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Unit 10: Share Capital

control its policy. The inspector may also investigate (with the prior approval of the Central Notes
Government) the ownership of other connected companies such as subsidiary companies,
holding companies. On completion of his investigation, the inspector is required to submit his
report to the Central government, but the latter is under no obligation to supply copies of the
inspector’s report to the company or any other person, if it is of the opinion that there is no good
reason for not divulging the contents of the report or parts thereof (s.247). Similarly, wherever it
appears to the Central Government or the Company Law Board that there is good reason so to
do, it may appoint on or more inspectors to investigate the ownership of shares and debentures
of a company (s.248). Further, s.250 provides that in a case where, owing to a change in the
ownership of shares, a change in the directors of a company is likely to take place, which, if
permitted would, in the opinion of the Central Government, be prejudicial to the public interest,

then the government may direct that for a specified period voting rights shall not be exercised by
the transferees of those shares.

10.7 Management of a Company

10.7.1 Managerial Personnel

A company, being an artificial person, acts through human agency. Accordingly, under the Act,
it is necessary for every company to have a Board of Directors. In addition to this, the following
categories of managerial personnel may be appointed (s.197-A): (i) Managing Director; or (ii)
Manager. But s.197A does not prohibit the employment of other managerial personnel, such as
executives or wholetime directors, which do not come within the term “managing director” or
“manager”.

10.7.2 Directors and their Legal Position

In this Part following matters are discussed: (a) Legal Position of Directors (b) Legal Provisions as

regards directors and (c) Director’s Powers, Duties and liabilities. 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’.

The exact position of ‘director’ is hard to define, as no formal definition, either statutory or
judicial, of the term has been given. However, judicial pronouncements have described them as
(i) agents, (ii) trustees, or (iii) managing partners.
The directors act as agents of the company and the ordinary rules of agency apply. They exercise
the powers and are subject to duties within the framework of the company’s Articles, and the Act.
For instance, they may make contracts on behalf of the company and they will not be personally
liable as long as they act within the scope of their authority. But if they contract in their own
name, or fail to exclude personal liability, they also will be liable. If the directors exceed their

authority, the same act may be ratified by the company. But if they do something beyond the
objects clause of the company, then the act is ultra vires and the company cannot ratify the same.
But directors are not agents for the individual shareholders, they are the agents of the company–
the artifi cial person.
The directors have also been described as trustees. But they are not trustees in the full sense of the
term in as much as no proprietary rights of the company’s property are transferred to them and,

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