POSITION OF DIRECTORS UNDER COMPANIES ACT 1956 1 2 3 4 TRUSTEE EMPLOYEE AGENT MEMBER

Lee v/s Lees Air Farming Ltd.

Subject Matter: This case relates to the position of directors. The directors are the brain of the company. They are professional men, who have been hired by the company to carry on its affairs. They cannot be called servants of the company. They occupy a very important position in the company. Brief Facts: In the company, the principal controller and director of the company was employed in this company as a pilot, and was engaged in his duties as a pilot. When he was carrying on his duty as a pilot, he met with an accident and died while on duty. Consequent upon his died, while on duty as a pilot his widow claimed the compensation under the Workers Compensation Act. She recovered the compensation. Principal laid down: Director as a person would work as an employee in a different capacity. He cannot be described as a servant but as an officer of the company.

DOCTRINE OF INDOOR MANAGEMENT

Royal British Bank v/s Turquand company Subject Matter: This refers to Doctrine of Indoor Management. An outsider who deals with the is entitled to assume that as far as the internal proceedings of the company is considered, everything is being regularly done. This protects the outsider against the company. Brief Facts: The AOA of the company provided that the directors of the company might borrow money on bonds. The directors borrowed money and issued bonds to the plaintiff. It was stated that provided the resolution was passed in the general meeting. It was held that, the plaintiff could recover the amount of bonds from the company. Because he was entitled to assume that the resolution has been passed in the general meeting Principal Laid Down: This is regarded as DIM that the persons dealing with limited liability companies are not required to inquire into the indoor management of such companies and therefore they will not be affected by any irregularity.

MISTATEMENT IN PROSPECTUS DOCTRINE OF ULTRA VIRES DERRY V/S PEEK

Subject Matter: Any person who has been induced to subscribe for shares or debentures of the company on the basis of misrepresentation, misstatement or untrue and fraudulent statement in the prospectus of the company can sue the person responsible for issuing it, provided that he proves that there was fraudulent misstatement in prospectus. Brief Facts: A special act of the parliament made a provision that the tramway companys carriage must be driven by animal power and with the permission of the board of trade be driven by steam power. The directors included a statement in the prospectus that by virtue of this special act, the company would have a right to use steam power instead of animal power. However, no reference was made to the board of trades concern. Subsequently, when the board of trade refused permission, the company was not allowed to drive the carriage by steam power. It had to be wound up. The plaintiff brought an action of deceit against the directors. Principle Laid Down: An innocent misstatement is not a fraud. Fraud may be committed by making a false statement knowingly and recklessly whether true or false. If the person making the false statement honestly believes it to be true, then such a person is not guilty of fraud. SHANTIPRASAD JAIN V.S KALINGA TUBES ------------------------------------------------------------Subject Matter: Sec 81 of the Indian Companies Act. If a company decides to increase its share capital, it is required to offer new shares to its existing shareholders first and then to the outsiders, by passing a resolution to that effect. Brief Facts: Two groups equally held the private company shares. In order to provide financial and admin assistance, the petitioner was made the chairman of the BOD. This private company was converted into a public company with a view to take advantage of the loan facility provided by the Orissa govt. These 2 groups who had majority in the BOD as well as in the general meeting resolved to offer shares to the outsiders to the total exclusion of the existing shareholders. The question came up for determination for the court as to whether the exercise of majority power was in good faith or to deprive the plaintiff of his right under Sec. 81. Principle Laid Down: It was observed in the case that operation of Sec. 81 could be excluded and new shares could be offered to outsiders to the total exclusion of the existing shareholders only in the following 2 cases: 1. The company must pass a special resolution for allotting of new shares. 2. The company must pass an ordinary resolution and the central govt. must be satisfied on application made by the BOD.