Transcript Mr. L V V Iyer - Indian Banks' Association

Presentation
on
Directors’ Role, Responsibility and Liabilities
By
L V V Iyer
L V V Iyer & Associates
Corporate Lawyers
Hyderabad
What is a Director’s Role?
A Director is part of a collective body of
Directors called the Board responsible for the
superintendence, control and direction of the
affairs of the Company.
Is an individual Director as a member of the
Company Board equally responsible as the
Company Board ?
No, unless he, the individual director, is
charged with a specific responsibility
Is the Company Board responsible for
management of the Company or for the
supervisory oversight of the Company ?
This depends on whether the Company has a
CEO to manage the affairs of the Company on a
day-to-day basis.
What is a director’s duty of skill ?
Directors are not required to bring any special
qualifications into their office.
-Brazilian Rubber Plantations & Estates Ltd., Re,
(1911)1 Ch.425 (CA)
-Major Law Reform required in this area
What is the duty of care required for a Director ?
The Supreme Court of India has held in Official Liquidator v P.A.
Tendolkar (1973) 43 Comp Cases 382 as follows:
“A director may be shown to be so placed and to have been so
closely and so long associated personally with the management of
the Company that he will be deemed to be not merely cognizant of
but liable for fraud in the conduct of the business of the Company
even though no specific act of dishonesty is proved against him
personally. He cannot shut his eyes to what must be obvious to
every one who examines the affairs of the Company even
superficially”.
What is the non-executive director’s duty of skill and care ?
The English Court after reviewing many cases in Dorchester Finance Co. Ltd v
Stebbing, 1989 BCLC498 (Ch D) held as follows:
-A Director is to exhibit in the performance of his duties such degree of skill as may
be reasonably expected from a person of his knowledge and experience
-A Director is to exhibit in the performance of his duties such care as an ordinary
man might be expected to take on his own behalf
-A Director must act in good faith and in the best interests of the Company
These standards of duty of care and skill apply equally to non-executive Directors.
What is the fiduciary position of the Board ?
The Board’s fiduciary duties are basically the same as
that of Trustees.
The Board is expected to display utmost good faith
towards the Company whether their dealings are with
the Company or on behalf of the Company. They
should not use the Company’s money or other
property or information in their position as Directors
to gain any advantage to themselves at the expense of
the Company.
Board’s incompetence and fiduciary duty
Board’s fiduciary duty to act in the best
interests of the Company does not include any
lapses on account of its incompetence
- decided by the English Court in Re, Pantone
485 Ltd., (2002) 1 BCLC 266
Self dealing by Directors with the Company and
the fiduciary duty
A personal contract of a Director with a
Company can be set aside unless the
shareholders have consented to it
-Guinness plc v. Saunders, (1990) BCLC 402
The rule in India is different as evidenced in the
Section 297 and 299 of the Companies Act,
1956.
Use of confidential information by a Director?
A Director who uses confidential information of
the Company for his own purposes,
misappropriates or misuses assets of the Company
and is consequently accountable to it,
- Boardman v Phipps, (1966) 3 All ER 721 (HL)
Nominee Director and conflict of interest ?
A Director cannot follow the interest of the
nominator Company at the expense of the
Company of which he is the director
- Scottish Co-operative Wholesale Society Ltd v
Meyer (1958) 3 All ER 66
The Board’s liability – the Indian perspective in
the context of
a) Director’s responsibility statement
b) Corporate Governance Code in Clause 49
When is a Director personally liable ?
A Director is personally liable when he
acts beyond;
• the memorandum of association of the
Company
• beyond the authorisation of a director
Conclusion:
Law and judicial pronouncements are yet
to keep pace with the requirements of a
competitive business environment and a
strict governance code
Law Reform and derivative action may be
the answers in the future.
Thank you