BOARD OF DIRECTORS

Directors are the human agents of the company as the same does not have a mind of its own in
terms of knowledge intention for a transaction (Tessco Supermarkets Ltd v Natrass)Section
149 of the company’s Act states that the Company shall have a Board of Director but does not
exclusively define the term ‘director’ as such.

It states that the minimum directors required for a public company is 3 directors and for a
private company, the threshold for the same is 2 directors and in case of a one person
company , as the name suggests it is one director. The limit for maximum directors remains
the same at 15 directors which can be increased by passing special resolution to this effect.

Additionally, it is required that at least one director of the company remains in India for 182
days in the previous calendar year. The central government can also prescribe appointment of
atleast one women director for any class of companies they deem fit. In case of Listed Public
companies, atleast One-third of the total directors should be Independent Directors.

Further, Section 55 states that where a company has more than 1000 minor shareholders AND
paid up Share capital of not less than 5 Crore then atleast one director should be elected by
such minority shareholders (Holders of shares having maximum 20,000 rupees as the nominal
share value)

POSITION AND ROLE OF DIRECTORS

Directors can be defined as the agents of the company who help in partaking business affairs and
subsequently managing them. They cannot be deemed as the servants of the company but rather
as its officers (Moriarty v Regents garage Company)

The company’s act of 1956 defined directors as “Any person occupying the position of directors
by whatever name called. Therefore, any worker or employee can be a director if he acts in that
capacity.
In Lee v Lee Air farming Ltd where the director was also working as an employee of the
company and suffered accident on duty was denied workmen’s compensation on the ground that
he was a difrector, the court refused such analogy and held that the director can both be qualified
as a director as well as the employee of the company.

In addition, to the above , the role and position of directors can be categorized as :

DIRECTORS AS AGENTS
Directors act as the agents of the company and therefore the principles of agency shall apply to
directorship as does in contracts between an agent and a principal. Thus, the agent has to work in
the interest of his principal and so does the director’s function are in accordance with the
company’s needs.

This relationship also extends to the aspect of the agent not being liable for the acts of its
principal. Similarly, in case the company defaults, the blame cannot be placed on the director for
the same if he has not exceeded his authority or acted in contravention of the provisions of the
act.

In Elkington and Co. v Hurter , where the plaintiff was promissed issuance of a debenture but
the company went inoto liquidation, the director who happened to b ethe promisor was not held
liable.

In TR Pratt Bombay Ltd v MT Ltd (1938), the notice given to the directors was deemed as
valid service of the notice on the company on the ground that the former acted as an agent of the
latter.

In Hampshire Land co, re , it was held however that if the directors acts in this capacity for
more than one company, then the notice given in regard to business of one company will not
necessarily presume the knowledge of the same for the other company. Separate notices have to
be given in this regard.

DIRECTORS AS TRUSTEES
Directors are deemed to be trustess of the company as the owners of the company remain
shareholders who invest fund and provide capital to the company which is then amanged by the
directrors. Therefore, a fiduciary relationship is formed between the directors and the company.
(York and North Midland Railway co. v Hudson)

The main rationale of directors being given the position of trustees is because they hold with
themselves the power to manage the financial resources and fund of the company. In addition to
the same, they undertake tasks such as making calls on shares, forfeiture of shares and issuance
of further capital. (Nanalal Zaver v Bombay Life Insurance Company Limited)

However a differing view has been taken in Smith v Anderson whereby the court has said that
trustees are owners of the contractual property and thus enter into contracts in their own name
however directors cannot eneter into contracts in their own name for company business.
Therefore, there remains a distinction between the two.

Additionally, it must be kept in mind that directors are not trustees of the shareholders but of the
company. Thus, in Percival v Wright where the shareholders were asked to sell their share s to
the directors without informing them of the even of the company being sold off in which the
directors were ultimately going to sell their shares at a higher profit, the court held that the
directors were not liable to the shareholders.

However, In Coleman v Myers, the court overturned the decision in Percival and held that
earning profits by having access to inside information at the shareholders expense is a breach of
the fiduciary relationship and thus the directors were liable.

However, the same is only applicable to the extent where face to face negotiations have
happened, the directors ha dinformation which the shareholders did not and they were actively
forced into transacting the business and not when they voluntary came up to it, even if they had
no knowledge of the information.

Addittionally, directors are deemed as the trustees of the company also because as modern
corporations they owe a responsibility to the society as well where their interactions is on
ahigher note and actibvities pertaining to the discharge of Corporate Social Responsibilities
(CSR) is an evidence in this regard. ( Charanjit Lal Chaudhary v Union of India)
 DIRECTORS AS ORGANS OF CORPORATE BODY
This essentially refers to the Alter Ego doctrine of the company law jurisprudence and describes
directors predominantly as the mind of the corporation and thus liable for its actions. The theory
divides the company into different segments for imposing liability just as an individual is held
liable for the action of his limbs (Gopal Khaitan v State)

In Bath v Standard Land Co. Ltd the court held that the directors are the only brain of the
company through which the company acts. Therefore, the director is to be personally liable
owing to his negligence in conducting business affairs.

In Lennard’s Carrying Comapany Ltd v Asiatic Petrol Company Ltd where the director
denied responsibility for damage to the goods on the ground that the law on point provided that
no liability can be imposed if there is no “actual fault of the owner” and since the owner was a
company, it cannot commit any actual fault. However, the court rejected this contention and held
that the director will be liable.

It can be said that the directors alone would not formulate the organs of the body which can be
held liable for penalties. In Ashok Kumar v Shingal Land and Company , the court held that
along with the Board of directors, Key managerial personnels such as managers, Secretary ,
general manager shall also be held liable for the acts of the company.