LEGAL POSITION OF DIRECTORS

TANMOY MUKHERJI INSTITUTE OF JURIDICAL SCIENCE

Dr. Tanmoy Mukherji

Advocate

 

LEGAL POSITION OF DIRECTORS

Tanmoy Mukherji

Advocate

Under the Companies Act, 2013, directors are the persons entrusted with the management and control of the affairs of a company. Since a company is an artificial legal person, it acts through human agency — that agency is the Board of Directors.

→Section 2(34) defines a director as a person appointed to the Board, and Section 2(10) defines the Board of Directors as the collective body of directors.

→The legal position of directors is unique. They are neither purely agents nor purely trustees, but occupy a fiduciary and representative position.

I?. Directors as Agents

→The most important aspect of the legal position of directors is that they act as agents of the company.

→The company is the principal.

→Directors are agents.

→Acts done within authority bind the company.

→If directors act beyond their authority (ultra vires), they may be personally liable.

Reference Case

Thus, directors are agents in relation to third parties.

II?. Directors as Trustees-

Though not trustees in the strict sense, directors are treated as trustees of:

→Company property

→Company funds

→Powers entrusted to them

→They must not misuse company property or make secret profits.

Reference Case

Thus, directors occupy a fiduciary position similar to trustees.

III?. Directors as Officers of the Company-

Under the Companies Act, directors are considered “officers in default.”

For example:

→Fraud (Section 447)

→Misstatements in prospectus

→Failure to file statutory returns

IV?. Directors as Managing Partners (Quasi-Partners Theory)

In small private companies, courts sometimes treat directors like partners.

Reference Case

This principle is important in oppression and mismanagement cases.

V?. Directors as Employees (Sometimes)-

In such cases, he has a dual capacity:

→Director (fiduciary role)

→Employee (contractual role)

However, an ordinary director is not an employee.

Reference Case

VI? Directors as Organs of the Company-

→Modern theory considers directors as the “brain” or “mind” of the company.

Reference Case

 

This principle is important in fixing corporate liability.

VII?. Collective Nature of Directors-

→Directors act collectively as a Board.

→Individual directors have no power unless authorized.

Reference Case

The legal position of directors is a combination of agency, trusteeship, fiduciary obligation, and statutory responsibility. They are the controlling authority of the company but must act-

If they misuse their powers, they can be held personally liable.