Page 305 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes The general duties of directors are as follows:
(a) 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 v. Deeks (1916) AC 554, it was observed that “Men
who assume complete control of a company’s business must remember that they are not
at liberty to sacrifice the interest which they are bound to protect and while ostensibly
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.
(b) 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 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. v. 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 duty or breach of trust, is void. The company cannot even indemnify the directors
against such liability. But if a director has been acquitted against 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.

(c) 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.
(d) Duty not to delegate. Director being an agent is bound by maxim ‘delegatus non protest
delegate’ 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 delegated to other officials of the company.

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