DIRECTORS

A corporation is an artificial person which is intangible and invisible. For making any
decision and to have knowledge and intention, a living person has a mind and hands by which
he carries out his actions. But a corporate body being an artificial person has none of these.
So it needs to act through a living person. The company’s business is entrusted in the hands
of directors.
Section 2(34) of the Companies Act, 2013 defines a director.

Position of Directors

Directors as Agents
The position of a director has been cited by Bowen LJ in the case of Imperial Hydropathic
Hotel Co Blackpool v. Hampson as a versatile position in a corporate body, “Directors
are sometimes described as trustees, sometimes as agents and sometimes as managing
partners. But each of these expressions is used as exhaustive 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.”
The position is not easy to explain, they are professional men who have been hired by the
company to direct its affairs. They are officers of the company.
It was quite early when it was decided in Ferguson v. Wilson, that directors are agents of the
company, “The company has no person; it can act only through directors and the case is, as
regards those directors, merely the ordinary case of principal and agent.”
The general principle of agency thereby governs the relationship between company and
directors. Therefore, where the directors contract in the name of the company, it is the
company that is held liable and not the directors.
In Hampshire Land Co, re, it was held where one person is an officer of the two companies,
his personal knowledge is not necessarily the knowledge of both the companies unless he is
under a duty to receive the notice and to communicate it to other.
One of the important points to be noted is that they are not agents of its individual members.
They are the agents of the institution. In the case of Indian Overseas Bank v. RM Marketing,
it has been held that the directors of a company could not be made liable merely because he is
a director if he has not given any personal guarantee for a loan taken by the company.
The company is liable for the acts of the directors but the directors can be held personally
liable as well, if
1. If he/she uses the name of the company incorrectly
2. If they exceed the power of authority granted to them
3. If they execute a contract in personal capacity

In, WEEKS V PROVERT, the company had the authority to issue debunters worth
60000 pounds. All the limit had been reached, then too the director issued. It was held
that the person to whom such debunters were issued could recover the amount
personally from the director.
Directors as trustees
In Ramaswamy Iyer v Brahamayya & Co., the Madras High Court observed that the
directors of a company are trustees for the company, and with reference to their power of
applying funds of the company and for misuse of the power, they could be rendered liable as
trustees and on their death, the cause of action survives against their legal representatives.
Another reason why they are trustees is because of the peculiar nature of their office. In York
& North Midland Railway Co v Hudson, “

”
However, they are not trustees in the real sense of the word.
As per the principles laid down in the case of Percival v. Wright, directors are not the trustees
of the shareholders. They are trustees of the company. The same principle was repeated again
in the case of Peskin v. Anderson that the directors are not trustees for shareholders and hold
no fiduciary duty to them.
DIRECTOR AS EMPLOYEE
A director is not considered as an employee of the company, but there is no provision for
director to take employment.
LEE VS LEE AIR FARMING- Lee formed the company, Lee’s Air Farming Ltd. He owned
all the shares except one. He was the company’s sole governing director. He was also
employed by the company as its chief and only pilot. Lee was killed while flying for the
company.
His wife made a claim for workmen’s compensation under the New Zealand workmen’s
compensation legislation. Her entitlement to such compensation was dependent on whether or
not Lee was a worker i.e. a person who has entered into a contract of service with an
employer. The New Zealand Court of Appeal refused to hold that Lee was a worker, holding
that a man could not in effect, employ himself.
However, the Privy Council allowed Mrs Lee’s claim. Lee may have been the controller
of the company in fact but in law, they were distinct persons. He could therefore enter
into a contract with the company, and could be considered to be an employee. The
widow was therefore entitled to an award in respect of workmen’s compensation.
Directors as organs of Corporate body.
In the case of Bath v. Standard Land Co. Ltd., Neville J. stated that the board of directors
are the brain of the company and a company does act only through them. A corporation has
no mind or body and its action needs to be done by a person and not merely as an agent or
trustee but by someone for whom the company is liable as his action is the action of the
company itself. If we consider a company as a human body, the directors are the mind and
the will of the company and they control the actions of the company

In Lennard’s Carrying Co. Ltd. v. Asiatic Petroleum Co, Lord Haldane held, “

”
Are directors servant of the company?
The directors are the professional men of the company who are hired to direct the affairs of
the company. They are the officers of a company and not a servant. In the case of Moriarty
v. Regent’s Garage Co, it was held that a director is not a servant of the company, but a
controller of the affairs of a company.
APPOINTMENT OF DIRECTORS
The appointment of Directors of a company is strictly regulated by the Company’s Act, 2013.
Every company is required to have a Board of directors and it should be consisting of
individuals as directors and not an artificial person. Section 149 lays down the minimum
number of directors required in a company as follows:
1. Public Company– At least 3 directors
 2. Private company- At least 2 directors
3. One person company– Minimum 1 director

There can be a maximum of 15 directors. A company may appoint more than 15 directors
after passing a special resolution.
The Central Government may prescribe a class or classes of a company have a minimum one
women director. Every company is also required to have a minimum of one director who has
stayed in India in the previous year for a period of 182 days or more.
INDEPENDENT DIRECTORS Section 149(4)
The Companies Act, 2013 mandates that every public listed company is to have atleast one-
third to the total number of directors as independent directors. The Central Government may
prescribe the minimum number of independent directors in a class or classes of public
companies.
Sub Section 6 of Section 149
The independent director has to declare his independence at the first meeting of the board
which he attends and subsequently at first meeting of the Board in the financial year. A
nominee director means a director nominated by any financial institution in pursuance
of a statutory provision or agreement appointed by any Government to represent its
interest or any other person for that purpose.
An independent director may receive remuneration by way of fee provided under Section
197(5), reimbursement of expenses for participation in Board and other meetings and profit
related commission as may be approved by the Board Members.
An independent director cannot hold office for more than two consecutive terms. However,
the director will be eligible after expiry of three years.
Section 150 provides that Independent Directors are selected from a data bank which must
contain names, addresses and qualifications of persons who are eligible and wiling to act as
such.

APPOINTMENT OF DIRECTORS BY SMALL SHAREHOLDERS

FIRST DIRECTORS
APPOINTMENT AT GENERAL MEETING SECTION 152

APPOINTMENT BY NOMINATION SECTION 161(3)

APPOINTMENT BY VOTING ON INDVIDUAL BASIS SECTION 162

APPOINTMENT BY PROPORTIONAL REPRESENTATION SECTION 163

ADDITIONAL DIRECTORS
APPOINTMENT BY BOARD AND APPOINTMENT BY TRIBUNAL
DIRECTOR IDENTIFICATION NUMBER
 DISQUALIFICATION OF A DIRECTOR
The minimum eligibility requirement for the appointment of directors has been laid down
under section 164 of the Companies Act, 2013. The disqualification for a person to be
appointed as a director are:
 Unsoundness of mind.

 If he is an undischarged insolvent.

 When is applied to be declared as insolvent and such application is pending.

 When he is sentenced for imprisonment for an offence involving moral turpitude for a
period of a minimum of 6 months.

 If the Tribunal or court has passed an order disqualifying him for being appointed as a
director.

 If he has not paid his calls in respect to any shares of the company.

 When he is convicted of an offence which deals with related party transaction.

 When he has not complied with the requirements of Director Identification Number.

REMOVAL OF DIRECTORS
VACATION OF OFFICE BY DIRECTORS
 DUTIES OF A DIRECTOR
The duties and responsibilities of directors stipulated by the Indian Companies Act of 2013,
can broadly be classified into the following two categories: ---

[i] The duties and liabilities which encourage and promote the sincerest investment of the
best efforts of directors in the efficient and prudent corporate management, in providing
elegant and swift resolutions of various business-related issues including those which are
raised through "red flags", and in taking fully mature and wise decisions to avert
unnecessary risks to the company.
[ii] Fiduciary duties which ensure and secure that the directors of companies always keep
the interests of the company and its stakeholders, ahead and above their own personal
interests.

The following duties and liabilities have been imposed on the directors of companies, by the
Indian Companies Act of 2013, under its Section 166: ---

 A director of a company shall act in accordance with the Articles of Association

(AOA) of the company.

 A director of the company shall act in good faith, in order to promote the objects of
the company, for the benefits of the company as a whole, and in the best interests of
the stakeholders of the company.

 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 achieve or attempt to achieve 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 Lac Rupees.
 POWERS AND RESPONSIBILITY OF THE BOARD OF DIRECTORS

Section 179(3)
Position of Shareholders vis-à-vis Board of Directors: Restrictions on Powers of Board
In the following situations, however, the shareholders can intervene:
Restrictions on the power of Board by way of STATUTORY PROVISIONS:
DUTIES ON PAGE 276