Role of Director as an Agent of Company

Introduction

A company is a legal person who is living only in the eyes of law. It is a formulation of law which lacks both body and mind. It cannot act on its own. It can act only through some human agency. Directors are those persons through whom company acts and does business. They are collectively known as Board of Directors.

Board of Directors is the brain of the company which is the body, and the company can does act only through them. A director is a person who has control over the direction, conduct, management, or superintendence of the affairs of the company. Only an individual can be appointed as a director. An association or a firm cannot be appointed as director of a company.

A company is an artificial person and it function through human agents i.e. the di­rectors. However, directors being agents are not personally liable for their acts unless they contravene the provisions of the Act as explicitly mentioned in it. It is said that the principle of agency operates as alter ego.

Definition of Board of Director

According to section 2(10) of the Companies Act, 2013, Board of Director or Board, in relation to a company, means the collective body of the directors of the company.

Definition of Director

According to section 2(34) of the Companies Act, 2013, director means a director appointed to the Board of a company.

Role of Director as an agent of Company

  • Role of director:

 In general, a company consider as a separate legal entity, and then the directors are considered as the mind as well as the will of the company as they control the actions of the company. In other words, they are the brain of the company. Their role is crucial in the overall management and administration of a Company. They act different roles at different times to run the Company in an effective manner.

  • Position of Directors-

It is not easy to explain the position that a director holds in a company. A director is not a servant of any master. He is the controller of the company’s affairs. They are neither a servant nor an employee to the company. They are professional people who are hired by the company to direct its affairs.

However there is no limitation under the Act, that a director cannot be an employee to the company. In Lee v. Lee’s Air Farming Ltd[1], it was held that, a director may, however, work as an employee in different capacity. There is no definite definition for director under the Companies Act, 1956. Director includes any person who is occupying the position of a director, whatever name called[2]. So in order to understand the position of a director in a company we have to look in to various decided cases.

In Judhah v. Rampada Gupta[3], it was held that, director of a company registered under this Act are persons duly appointed by the company to direct and administer the business of the company. Sometimes, directors described as agents, trustees, managing partners etc. But each of these expressions is used not as exhaustive of their powers and responsibilities, but as indicating useful point of view from which they may for the moment and for the particular purpose can be considered.

  • Director as Agents-

 A company is an artificial person and it function through human agents i.e. the di­rectors. However, directors being agents are not personally liable for their acts unless they violate the provisions of the Act as explicitly mentioned in it. It is said that the principle of agency operates as alter ego.

It is established in the case of Ferguson v. Wilson[4] that the directors are considered as “agents of the Company ” in the eyes of law. Company is an artificial person which is created by law and cannot act on its own. It operates through its directors i.e. agents of the Company.

  • Authority to act as an agent:

A director derives his authority to act as an agent of the Company by way of its Articles of Association which are drafted in accordance with provisions of the Companies act. Therefore, his actions as an agent are considered as “actions of the Company” itself. Though, the director is not held personally liable for his acts unless explicitly provided in the law. Wherever a liability would attract to an agent; directors would be held liable whereas where the liability would attract to the principal, the burden of liability would be shifted to the company.

  • Liability of a director while acting as an agent:         

The relationship between directors and company is guided by the general principle of agency. If directors have any personal interest in a transaction of the Company then they have to reveal the same like an agent. The directors of a company cannot be made liable merely because he is a director as long as he has not given any personal guarantee for a loan taken by the company as observed by his lordship in Indian Overseas Bank v. RM Marketing. Directors can incur a personal liability when they enter the contract in their own names, when they use the name of the company for fraudulent purposes and when they exceed their powers entrusted with them.

  • Are directors agents of the members of the Company?

It is essential to note that directors are agents of the company but not the agents of the members of the company. A company is a separate legal entity apart from its shareholders. The directors are the agents of the Company and not of its individual members, except when that relationship arises due to the special facts of the case as rightly observed by his lordship in Ray Cylinders & Containers v. Hindustan General Industries Limited[5].

  • Are directors of the agents of the Company legally?

The directors are not considered as agents in any legal statute. Agents are appointed by the principal whereas directors are elected by the shareholders of the Company. Agents work on commission basis but that’s not in the case of directors. Also, an agent is not required to disclose the name of his principal but a director has to do the same. Therefore, the directors are not the agents in the true legal sense.

Conclusion

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. A Director is an agent of the Company for the conduct of the business of the company. Directors of a company have fiduciary relationship with the company as well as the shareholders when he acts an agent or officer of the company.The director holds an extremely important position in the administration and management of a Company. Therefore, the director actually works in different roles at different times to ensure that the company is run in a legal and an effective manner. Directors are bound to use their fair and reasonable diligence while discharging their duties, and with such care as may be reasonably expected from, having regard to their knowledge and experience.

References

[1] 1961 AC 12

[2] Sec.2(13) of the Companies Act,2013

[3] AIR 1959 Cal 715

[4] (1866) 2 Ch App 77: 15 LT 230

[5] (2001) 103 Comp Case 161 Del

[6] https://www.linkedin.com/pulse/directors-only-agents-also-some-sense-trustees-company-unmesh-zagade

[7] http://www.legalservicesindia.com/article/287/Position-of-Directors-In-A-Company.html

[8] https://lawtimesjournal.in/position-of-directors-under-company-law/

[9]https://thefactfactor.com/tag/ray-cylinders-containers-v-hindustan-general-industries-ltd/

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