MODULE III
BOARD OF DIRECTORS
Position of Directors
The concept of “Directors as agents” means that, in law, directors act as agents of the
company, and the company is treated as the principal. This principle was clearly established
in Ferguson v Wilson, where the court observed that “the company has no person; it can act
only through directors,” and therefore the relationship between the company and its directors
is that of principal and agent.
Because of this agency relationship, the general principles of agency law apply. When
directors enter into contracts in the name and on behalf of the company, the company is
liable, not the directors personally. For example, in Elkington & Co v Hurter, goods were
supplied to a company through its Chairman, who promised to issue a debenture but failed to
do so. When the company went into liquidation, the Chairman was not held personally
liable, since he had acted only as an agent of the company. Similarly, in Ferguson v Wilson,
directors were not personally liable when a share allotment failed due to exhaustion of shares,
as they were acting on behalf of the company.
Another important rule is that notice to a director may amount to notice to the company,
but only when the director receives such notice in the course of his duties and is expected to
communicate it to the company. This principle was clarified in Re Hampshire Land Co,
where the court held that if a person is a director in two companies, his personal knowledge is
not automatically attributed to both companies unless he is under a duty to communicate that
information.
( Re Hampshire Land Co, A person was director in two companies-His personal knowledge
was not automatically shared-Only counts if he had a duty to inform)
Like agents, directors also have a duty to disclose any personal interest in transactions
involving the company. However, it must be remembered that directors are agents of the
company as a whole, and not of individual shareholders, unless special circumstances create
such a relationship.
Further, directors are not personally liable for company debts unless there is a specific
legal provision or they have given a personal guarantee. This has been affirmed in several
cases such as Kundan Singh v Moga Transport Co (P) Ltd and PC Agarwala v Payment of
Wages Inspector, where courts held that directors cannot be made personally liable for
company obligations in the absence of statutory liability.
Lastly, where the Articles of Association authorize a managing director to represent the
company, no separate authorization is required for performing acts within that authority.
For instance, a managing director was allowed to file a complaint for cheque dishonour under
Section 138 of the Negotiable Instruments Act without additional approval, as it was within
his powers under the Articles.
In conclusion, directors act as agents of the company, and while the company is generally
liable for their acts, directors themselves are protected from personal liability so long as they
act within their authority, in good faith, and on behalf of the company.