Question

CORPORATIONS LAW

Explain the following Director’s duties: -

•Sections 180, 181, 182, 183 and 184. Provide case examples.  

Answer 1

	Duty Relevant Information Care & Diligence Section 180(1) An officer of a company must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would in the same circumstances. Defence Section 180(2) Business Judgement Rule – A person who makes a “business judgment” does not breach their duty, if they: (i)make the judgment in good faith for a proper purpose; and (ii)do not have a material personal interest in the subject matter of the judgment; and (iii)make an informed decision; and (iv)rationally believe that the judgment is in the best interests of the corporation. EXAMPLE :- ABC PVT.LTD. IS ENTERING INTO A TRANSACTION OF SALE OF GOODS, THE BOARD OF DIRECTOR OF THE COMPANY SHOULD PERFORME THEIR DUE DELIGENCE IN THE INTEREST OF THE COMPANY IN GOOD FAITH. Good Faith Section 181 An officer of a company must exercise their powers and discharge their duties in good faith in the best interests of the company and for a proper purpose. EXAMPLE ;- COMPANY TO CONTRIBUTE TO BONAFIDE AND CHARITABLE FUND. PROVIDE THAT PRIOR PERMISSION TO THE COMPANY IN GENERAL MEETING SHALL BE REQUIRED FOR SUCH CONTRIBUTION IN CASE AN AMOUNT THE AGGREGATE OF WHICH IN, ANY F.Y EXCEED FIVE PERCENT OF ITS AVG NET PROFIT FOR THE THREE IMMEDIATLY PRECEEDING FINANCIAL YEAR. Use of Position Section 182 A person who is an officer or employee of a company must not improperly use their position to: (i)gain an advantage for themselves or someone else; or (ii)cause detriment to the company EXAMPLE :- PROHIBITION AND RESTRICTION REGARDING POLITICAL CONTRIBUTION Use of Information Section 183 A person who obtains information because they are, or have been, an officer of a company or an employee must not improperly use that information to; (i)gain an advantage for themselves or someone else; or (ii)cause detriment to the company. EXAMPLE:- TO MAKE CONTRIBUTION TO NATIONAL DEFENCE ,FUND,ETC. SEC 184 :- Disclosure of interest by director (1) Every director shall at the first meeting of the Board in which he participates as a director and thereafter at the first meeting of the Board in every financial year or whenever there is any change in the disclosures already made, then at the first Board meeting held after such change, disclose his concern or interest in any company or companies or bodies corporate, firms, or other association of individuals which shall include the shareholding, in such manner as may be prescribed. (2) Every director of a company who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered into— (a) with a body corporate in which such director or such director in association with any other director, holds more than two per cent. shareholding of that body corporate, or is a promoter, manager, Chief Executive Officer of that body corporate; or (b) with a firm or other entity in which, such director is a partner, owner or member, as the case may be, shall disclose the nature of his concern or interest at the meeting of the Board in which the contract or arrangement is discussed and shall not participate in such meeting: Provided that where any director who is not so concerned or interested at the time of entering into such contract or arrangement, he shall, if he becomes concerned or interested after the contract or arrangement is entered into, disclose his concern or interest forthwith when he becomes concerned or interested or at the first meeting of the Board held after he becomes so concerned or interested. (3) A contract or arrangement entered into by the company without disclosure under sub-section (2) or with participation by a director who is concerned or interested in any way, directly or indirectly, in the contract or arrangement, shall be voidable at the option of the company. (4) If a director of the company contravenes the provisions of sub-section (1) or subsection (2), 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. (5) Nothing in this section— (a) shall be taken to prejudice the operation of any rule of law restricting a director of a company from having any concern or interest in any contract or arrangement with the company; (b) shall apply to any contract or arrangement entered into or to be entered into between two companies where any of the directors of the one company or two or more of them together holds or hold not more than two per cent. of the paid-up share capital in the other company. EXAMPLE OF SEC 184 ABC PVT LTD HAVING THREE DIRECTOR A,B AND C. THEY ARE ENTERING INTO A CONTRACT OF SALE WITH PQC LTD HAVING DIRECTOR P,Q,C HENCE MR.C SHOULD DISCLOSE THEIR INTERST IN THE PQC LTD BEFORE CONTRACT OF SALE.