The term Director is defined as “a director appointed to the Board of a company (Section 2(34) of Company Act, 2013)”, where the term Board or Board of Directors refers to the collective body of the directors of the company.
As per the legal requirement, the no of director in a company are specified as follows (Chapter XI, Section 149 of the Companies Act 2013):
1. In the case of a public company Minimum, three and maximum fifteen nos. of Directors are to be appointed out of which at least 1/3 rd number of them should be Independent Directors
2. In case of a private company, the minimum number of directors is two and the maximum being fifteen.
3. Wherein in a One Person Company, there is a minimum of 1of only one director.
Further, there should be at least one woman director and at least one of the directors should have stayed in India for a minimum 182 days in the previous calendar year.
Position of Directors
The position of a director of any corporate enterprise is a tough subject to explain (Ram Chand & Sons Sugar Mills Pvt. Ltd.v. Kanhayalal BhargavaAIR (1996) Cal). The position of a director has been given by L.J. Bowen in the case of Imperial Hydropathic Hotel Co Blackpool v. Hampson ((1883) 23 Ch D 1) the director has a versatile position in a corporate body. Directors are described as trustees, or as agents and sometimes even as managing partners. So the question that arises is what is the position of a director in the company whether he is a servant of the company or an agent or a trustee?
Are directors servants of the company?
Considering directors as a servant of the company will be wrong as these are professional men and women of the company who are hired to direct the affairs of the company. A more adequate way to describe them is as officers of the company. Furthermore, in the case of Moriarty v. Regent’s Garage Co ((1921) 1 KB 423), it has been stated that a director is not a servant of the company rather a controller of the affairs of a company.
Directors as agents
It has been held that directors are agents of the company as the company is an artificial person it can act through directors only (Ferguson v. Wilson(1904) SLR 41 601). The relation of a director and the company is like an ordinary relation of principal and agent.
In the case of Indian Overseas Bank v. RM Marketing (AIR (2002) Delhi 344), it was held that the directors of a company could not be made liable merely because he is a director as he has not given any personal guarantee for a loan that has been taken by the company.
As directors are the agents of the company the company and agents share a relationship as such the directors are not personally liable for any transaction held on behalf of the company. Further, the directors have to disclose any personal interest vested in the company.
Directors as Trustees
Directors are not the trustees of the company, but they are treated as trustees where money and properties are involved as it is under their control. In the case of Ramaswamy Iyer v. Brahamayya & Co. (AIR (1965) Mad 176), it was held that in terms of their power of applying funds of the company and for misuse of power, the directors are liable as trustees and even after their death the liability remains as a cause of action survives against their legal representative.
Directors can be described as trustees due to their nature of the office as Directors are appointed to manage the affairs of the company for the benefit of shareholders. The director of a company is not a trustee in his true form as a trustee of will or marriage settlement. As the director of the company is a paid officer of a company.
Now the question that arises is if the directors are trustees are they a trustee to the shareholders or to the company. The directors are the trustees of the company and not of shareholders (Percival v. Wright (1902) 2 Ch 401) and hence hold no fiduciary duty towards the shareholders. (Peskin v. Anderson (2002) EWCA Civ 326)
Directors as organs of corporate body
It has been stated that the board of directors is the brain of the company and a company does its act through them (Bath v. Standard Land Co. Ltd.)
As a corporation has no mind or body of its own and its action is done by a person that is not merely an agent or trustee but by someone the company will be liable as his action is the action of the company itself. If a company is considered a human body, the directors are the mind and the will of the company as they control the actions of the company
As discussed above the position of a director is complicates one even though a director cannot be called a servant of the company it is called the officer or the controller of the company. Similarly, the director is not the trustee of the company he is a trustee in respect of money and property and the trustee of the company not of the shareholders. In true sense, the directors are the agent of the company and have a relationship as an agent and principal. Lastly, the director is the brain of the company.
“The views of the authors are personal“
Frequently Asked Questions
Q1 What is the minimum number of Directors that should be present in a company?
Public Company requires a minimum of two directors whereas for a private company there must be three directors.
Q2 What is the position of director for the company?
Directors can be described as trustee or as an agent, and sometimes even as managing directors.