Company Management and Director

#:::¥ninE
*`' ofthecomlan manaBement:-
±!±±jnapegee~Q±aL£9mpany-_ '
i_a ny ge ne ra lJEL rfu¥_?s_tg a ,_uj?g~pLEL

dad
L#gffesfgn=td±F±¥±B=f±d=:_::_%_f#nfi=_:=a=n¥:LEO_
the mandate of the law that the
the `board'. However
h the board of directors or any
shall run its business
other persons authorized by it underlhe common seal of the
Generall Directors
::i-tEe:`::f|=:E:ii.:i::::::e::
:s±%===::::±::±===::::::::±=±:::==±::±±===:±=:=::=¥rfeLndjtry
Role of shareho]ders`:
Under the company management system, though. the
shareholders are considered to be the owner -of the-company but
practically their role in relation to proper fmctioning of the company
is very limited. The board of director, on behalf of the shareholders,
is the most powerful authority in deciding the.company:a affairs. But
for every day's work, the company appoints other einp`]oyees though
the directors may elect one from them as the managing director to
direct that type of every day's work.* Apart from this, managing agent
may be appoin`ted in this regard. -

efinition of directors:-
g±n±±a±l¥_§_Pifet9±j±±P~e_r£9P_..vy_mh.9>±ak9de§_t+h_e
. , a_ I . ^^ , A i1
the affairs of the
C_ Pany
_
on behalf-Of the shareholders. His activities mustbe for the
__ .. _ _ I ._- . ._ -_- __ _T=_.

good of the company.

fiDT9f9=L=ir__£_9±rEp_ifet=12.9±.pr9¥id£§._9n.,ip.£!u.S_i.y_e
Jdefinition of director. Under this section, "director" includes any

Pi±±g9Ppgs±±P2£i±g±±±±esi±=itl:n££dir£4o±!2±±!!±aLts_v¥ name called.

So, if we construe this definition then we will flnd that any person
who persons the duties of a director will be known as a director by

!ii!2:i:I:EEfabG±n.i,C,i.q|:i!:a:a:3!:i.-F.a;s=|-i:``:g¥[i:=`=:.`:`:i:`i.:=haEb-.f=:-3{:h°:I;-e?:-
.Jessel M. R. observed: "it does not matter SO

long as you understand what their legal !§2_W_h_i_9t!..is__.!h~at_t_FH

324 (i878) |0 ch. D. 450.

 Fundamentals of company law 249

are really commercial men managing a trade concern for the benefit
and of all the shareholders in it."
So, directors is a person working for the company holding
the liability of a director irrespective of the name by which he is
called. . '
-\

Eligibility of only natural persons to be directors: [S. 90]

• Section 90 `clearly provides that only a natural person may be
appointed as a director. So, no body corporate, association, firm or
any other jur`istic` person shall be eligible to be a director.

Number of directors;-
The number of directors and the names of the .first directors
bet determined dy the majority of the subscribers to the
__ -i, i I -_¥ _ _-! _. i__ __-_

meTuerandun[sehal."R€9]
Under section 9q_£y_?_ry. public company shall have at least
three directors. On the same way, in case of all other CQmpanjes the
minimum -number of directors must not less than two.
number of directors the
number be fixed (whether minimum 6FiH=iiffL*riTFTe
articles of the company.
e right to increase or reduce the number of
Company.
E[iEiiEHTEH=REEm"mum.REEEELEillhEREm

TMatters to be kept in mind in `regards. to the number .of

dircetoFsbtry:i ~ :
Though subj_eat, to the minimum n-umber of directors, the
articles pray fix their-ill+inb?i but whenev?>r+the matter of directorship
is concerned there is a statutory limitation. Nopne is eligible to hold
the position of director in more-than twenty companies at a time. A
person who is appointed is a director in a company despite holding
the directorship in twenty more companies, his appointmerit is not
effective long The continues to--hold the` directorship-of that.nurrtr°of
companies. B-ut his appointment may be regularized if he
position of a director from any of-these companies within a pe EREEi
f]fteendays.
250 Company Management and Director

Exclusion of certain directorship:-

Though a; person shall not_ eligible to _hold the position of
director in more than twenty companies but in calculating the
number the followings-shall be excluded:-
(d\}\ a private.Company which i`s neither a subsidiary nor a
' holding of public company; ....

(b) \\\an
\ unlimit.ed coripany;
(c) an association not canying on business for profits;
(d) ` ari\altemative director o-fa company.
\

14.4. ADhointmeht of directors:-

The matter of appointing-directors is very important for a
company. Section 90 of the companies Act provides for the
minimum number of directors which has~been desrfeed `5ardier. And
section 91 provides for the procedufebf the appoifitmentof,director.
This see-t'ion vides that notwithstanding anything contained in the
articles, the directors sha\ll pe appointed in the fipllowing manner:-

I(I)subs€ribeisofthememirandrmacttoasdirfetir-
This is the stage wheri`the articles have not yet made. Since
there` is no director appof"6d formally so+ subscribers of the
inembrandum shall be deemed to be the director;.
Section 91 (I) (a) provides that `the subscribers of th:
meinoranduin shall be deemed to be the directors of the company
until the first directors are appointed.

First directors:-
The nines of the first directors ate contained in the articles.
When the articles of association of a
naines of the first directors are included therein.
number of the
directors€and theTriES~o~fTh-e--first directors shall be de€terfuined in

associati6fi:

(3} Direr.tors app®inted`subsequently by the members:-`

The subsequepL directors shall be appointed dy members,of
the coinpany. The basis of such appointment is section 91 (I) (b)
wherein it has been'containe-d that `the directors of the company shall
252 Company Management and Director
a,.

company like debenture holders, a backing company or finance

providing corporation etc.-
(9) Appointment of directors by the government:-
If it is provided by the articles of the company or on the
application of the shareholders, the government may appoint one or
irectors for that company.
Share qualification:-[S. 97]
Share qunlification is the holding a certain number of shares
by the directors prescribed in the articles of the company which is
considered as the qualification of that directors. Regulation 71 of

rfugi::#!¥eei:t-
directors may have personal interesting the €omprny325. It is, tod be
kept in mind that Lthe directors must hold the shares in their own
rights and capacities326 and any gift of shares from the promoters
~ Shall be considered ]nerely the trust for the company327.

Time for obtaining share qualiflcation=-

Section .97 `of our companies Act, 1994 provides that it shall
be tthe duty of every, director to hold qualification share+to be
specifiedinthearticlesandafterhisappointmentasadirectorifheis
not ,qualified he is required to obtain his qualification±±!_i±±±±±£i¥EL

€qu„;±±=[±±±±±±¥::!¥£:i#££EEEiEfin£E££E£!!£¥£:±£i£E9E£IfiE£££E9LEf¥fl
= ,.-.--, I+ ---``=``.. . :` i ---3 ..-. > ,i -.

If any direct6r holds the share warrant fee--Shall.rifet-~ be

qualified as per the provision of the dot. So, only-shares mdst* be
held. But unless the articles otherwise provide, a joint holding shall
be Sufficient. for share qun|ification328.

t[ cts of nob-obtaining share qua]iracation.:`-

If any Person appointed as director fails to obtain the _ ---- _ -_ _, _ _ - _

qualification ;HTa-r-e+ within -si]rty days i of his appeintment ` tiro _ __ _ . _+_-I___i-_.__ -._ ---<~~,* --==-i .--,.-.-- ± ,--,----- Th--

his office shall be S.log

325 Areher case (1892) I ch. 322` .

326 Sutton -vs-English & colonial produceco. [1902] 2 ch. 502.
327 Re Canadian oil works corporation, [1875] 10 ch. APP. 593.
328 Grundy .vs-Briggs (1910) 1 ch. 444.
 Fundamentals of company law 253

(ii) he shall be liable to a fine not exceeding/two

ffi6.aiji~k`afor every dg_y b?tween the expiration-6f
the said sixty days -a-n-dihe last day on which it i3
Foivi5--a--=LIEiFTire~~friedA-¥§---`~dlFTe€Eii::iif (both days-
inclusive). [S.

Section 94 provides some disqualifications of directors.

Under this section, on the following grounds a p`erson shall not be
11 ^1 . , ,
le of being appointed a director of a company:
Iu nsoundness of mind:i
If a person is of unsound mind and thus incapable of
performing the activities as a director, he is not competent to be
appointed a director. But the unsoundness must be declared
dy-tt?---
etent court and must be in force
Insolveney:-
If a person is an undercharged i.nsolvent, he is incompetent
to be a director. But in -this case also the court's opinion.is
necessary33°. Not only it, if aSperson applies to be adjudicated as an
insolvent and his Pending, he is disqualified for being a director33]
allure to pay call in shares:-
A person shall not be eligible to be appointed as a director if
he has not paid any call in respect of shares of the company held by
him, whether alone or jointly with others' and six months have
elasped from the last day fixed for such payment. [S. 94 (1 ) (d)]

inority,-
#contractSince
with others
a minorall #not
by himself32.
possessedSo,
anythecapacity
la-wi d;ems that into
to enter he is

unable also to Perform his duty as a director. Thus, a minor is not

eligible to be appointed as a director. But he may hold shares333.
Other grounds: [S. 94 (2)]

329 sec. 94 (I ) (a).

330 See. 95 (I ) (a); Jayesh Ramniklal Dashf ~.vs-Carbon Corpn Ltd, [1993]
Comp Gas 748 Born.
331 sec. 94 (I) (C).
332 sec. I I of contract Act,1872. `
333 5 L 3 1 7: (1924) Lah 611.
 254 Company Management and.Director

As disqualifications directorship, the articles in-ay provide

other additional grounds` which is also enforceable by law. Some
grounds might be.
Conviction-:-
It any person is convicted by a court of law for an offende
rT

involving

Due to illness if any person is incapable to perform his duties

as a director, his directorship inay be ceased but if the absence of a
director is involuntary and because of occasiohal illness which might

gnu;aebieo:it,hi;:hs::::re:.±nmme;:i:.Offlcewillnotbevacated3ar.
If articles of a company provide, the grverrmen[~= may
remove any director for any reasonable and satisfactory -,
grbund, `i.e.,
]tion-etc which might be considered as his disqualification.
Additional disqualification in case of private company:-
An independent private company may add any other
disqualifications .for the appointment of a director. But the grounds
must be contained in the articles. [S. 94 (1) ]

#:e:#ofthedisqualificationsmentiened
I -
in S. 94 are the qualifications. So, under this poi.nt the qualifications
of a director are:-
(i) he must obtain sharequaliflcation; [S. 97]
(ii) hemustbeofsoundmind;

{i;i} :: :::: ::ys:i:ecn:ii money if demanded to him;

{¥}) :: :::tbbeeaap::i::;of high morality etc.

Apart from the above mentioned qualification S. 92 provides some
additional qualifications which a director must obtain,

92 the qualirlcations of a director are:-

Consent to act as a director:-

334 Mack's claim [1900] W.N.114.

 Fundamentals of company law 255

A person shall not be capable of being appointed as a

director of a co.mpany unless he has signed and filed with the
Registrar a consent in writing to act as a director. ~

Qualirication to act as a director in case of a company havin:

share capita-I:
|n case of a company having share capital he i-s to sign in a
memoraridum fohia number of Shares not less than his qualification
shares and to pay for his qualification shares.
. - \ In this connection it may be said that a person who is
appeinted as +a directorof+such company has not obtained his
qualification shares, it is his duty to obtain such shares within a
period of sixty days a`fter his ap`pointment.

14.8. Izaeat_ion of oIr]ce of direetg±:g±

_A, number of sections al.9ng with sch - I of our companies
Act provide for the provisions of vacation of_office of directors. If
we read these together, the grounds of vacation of office of a director
will be as follows:
Regulation 78 of schedule I ahd also S.108 provide that the office of
a director shall become vacant if:-
(i) he fails to obtain qualificati6n shares within two
months of his appointment; (V/S 97)
(ii) he is found to be of unsound mind by a court of
competent jurisdiction ; (V/S 94)
(iii) he isadjudgedas insolvent;
(iv) h9 fails to pay calls made on him in respect of shares
held by him within six months from the date of such
calls being made;
(v)- without the sanction of the company in general
` meeting of he accepts or holds any office of profit
. under the company other than that of the managing
director or manager, or legal or technical adviser or
banker;
(vi) he absents himself from three consecutive meetings
of the directors without leave of absence from the
board of directors; [U/S.108]
(vii) heaccepts a loan from the company; [U/S.103]
 Fundamentals of company law 263

2. Loans to directors:
Except a banking company or a private company not belong
a subsidiary of a public company, a director can't make arty loan or
give any guarantee or provide any security in connection with a loan
made by a third party. [S.103] ,
3. Holding office of profit:
Without the consent of the company in general meeting, a
director can't lfold arty office of profit except` that of a managing
director or manager br a legal or technical adviser or a banker. [S.
104]
4. Restrictions bn eiercising powers:
Except with the consent of the company in a general meeting
director can not:-
(a) sell or dispose of the undertaking of the company; and
(b) remit any debtdue by a director. [S.107]

5. Restrictions in case of certain contracts:

Except with the consent of the directors, an individual
director can't enter into any contract for the sale, purchase or supply
of goods and materials with the company. [S. 105]

6. Exemption from liability:

In case of negligence, default, breach of duty or breach of
trust, a director can't get any exemption from liability even there is
any provision in this regard contained in the articles of association of
the company. [S.102]
7. Contribution to the charitable purpose:
A director can't contribute funds to any charitable purpose
which is not connected with company's business. The ainount of
contribution, however, may be fixed by the articles.

The power of the directors to be exercised by a majority of votes:

The powers which are .required to be exercised by resolution passed
at the general meeting, any question arising there from sh?ll be
decided by a major of votes, the chairman shall have a second or
vote. [Reg- 88, sch- 1]
3. Duties of directors:-
The companies act, 1994 does not lay down the duties Of a
director. But considering different provisions and cases along with
264 Company Management and Director

principles of companytlaw, the duties of directors may be classified

as:
(i) _sintutoly duties; and
(ii) duties of general nature.

(I) Statutory duties:

There are a number of statutory` duties of a director which
begin `from the date of corporation Of company and ends when the
company-gees into liquidation. From a number of statutory duties
some are mentioned here: i=

(i) It is the duty.of every director to attend the board

meeting. [S. 96]
(ii) It is.the director to held qualification shares. [S. 97]
(iii-) It is the drty ®fa.director-to leave hi-s offi€€ when he
is a bankrupt. [S. 99]
(iv) It is the `duty of a director not to enter into any
contract for the sale, purchase or supply `of goods
and materials of the company without the consent of
board of directors. [S.105]
(V) Efatgiengudt]yre°c:oar :fanma8i:8thda¥e:tn°er ont:te:°c::paasn;
while he is in office. [S.109]
(vi) The appointment ofa managing director shall not be
for a term exceeding five ycars. He can not be re-
appointed or his ;term extended for a period
exceeding five years on each occasion. [S. 110]
(VIE) ;ta;i::: bdyu#oF:o#::ts°a=o:°io:°iorsesc:£fv:ffi¥
in connection with the_transfer to any person of all or
any of the shares in a company. [S.114]
(viii) It is the duty of the directors not to take the money
indirectly in contravention of sections Ill-113. [S.
114]

(ix) ` - _A director who is directly or indirectly concerned or

interested in any contract or arrangement entered
into by or on behalf of the company, it is his duty to
disc<lose the nature of his interest-at the meeting of
the board of directors. [S.130]
 Fundamentals of company law 265

(x) It is the duty ofa director not to vote on any contract

or arrangement in which be is directly or indirectly
concerned or interested. [S. 131 I €
(xi) It is the duty of the directors to see whether all the
matters specified in schedule Ill havet been
mentioned in the Prospectus issued by the Company.
[S.135]
(xii) It is the duty of the directors to see whether a copy
of the prospectus to be issued has beeri delivered to
the Registrar for registration. [S. 138]
(xiii) It is the duty of the directors to see that all moneys
received from the applicants for shares are deposited
and kept deposited in -a schedule bank until the
certificate to commence business is obtained under
section 150(2). [S.148 (4)]
(xiv) It -is the-a'duty ofthe<directors to prepare and send a
copy of the statutory report to ev.Cry share holder at
least 21 days before the statutory report. This report
should be certified by at least two directors which
I also should be sent to the Registrar. [S. 83]

(xv) It is the obligatory duty of the directors to file with

the Registrar a return as to allotment within 30 days
`-of the altotmeut of shares. [S.151]

(xvi) Regarding the certification of shares it is the duty of

the directors to deliver the share certificates of all
the shares within 90 da.ys after -the allotment. [S. 39]
(xvii) It is the duty of the directors to call an extra-ordinary
general meeting-of the company on the requisition
signed by specified number of members. [S. 87]
(xviii) It is the duty of the directors to lay before the
company a balance sheet together with profits and
loss account at every annual general meeting held in
purstlance of section 81. [S. 183] The board of
directors is also required to attach a report with the
balance sheet. [S.184]
(xix) It is the duty of the directors to see whether dividend
has been paid to the members within the prescribed
time.
 266 ®Company Management and Director

(XX) :to;I::::yd#yc:::hoefdir::t:::st,°v:Lauknet£#t:rda;ti:nu::
[S. 290]

#Dutiesofgeneralnature:
Apart from the above mentioned statutory duties, there are
some other duties of a director which are general in nature fixed by
case laws and principle2ofCh.4il,
`pffc\i-v;I-;::wr;;;ri;( company Igo2). Sowas
law. It theheld
dwhes may
in the be of
case as

hiE"Hi WS:

iduciary
-i_ ---- I obligation:
-__ -
The directors possess a fiduciary relation with a company. I,
sometimes
Scrmetimes the directors may be termed as the trustees or

iEhi:n±tit;-E:p|!.I:::nt:in:,I:f`!,i::c`i:.;s::;ieeis:I;ic:
LIZ, -\,I||L,I+"JL+rL+ I-I,--_.--_ _
provides
that, "A director of a company stands in a fiduciary relationship
towards the ccrmpany and shall observe the utmost good faith
towardsthecompanyinanytransactionwithitoronitsbehalf.350"
Fiduciary obligation includes the foHowing concepts:
#uty not to breach of trust:
A director must act bonafide and honestly for the
compan§5\:#ne+t#e`?i.gfii;.;~li;:--EFr-±r_d££Lt!^-V^S=.P.e±,iohn®^L£8ns=i
the directors knew that a specific property of the company had worth
Tk 6,50,OcO which was bought for only Tk 3,50,000 and thus
resulteddamageofahugeamount.Itwasheldthatthiswasabreach
of fiduciary duty.
Pirectorsnottogainpersona]profits:
A director must not Cam personal proflts in connection with
the company causing its pecuniary loss. In the case of AJbi.om Srt!eJ
¢ffdwi+eCo-us-„¢f#.ro353,adirectorsoldaparticularpricefromhis
personalstockatthemarketpricewhichwasverymuchlowerwhen
hebought-it.Itwasheldthatthedirectorhadmedeapersonalprofit
and liable to account the same to the company.

350 S. 279.
35' Bank of Poona ~vs-Narayandas, A/R 1961 Born 252.
352 ig89 BCLC 626 Ch. D.
353 (1875) I ch. D. 580.
 Fundamentals of company law 267

vy#ectors not to take company's business opportunity for

personal ue
A director must not take any opportunity for his personal
profits arising from company's business354. But in the following
situations a director may use company's opportunity:
(a) Where the corporation is insolvent and defunqt355.
(b) It the undertaking is ultra vires for the corporation356.
®
rs not to engage in trading in corporate cbntrol:
The directors, while in the office, if engaged in any trading
in corporate control and thus Cam profits, shall be deemed to breach
their fiduciary obligations and so liable to account for the profits so
earned. According to D.IV. fJassj.e, "A director who acquires property
while in office will, however, be liable to account for his profit upon
resale if two elements are present. He must have acquired property
only by reason of the fact that he was a director and in the course of
if,mH i H'[rcise of the office of director357.»

)rs not to misuse the corporate information:

A company may have some business strategies and also
some confidential information. Publish or exploitation of such-
infon-nation while in the chair of a director amounts to breach of
fiduciary duty. Misuse of Corporate information covers the
exploitation of the knowledge of turn over of business, profit
margins, list®f customers, future plans etc358.
However, use of suc.h information can be restrained by means of an
on359
uty of reasonable care, skill and diligence:
Duty of reasonable cart,skill and diligehee is also an
important. duty of general nature imposed by common law. The
nature of this duty has been elaborately described by Romen L.J. in
Re City Eqttitable Fire Insurance Co3cO .

Cook-vs-Decks [1916] I AC 554.

35S Peso Silver Mines-Ltd =vs-Cropper, [1966] 58 DLR (2d) I.
356 I bid.
357 D.rd. Hossie, The Ciluil liability of the Directors at a Corporation, (1952)
30 Can BR 908 Cited From Avtar Sing's Company Law, 14th Edt, P. 282.
358 Exchange Telegraph Co -vs- Central News Ltd, [ 1897] 2 Ch. 48.
359 Morris Ltd -vs-Gilman (BST) Ltd, [1943] 60 RPC 20.
360 [|925] 1 ch. 407.
 Fundamentals of company law 269

there was really any transfer of those assets or not, the directors were
held liable or causing loss to the company's fund by negligence.
Negligence of non-executive directors:
It may bevi mentioned here that a director is a director whether
executive or non executive. If the directors are non-executive` but
have in.fluential power over the company, they may be held lia5le for
causing negligence in the same manner as in the case of exejutive
directors363.

A director's duty of case and skill includes the followings:

(a) £h#ec::r :[:#i:rysh°mwansu::p:::sre:r:icaarne aonrgj::]#
director;
(b) The director should exerpise his duty of care in such
situation which an ordinary man or an usual director
would exercise;
(c) The director inust exercise his power with b-ona fide
intention.

Duty to attend hoard meeting:

Actually, the duty to attend in a board meeting is a statutory
duty vested upon a director. Despite the statutory requirement, the
common law practice is that a director is to attend a board meeting
since most of the powers of the company are exercised through the
board of.~ directors. However, because of non-attending board
meeting, a director may not be held liable for negligence364. For non-
attending board meetings two consequences might be found:
(a)E[;;;;mfi;grhttheh:::ttcjiaen;C:nd°fE9E=£±££±±£!££±i±8±±=±iLa

(b) His office is liable to be vacated because of his failure to

attend the board. meeting for ®a consecutive period of
three month three consecutive board meetings,
whichever is longer. [S.108 (f)]

uty not to delegate:

363 Dorchester Finance Co Ltd ~vs-Stebbings I Co Lavyyers 38. USA.

[1 `989] BCLC 498 ch. D.

364 Marquis of Butes Case, [ 1892| 2 Ch. loo.
270 Company Management and Director

The maxim "delegates non protest delegate" shows that

every director has to perform his own duties and he is not allowed to
delegate his duties to other officials365. But this rule has no
applicatic;n ira all the cases. So, in the following situations a director
may delegate some of his powers to some other officials:
(a) he may delegate his power to that extent only which is
authorized by the articles `of the company or by the Act;
and
(b) he may delegate such powers which is reasonableof to
delegate or which. is fair to delegate to some other
officials for the good of the business only.
Regulation 92 of schedule I provides that, "The directors may
delegate any of. their powers to committees consisting of such
member or member of their body as they think fit; any committee so
formedshall, in the exercise of the Powers so delegated, conform to
any restriction and regulations that may be imposed on them by the
directors."

Liability for co-directors default in cape of delegation:

If a co-director or any sub-drdipate official coinmits any ~
fraud or breach of such duty which is delegatedL to him and
consequently the company suffers a loss, that co-director or the sub-
ordinate official shall be liable for his personal default.
In this regard Lord IZ4£SBuny observed in the case of
Dot7cj; -vs- Cory366, that "lt cannot be expected of a director that he
should be watching-the inferior officers or verifying the calcu<lations
of auditors. Business of life Could not go on if people could not trust
those who are put in a position of trust for the express purpose of
attending to the details of management. He could have been held
liable one if he had some reasonable drounds to suspect the honesty
of the Other officials."

Duty to disclose: [S. 130]

The relationship between the company and the director is
fiduciary in nature. So, the director, being an agent of the company,
must be fidal to his principle. And the general rule applies in case of

365 Cobb -vs-Becke, [1845] 6 Q.B. 930.

366 [igo|] AC 485.
 Fundamentals of company law 271

fl director is that he shall be disinterested in cbmpany's transaction.

And there should not have any conflict of interest. In the case of
Aberdeen Railway Ltd -vs-Blaikie367, the defenda;", 8 was a,
director of a company. He was also a managing partner of another
firm which supplied office furniture to the company where he
worked a.s a director. So, the defendant had an interest as a partnerin
the firfu to sell as high as possible so the court held that, the
corhpahy was entitled to rescind the contract though the company
paid for the furniture was fair.
Question may arise what kind of `interests' are to be disclosed? Only
the matters of those interests are to be disclosed which material are
as may influence judgment or which are personal in nature. J# j[c
CoJ/7!css Jro# Co £&#68, the court observed `that "the interest to be
disclosed is that which in a business sense might be regarded as
influencing judgment; the essence of the matter being that any-kind
of personal interest which is material im the sense of not being
insigniflcant must be revealed. +` ` ; r
However, where the.board of directors is aware of the fact of the
transaction, ahy formarf disclosure by the director so involved with
the transachon is not necessary369.
£1-Oi I
of non-disclosure:
The court does not impose any restriction upon a director to
enter into a contract where he is interested37°. But the only point-is

:ifi¥.aEtv:Te]no;ta]Soen°:fn:hn:
corripany37]. And if the company affiances the contract it binds the
company. However, in case of non-disclosing transaction, the
director is liable to accou.nt, the benefits he gained, to the company
and be can't claim s6t off for any portion of the benefit he gained by
nondisc|Osure372.

367 [i 854] I Mey 461.

368 [ 1 95 1 ] SC 476 (Scotland).
369 Venkata Chalapathy -vs-Gunter Cotton, etc Mills, A/R I 1929] Mad 353.
370 P. Les|ie & Co -vs-V. 0. Wapshare, A/R 1969 (Sc) 843.
37l \T_ I -,.-,,,-, I ---,-. ` ___
Naragandas -vs-Sangli Bank, A/R 1966 (Sc) 170.
Guinness Plc -vs-Saunders, [ I 900] I all ER 652.
274 Company Management and Director

(c) Liability for misfeasance and breach Of trust:-

Misfeasance:'"isfeasande means breach of any fundamental duty ih

relation to the affairs of the company which might cause loss to the
company. So, a director may be held liable for misfeasance of he
does any wrongful act or omits to do any- lawful act for which the
company faces heavy loss. .

Breach of trust:The concept breach of thist may cover mariy things.

However, generally, breach of trus.t includes:
3

(i) Misapplication of company's fund e.g. +

(a) Jpaying dividend out of capital; ~t
(b) using company's fund for;lan ultra vires Purpose; - `jf
(c) I misappropriation ofcompany's fund etc.
I

(ii) Non-attendance at the board meetings continuously for a

Specified period378.
Liability
• for committing
Section breach
331 provides of trust:
that a*¢iifefe.,:-±fi the course.of winding

up a company is appears that arty peisori`who Hasjtrferf part in the

formation or promotion of the company or any past or present
director, manager or liquidator; or any officer of the company has:-
(a) misapplied or retained the mohey or property of the
company; or
(b) been guifty of misfeasancre or breach Oftriist in rfflat-on
to the company then the court may after examining that
person, order him to repay oni restore-ire froney or
contribute such sum to the asset of the company by way
of compensation, as the court thinks fit.

/( riminal liability of the directors:-

A director may be held criminally liable for non-compliance
with the provisions of the companies Act,1994. A director may be
held criminally liable not only under this act but also other laws
enforced in this country. Under the companies Act, a director shall
be criminally liable in the following cases:

378 Charitable Corporation -vs-Sutton. [ 1742] 23 E.R. 642.

 Fundamenta]s of company law 27S

`.i)_rLpr__i_§s¥i_qg___±=_p_I_g_a__p=9_E!_u=±±±zhi£±j:n_c_l¥gBEL±±!L±infr±uL±gLs_t_¥£.epept:
'#9-P-q!-?-n-t-H9 ±±±±|!;I_fij±e up to Tk 5,000 or both. [Sec.
(ii) For inducing persons froudulently to invest money-
imprisoninent un to five=:irears or fire ub -fo Tk' or with
S.147L 'h

the Act of 1994. -imprisonment to six morfuha er fine up to Tk

I '000 or
For failure to annua-I accounts ~aH`d balance sheet -at rmual

fREi:¥§=.-I-ii:#mg-Plh-? 9lfrok_
(v) + Being knowingly a party to any'contravention of restriction in
to directors, etc.
nsorment to: six m®ntife or fine up to Tk-5,000 or both. [S.
103]

{vi) .For Tacking a . false declaration oic_eFEapy'S _S~9!V.g_ncy: . i

ifepEi_a_gnf¥__e_p±±±p.£g_s±2L±=gngt__L±g±flngth.up_t_o__T_k_€zQ9_Oig±_bp_t±[S.
290L

!i;!]=s.
(vii} For failure to file copy of balance-sheet, etc. with Registrar. [S.
1sO]

ejEiife[s.397]
(viii) Formatin false statements in returns, reports, balance sheets,

i+±a i+3+3i f-= *

14.15.than_§__t_®_idirqup_r¥_E=[S.il03]
tr+ S.103 of our cormpanies Act,1994 deals with loans to
direction. Analyzing this section three points are found:
(i) prohibition to make loans;
(ii) ' exceptions of such prohibition situations where a
company rna+y make loans and securities; and
(iii) penaltyin default.
i`

PFohibitfon to give loans:-

+ Sifeirsechon (1 ) of see.103 firstly provides that no company

shall make any loan or give any guarantee or provide any security to:
(a) any director of the company;
 Fundamentals of company law 285

(i) he is entnisted with management and control of the

aflhirs of the co'mpan}; and
(ii) he is a.-shareholder of the company.

Directors as '®ff]cers: i
-p Directors may also be termed is `.dffiders' of the dbmpany.
[Sed. 2 {1) (0)] when they act as directors, they may be held liable
far~ noncomplianQe with the provisions pf fthe companies Act. They
ffiay also be held liable for the contravention of the provisions 6f
in-emorandumandarticles`ofthe~cbngpany.
So,considering`theahove.discussion,,it.,rnayb6saidthatdiiectors-are
sometimes called as trustees, sometimes aap agents, and sometimes .as
managing parfuers. Whatever their positi.on may be, they are really
commercial men managing a` trading cohcem for the benefit of
themselves and of all the shareholders in it. [Per Jess6l M.R In,Re
Forest of Dean Coal mining Co. (1878) lQ=ch. D.. 450] .

Managing,director:-
Managing director is a director who is entnisted J'wi`th
substantial povy<er of management of the. company. Section 2-(in) trof
aman director as a~directbr
who, by virtue of an agreement with the con} or of a resof ution
passed by the company in its general meeting -or by its
memorandum _or uncles a
the substantial pow-ers Of management wihich wotlld nototheivj;e-rfe~
exercisable by him an-d inclirdes a diFect6ir a-ccripyirig thedy b~o¥iii6rii;i
a managing director by whatever ng]ne called.
H6wever¥ the power to do administrative acts of a routine nature
not be deemed `.to
included within the substantial vpovyers of management. giv;f*f
these types of administrative: 3acts shall also not be considered as

##e:¥ri::fmanagi_pg__a_i±
A managing:director may be appointed in the

ninE a resolution assed in the

±jrihfg__€_p_?,r_aJ___in__e.ejingLQftl9______
J29prEy;
'286
Company wianagement and Director

RE:F0a# of the memorandum or

-.-i ----.-- I-I .---- =Li=-T ------- I-I __I_-i .-_ -..--

#¥h%I
by the government.

on. appointment:
•L i `.` I

already a managmg dirE§.tor rule is

EE¥¥¥ff>iff:=::_E:=¥=:!t=
_¥Ei¥ffh!_: cons§nt of the€company
-nil -i ------ in a gerieral
-----------.
I,
®

=¥ffi
---- __ ___ - , 1, . ^ A

ELompanyshallappo!p_t_a=¥L¥Tpj?_.gl_ngji.I=reic±9i|oift.e¥ .

exceeding five years FtTblime. [S.110 (1`)i _`-i =

ffiHRE shall not be a licable in case of re-
S. rigivr
.*

_¥===E±:=t:ni:to£ of±Efffi4f:±?_£rm
be~obtained.
__...wi. _ .... _ .1~ -es -, c _. - i

±[jgr±ce`b`givdep'maharingd±±e±±gp_ap¢±±g±p± J+

--be is follows:
is a director `who is chtrusted wTh
of management. Butt a time director is an
Powers
EiHiiERErmiiiRIEE
#;n can't be apriointed as #a managing directer for more
ears at a time. [S.110]
But aLWJrde-timedirectoILma¥_b_?_an_arap:QinlQ.a+_fQJ:Lateim.J
_--rL---I,, _ ___ _ _._

f!¥,e-ycals.
 Fundamentals of company law
287

Apels_9P. _agllgLfp_a~nfgj pg¢jr_eft_gr c_ap hold the office of the

same- +,'-._
type ±__in mere thari_i_o:a:=i:EjE±|
I

government) [S. __
_i ------------.
__ ___ I 09]
Bff_-a person caF* be the whole tiin*
time director of mgr~e th_ap_one

appointrnein=tofinina9inpi#prLt;.r+It-3^±„`i#fi±
ntofthe
FTuired
EHHffiimEEE±.IT'HmEELEEill
for the appointment of €h63ivho]:iiine director a
-¢~ -,---,. >e.
+--, =. ___
LIAHHHRIuuEnHAIHHENuErdE.qumEELtiEE=.EEBEFgi