of any committee thereof ( Sitting Fees ).

A director who is in whole time employment of the company or a managing

director may be paid remuneration either by way of a monthly payment or at a
specified percentage of net profits of the company or partly by one and partly
by the other. Such remuneration cannot exceed 5 % of the net profits of the
company, except with the approval of the Central Government in case of one
director and 10 % for all such directors.

The total managerial remuneration payable by a public company or a private

company which is a subsidiary of a public company to its directors and its
manager in any financial year must not exceed 11 % of the net profits of the
company calculated in accordance with the provisions of section 349, 350 and
351.

In the case of a director who is neither in the whole -time employment of the
company nor a managing director may be paid remuneration either by way of
a monthly, quarterly or annual payment with the approval of the Central
Government or by way of commission if the company by special resolution
authorises such payment. Such special resolution to in sub -section (4) shall not
remain in force for a period of more than five years; but may be renewed, from
time to time, by special resolution for further periods of not more than five
years at a time. Remuneration payable to such directors cannot exceed : -

a.c if the company has a managing or whole -time director or a manager,

one per cent, of the net profits of the company;
b.c in any other case, three percent of the net profits of the company.

If any director earns remuneration from a company in excess of the above

limits without prior approval of the Central Government, he shall refund the
excess to the company and until such repayment, hold the money in trust with
him.

The Company cannot waive recovery of such sum due from the director unless
approved by the Central Government.

No approval of the Central Government is required in case the remuneration is

within the limits mentioned in Schedule XIII to the Companies Act, 1956.
No director of a company who is in receipt of any commission from the
company and who is either in the whole -time employment of the company or
a managing director shall be entitled to receive a ny commission or other
remuneration from any subsidiary of such company.

The above provisions pertaining to remuneration do not apply to a private

company unless it is a subsidiary of a public company.



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c
c

 
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c 
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In the case of a public company, or a private company which is a subsidiary of a
public company, any provision relating to the remuneration of any director or
any amendment thereof, which purports to increase or has the effect of
increasing, whether directly or indirectly, the amount of remuneration shall
not have any effect unless :-

i.c is within the limits specified in Schedule XIII, where Schedule XIII is
applicable ; or
ii.c approved by the Central Government

and the amendment shall become void if, and in so far as, it is disapproved by
the Government.

' c
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In the case of a public company, or a private company, which is a subsidiary o f
a public company, if the terms of any re -appointment or appointment of a
managing or whole-time director, purport to increase or have the effect of
increasing, whether directly or indirectly, the remuneration which the
managing or whole-time director or the previous managing or whole-time
director, as the case may be, was receiving immediately before such
appointment, the or appointment shall not have any effect unless : -

i.c is within the limits specified in Schedule XIII, where Schedule XIII is
applicable ; or
ii.c approved by the Central Government

and the amendment shall become void if, and in so far as, it is disapproved by
the Government.

c ccc
cccc


Except with the previous consent of the company accorded by a special
resolution :-
 i.c No director of a company can hold any office or place of profit in that
company
ii.c No partner or relative of such a director ( i.e. a director holding an office
or place of profit in the company ), no firm in which such a director or
relative is a partner, no private company of which such a director is a
director or member, and no director, or manger of such a private
company can hold any office or place of profit carrying monthly
remuneration in excess of the prescribed amount ( Rs. 10000/-).

However, the above restrictions are not applicable to the office of managing
director, manager, banker, or trustee for the holders of debentures of the
company either :-

i.c in the company ; or

ii.c in any subsidiary of the company, unless the remuneration received
from such subsidiary in respect of such office or place is paid over to the
company or its holding company.

The special resolution required for the above purpose may be passed at the
first general meeting after the appointment. Such special resolutions will
required at subsequent re-appointments also on a higher remuneration not
covered by the earlier special resolution.

However, if the monthly remuneration is not less than Rs. 20000/ - per month,
the special resolution mentioned above has to be obtained prior to the
appointment and in addition to the special resolution, approval of the Central
Government will also be required for the appointment.

If any office or place of profit under the compa ny or a subsidiary thereof is held
in contravention of the above provisions, the director, partner, relative, firm,
private company or, manager shall be deemed to have vacated his office, with
effect from the day following the date of general meeting menti oned above.
Such person will also be liable to refund to the company any remuneration
received, or the monetary equivalent of any perquisites or advantage enjoyed
by him, in respect of such office or place of profit. The company will not be
able to waive recovery of such amounts, except with the approval of the
Central Government.

Any office or place in a company shall be deemed to be an office or place or

profit under the company for these provisions :-
 a.c in case the office or place is held by a director, if the director holding it
obtains from the company anything by way of remuneration over and
above the remuneration to which he is entitled as such director,
whether as salary, fees, commission, perquisites, the right to occupy free
of rent any premises as a place of residence, or otherwise;
b.c in case the office or place is held by an individual other than a director or
by any firm, private company or other body corporate, if the individual,
firm private company or body corporate holding it obtains from the
company anything by way of remuneration whether as salary, fees,
commission, perquisites, the right to occupy free of rent any premises as
a place of residence, or otherwise.

None of the above provisions apply to a director appointed by the Central

Government u/s 408 of the Companies Act, 1956

þ)cc 
c
c

Managing Or Whole-time Director Or Manager

A managing director, as defined in Section 2(26), means a director who is
encrusted with substantial powers of management which would not otherwise
be exercisable by him. The "substantial powers" of management may be
conferred upon him by virtue of an agreement with the company, or by a
resolution of the company or the Board or by virtue of its memorandum and
articles. The powers so conferred are alterable by the company. He is also
removable the same way as he was appointed irrespective of the fact that his
appointment has been approved by the Central Government. But if he is
prematurely removed from office he is entitled to compensation. A managing
director is an employee of the company, but not to the extent so as to be
entitled to preferential payments.

It is an essential requirement of his office as "managing director" that he

should hold the office of a director. A managing director who is not a direc tor
is contradiction in terms.

A managing director occupies the dual capacity of being a director as well as

employee of the company. Thus for example, the Supreme Court observed that
he can be regarded as a principal employer for the purposes of the ESI Act,
1948.
The day to day management is entrusted to the managing director who can
exercise powers of management without referring to the Board. It is necessary
that the articles must provide for such an appointment being made .

A managing director who was prosecuted for default under S. 220 contended
that he was not liable as he had resigned before the last date for filing
accounts. The court held that a managing director combines in himself two
capacities, namely, manager and director. The capacity as manager cannot be
terminated by merely sending up resignations. It becomes effective only when
the company accepts the resignation and relieves him from his duties (on facts
held that despite resignation, he continued to be managing director).

In our view the observation that a managing director holds two offices namely
that of manager and of a director is not correct. The concept of a 'manager' as
defined by the Act is different from that of managing director. A managing
director as defined by the Act is a director who is entrusted with substantial
powers of management. It is, however, true that a managing dir ector may
resign his office and continue to be an ordinary director. His resignation as
managing director becomes effective only when accepted by the company.

A managing director cannot be equated with an ordinary director. Section

2(26) and S. 2(13) show the intention of the legislature to treat the two as
separate categories. Therefore, when the term of a managing director expires,
he cannot continue as a managing director without being reappointed. Sishu
Ranjan Dutta v. Bhola Nath Paper House Ltd., (1983) 53 Com Cases 883, 898
(Cal).

A person does not acquire the status of a manager or managing director only
on being appointed as a director. Deen De yalu, T. v. Sri Bezwada Papi Reddy,
(1984) 2 Comp LJ 396 (AP).

The question whether a managing director, inasmuch as he is both a 'director'

and 'employee' should in his capacity of employee be considered a 'servant' or
agent of the company is unimportant for purposes of the Companies Act,
though it may be relevant for determining whether his remuneration is salary
or business income for purposes of the Income-tax Act.

The Civil Court will not grant an injunction to restrain the company from
interfering with a managing director carrying out the duties of managing
director who is removed from his office. Joginder Singh Palta v.Time Travels
(P.). Ltd., (1984) 56 Corn Cases 103 (Cal).
Where, for recovery of dues from the company, a decree was passed against
the company as well as its managing director, it was held that the managing
director was not the judgment-debtor in his individual capacity and, therefore,
he was not liable to be arrested and detained in civil prison for enforcement of
the decree. Maruti Lid. v. Pan India Plastic P, Ltd., (1995) 83 Com Cases 888
(P&H).

 
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Whether a director is to be regarded as a whole -time director or as a managing

director of the company would depend on the nature and extent of the duties
entrusted to him and that the designation under which the appointment is
made would no! make any diff erence in this regard. Thus, if a director is
entrusted with managerial functions, he would be in the position of a
Managing Director notwithstanding the fact that he ma y be designated as a
technical adviser or as a technical director of the company. [Fou rth Annual
Report Year ended 31st March, 1960.


 #c#c7cc$ c( c 
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"Section 2(26) defines "Managing director" as a director who is entrusted with

substantial powers of management which term refers to the nature of the
powers and not the quantum thereof. Section 2(24) of the Companies Act,
1956, on the other hand has defined the word manager' as an individual who
has the management of the whole or substantially the whole of the affairs of a
company. Thus the managing director of a company may be entrusted with
substantial power of management but not necessarily of the whole or
substantially the whole of the affairs of a company. A company may, therefore,
have more than one managing director. [Departmen t's Clarification F. No.
8/16/(1)/61-PR].

Other Statutory Provisions.-Section 269 makes it obligatory for a company

having capital of a sum as may be prescribed (w.e.f. 18 -9-1990 Rs. Five crores
or more) to appoint a managing director or wholetime director or manager.
Section 267 disqualifies certain persons from being appointed as managing
director. Section 316 prescribes the number of companies in
which a person can be appointed as managing director at the same time;
section 317 restricts the maximum term of appointment to five years. The
remuneration of a managing director is now governed by section 309 and
Schedule XIII.

c(c

 
Section 269 has been recast by the amendment of 1988. In the case of public
companies or their subsidiary private companies, Teaching a figure of paid -up
share capital which may be prescribed [Rs 5 crores or more] the appointment
of a managing director, whole -time director or manager has been made
compulsory. The appointment has to correspond with the conditions specified
in Parts I and II of Schedule XIII, which parts are subject to the provisions of
Part III. The appointment and remuneration require approval of shareholders
in general meeting. The auditor of the company or company secretary has to
certify that requirements have been complied with. A return of the
appointment in a prescribed form must be filed with the Government within
90 days. Approval of the Central Government is not necessary in such cases.
But if the appointment does not comply with the sche dule, the approval
becomes necessary. Application for approval must be made within 90 days.
The Central Government may not accord the approval if it is satisfied that the
candidate is not a fit and proper person for the post and his appointment is not
in public interest and the terms and conditions of the appointment are not fair.
The Government may accord the approval for a shorter period than proposed.

If there is no approval, the appointee should vacate the office from the date of
the communication of the refusal to the company, failing which he incurs a
penalty of Rs 500 for every day of usurpation of the office.

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(1) A person who is an undischarged insolvent or has at any time been
adjudged insolvent. (2) A person who suspends or has at any time suspended,
payment to his creditors or makes or has made a composition with them. (3) A
person who is or has been convicted by a court of an offence involving moral
turpitude. The first Part of Schedule XIII gives the list of statutes and provides
that any person convicted for violating them and sentenced to imprisonment
or fine up to Rs 1000 shall not be appointed without the approval of the
Central Government.

Where a person is already a managing director of another company he can be

appointed only with the unanimous resolution of the board of directors. 16
The Central Government may permit Any person to be appointed managing
director of more than two companies if the Government is satisfied that it is
necessary that the companies should, for their proper working, function as a
single unit and have a common managing director [S 316(2), proviso]
The maximum term of appointment can be five years at a time and a new term
cannot be sanctioned earlier than two years from the date on which it is to
come into force. The terms of appointment can be changed, when they are to
be different from those prescribed by Schedule XIII, only with the approval of
the Central Government.

The remuneration of a managing director cannot exceed five per cent of the
net profits and if there are more than one managing directors, ten per cent for
all of them together, [S. 309] Where a managerial personnel is working in more
than one company, he can draw remuneration from one or both companies
provided that the total remuneration drawn from the companies does not
exceed the higher maximum limit admissible from any one of the companies of
which he is a managerial personnel.

 
 &c0
Accountability is an important element of Board effectiveness. There should be
some mechanism for evaluating the performance of the directors. The extent
of liability of a director would depend on the nature of his directorship. In
applying the general equitable principles to company directors, four separate
rules have emerged. They are (1) that di rectors must act in good faith in what
they believe to be the in the best interest of the company (2) they must not
exercise powers conferred upon them for purposes different from those for
which they are conferred. (3) that they must not fetter their disc retion as to
how they shall act and (4) that without the informed consent of the company,
they must not place themselves in a position in which their personal interests
or duty to other persons are liable to conflict with the duties to the company.
Three propositions in regard to the duties and responsibilities of directors:

þ ca director need not exhibit, in the performance of his duties, a greater

degree of skill than may reasonably be expected from a person of his
knowledge and experience
º ca director is not bound to give continuous attention to the affairs of his
company, his duties being of an intermittent nature to be performed at
periodical board meetings or committee meetings.
) in respect of such duties as may be properly left to some other off icial
having regard to the exigencies of business or the articles of association of the
company, a director is, in the absence of grounds for suspicion, justified in
trusting that official to perform such duties honestly.
c