Page 157 - DCOM106_COMPANY_LAW

Company Law

Notes
Example: Mr. B was caught red handed in a shop lifting case two years ago and for
embezzlement of funds and sentenced to imprisonment for a period of eight weeks. He can be
appointed as a director of a company, as the disqualification given in s. 274(1)(d) is not attracted.

Example: Mr. C, a former bank executive, was convicted by a court eight years ago for
embezzlement of funds and sentenced to imprisonment for a period of one year. He can be
appointed as a director of a company as disqualification under s. 274(1)(d) is not attracted.

Example: Mr. D is a director of DLT Ltd. which has not filed its annual returns pertaining
to the AGMs held in the calendar years 2005, 2006 and 2007. He can be appointed as a director in
any other company under s. 274(1)(g), as the failure on the part of DLT Ltd. is on account of
annual returns, and not in respect of filing of annual accounts.

The provisions of s. 274 regarding disqualifications of directors do not apply in the following
cases:
(i) The special directors appointed on the board of a company under the Sick Industrial
Companies (Special Provision) Act, 1985;
(ii) The nominee directors appointed on the board of a company by public financial institutions
and companies established by the Special Acts of Parliament, like I.D.B.I., L.I.C., U.T.I.

(iii) The nominee directors appointed by the Central or State Government on a banking
company.

10.3.3 Validity of acts of Directors (s. 290)

Section 290 provides that the acts done by a director shall be valid even if his appointment is
discovered to be invalid because of any defect or disqualification or where his appointment had
terminated by virtue of any provisions contained in the Act or in the articles. Section 290 is
designed to protect persons dealing with the company such as lenders, vendors and purchasers
of shares and debentures. Thus, a party entering into a contract with a company through its
director may assume that the acts of the director are valid if he does not know the irregularity,
if any, in the appointment of the director.
However, the acts will not be valid (or the provisions of s. 290 shall not operate) where:
(i) His appointment is illegal, or there is no appointment at all.
(ii) He continues in his office knowing that his term has expired.
(iii) He knew from the beginning that his appointment was defective.

(iv) He acted in the capacity of a managing director, manager [subject, however, to the
provisions of s. 269(12)] or secretary.
(v) His acts are ultra vires the company.

(vi) Where requirement as to minimum number of directors is not satisfied.
(vii) The third party was aware of the defect in his appointment.

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