Project Report

on
Position of Directors in a Company

Submitted as a partial fulfillment of the requirements for B.A.LLB HONS 5 Year

Integrated course

SESSION:2021-2022

Submitted on: 23/07/2022

Submitted by: Submitted to:

Jatin Gautam Mr. Balkesh Yadav

Roll No.- 40 Faculty-Company Law

Semester – 6th Section - A

UNIVERSITY FIVE YEAR LAW COLLEGE

UNIVERSITY OF RAJASTHAN,
JAIPUR

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 DECLARATION

I, Jatin Gautam, hereby declare that this project report titled “Position of Directors in
Company” is based on the original research work carried out by me under the guidance and
supervision of Mr. Balkesh Yadav.
The interpretations put forth are based on my reading and understanding of the original texts.
The books, articles and website etc. which have been relied upon by me have been duly
acknowledged at the respective places in the text.

For the present project which I am submitting to the university, no degree or diploma has been
conferred on me before, either in this or in any other university.

Date:23/07/2022 Jatin Gautam

Roll no.- 40

Semester – 6th Section - A

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 ACKNOWLEDGEMENT

I would like to express my gratitude to those who generously took initiative and helped in the
successful completion of this project. I thank to them for their inspiration and guidance towards
preparation of this report. I thank my esteemed teacher and supervisor, respected Director,
UFYLC, Dept. of law, University of Rajasthan. I am highly indebted and my profound gratitude
to Mr. Balkesh Yadav, Faculty, University Five-year law college, University of Rajasthan,
Jaipur, who enabled me to make a project and provided me their stimulus of writing this. I am
grateful to my parents, for their valuable advice, continuous support and guidance through
various useful discussions at different times during the tenure of making this project and their co-
operation led to great learning experience to me.

Jatin Gautam

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 CERTIFICATE

Mr. Balkesh Yadav Date: 23.07.2022

Faculty

University Five Year Law College

This is to certify that Jatin Gautam of Semester VI section A of University Five Year Law
College, University of Rajasthan has carried out a study on “Position of Directors in a
Company” under my supervision and guidance. It is an investigation report of a minor project.
The student has completed research work in my stipulated time and according to the norms
prescribed for the purpose.

Supervisor

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Table of Contents

DECLARATION ................................................................................................... 2
ACKNOWLEDGEMENT ..................................................................................... 3
CERTIFICATE ...................................................................................................... 4
CHAPTER 1- INTRODUCTION TO HANDWRITING ANALYSIS ................... 7
CHAPTER 2- PROCESS OF HANDWRITING ANALYSIS................................ 9
CHAPTER 3-SHORTCOMINGS OF HANDWRITING ANALYSIS ..................11
CONCLUSION ....................................................................................................13
BIBLIOGRAPHY .................................................................................................14

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Abstract

Directors are professionals deputed by the Company to run its business. They are officers who
control the overall functioning of the Company involving day-to-day management and
superintendence of the company’ affairs. Section 2(34) of the Companies Act, 2013 defines
director means a director appointed to the Board of a Company. Directors are collectively
referred as Board of Directors. Only an individual person can be appointed to hold the position
of director. An artificial person or an entity cannot be appointed as the director of a company.
When we consider a company as a separate legal entity, then the directors are considered as the
mind and the will of the company as they control the actions of the company. In simple words,
they are the brain of the company. Their role is important in the overall administration and
management of a Company. They act in multiple capacities at different times to run the
Company in an efficient manner.

Objectives

In this study, it is purposed to examine Position of Director in Company.

Research Question

What is Position of Director in Company?

Research Methodology

The researcher has adopted doctrinal method research. The researcher has made extensive use of
the available resources at the library of University Five Year Law College, University of
Rajasthan and also internet resources.

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 CHAPTER 1

UNDERSTANDING THE POSITION OF DIRECTOR

As observed by the lordship in the case of Ram Chand & Sons Sugar Mills Pvt. Ltd. v.
Kanhayalal Bhargava1 that the position held by the directors in a Company is a difficult subject
to explain. To understand the position of director in a better way, we refer to Justice Bowen’s
observations in a well-decided case of Imperial Hydropathic Hotel Co. Blackpool vs. Hampson,
(1882) 23 Ch D 1 (CA) which is as follows:

“Directors are described sometimes as agents, sometimes as trustees and sometimes as managing
directors. But each of these expressions is used not 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.”

This summarises the multi-dimensional position of a director in the capacity of agents or trustees
to the Company even though they are not considered the same in a true legal sense. Let’s
understand the position of a director in a company as agents and as trustees in detail further.

1. Directors As Agents of The Company

It is established in the case of Ferguson v. Wilson that the directors are considered as “agents of
the Company” in the eyes of law. A company is an artificial person created by law and cannot
act on its own. It operates through its directors i.e. agents of the Company. His lordship
summarises the true position of the directors in case of Faure Electric Accuinuolator Co., (1888)
40 Ch. D. 147) that directors are agents for the company with powers and duties of carrying on
the whole of its business subject to the restrictions imposed by the articles and the statutory
provisions. Their role as an agent is guided by the powers and duties entrusted to them.

2. Authority to Act as an Agent

A director derives his authority to act as agent of the Company by virtue of its Articles of
Association which is drafted in accordance with provisions of the Companies act. Thus, his

1
Civil Revision No. 289-D of 1965 | 27-08-1965

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actions as agents are considered as “actions of the Company” itself. However, the director is not
held personally liable for his acts unless specifically provided in the law. Wherever a liability
would attract to an agent; directors would be held liable whereas where the liability would attract
to the principal, the burden of liability will be shifted to the company.

Liability of a Director while acting as an Agent

The relation of the directors with the company is guided by the general principle of agency. If
directors have any personal interest in a transaction of the Company then they have to disclose
the same as an agent. The directors of a company cannot be made liable merely because he is a
director if he has not given any personal guarantee for a loan taken by the company as observed
by his lordship in Indian Overseas Bank v. RM Marketing. Directors can incur a personal
liability when they enter the contract in their own names when they use the name of the company
for a fraudulent purpose,s and when they exceed their powers entrusted with them.

The directors must act in the name of the company and within the scope of their authority. If the
directors enter into a contract that is beyond their powers but within the powers of the company,
the company may ratify it. However, in case of a contract that is ultra-virus the company, the
company cannot ratify it and neither the company nor the directors are liable for it. In such cases,
the directors may be held liable for breach of implied warranty of authority.

directors agents of the members of the Company

It is important to note that directors are agents of the company but not the agents of the members
of the company. A company is a distinct legal entity apart from its shareholders. The directors
are the agents of the institution i.e. Company and not of its individual members, except when that
relationship arises due to the special facts of the case as rightly observed by his lordship in Ray
Cylinders & Containers v. Hindustan General Industries Limited.

directors the agents of a Company legally

The directors are not considered as agents in any legal statute. Agents are appointed by the
principal whereas directors are elected by the shareholders of the Company. Agents work on a
commission basis but that’s not the case with directors. Also, an agent is not required to disclose

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the name of his principal but a director has to do the same. Therefore, the directors are not agents
in the true legal sense.

3. Directors as Trustees of the Company

I. Trustees to the money and property:

The office of the director is fiduciary in nature and powers are delegated to them to act on behalf
of the Company. Directors are often referred to as “trustees of the company”. They are treated as
trustees of the Company with regards to the money and the property of the company they handle.
They undertake all the transactions on behalf of the company and utilize the company’s funds in
the best possible manner to gain profits.

ii. Trustees to the powers entrusted:

The directors are also the trustees in respect of powers entrusted to them. They must exercise
these powers bonafide and for the overall benefit of the company. They have the power to utilize
the funds of the company, to declare dividends in the general meeting, to make calls and even to
forfeit shares, to approve the transfer of shares, and accept the surrender of shares. They exercise
their powers which are basically “powers in trust” in good faith and for the benefit of the
Company.

iii. Management of the Company’s affairs as an office of trust:

The directors are officers deputed to manage the Company’s affairs for the benefit of the
shareholders; it is an office of trust which, if they undertake, it is their duty to perform fully and
entirely; as observed by his Lordship Romilly in York and North Midlands Railway Co. v. N.
Hudson, 16 Bev. 485. Director is also required to consider the interests of all stakeholders such
as labour, customers, consumers, suppliers which are affected by the operations of company;
while executing their functions as trustees of the Company.

iv. Liabilities as trustees of Company:

Madras High Court has observed in a well-decided case of Ramaswami lyer v. Brahmayya and
Co. (1966) 1 Comp. L.J. 107 (Mad) 7 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

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the power they could be rendered liable as trustees and on their death, the cause of action
survives against their legal representatives. In this case his lordship also mentions about the
liabilities that a director can incur as a trustee while asserting the role of director as trustees of
the Company.

Trustees for individual shareholders of the Company2

It is important to note that directors are trustees of the company but not for individual
shareholders of the company. It is laid down in the case of Percival v. Wright. The same
principle was noted again in the case of Peskin v. Anderson that the directors do not hold any
fiduciary relationship with individual members of the company. The directors are also not
responsible as trustees for the debt due to a company or for the creditors of company even
though they are trustees of the assets of the Company.

Trustees of Company in the legal sense:

In terms of Trust laws in India, a trustee holds legal ownership over the trust property of which
the equitable ownership lies with the beneficiary. Considering this explanation, directors are not
considered as full-fledged trustees of the Company. Unlike a trustee, the property of the
company is not legally vested in him. Also, a trustee executes contracts in respect of the trust
property in his own name whereas directors do the same under the common seal of the company
and not in his personal capacity.

A trustee never manages the trust property for his benefit whereas the director undertakes the
management of trust property for benefit of himself and other shareholders in the company. An
artificial person can become a trustee but an artificial person cannot become a director of the
Company. As the only an individual can be a director who can execute the transaction in the
name of the Company. Directors are commercial officers managing a trading concern for the
benefit of themselves and of all the shareholders in it. They are paid officers of the Company.
Thus we can say that directors are not trustees in a real sense. Their functions and duties make
them Trustees of the Company. Directors may better be regarded as quasi trustee looking at their
roles.

2
https://lawtimesjournal.in/position-of-directors-under-company-law/
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 CHAPTER 2

CASE LAWS3
1. In Judhah v. Rampada Gupta, it was held that, director of a company registered under this Act
are persons duly appointed by the company to direct and manage the business of the company. A
director is sometimes described as agents, trustees, managing partners etc. But each of these
expressions is used not 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.

2. In Ferguson v. Wilson, 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.

3. In Elkington & Co. v. Hurter, 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 permissible8.

4. Like agents,4 directors have to disclose their personal interest, if any, in any transaction of the
company. In Ray Cylinders & Containers v. Hindustan General Industries Ltd, 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.

3
http://www.legalservicesindia.com/article/287/Position-of-Directors-In-A-Company.html
4
https://www.legitquest.com/case/ram-chand-and-sons-sugar-mills-private-limited-v-kanhaya-lal-bhargava-and-
anothers/14E80B
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5. In Sarathi Leasing Finance Ltd v. B Narayana Shetty, 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.

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 CONCLUSION
A director is an agent of the Company for the conduct of its business. They have a fiduciary
relationship with the company as well as the shareholders when they act as an agent of a
company. However, the directors do have independent powers on certain matters, unlike agents
who act primarily on the instructions of the principal.

The directors occupy a fiduciary position in relation to the company’s affairs and they are
considered trustees with respect to the company’s property and money. They are also trustees as
regards powers entrusted to them. They must exercise these powers in the good interest of the
company as they are accountable for the same. They are not trustees of individual shareholders
and other persons entering into any contract with the Company.

As rightly observed by Justice Jessel, M.R. in Great Eastern Railway Co. v. Turner, L.R. 8 Ch.
D. 149 that the directors have sometimes been called trustees or commercial trustees, and
sometimes they have been called agents. It does not much matter, what you call them so long as
you understand what their true position is, which is that they are commercial men managing a
trading concern for the benefits of themselves and all other shareholders in it.

We should truly understand their roles as a director as a whole and refrain to term them as agents
or trustees in the true legal sense. It can be concluded that directors are neither agents nor
trustees in true legal terms. However, they possess the elements of agency, trusteeship in their
nature of duty but none of these terms can describe directors in their position in totality. The role
of director involves a combination of agency, trusteeship but does not make him an agent or a
trustee in its real sense.

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 BIBLIOGRAPHY

Web Sources

• Introduction to Company Law Avtar Singh (Eleventh Edition)

• https://lawtimesjournal.in/position-of-directors-under-company-law/
• http://www.legalservicesindia.com/article/287/Position-of-Directors-In-A-Company.html
• https://www.taxmann.com/post/blog/meaning-of-a-director-appointment-qualifications-
legal-position-etc#Appointment-of-Directors
• https://lawcorner.in/position-of-directors-in-a-company/
• Companies Act, 2013 with amendments thereon (www.mca.gov.in)

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