Directors of a company are not only agents, but they are also in

Directors of a company are not only agents, but they are also in some sense and some extent trustees or in the position of trustees. Discuss this statement.

Ans.

POSITION OF DIRECTOR

It is difficult to define the exact legal position or status of the Board of Directors in specific terms. Directors have been defined by various positions, sometimes as agents, sometimes as managing partners, sometimes as trustees of the company. However, in the case of Imperial Hydropathic Hotel Co., Blackpool v. Hampson (1882) Bowen held, “Directors are described sometimes as agents, sometimes as trustees and sometimes as managing partners. But each of these expressions is used not as exhaustive of their powers and responsibilities, but as indicating useful points of view from which they may, for the moment and for the particular purpose, be considered.”

In another Case; it was held, “The directors are mere trustees or agents of the company-trustees-of the company’s money and property; agents in transactions which they enter into on behalf of company.”

Position of the directors can be as under:

(1) Director as an agent,

(II) Director as trustee,

(III) Director as a managing partner,

(IV) Director as an officer of the company,

(V) Director as an employee the company.

(VI) Director as a part of company.

DIRECTORS AS AGENTS OF THE COMPANY

Directors run business of the company as its agents. A company is an artificial person and has no physical existence. Directors are the elected representatives. Directors run the business on behalf or the shareholders. Directors are the agents of the company in the eyes of law and the general laws relating to principal and agent regulate the relationship between the company and its directors. A Division of Bench of the Mumbai High Court in Life Insurance Corporation of India v. H. D. Mundhra, observed –

“A director is in the position of an agent of the company’; charged with the obligation c” carrying outside business. The nature of his duties is determined partly by statute and partly by the law of the agency.”

Directors contract like agents on behalf of the company. Directors are not personally liable toward the company. Directors have work in limit set by MOA and AOA. If they go beyond the MOA and AOA. they shall be held personally liable and company shall not be liable. Thus they should be work as per the instruction of the company.

In Fergusar V. Wilson (1866) Cairns, observed: “They (directors/ are merely agents of the company. The company itself cannot act in its own person, for it has no person; it can only act through directors, and the case is, as regards those directors, merely the ordinary case of principal and agent. Wherever an agent is liable, those directors would be liable, where the liability would attach to the principal, and the principal only, the liability is the liability of the company.”

Directors shall be personally liable in the following cases –

1. If the contract is in their own names.

2. If they use the company’s name by omitting the word or the words “Limited’ or ‘Private Limited’.

3. If they go beyond the scope of their authority.

4. If contract is signed in such a way which create doubt who signed it whether company or the agent.

If any information is given to directors, it is assumed that the company has been informed. If the directors enter into a contract which ultra vires the company, then the company cannot satisfy it.

However, directors are not agents in true sense, because directors are elected while agents are appointed. Directors have more power than those of an ordinary agent. Directors have many independent right.

DIRECTOR AS A TRUSTEE

Trustee cares the assets for the benefit of others Directors possess and control the capital and assets of the company, so they are in position of trustees. They occupy this position towards the company and therefore they are considered trustees with respect to the company’s assets. They are also trustees in regard to powers entrusted to the Board. Directors are the trustees of company, not of shareholders. Directors are treated as trustees of the property possessed by them on behalf of the company. Thus directors are treated as trustees of the company’s property and money and of the- power entrusted with them. They are trustees for the company and fit for outsiders who have made contracts with the company or for the individual shareholders.

Following are the duties of the director like a trustee :

1. Making good use of the company’s property.

2. Making safety of property of the company,

3. Making no misuse of the rights.

Directors are really in the position of quasi-trustees because –

1. They are not vested with ownership of the company’s property.

2. Their duties of care are not as onerous as those of trustees.

3. Their works are different from trustees.

Directors are in a Fiduciary Relationship with Company – Jessel, M. R. in Forest of Dean Coal Mining Co., observed: “Directors have sometimes been called as trustees or commercial trustees, and sometimes they have been called managing partners; it does not matter much what you call them so long as you understand what their real position is, which is that they are really commercial men managing a trading concern for the benefit of themselves and of all the shareholders in it. They stand in a fiduciary position towards the company in respect of their powers and capital under their control.”

Directors are not trustees in true sense because –

1. Directors cannot make contract in their names like trustees. They can make contract in the name of company.

2. They are not owner of the company’s property like trustee.

Thus directors are not trustees as their status and duties are different with those of a trustee. They are in fiduciary relationship with the company. They can be treated as trustees in the sense that they act in the interest of the company. They are trustee in limited sense for the company and the shareholders and not for the creditors.