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Unit 10: Management of Company

at liberty to sacrifice the interest which they are bound to protect and while ostensibly Notes
acting for the company, direct in their own favour business which should properly belong
to the company they represent.” In this case, there was an offer of a contract to the company.
Directors who were the holders of shares of 3/4 of the votes resolved that the company
had no interest in the contract and later entered the contract by themselves.
Held: The benefit of the contract belonged in equity to the company.
2. Duty of Care: A director must display care in performance of the work assigned to him. He
is, however, not expected to display an extraordinary care but that much care only which
an ordinary prudent man would take in his own case. Justice Romer in Re City Equitable
Fire Insurance Company [1925 Ch. 407] observed, “His (director’s) duties will depend
upon the nature of the company’s business, the manner in which the work of the company
is distributed between the directors and other officials of the company. In discharging
these duties a director must exercise some degree of skill and diligence. But he does not
owe to his company the duty to take all possible care or to act with best care. Indeed, he
need not exhibit in the performance of his duties a greater degree of skill than may
reasonably be expected from a person of his knowledge and experience. It is, therefore,
perhaps, another way of stating the same proposition that directors are not liable for mere
errors of judgement.”
Similar view was expressed in Langunas Nitrate Co. vs. Lagunas Nitrate Syndicate (1899)
2 Chi. 392, in the following words: “If directors act within their powers, if they act with
such care as is to be reasonably expected of them having regard to their knowledge and
experience and if they act honestly for the benefit of the company they discharge both
their equitable as well as legal duty to the company.”
Section 201 states that, a provision in the company’s articles or in any agreement that
excludes the liability of the directors for negligence, default, misfeasance, breach of duty
or breach of trust, is void. The company cannot even indemnify the directors against such
liability. But if a director has been acquitted from such charges, the company may indemnify
him against costs incurred in defense. Section 633 further states that, where a director may
be liable in respect of the negligence, default, breach of duty, misfeasance or breach of
trust but if he has acted honestly and reasonably and having regard to all the circumstances
of the case, he ought fairly to be excused, the court may relieve him either wholly or partly
from his liability on such terms as it may think fit.
3. Duty to attend Board Meetings: A number of powers of the company are exercised by the
Board of directors in their meetings held from time to time. Although a director is not
expected to attend all the meetings but if he fails to attend three consecutive meetings or
all meetings for a period of three months, whichever is longer, without permission, his
office shall automatically fall vacant.

4. Duty not to Delegate: Director, being an agent, is bound by maxim ‘delegatus non protest
delegare’ which means a delegate cannot further delegate. Thus, a director must perform
his functions personally. A director may, however, delegate in the following cases:
(a) where permitted by the Companies Act or articles of the company; (b) having regard to
the exigencies of business certain functions may be delegated to other officials of the
company.
Some other duties are to convene statutory; annual general meeting and also extraordinary
general meeting when required by the shareholders of the company; to prepare and place at the
AGM along with the balance sheet and profit and loss account, a report on the company’s affairs;
to make a declaration of solvency in the case of a member’s voluntary winding up.

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