Page 175 - DCOM106_COMPANY_LAW

Company Law

Notes in a fiduciary capacity with the company and therefore, he must not place himself in a
position in which his personal interest conflicts with his duty. Interest should be such
which avoids conflicts with the duties of the director towards the company.
Notice, however, that the Companies Act does not debar a company from entering into a
contract in which a director is interested. It only requires that such interest be disclosed.
An interested director should not take part in the discussion on the matter of his interest.
His presence shall not be counted for the purpose of quorum. He shall not vote on that
matter. If he does vote, his vote shall be void. Non-disclosure of interest makes the contract
voidable and not void. Where the whole Board of directors is aware of the facts, a formal
disclosure is not necessary (Venkatachalapathi vs. Guntur Mills AIR 1929 Mad 353). In this
case, a loan was advanced by the wife of a director creating a mortgage on the property of
the company. The director did not disclose his interest and he even voted on the matter.
The company later sued to have mortgage set aside.

Held: the fact was known to all directors and a formal disclosure was not necessary. As
regards voting by the interested director, it was held that the voting would not render the
contract void or voidable unless in the absence of that vote, there would have been no
quorum qualified to contract.
4. To disclose receipt from transferee of property: Section 319 provides that any money
received by the directors from the transferee in connection with the transfer of the company’s
property or undertaking must be disclosed to the members of the company and approved
by the company in general meeting. Otherwise the amount shall be held by the directors
in trust for the company. This money may be in the name of compensation for loss of
office but in essence may be on account of transfer of control of the company. But if it is
bona fide payment of damages for a breach of contract, then it is protected by s.321(3).

5. To disclose receipt of compensation from transferee of shares: If the loss of office results
from the transfer (under certain conditions) of all of the shares of the company, its directors
would not receive any compensation from the transferee unless the same has been approved
by the company in general meeting before the transfer takes place (s.320). If the approval
is not sought or the proposal is not approved, any money received by the directors shall
be held in a trust for the shareholders who have sold their shares.
Section 320 further provides that in pursuance of any agreement relating to any of the above
transfers, if the directors receive any payment from the transferee within one year before or
within 2 years after the transfer, it shall be accounted for to the company unless the director
proves that it is not by way of compensation for loss of office.
Section 321 further provides that, if the price paid to a retiring director for his shares in the
company is in excess of the price paid to other shareholders or any other valuable consideration
has been given to him, it shall also be regarded as compensation and should be disclosed to the
shareholders.
Some other statutory duties are: to attend the Board meetings; to convene and hold general
meetings; to prepare and place before AGM financial accounts; to make declaration of solvency.

The general duties of directors are as follows:
1. Duty of good faith: The directors must act in the best interest of the company. Interest of
the company implies the interests of present and future members of the company on the
footing that the company would be continued as a going concern.
A director should not make any secret profits. He should also not exploit to his own use
the corporate opportunities. In Cook vs. Deeks (1916) AC 554, it was observed that “Men
who assume complete control of a company’s business must remember that they are not

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