Page 304 - DMGT407Corporate and Business Laws

Unit 12: Management of Companies

(b) Not to issue irredeemable preferences shares or shares redeemable after 10 years. Section 80, Notes
forbids a company to issue irredeemable preference shares or preference shares redeemable
beyond 10 years. Directors making any such issue may be held liable as ‘officer in default’
and may be subject to fine up to ` 1,000.
(c) To disclose interest (Ss.299-300). A director who is interested in a transaction of the company
must disclose his interest, to the Board. The disclosure must be made at the first meeting
of the Board held after he has become interested. This is because a director stands 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 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 body of directors is aware of the facts, a formal
disclosure is not necessary (Venkatachalapathi v. Guntur Mills). 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.
(d) 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 of the breach of contract, then it is protected by s.321(3).

(e) 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 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 Board meetings; to convene and hold general meetings;
to prepare and place before AGM financial accounts; to make declaration of solvency.

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