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Unit 10: Management of Company

10.1 Directors – Definition and Meaning Notes

Section 2 (13) defines a Director as including “any person occupying the position of director, by
whatever name called.” This is a definition based purely on function; a person is a director if he
does whatever a director normally does. But the Act gives no further guidance on the function,
duties and position of a director. In reality, directors are the persons who direct, conduct, manage
or superintend a company’s affairs. Section 291 has entrusted the management of the affairs of
the company in their hands. They chalk out the general policy of the company within the
framework of the memorandum of the company. They appoint the company’s officers and
recommend the rate of dividend. The directors of company are collectively referred to as the
‘Board of Directors’ [s. 2(6)].
Thus, it is not the name by which a person is called but the position he occupies and the functions
and duties which he performs that determine whether he is a director of a company or not.
In Forest of Dean Coal Mining Co. Re (1878) 10 Ch D 450, it was stated that function is everything;
name matters nothing. So long as a person is duly appointed by the company to control its
business and authorised by its articles to contract in its name and on its behalf, he is a director,
whether named as such or not.
The articles of a company, sometimes, designate its directors as governors, members of the
governing council or the board of management or may give them any other title, but so far as
the law is concerned they are simply directors. For example, in the case of associations registered
as companies under s. 25, the members of the executive committee or governing council or
management board are directors for purpose of the Act, even when they are not designated as
directors.

10.1.1 Deemed Director (s. 7).

For certain purposes, a person even when he is not a director may be deemed to be a director of
a company. The Act treats as director a person in accordance with whose directions or instructions
the Board of directors of a company is accustomed to act. This provision has the effect of widening
the definition of the term ‘director’. However, this provision merely operates to impose liabilities
or prohibition on such a person who is deemed to be a director. However, a deemed director
does not acquire any right or power in connection with the management of the company. He
may be made liable but he cannot demand to participate in the meetings of the Board of directors
or to manage the affairs of the company in any way. But for the purpose of treating a person as
a deemed director and invoking his liability, it is necessary to establish that the Board of
directors is accustomed to act according to his directions and instructions. Acting casually or
once in a while on certain instructions by a person would not be a ‘deemed director’.
A deemed director need not necessarily be an individual. The person may even be a body
corporate say, a holding company.
It must be noted that the expression ‘deemed director’ does not include persons advising the
Board of directors of a company in their professional capacity. Thus, a lawyer, accountant or
other professional advisor will not come within the expression ‘deemed director’ when he gives
professional advice or instructions and the Board is accustomed to act according to his advice or
instructions, then he will not be a ‘deemed director’.
Section 303(1) provides that any person with whose directions or instructions the Board of
directors of a company is accustomed to act is also deemed to be a director.
A manager or any other managerial personnel is, however, not a director [Deen Dayalu v. Sri B.
P. Reddy A.P. (1984) 2 Comp LJ 396].

A ‘deemed director’ is called as ‘shadow director’ under English Law.

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