In Percival v. Wright, (1902) 2 Ch. D.

421 case, the court held that directors have no duty

towards individual shareholders. Thus, the directors are trustees to the company and not of
individual shareholders.

In Allen v. Hyatt, (1914) 30 TLR 444 case, the Court held that the directors are trustees of the
profit for the benefit of the shareholders. They cannot always act under the impression that
they owe no duty to the individual shareholders. But it is of no doubt that the primary duty of
the director is to the company.

In Ferguson v. Wilson, (1886) 2 Ch. App. 77 case, the court clearly recognized 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 (agent of a company) contract in the name,
and on behalf of the company, it is the company which is liable for it and not the directors.

In Tristar Consultants v M/S Vcustomer Services India Pvt. Ltd. the Court stated that even
though a company is a juristic person, it has to act through a living human being. The
decisions on behalf of a company are taken by its board of directors and an individual
director cannot act on behalf of the company unless such power is conferred upon him either
through a specific board resolution or through the articles of association of the company.
While directors have a fiduciary relationship with the company and act as agents of the
company, the directors owe no fiduciary or contractual duties or any duty of care to third
parties who deal with the company. The Hon’ble Court held that the liability of a director
arises only if they derive any personal benefit while purporting to act on behalf of the
company.

Directors of a company owe no fiduciary or contractual duties or any duty of care to third
parties who deal with the company. Other than where directors have made themselves
personally liable i.e. by way of guarantee, indemnity etc. liabilities of directors of a company,
under common law, are confined to cases of – (1) malfeasance, i.e., intentional conduct that is
wrongful or unlawful, and (2) misfeasance, i.e. an act that is legal but performed improperly
– for example, where the directors have been guilty of tort towards those to whom they owe a
duty of care.

Reliance Natural Resources Ltd. [“RNRL”] v. Reliance Industries Ltd. [“RIL”]

The substantive part of the case turned, in the main, on two issues:

1) whether the MoU entered into between the Ambani brothers was binding on the respective
companies,

2) whether the PSC overrode all contracts to the contrary.

Majority:

 Firstly, the MoU is not technically binding between RIL and RNRL. It is not
in dispute that MoU is between three persons and the personality of the
company must be construed separate from these persons. The principle
emphasized by Mr. Jethmalani i.e. Doctrine of Identification may be
applicable only in respect of small undertakings but in the case of RIL and
RNRL, the companies have more than three million shareholders, in such a
situation, one cannot make the companies' personality the same as that of
persons involved.

 Secondly, in one of the most important passages in the judgment, the majority
held that the MoU is an “external aid” to ascertain the intention of the parties
to the Scheme. Nevertheless, there is no specific requirement that the GSMA
must confirm completely with the MoU.

 Thirdly, considerations of national interest, natural resources etc. are relevant

in formulating a “suitable arrangement” for gas supply.

Minority:

 It is very clear that the MoU itself recognizes that the reorganization, which
the promoters sought, would have to be routed through the Board.

 The minutes of the meetings of the Board of RIL, dealing with various issues
concerning the reorganization, do not reveal anywhere whether the Board as a
collective body ever took note of and approved the MoU. This is not a mere
technicality.

 The collective decision making, at a conjoint sitting allows for exchange of

ideas. The idea of the Board working as a collective is also about the process
 of sharing of views and arriving at collective decisions to protect and enhance
the interests of all the shareholders.

 The duty to protect the interests of the shareholders is cast upon the
Board, and the Board has to act in a fiduciary capacity vis-à-vis the
shareholders – as per the Proviso to 391(2) of the Companies Act, 1956

 What RNRL is demanding, by implications that follow the insertion of the gas
supply section of the MoU in Clause 19 of the Scheme, is that the Board of
RIL only acted at the behest of the promoters and were mere rubber stamps of
the decisions of the promoters. Acceptance of such demands would destroy the
fabric of company law itself and the foundations of trust, faith and honest
dealing with the shareholders.

In Peskin v. Anderson, [2000] 2 BCLC 1 case, the Court held that the directors are not agents
or trustees of members or shareholders and owe no fiduciary duties to them. They are agents
and trustees to the company.

 In general, a director's primary fiduciary duty is to the company. To hold that he has
some sort of general fiduciary duty to shareholders would involve (a) placing an
unfair, unrealistic and uncertain burden on a director and (b) would present him
frequently with a position where his two competing duties, namely his undoubted
fiduciary duty to the company and his alleged fiduciary duty to shareholders, would
be in conflict.

 So far a duty was held to arise were cases where a director with special knowledge
was buying shares (either directly or through a company) for his own benefit from
shareholders, where the director had special knowledge, which he had obtained in his
capacity as a director of the company, and which he did not impart to the
shareholders, and where the special knowledge meant that he knew that he was
paying a low price.

(Remember Tristar: (not that it was applied in the case, but just as a way to remember) The
Hon’ble Court held that the liability of a director arises only if they derive any personal
benefit while purporting to act on behalf of the company.)
  No special circumstance exists in this case.

 Directors have not volunteered to give any advice the shareholders.

 No final transaction exists at the relevant time.

 Directors have not benefitted themselves in any way.

 Fifthly, there was a congruence between those of left and those who joined during the
relevant time.

 Sixthly, by promoting and investigating the schemes the directors are not acting in
breach of the Object Clause.

 Seventhly, confidentiality of proposed transactions is to be upheld.

 If the claims are recognized to be valid, the directors may suffer a harm.

In Globe Motors ltd. vs. Mehta Teja Singh & Co., (1984) 55 Com Cases 445 (Del)

 The contention of the Appellant that the agreement had not been put to the
general body of the shareholders is not valid.

 Section 299 of the Companies Act, 1956 – a director of a company who is in

any way, whether directly or indirectly, concerned or interested in a contract or
arrangement, or proposed contract or arrangement, entered into or to be
entered into, by or on behalf of the company, shall disclose the nature of his
concern or interest at a meeting of the Board of Directors.

 Some of the Directors, mentioned therein, of the Company indicated their

interest in the above arrangement and did not take part in this discussion or
the resolution.

 The Board having thus approved the agreement, the same is not in any way
invalid because there is no requirement under law to place this agreement
before the general body of the Company.

Relationship of director & the Company

  The fiduciary duties of directors are basically the same as those of other
trustees and they are expected to display the utmost good faith towards the
company whether their dealings are with the company or on behalf of the
company.

 If they make any profit for themselves or cause any damage to the company,
they will be liable to make good the same to the company.

 In holding the director liable for misfeasance, it is not necessary that fraud in
the strictest term has to be proved.

 Thus, a director may be shown to be a closely associated personality with the

management of the company that he will be defined to be not merely cognizant of, but
liable for fraud, in the conduct of 'the business of the company even though no
specific act of dishonesty is proved against him personally. A director cannot shut his
eyes to what must be obvious to everyone who examines the affairs of the company. If
he decks so, he could be held liable for dereliction of duties undertaken by him and
compelled to make good the losses incurred by the company due to his neglect, and
even of fraud.

 Technically we may accept that the Directors had disclosed their interest in the
agreement which was being approved and also did not take part in the discussion or
voted on the resolution. But we cannot overlook the patent incongruity of accepting
that unbiased mind was brought to bear on the merits of these agreements when
almost half of the Board was interested in one or the other agreement.

- The Supreme Court failed to see as to what conceivable service was to be performed by the
distributors (all the distributors also being directors), including the Respondent, for which
such heavy minimum amount of fee was being given.

The agreement was void, so was the arbitration agreement by extension.

Sections 149-152, 161-169