Having regard to the various provisions of the Act relating to the directors let us analyse their positions in the company.
Directors are referred to in various capacities sometimes as agents, sometimes as trustees and sometimes even as managing partners of the company. Each of these expressions is used 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. However, no definite positions can be ascribed to the director in view of their diversified roles.
A director is an officer of the company. Officer includes any director, manager or secretary or any person in accordance with whose directions or instructions of the board of directors or any more of two directors is or are accustomed.
A director controls the company’s affairs. He is a professional man. Though he is hired for a remuneration and works as an employee to control the company’s affairs, yet he is not a servant of the company or of any one. He is not an employee in the actual sense neither is he entitled to the privileges and benefits which are granted to other employees of the company.
Though it is not easy to explain the positions that the directors occupy, yet it is now well settled that the directors stand in fiduciary position towards the company in regard to the powers conferred on them by the articles.
Directors as agents: The company being an artificial person, is governed by human agency. Directors control the affairs of the company as its agents. Acts of the directors for and on behalf of the company exclude directors from personal liability, provided they are within the scope of their authority or if the shareholders ratify their acts, if they are within the powers of the company. The relationship between the company and the directors is that of principal and agent. The general principles of agency regulate the relations of directors and the company and of person dealing with the company.
The directors have also to disclose their interest if any in the transactions of the company However, they are not merely agents of the company. They also exercise independent powers. They are the agents of the company and not of individual shareholders. The relation of company with its directors is that of principal and agent and the general principles of laws of agency will govern their relation.
Directors as trustees:
Directors have very often been referred to as the trustees of company’s money and property. As they control the affairs of the company they are also in charge of the company’s money and its property . The directors may be called upon to refund to the company any money or property improperly and negligently applied by them. They are, therefore called trustees. They must act honestly and in the interests of the company.
However, this view is not wholly correct for the following reasons.
1) The ownership of the property vests with the trustees but in case of directors they are not vested with the ownership of the company’s property.
2) They are not trustees of third person who have made contracts with the company
3) They are not trustees of the individual shareholders though they are trustees for the company
4) A Director is a paid agent of the company and contracts for the company.
Strictly speaking the directors are not the trustees though they are in custody of the company’s money and property and are obliged to act honestly in the company and not in their individual interests. Their position is more of a fiduciary relationship to the company i.e. the directors have to exercise good faith while controlling the affairs of the company. Even though the position of directors of a company differs from the trustees in some respect yet to the extent of they being entrusted with the money of the company, they are jointly and severely liable for breach of trust.
Source: Business Law