Question 4 (a)

Promoter can be a person or group of person who conceive the idea of carrying on the business
profitably. Once the idea is finalised, the promoters do a detailed study of what may be the capital
requirement of business and what may be income, expenses and profits for business.

The word promoter is a business term and hasn’t been defined by law anywhere. However, a
number of judicial pronouncements do define it. Some of the duties of the promoter have been
mentioned below:

 To disclose the secret profits made from the business: The promoter should not be making
any secret profit and should disclose any secret profit made from the business. He/she is
however entitled for deduction of reasonable expenses incurred by them, if any.
 To disclose all the material facts pertaining to the business: The promoter should be
disclosing all the material facts. For example, if the promoter sells any property to the
company and that property was acquired by him at the time when he held the fiduciary
position in the company, then the company is entitled to cancel the contract for sale and
recover the profits made by promoter in this property sale.
 The promoter should make good to the company whatever he/she has received from the
trustee
 It is their duty to disclose the private arrangements: The promoter must disclose all such
private arrangements which results him profit by the promotion of company.
 It is the duty of promoter against future allottees: When it is said that the promoters of
company hold the fiduciary position in the company, then they are not only responsible to
the company or the signatories of MOA but also the future shareholders or allottees.
 Naming of the company: While deciding on the name of the company initially, the promoter
must keep in mind that the name should not be identical to the name of any existing
company.
 Entering into any preliminary contracts: The promoter may enter into the contracts before
registration of the company but after registration the company must be approving these
contracts.

Question 4 (b)
Some of the remedies available to the company if the promoter breaches his or her duty are
mentioned below:

1. Rescission of the contract with the promoter: The company may rescind the contract
entered into by the promoter before incorporation and registration of the company. This
remedy restores the position of all the parties to the contract as they were before the
contract. However, the remedy may not be available in some of the cases like delay, etc.
2. Recovery of the profit: The company can recover the secret profit made by the promoter in
breach of the fiduciary duties towards the company. The entire amount is payable to the
company in such case.
3. Damages: The company can take action in damages against the promoter who has breached
his/her fiduciary duty. This is possible even in the case of the fraud.
4. Compensation: In case any person has subscribed to the securities of the company based on
the faith on the prospectus containing an untrue statement, then the promoter is liable to
make good the loss suffered by the subscriber.
5. Public examination of the promoter: The court of law has jurisdiction to subject the given
promoter to public examination on account of the actions taken by the promoter during the
incorporation of the company.
6. Termination of the promoter’s duties: In case the promoter is found to be guilty of his/her
actions during the fiduciary position held by him/her in the company, then the company is
entitled to terminate the promoter’s duty then and there itself.