CENTRAL UNIVERSITY

OF SOUTH BIHAR

…………………………………………………………………………
…

PROJECT ON :- ROLE AND IMPORTANCE OF

BOARD IN CORPORATE SYSTEM

…………………………………………………………………………………
….

Submitted by: - Submitted to:-

Bablu kumar sharma Dr P.K Das
B.sc.LLb (Hons.) Assistant professor
9th semester School of law and governance
CUB1413115008 CUSB

1|Page
 Acknowledgement

I hereby take the opportunity thank Dr P.K Das sir, for his consent and the inspiration that he
radiates. His jovial behaviour and ease making attitude eased my tension and the initial doubts
that I had about my potentialities. I also want to thank my friends who helped me a lot in
preparing this project. I have also taken help from several books and websites for doing this.
Ultimately, I once again thank Das sir, who made indelible impact on me which shall go beyond
the pages of this project and reflect in all my endeavours of life.

Hoping Acceptance and Appreciation from you, I hereby submit this project.

- Bablu kumar sharma

2|Page
 SCHEME OF CHAPTERISATION
Chapter Contents Page No.
01 Introduction 06
02 Definition of corporate governance 07
03 Principle of corporate governance 08
3.1 Ensuring the Basis for an Effective Corporate Governance 08
Framework
3.2 The Equitable Treatment of Shareholders 08
3.3 The Role of Stakeholders in Corporate Governance 09
3.4 Disclosure and Transparency 09
3.5 The Responsibilities of the Board 09
04 Power of Director 10
4.1 General Powers of Directors (Routine) 10
4.2 Collective Powers of Board (Substantial) 10-11
4.3 Powers of Board to be Exercised In General Meetings 12
4.5 Restriction on board of director 12-13
05 Role of board of director in corporate system 14
5.1 Establish vision, mission and values 14
5.2 Set strategy and structure 14
5.3 Delegate to management 14
5.4 Exercise accountability to shareholders and be responsible to 15
relevant stakeholders
06 Duties of board directors 16
6.1 General duties of a Director 17
6.2 Statutory Duties of Directors 18
6.3 Fiduciary duty of director 18
Case Aveling Barford Ltd v Perion Ltd 19
Case British Midland Tool Ltd v. Midland International Tooling 19
Ltd
Case Marshall (Thomas) (Exporters) Ltd v Guinle 20-21
6.4 Liability of Director 21
6.5 Ultra vires Acts 21
6.6 Mala Fide Acts 21
6.6 Liability for Co-Directors 22

3|Page
Title of the proposed study

Role and importance of boar in a corporate system. A study of the provision under company
Act 2013

Literature Survey/Review

The following Primary and Secondary sources have been referred to

Primary Sources

1. Stephen M. Bainbridge, the New Corporate Governance in Theory and Practice, Oxford
University Press

2. Adrian Cadbury, Corporate Governance and Chairmanship- A personal View, Oxford

University Press

3. Asok K. Nadhani, Business and Corporate Laws, (BPB Publications, 2nd Edition, New
Delhi,2009)
4. A.C. Fernando, Corporate Governance, Principles, Policies and Practices, Pearson;
5. Ghosh, P.K. & V. Balachandran, Company Law and Practice, Sultan Chand & Sons,
New Delhi, 4th Edition 1989)
 Statutes Referred
(i) The Companies Act,1956
(ii) The Companies Act, 2013

Secondary Sources

 Indian journal referred

1. Balasubramanian, N. (1999). "Changing Perceptions of Corporate Governance
in India". ASCI Journal of Management, vol. 27 (1&2).
2. Gollanapalli, Sarath (2003). "Corporation Governance: A Global Perspective".
Effective Executive.

Reports on corporate governance

 Cadbury, Sir Adrian (1992). Report of the Committee on the Financial Aspects of
Corporate Governance.
 Task Force Report (1999). "Principles of Corporate Governance". OECD

4|Page
 Website refereed

 www.academyofcg.org/archives/jun-2003.htm#article2
 www.business.gov.in/corporate_governance
 www.cipe.org/publications/fs/ert/e18/corp_gov.htm
 www.gIobalchange.com/corporategovernance.htm
 www.geometricsoftware.com/investors/corporate.htm

Hypotheses

The following hypotheses would be taken account of in this study and they have been examined
in the course of discussion. A conclusion has been drawn to assess whether the hypotheses
proposed were true to their extent of statement

1. What are the roles of board in corporate system

2. What are the duties of board of director n a corporate system

Research design/methodology
In accordance with the objectives of the present study, doctrinal research design has been
adopted. The doctrinal design has been used to study the provisions related to Role and
importance of board in a corporate system under company Act 2013. Doctrinal Research is a
research, as we all know, based on the principles or the propositions made earlier. It is more
based on the sources like books of the library, and through resources collected through access
to various websites. For the purpose of the Research Project, the Researcher has collected
relevant materials from books on company law and also from various websites. The Research
has been done primarily with the help of case laws and leading judgements of various courts,
reports on corporate governance as well as legislative provisions. Various articles from the
internet sources have also been referred.

Statement of the Problem

It is the responsibility of the board of directors to ensure that good corporate governance is in
practice in the company. This project states the roles of board of director and their relevance in
the corporate governance and discusses the present situations of corporate governance practices
in India.

5|Page
 Introduction
The company is legal person which is physically not in existence so it needs limbs and organs
which may mobilize it and make it functional. The organs and limbs of the company are
directors. The directors of the company are like ship of the captain which steer it in right
direction to maximize the profit and make the company beneficial for all its stakeholders. The
directors of the company are the most important persons in corporate governance who do
almost everything related with affairs of the company. If they are best the company shall be
the best despite of all its resources but if they are not so good company cannot perform better
in spite of all its resources. The Board of Directors is an amalgam which includes various types
of directors like executive directors, independent directors, minority directors, deemed
directors, first directors, shadow directors, nominee directors, additional directors, whole-time
directors, retirable directors, celebrity directors, women’s directors, employees’ directors,
alternate directors, Managing director, chief managing director etc. The corporate and
securities laws provide detailed provisions regarding regulating his working pattern in
corporate governance.

Corporate governance (CG) is defined as the set of relationship between company’s

management, board of directors, shareholders and other stakeholder. It provides the structure
through which the objectives of the company are set and the means of attaining those objectives
and monitoring performance is determined. Corporate governance is a process, not a state. CG
can be defined in two basic ways:1

 First, it is a set of behavioural patterns that is the actual behaviour of corporations, in

terms of such measures as performance, efficiency, growth, financial structure, and
treatment of shareholders and other stakeholders
 The second set concerns itself with the normative framework: that is, the rules under
which firms are operating.

1
http://www.academia.edu/7720946/Meaning_and_General_Concept Last accessed on 07/11/2018

6|Page
 Definition of corporate governance
Corporate governance is a combination of corporate policies and best practices adopted by the
corporate bodies to achieve its objectives in relation to their stakeholders. The fundamental
objective of corporate governance reforms is to enhance transparency and transparency
enhances accountability. It is widely recognized that transparency enhances trust among the
major players within the governance framework. Various definitions and principles have been
introduced to stabilize the corporate governance among corporate entities. The definition
presented by some institution is presented below.

 Corporate governance is the system by which companies are directed and controlled
(Cadbury Report-1992)
 Set of relationships between a company’s management, its boards, its shareholders and
other stake holders (OECD Principles)

With globalization, vastly increasing the scale of trade and the size and complexity of
corporations and the bureaucracies constructed to attempt to control it, the importance of
corporate governance and internal regulation has been amplified as it becomes increasingly
difficult to regulate externally. Similarly, the role of boards of directors has been the topic of
much attention lately. The role of board of directors is becoming more involved in assessing
and shaping the company policies and practices on wide range of corporate world. They
recognize the importance of good corporate governance as a means of addressing the interests
of Company's shareholders, employees, customers and community. The Board also ensures
that the company maintains good corporate governance practices. Accordingly, the following
guidelines are subject to periodic review and change by the Board. The corporate governance
framework should ensure the strategic guidance of the company, the effective monitoring of
management by the board, and the board’s accountability to the company and the shareholders.2

2
https://archive.india.gov.in/business/corporate_governance/cadbury_report.php last accessed on
07/11/2018

7|Page
 Principles of Corporate Governance
The principles of corporate governance according to OECD (2004) are as follows:

 Ensuring the Basis for an Effective Corporate Governance Framework3

The corporate governance framework should promote transparent and efficient markets, be
consistent with the rule of law and clearly articulate the division of responsibilities among
different supervisory, regulatory and enforcement authorities.

 The Rights of Shareholders and Key Ownership Functions4

The corporate governance framework should protect and facilitate the exercise of shareholders’
rights. Basic shareholder rights should include the right to:

1. Secure methods of ownership registration

2. Convey or transfer shares
3. Obtain relevant and material information on the corporation on a timely and regular
basis
4. Participate and vote in general shareholder meetings
5. Elect and remove members of the board
6. Share in the profits of the corporation.

 The Equitable Treatment of Shareholders5

The corporate governance framework should ensure the equitable treatment of all shareholders,
including minority and foreign shareholders. All shareholders should have the opportunity to
obtain effective redress for violation of their rights.

3
https://www.complianceonline.com/dictionary/OECD_Principles_of_Corporate_Governance.html last
accessed on 07/11/2018
4
https://www.complianceonline.com/dictionary/OECD_Principles_of_Corporate_Governance.html last
accessed on 07/11/2018
5
https://www.complianceonline.com/dictionary/OECD_Principles_of_Corporate_Governance.html last
accessed on 07/11/2018

8|Page
  The Role of Stakeholders in Corporate Governance6

The corporate governance framework should recognize the rights of stakeholders established
by law or through mutual agreements and encourage active cooperation between corporations
and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.

 Disclosure and Transparency7

The corporate governance framework should ensure that timely and accurate disclosure is made
on all material matters regarding the corporation, including the financial situation,
performance, ownership, and governance of the company.

 The Responsibilities of the Board8

The corporate governance framework should ensure the strategic guidance of the company, the
effective monitoring of management by the board, and the board’s accountability to the
company and the shareholders.

6
https://www.complianceonline.com/dictionary/OECD_Principles_of_Corporate_Governance.html last
accessed on 07/11/2018
7
https://www.complianceonline.com/dictionary/OECD_Principles_of_Corporate_Governance.html last
accessed on 07/11/2018
8
https://www.complianceonline.com/dictionary/OECD_Principles_of_Corporate_Governance.html last
accessed on 07/11/2018

9|Page
 Powers of the director
The directors steer the company for maximization of profit. The Board of directors gets its
powers from Articles, Memorandum and provisions of Companies Act, 2013. Certain powers
of Board can be exercised by individual directors to further the routine affairs as per allocation
but certain powers shall be exercised by the board collectively.

 General power
 Collective power
 Managerial power

General Powers of Directors (Routine)

Section 179 says that the Board of Directors of a company shall be entitled to exercise all such
powers, and to do all such acts and things, as the company is authorised to exercise and do. But
in exercising such power or doing such act or thing, the Board shall be subject to the provisions
contained in that behalf in this Act, or in the memorandum or articles, or in any regulations not
inconsistent therewith and duly made there under, including regulations made by the company
in general meeting.9

The Board shall not exercise any power or do any act or thing which is directed or required,
whether under this Act or by the memorandum or articles of the company or otherwise, to be
exercised or done by the company in general meeting as mentioned in section 180.

Collective Powers of Board (Substantial)10

The Board of Directors of a company shall exercise the following powers collectively on behalf
of the company by means of resolutions passed at meetings of the Board, namely:

a) To make calls on shareholders in respect of money unpaid on their shares.

b) To authorise buy-back of securities under section 68
c) To issue securities, including debentures, whether in or outside India.

9
https://www.lexisnexis.com/ap/pg/hkcorporate/document/410885/59HP-Y9R1-DYTB-M02B-00000-
00/Powers__duties_and_liabilities_of_directors___overview Last accessed on 08/11/2018

10
http://www.ssc.govt.nz/node/2250 Last accessed on 08/11/2018

10 | P a g e
 d) To borrow monies.
e) To invest the funds of the company.
f) To grant loans or give guarantee or provide security in respect of loans.
g) To approve financial statement and the Board’s report.
h) To diversify the business of the company.
i) To approve amalgamation, merger or reconstruction.
j) To take over a company or acquire a controlling or substantial stake in another
company.
k) Any other matter which may be prescribed.

Out of these powers the powers mentioned under clauses (a) to (c) can be delegated to a
committee of directors but other powers related with borrowing, merger, amalgamation,
diversification which are substantial in nature cannot be delegated.

The aforementioned powers of board shall not be deemed to affect the right of the company
in general meeting to impose restrictions and conditions on the exercise by the Board of any of
the powers specified in this section. Within the limits laid down by the Act, the powers of board
of directors are supreme and the shareholders cannot alter or restrict their powers by passing a
unanimous resolution. They can remove unscrupulous directors.

In following cases shareholders of company can restrict or interfere with powers of board:

1. Where directors are acting mala fide or against the interests of company.
2. Where the board is interested in a transaction so they shall be incompetent to work’
3. Where there is complete deadlock in management.

Supreme Court held that, “A company is a juristic person and it acts through its directors who
are collectively referred as Board of directors. An individual director has no power to act on
behalf of company of which he is director unless by some resolution of Board of the company,
specific powers are given to him. Whatever decisions are taken regarding running the affairs
of the company, they are taken by the board of directors.11

11
Dale and Carrington Investment P.Ltd. and Anr. v. P.K. Prathapan and Ors., (2004) 122 Comp Case 161 SC

11 | P a g e
Powers of Board to be Exercised In General Meetings12

Certain powers can be exercised by board with sanction in meetings of shareholders only.
Section 180 discusses about such powers. It provides that the Board of Directors of a company
shall exercise the following powers only with the consent of the company by a special
resolution, namely

1. To sell, lease or otherwise dispose of the whole or substantially the whole of the
undertaking of the company or where the company owns more than one undertaking,
of the whole or substantially the whole of any of such undertakings.
2. To invest otherwise in trust securities the amount of compensation received by it as a
result of any merger or amalgamation.
3. To borrow money, where the money to be borrowed, together with the money already
borrowed by the company will exceed aggregate of its paid-up share capital and free
reserves, apart from temporary loans obtained from the company’s bankers in the
ordinary course of business.
4. To remit, or give time for the repayment of, any debt due from a director.

Restriction on board of director13

1. Restrictions on Political Contributions

Section 182 provides that a company, other than a Government company and a
company which has been in existence for less than three financial years, may contribute
any amount directly or indirectly to any political party. The aggregate of the amount
which may be so contributed by the company in any financial year shall not exceed
seven and a half per cent of its average net profits during the three immediately
preceding financial year.
Every company shall disclose in its profit and loss account any amount or amounts
contributed by it to any political party. If a company makes any contribution in
contravention of the provisions of this section, the company shall be punishable with
fine which may extend to five times the amount so contributed and every officer of the

12
Dr. Kapoor G.K. & Sanjay Dhamija, Company Law and Practice, Taxman page no. 325
13
http://www.advocatekhoj.com/library/bareacts/companies/293.php?%20Title=Companies%20Act,%201956
&STitle=Restrictions%20on%20powers%20of%20Board last accessed on 08/11/2018

12 | P a g e
 company who is in default shall be punishable with imprisonment for a term which may
extend to six months and with fine which may extend to five times the amount so
contributed.
2. Interested Directors
Section 184 provides that an interested director shall disclose his interest to in the first
meeting of Board. If a director of the company contravenes the provisions of 184, such
director shall be punishable with imprisonment for a term which may extend to one
year or with fine which shall not be less than fifty thousand rupees but which may
extend to one lakh rupees, or with both.
3. Restrictions Related with Loan
Section 185 provides that no company shall, directly or indirectly, advance any loan,
including any loan represented by a book debt, to any of its directors or to any other
person in whom the director is interested or give any guarantee or provide any security
in connection with any loan taken by him or such other person. But this restriction does
not apply to managing and whole time directors who is being extended such loan being
resolved by special resolution in AGM for recognition of his services or to a company
the business of which is financing. If any loan is advanced or a guarantee or security is
given or provided in contravention of the provisions of section 185(1), the company
shall be punishable with fine which shall not be less than five lakh rupees but which
may extend to twenty-five lakh rupees, and the director or the other person to whom
any loan is advanced or guarantee or security is given or provided in connection with
any loan taken by him or the other person, shall be punishable with imprisonment which
may extend to six months or with fine which shall not be less than five lakh rupees but
which may extend to twenty-five lakh rupees, or with both.

13 | P a g e
 Role of board of director in corporate system

Establish vision, mission and values14

 Determine the company's vision and mission to guide and set the pace for its current
operations and future development.
 Determine the values to be promoted throughout the company.
 Determine and review company goals.
 Determine company policies.

Set strategy and structure15

 Review and evaluate present and future opportunities, threats and risks in the external
environment and current and future strengths, weaknesses and risks relating to the
company.
 Determine strategic options, select those to be pursued, and decide the means to
implement and support them.
 Determine the business strategies and plans that underpin the corporate strategy.
 Ensure that the company's organisational structure and capability are appropriate for
implementing the chosen strategies.

Delegate to management16

 Delegate authority to management, and monitor and evaluate the implementation of

policies, strategies and business plans.
 Determine monitoring criteria to be used by the board.
 Ensure that internal controls are effective.
 Communicate with senior management.

14
https://www.brefigroup.co.uk/directors/directors_roles_and_responsibilities.html Last accessed on
08/11/2018
15
https://www.brefigroup.co.uk/directors/directors_roles_and_responsibilities.html Last accessed on
08/11/2018
16
https://www.brefigroup.co.uk/directors/directors_roles_and_responsibilities.html Last accessed on
08/11/2018

14 | P a g e
Exercise accountability to shareholders and be responsible to relevant stakeholders

 Ensure that communications both to and from shareholders and relevant stakeholders
are effective.
 Understand and take into account the interests of shareholders and relevant
stakeholders.
 Monitor relations with shareholders and relevant stakeholders by gathering and
evaluation of appropriate information.
 Promote the goodwill and support of shareholders and relevant stakeholders

15 | P a g e
 Duties of board directors
Generally there are two duties of director;

General duties of a Director

The directors are very important persons in the corporate affairs. They derive their duties
wowing to the position and role that they have in the company. Their duties also ooze out from
their fiduciary capacity. Generally a director is expected to show great amount of skill and care
in the all transaction where he is representing the company to the world. A director has to
conduct the affairs of company in such a manner that all the decisions taken by them may serve
the interests of company and all its stakeholders. He should not run the company in autocratic
way. Generally powers of substantial nature are not exercised by the directors alone and they
are subject to final confirmation of general body of company. Substantial powers are exercised
by board in board’s meetings.

Generally for better internal management of the corporate affairs, the Articles of the company
details out the role, responsibilities and duties of directors in routine and extraordinary business
of company. He must be meticulous especially in financial transaction, account keeping and
auditing of books of account. Though doctrine of indoor management is a relic of past but on
the basis of it the third party may bind the company for reckless transactions done by reckless
directors, therefore in performance of duties, great amount of care and skill is expected from
directors. He in general sense has following duties

1. Duty of good faith

2. Duty of reasonable care

16 | P a g e
 3. Duty not to delegate his power

Statutory Duties of Directors

The companies Act, 2013 at various places describes about so many duties of directors out of
which few may be seen as following;

1. Duty not to mislead by offer document; (sec. 34& 35)

2. Duty not to induce investors for share subscription; (Sec. 36)
3. Duty not to issue irredeemable preference shares; (sec. 55)
4. Duty to file annual return to Registrar; (sec. 92)
5. Duty to hold statutory meetings of company; (sec 96)
6. Duty to maintain books and auditing of the books, appoint auditors; (sec. 128)
7. Duty to ensure planning and execution of Corporate Social Responsibility initiatives;
(sec. 135)
8. Duty to get DIN (sec. 156 & 159)
9. Duty to perform certain things as enumerated in section 166.
10. Duty to attend board’s meetings; (sec. 173)
11. Duty not to make political contribution in contravention of provision; (sec. 182)
12. Duty to disclose his interest in transaction; (184)
13. Duty not to receive loan from company;(sec. 185)
14. Duty to receive remuneration in confirmation of provisions; (sec. 197)
15. Duty to make declaration of solvency in winding up of the company; (sec. 305).

Liability of Director

The liability of a Director to the company may arise from his breach of fiduciary duty. He can
be made liable to shareholders, outsiders, company and co-directors. Where a Director acts
dishonestly to the interest of the company, he will be held liable for breach of fiduciary duty.
Most of the powers of Directors are powers in trust and, therefore, should be exercised in the
interest of the company and, not in the interest of the Directors or, any section of members.

Fiduciary duty of director

The corporate model separate ownership from delegation of control to non-owner giving the
significant discriminatory power over the corporation that cannot be constrained by other legal
device without determining the objective of the corporation so the fiduciary duty as the power
of the corporation and its assets but the exercise of power each condition by the duty of use it
17 | P a g e
in the best interest of corporation and thereby its owner there are certain fiduciary duty of
director.

 A Director must only act within the powers as granted by the Company’s constitution.
 A Director has a prime duty to promote the Company’s success (unless insolvent).
 A Director must exercise independent judgment.
 A Director must exercise reasonable care, skill and diligence in his/her role.
 A Director must avoid conflicts between his/her role and his/her personal interests.
 A Director cannot accept benefits from third parties which arise from his/her role.
 A Director must always declare to other director his/her personal interest in any
transaction or arrangement which the Company proposes to enter into.

Aveling Barford Ltd v Perion Ltd17

Where the director was aware of the fact that the companies property for being sold for 350$
where its real value is good at 650$. The Hon’ble cort held that this was the breach of fiduciary
duty of the part of director.

British Midland Tool Ltd v. Midland International Tooling Ltd18

The High Court has held a number of full time working directors of a private company liable
to pay substantial damages running into hundreds of thousands of pounds when they went into
competition with their old company after resigning. The facts were that a number of directors
hatched the plan to go into competition while they were still working for the company. One of
them then retired, but the others continued as directors for a while longer before resigning
themselves and immediately activating the new business. The judge held that implementation
of the directors' plan necessarily involved a breach of fiduciary duty by those individuals who
remained, for the time being, directors of the claimant. The judge held that it was established
law that a director's duty to act so as to promote the best interests of the company prima facie
included a duty on his part to inform the company of any activity, actual or threatened, which
might damage those interests, even where that involved telling tales on his co-directors. The
directors were therefore liable for the tort of conspiracy.

17
[1989] BCLC 626
18
2003 ALL ER (D) 174

18 | P a g e
 Marshall (Thomas) (Exporters) Ltd v Guinle19

Mr Guinle was appointed managing director of a company for a fixed term of 10 years. The
company’s business was to purchase clothing from foreign manufacturers mainly in Eastern
Europe and the Far East, which it then imported and resold to retailers in the UK. One of its
customers was C & A. A major part of Mr Guinle’s work involved travel abroad arranging
contracts. The success of the business depended very heavily on the business contacts Mr
Guinle made abroad and, in turn, on the customers to whom he sold the merchandise.
Consequently Mr Guinle’s contract contained restrictions, the key ones being:

1. The managing director shall “Not at any time during the period of his appointment or
after the termination thereof disclose any confidential information relating to the affairs,
customers or trade secrets of the Group of which he shall become possessed whilst in
the service of the company.”
2. “During the period of his appointment the Managing Director shall not, save with the
consent in writing of the company, be directly or indirectly engaged, concerned or
interested in any other business save that of the company.”
3. “If the Managing Director shall cease for any reason to be Managing Director of the
company or any of its subsidiaries he shall be under no restriction in relation to any
person, firm or company who was or were customers of or suppliers to the company or
any of its subsidiaries, any rule of law to the contrary notwithstanding, provided that he
does not use or disclose any confidential information belonging to any companies in
the Thomas Marshall Investments Group, nor within five years employ any person
employed by the company during the last two years of his appointment.”

It was discovered that, with four and a half years of his contract to run, Mr Guinle had set up
his own company in the same line of business, had purchased goods for it whilst abroad
ostensibly on T Marshall Business, had solicited customers of T Marshall and had employed
four ex-T Marshall Employees. When invited to a meeting to discuss matters he purported to
resign there and then. The company sought an interlocutory injunction to stop further breaches
of Mr Guinle’s contract. Mr Guinle’s defence principally was that his own breaches of contract
had effectively brought the contract to an end. This being so he was free from the restrictions
in it

19
[1978] IRLR 174, HC

19 | P a g e
The Decision: High Court

Megarry VC in the High Court (Chancery Division) gave the injunction asked for. Mr Guinle’s
contract did not end automatically through his repudiation of it by breach of contract. It was up
to his employers to elect what their course of action would be, whether to accept his resignation
or refuse it and hold him to the terms of the agreement. They were completely within their
rights to decline the resignation and to enforce the restriction in the contract, by injunction if
necessary.

Ultra vires Acts

The object clause of memorandum defines as well as confines the powers of company. Any act
done beyond such objects shall be ultra vires20. Though doctrine of ultra vires has now become
diluted however it is still relevant to save the company from unwarranted reckless transactions
done by the directors for personal and vested interests in the garb of contracts done on account
of company by the directors. For ultra vires acts directors shall be held personally liable. This
doctrine aims at protecting the interests of shareholders of company.

Mala Fide Acts

As we have discussed that directors are agents, trustees and officers of the company and they
stand in fiduciary position in relation to the company, therefore they should utilize the
resources, money and property of the company in the best interests of company with due care
and diligence. If they want of care is shown then the acts shall be mala fide acts for which the
directors shall be liable for breach of trust and, may be required to make good the loss or
damage, suffered by the company by reason of such mala fide acts and in such situations
shareholders can intervene21. Since the directors are holding a confidential and powerful
position so they have access to information about the assets of the company and if they apply
the corporate funds for vested interests they can be held liable for torts like malfeasance and
misfeasance and conversion of property. They are equally liable for diversion of money for
personal use in criminal laws as a case of criminal breach of trust, criminal misappropriation
of property etc. In such cases the court may requisition him to return and restore such money
personally.

20
Ashbury Railway Carriage & Iron Co. Ltd. v. Riche (1875) LR 7 HL 653, A.L. Mudaliar v. LIC, AIR 1963 SC 1185
21
Satya Charan Lal v. Rameshwar Prasad Bajoria, AIR 1950 FC 133

20 | P a g e
Liability for Co-Directors?

The directors do not act in isolation. They are jointly and severally liable for the acts of
company. All the directors are agents of each other. They sink and swim together. A director
owes vicarious liability for other directors. If a particular act is to be done by the board of
directors and the same is done by single directors on behalf of all such directors, then in case
of liabilities he can seek contribution from all his co-directors.

21 | P a g e
 Conclusion
Corporate governance is the means by which companies are directed, administered and
controlled. It influences how the objectives of the company are set and achieved, how risk is
monitored and assessed, and how performance is optimized. Good corporate governance
enables companies to create value (through entrepreneurialism, innovation, development and
exploration) and provides accountability and control systems commensurate with the risks
involved. The role of the Board in creating an environment where a corporation can succeed is
the key to future success of the business. It is incumbent upon the board to ensure that timely,
accurate and complete reports on all relevant aspects of the organization are issued to all
stakeholders. In this regard the Board must put in place the system of reporting with standards
of disclosure that are fully consistent with international accounting practices. The powers of
the corporation are vested in its board of directors who are answerable to the owners of the
company, the shareholders. Company’s board of directors provides the company with direction
and advice. It is the responsibility of the board of directors to ensure that the company fulfils
its mission statement.

The board should maintain, and periodically update, organizational rules, by-laws, or other
similar documents setting out its organization, rights, responsibilities and key activities. To
support board performance, it is a good practice for the board to carry out regular assessments
of both the board as a whole and of individual board members. Assistance from external
facilitators in carrying out board assessments can contribute to the objectivity of the process.

22 | P a g e
 BIBLIOGRAPHY
The following Primary and Secondary sources have been referred to

Primary Sources

1. Stephen M. Bainbridge, the New Corporate Governance in Theory and Practice, Oxford
University Press
2. Adrian Cadbury, Corporate Governance and Chairmanship- A personal View, Oxford
University Press
3. Asok K. Nadhani, Business and Corporate Laws, (BPB Publications, 2nd Edition, New
Delhi,2009)
4. A.C. Fernando, Corporate Governance, Principles, Policies and Practices, Pearson;
5. Ghosh, P.K. & V. Balachandran, Company Law and Practice, Sultan Chand & Sons,
New Delhi, 4th Edition 1989)
 Statutes Referred
(i) The Companies Act,1956
(ii) The Companies Act, 2013

Secondary Sources

 Indian journal referred

1. Balasubramanian, N. (1999). "Changing Perceptions of Corporate Governance in
India". ASCI Journal of Management, vol. 27 (1&2).
2. Gollanapalli, Sarath (2003). "Corporation Governance: A Global Perspective".
Effective Executive.

Reports on corporate governance

 Cadbury, Sir Adrian (1992). Report of the Committee on the Financial Aspects of
Corporate Governance.
 Task Force Report (1999). "Principles of Corporate Governance". OECD

23 | P a g e
Website refereed

 www.academyofcg.org/archives/jun-2003.htm#article2
 www.business.gov.in/corporate_governance
 www.cipe.org/publications/fs/ert/e18/corp_gov.htm
 www.gIobalchange.com/corporategovernance.htm
 www.geometricsoftware.com/investors/corporate.htm

24 | P a g e