The Indian Companies Act got established in 1913 in line with the English Acts and as such the decisions of the English Courts were closely followed. So strictly is this principle adhered to that no question is allowed to be raised as to the fairness or unfairness of the contract entered into. If in the course of the decision-making process, a gross negligent method has been adopted, the duty of care criterion would not be held to have been violated when the result is no better than it would have been if the proper care had been taken. With Shareholders revolution, it is a democracy in company affairs and the shareholders are the supreme power which appoints its ministry in the form of directors to run the show and make money for them. Corporate Governance needs to be imbibed into the soul of the system through tangible benefits to the followers , only then it will become the goal of the companies and will be followed religiously. Sec183 1 A director who fails to comply with sec 182 commits an offence.
Smith v Van Gorkom, 488 A. Some are personal in nature and are specifically addressed to the directors. To fulfill the fiduciary duty, a director should always act in good faith to benefit the members of the company and engage in actions that are in the best interests of the company. Among different jurisdictions, a number of similarities between the framework for directors' duties exist. Thus, a director must ensure to act in good faith and in a responsible manner since his position demands this behavior whether or not expressly mentioned by law.
The declaration must be made before the transaction is entered into and the prohibition applies to indirect interests as well as direct interests. However, this section does not render the directors accountable. The Company law vests the ultimate authority and power in the directors of the company. For example, if the company rents office space that is owned by one of the directors, the nature of the relationship must be declared. The company remains bound, but the directors retain the discretion to vote against taking the future actions although that may involve a breach by the company of the that the board previously approved. An additional director is appointed by the Board of Directors through the Boards vested power to hold office till next general meeting. Fiduciary Duties of a Director Fiduciary duties of a director derive from the principle that a director must be loyal to his company, should act in its best interest, and should not have any conflict in loyalty.
The provision states that the meeting shall be held once in every calendar year and not more than fifteen months should pass between the annual general meeting of the preceding year. Duties of directors, hitherto, were largely laid down by courts by looking at common law principles. An alternate director may be appointed by the Board of Directors to act as a Director in absence for a period of not less than 3 months and not more than the allotted period for the director for whom the replacement is. According to section 174 of Cap. .
Some other key obligations relate to the restrictions and conditions placed on transactions between a director and his or her company and loans made by the company to a director. This applies in particular to the exploitation of any property, information or opportunity, regardless of whether the company could take advantage of it. Others arise from the responsibility of the directors to ensure that the company carries out its obligations where both the company and the directors may face liability in the event of a failure. The duty of good faith sets a higher standard than the best interest criterion. In the new regime, the roles and duties of the independent directors attained significant expansion, and many new other areas have been prudently covered. The decision to start proceedings against a director would be made by the board or, in an insolvency situation, a liquidator. Bona fides cannot be the sole test, otherwise you might have a lunatic conducting the affairs of the company, and paying away its money with both hands in a manner perfectly bona fide yet perfectly irrational… It is for the directors to judge, provided it is a matter which is reasonably incidental to the carrying on of the business of the company… The law does not say that there are to be no cakes and ale, but there are to be no cakes and ale except such as are required for the benefit of the company.
The decision has been followed in several subsequent cases, and is now regarded as settled law. Duty not to accept benefits from third parties 1st October 2008 Sec176 1 A director of a company must not accept a benefit from a third party conferred by reason of- a his being a director, or b his doing or not doing anything as director. Also, it is essential that the Courts now provide a clear picture with respect to the duty owed to the company against that owed to other stakeholders. The case concerned the power of the directors to issue new. By the way, a Director means a Director appointed to the Board of a company; and, the Board of a company represents the collective body of its directors.
The consequence of a breach of duty relating to secrete profit, abuse of corporate access, information and opportunities are wide and of strict application. Moreover, he should also not misuse his position which he acquires when he was the part of the company. The principal duty of the director is to act in the best interests of the company as a whole, and that is usually taken to denote the interest of shareholders both present and future. In the case of a proposed transaction you must do this before it is entered into. Resignation may be considered as an abrogation of responsibility and not serve to protect a director from liability.
Not accept benefits from third parties You must not accept a benefit from a third party given because you are a director or because you do or do not do anything as a director. Loyalty: The directors of the company are expected to take decisions, which are valuable or profitable for others and not for themselves. Can the company indemnify or insure me against claims? They shall not utilize money other than purposes mentioned in the Act. However, more than adherence to purpose its relies on adherence for survival which may fail it someday like all previous amendments. This article is about the obligations of individual directors.
The former company law of India, the Companies Act of 1956, was disgustingly deficient in this respect. I am Sakshi Raje from M. Duty to exercise independent judgment 1st October 2007 Sec173 1 A director of a company must exercise independent judgment. Much of this legislation imposes potential liabilities for non-compliance on the company and, usually, 'on every officer in default'. All directors collectively are called as Board of Directors or Board. Fiduciary duties of a director refer to the highest degree of care which is expected from the person who has the power, i.
Directors therefore have a collective responsibility to manage the company. Standard policy exclusions include fraud, dishonesty and criminal behaviour but the directors should ensure they understand any limitations on cover and that insurance policies are kept under regular review. He or she should be at least 18 years of age and not disqualified by law to act as a director. However, this does not absolve directors of all their responsibility for the management of the company. If the board does not have the power to authorise conflicts or is otherwise unable to approve the conflict situation it could refer the matter to the shareholders for approval.