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Business Law Assignment – Liability of Directors MFM-1022, Batch- 2010-13

Liability of Directors
1.0 Introduction:-
Directors are the agents of the Company. When company does transactions its directors
who enter into on behalf of the Company. Let see what the characteristics is of to be
Director of a company
 Directors are not agents for individual shareholders or members.
 He should be the an employee, a servant or even a worker of the company
 A Director occupies the position of a trustee, though he is not a trustee in the strict
sense in respect of the Company’s properties and funds. His liabilities arises
because of;
a) Agents or Officers
b) Trustee or
c) Fiduciary relation with the Company or its shareholders
d) Liabilities are in contract
e) Tort
f) Under the criminal law
g) Others are statutory, i.e., under the Companies Act, 1956 and other laws,
h) Court can decide the liability of Directors on his position as a whole

2.0 Definition Liability of Directors:-

Directors are usually not personally liable for ultra vires acts (or for the intra vires acts
that exceed the powers vested in them), but may be sued by the stockholders
(shareholders) for breach of the directors' duties. They are also generally not liable for
errors of judgment, but may be sued for negligence by third-parties or stockholders.
However, they are held strictly liable for failure to withhold and/or remit withholding
taxes such as employee source deductions, and sales and commodity taxes such as
general sales tax or value-added tax.1

3.0 Statutory Analysis:-

Obligations and liabilities of Directors Under the Companies Act, 1956.
Section Requirements thereof
58A To deposits received in contravention of Section 58A
62 Civil liability for mis-statements in prospectus
63 Criminal liability for mis-statements in prospectus.
compensate the company and the allottee for any loss, damages or
71(3) costs in consequence of contravention of any of the provisions of Section
69 or Section 70 with respect to allotment.
To repay all moneys received from applicants for the shares or debentures
in pursuance of the prospectus, with due interest at the rate of 4% to 15%
73(2) per annum as may be prescribed depending on the delay, if the company
fails to repay them within 8 days as provided in sub-section (2) of Section
Source : http://www.businessdictionary.com/

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Business Law Assignment – Liability of Directors MFM-1022, Batch- 2010-13

To sing the copy of the annual return to be filed with the Registrar under
161 Section 159 or 160 as well as the certificate (additional certificate in the
case of a private company) specified in sub-section (2) of Section 161.
162 To comply with provisions relating to annual return.
To comply with Section 165 in connection with the statutory meeting and
statutory report of the company.
To comply with Section 169 in connection with the extraordinary general
169 meeting on requisition, and to repay any reasonable expenses incurred by
the requisitionists for failure by the board of directors to call that meeting
To file with registrar declaration by persons not holding beneficial interest
in any share.
197A Not to employ more than one category of managerial personnel.
203 Not to act as director in certain case.
To transfer unpaid dividend account to special dividend account; not to
declare dividends out of reserves except in certain cases; to transfer
dividends unpaid or unclaimed for seven years to the Investor Education
and Protection Fund.
To Keep the dividend in special account or to pay the transferee duly
206 A
authorised by the transferor, pending registration.
To take all reasonable steps to secure compliance with the requirements
209 (5)
of Section 209 regarding book of account to be kept by the company.
209 A To produce book of account etc. before persons making inspection.
To take all reasonable steps to comply with the provisions of Section 210
210 (5) as to the laying before the company the annual account, balance
To approve the balance sheet and profit and loss account before they are
215 submitted to the auditors for their report thereon, and to authenticate them
as provided in Section 215.
To take all reasonable steps to comply with the provisions of Section 217
regarding the report of the board of directors
233 B To give assistance and provide facilities to Cost Auditors.
To sign and file with company and Registrar a consent in writing to act as
264 a director of a public company or its subsidiary private company and to
/266 comply with clause (b) of Section 266(1) relating to his qualification
To obtain his qualification shares within tow months after his appointment
as director of a public company or its subsidiary private company.
Not to hold office as director, save as otherwise provided in Section 276,in
more than 15 companies.
Not to give political contributions in case of Government companies and/or
the companies which are in existence for les than three financial years. In
case of other companies, not to give donation in excess of 5% of average
of last 3 years net Profits.
Not to receive any loan from a public company or its subsidiary private
company of which he is direct, in contravention of Section 295.
To obtain sanction of the board of directors for entering into a contract with
297 the company, (a) for the sale, purchase or supply of any goods, materials
or services, or (b) for underwriting the subscription of any shares in, or

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Business Law Assignment – Liability of Directors MFM-1022, Batch- 2010-13

debentures of the company.\

To disclose the nature of his concern or interest in a contract or proposed
299 contract with the company, at a meeting of the bard of directors. For
details, wee Section 299.
Not to participate, or vote in the board’s proceedings of a public company
or its subsidiary private company in respect of contracts or arrangements
mentioned in Section 299. For exception see sub-Sections (2) and (3) of
Section 300.
To disclose to the company, within 20 days of his appointment to, or
relinquishment of office, the particulars relating to the office in any other
body corporate which are required to be specified under sub-Section (I) of
Section 303
To give notice to the company of his shareholdings in other bodies
corporate and such other matters relating to himself as may be necessary
for the purpose of enabling the company to comply with the provision of
Section 307.
Not to receive remuneration in contravention of Section 309 and
309 Schedule XIII read with Section 198. This provision does not apply to a
private company unless it is subsidiary of a subsidiary of a public company
To obtain approval of the Central Government for any provision for
increase of his remuneration in case such increase is not in accordance
with Schedule XIII. This provision also does not apply to private company
unless it is subsidiary of a public company.
312 Not to assign his office of director
Except with the previous consent of the company by a special
resolution,not to hold any office or place of profit, (a) under the company,
314 or (b)under any subsidiary of the company, except that of managing
director,manager, banker or trustee for the debenture-holders of the
Not to receive payment by way of compensation for loss of office or as
consideration for retirement form office. However, Managing
318 Director,Manager, or whole-time director can receive compensation in
accordance with provisions of sub-section 4 provided none of the events
specified in sub-section 3 have taken place.
Not to receive, in connection with the transfer of the whole or any part of
the undertaking or property of the company, any compensation for the loss
of, or retirement from, office (a) from such company, or (b) from the
319 transferee of such undertaking or property of for many other person unless
particulars of the payment proposed to be made by such transferee or
person have been disclosed to, and the proposal has been approved by
the company in general meeting.
Not to receive any compensation for loss of, or retirement from office, in
connection with the transfer to any person of all or any of the shares in a
320(1) company, being a transfer resulting from any of the offers specified in
clauses (i) to (iv) of Section 320(1), (a) from such company, or (b) from the
transferees of the shares or from any other person.
In the case referred to in clause(b) of Section 320(1), to take all
reasonable steps to secure that particulars with respect to the payment

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Business Law Assignment – Liability of Directors MFM-1022, Batch- 2010-13

proposed to be made by the transferees or other persons are included in

or sent with, any notice of the offer made for their shares which is given to
any shareholder, see Section 321 also in this connection
383A To appoint secretary where applicable.
478/519 To be publicly examined under Section 478 or Section 519.
In a proposed members‘ voluntary winding-up, to make a declaration of
solvency in compliance with Section 488.
To be personally responsible for debts and other liabilities of the company
where business of the company has been carried on with intent to defraud
creditors of other persons or for any fraudulent purpose.

To repay of restore the money or property of the company with interest or

to contribute sums to the assets of the company by way of compensation
in respect of any misapplication, retainer, misfeasance or breach of trust
mentioned in Section 543.

Matters Wherein A Director has Personal Liability Under the Companies Act, 1956
Section Event when there is personal liability
Every member of a company, association or partnership carrying on
11 (4) business in contravention of Section 11 shall be personally liable for all
liabilities incurred in such business.
Members of company are severally liable for debts where business is
45 carried on with fewer than two members in the case of a private company,
and fewer than seven members in the case of any other company.
62 & To pay compensation by a director or other person specified in clauses (a)
607 to (d)
Of Section 62(1) to every person who subscribes for any shares or
607 debentures on the faith of the prospectus containing any untrue statement
By the directors to repay money with interest at 6 percent per annum
69(5) received form applicants for shares, if the provisions of Sec tion 69 are not
complied with.
In case of contravention by a director of any of the provisions of Section 69
71 (3) or 70 with rest to allotment, he is to compensate the company and the
allottee for any loss, damages or costs which they have sustained thereby.
If the moneys received from applicants in pursuance of the prospectus are
not repaid by the company as provided in sub-Section (2) of Section 73,
the directors are to repay the same with the interest at the rat between 4%
to 15% per annum as may be prescribed1 on the delay.
An officer of company or any person on its behalf doing any of the cats
147 (4)
specified in clauses (a) to (d) of Section 147 (4)
All persons who are knowingly parties to any contravention of Section
295 (5) 295(1) or Section 295(3) shall be liable, jointly and severally, to the lending
company for the repayment of the loan.
If any office or place of profit under the Company or its subsidiary is held
in contravention of Section 314(1), the director concerned shall be liable to
314 (2)
refund to the company any remuneration received or the monetary
equivalent of any perquisites or advantages so enjoyed by him

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Business Law Assignment – Liability of Directors MFM-1022, Batch- 2010-13

All persons who are knowingly parties to any contravention of Section 369,
370 or 370A regarding loans to companies under the same management
371 (2)
shall be liable, jointly and severally, for the repayment of the loan or other
sum mentioned in sub-Section (2) of Section 371.
Persons who are knowingly parties to the carrying on of business with
intent to defraud creditors of the company or any other person or for any
fraudulent purpose shall be personally responsible, without any limitation
of liability, for all any of the debts or other liabilities of the Company.
For any misapplication of retainer of any money or property of the
company, or misfeasance or breach of trust in relation to the company, a
543 promoter, any past or present director, manager, liquidator or officer of the
company are to repay or restore the money or property with interest or to
contribute sums to the assets of the company by way of compensation.
The liability under Section 542 and 543 extends or partners or directors in
the firm or the company.
If a voluntary liquidator retains for more than 10 days a sum exceeding
Rs..500 or such other amount as the court authorises him to retain, he is
(a) to pay interest at 12 per cent per annum or the amount so retained and
553 (2)
also to pay such penalty as may be determined by the Registrar; (b) to pay
any expenses occasioned by his default; and (c) to have his remuneration
Any liquidator retaining any money which should have been paid by him to
the companies Liquidation Account under Section 555, (a) to pay interest
555 (9) at 12 per cent per annum on the amount retained and also such penalty as
may be by the Registrar; and (b) to pay any expenses occasioned by his

4.0 Judicial Analysis and the Types of Liabilities:-

4.1 Contractual Liability: -
Directors are bound to use fair and reasonable diligence in discharging the duties and to
act honestly, and act with such care as is reasonably expected from him, having regard to
his knowledge and experience.
 In R.K. Dalmia and others v. The Delhi Administration it was held that "A
director will be personally liable on a company contract when he has accepted
personal liability either expressly or impliedly. Directors are the agents or the
trustees of a Company.”
Express liability will usually arise only when a director has personally guaranteed the
performance of a contract. Implied liability will arise when a director signs a contract for
the Company or mentioning the name but failing to add the vital word "limited" or its
abbreviation. This rule rests on the ordinary principle of agency that where an agent
enters into a contract without disclosing that he is acting as agent he accepts personal
 In the case of Penrose v. Martyr a bill was addressed to a company and omitted
the word Limited in describing it. The defendant (Secretary to the Co.) signed the
acceptance and was held to be personally liable by the Court of Exchequer

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Business Law Assignment – Liability of Directors MFM-1022, Batch- 2010-13

 As far as fiduciary duties/obligations are concerned, any breach by any director

would visit them with liability. Our Supreme Court has considered this issue of
fiduciary liability. It has been observed in Official Liquidator vs. PA Tendulkar.

4.2 Pre- Incorporation Liability:-

A Company cannot make a contract before it is incorporated because, before
incorporation, it has no legal existence. Therefore, a Company after incorporation cannot
ratify a contract previously made. It must make a fresh contract. But, those who act on
behalf of the unincorporated company may find themselves personally liable.
 In Kelner v. Baxter the Court of Common Pleas held that where a person purports
to sign a contract as agent, but has no principle in existence at the time, he is
personally responsible.

4.3 Liability of Directors for Torts of the company: -

Directors as such are not liable for the torts or civil wrongs of their company. To make a
person liable for a tort, e.g. for
 Negligence,
 Trespass,
 Nuisance
 Defamation it must be shown that he was himself the wrongdoer
 That he was the employer
 Principal of the wrongdoer in relation to the act complained of,
 That the tort was committed on his instructions.

4.4 Civil Liability to the Company:-

Director’s liability to the Company may arise where
 The directors are guilty of negligence,
 The directors committed breach of trust,
 There has been misfeasance and
 The director has acted ultra vires and the funds of the company have been applied
for such an act.
 A director is required to act honestly and diligently applying his mind and
discharging his duties as a man of prudence of his ability and knowledge would
do. It has been explained in the duties of directors as to what is standard or due
care and diligence expected from him as explained by Justice Romer in Re City
Aquintable Fire Insurance Company.
 Any willful misconduct or culpable negligence falls within the category of
misfeasance. It was held in Duomatic Ltd, Re-
"A director has to act in the way in which a man of affairs dealing with his own
affairs with reasonable care, and circumspection could reasonably be expected to
act....” Therefore, Directors would decidedly be liable for omitting to do what
they could have done in the circumstances.
 A Director is liable to make good with interest all amount paid from time to time
out of the funds of the company for the purchase of shares of the company. He is
not entitled to spend money for a purpose not covered by the Memorandum of
Association although such payment is sanctioned by the Board of Directors and

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Business Law Assignment – Liability of Directors MFM-1022, Batch- 2010-13

by the majority of shareholders. A shareholder can maintain an action against the

director to compel them to restore to the company its funds employed in
transactions that the directors have no authority to enter into. The funds of the
company cannot be used by the Directors to pay their litigation costs, although
these would not have been incurred if they had not been directors. A Director will,
however, not be liable for any such unlawful act if he had no knowledge of such

4.5 Liability of co-director’s defaults: -

A director is bound by the maxim delegatus non-potest delegare. Shareholders appoint
him because of their faith in his skill, competence and integrity and they may not have
the same faith in another person.
 It was held in the case of J.K. Industries v. Chief Inspector of Factories that the
directors being in control of the company’s affairs cannot get rid of their
managerial responsibility by nominating a person as the occupier of the factory.
The rule is, however, not inflexible.
 The Act or Articles of Association of the Company may make a delegation of
functions to the extent to which it is authorized. Also, there are certain duties,
which may, having regard to the exigencies of business, properly be left to some
other officials. A proper degree of delegation and division of responsibility is
permissible but not a total abrogation of responsibility.
 A director might be in breach of duty if he left to others the matters to which the
Board as a whole had to take responsibility.
 Directors are responsible for the management of the company and cannot divest
themselves of their responsibility by delegating the whole management to agent
and abstaining from all enquiries. If the latter proves unfaithful, the liability is that
of the directors as if they themselves had been unfaithful.

4.6 Tax Liability:-

Under Section 179 of the Income Tax Act 1961, when any private company is wound up
and the tax assessed cannot be recovered, then every person who was a director of the
private company shall be jointly and severely be liable for the payment of such tax.
 Where the bank account of a Director was frozen for recovering income tax dues
of the Company, it was held in Gurudas Hazra v. P.K.Chowdhury that it was for
the Director to show that the default on the part of the company was not
attributable to any breach of duty on his part.
 The case of Peter J R Prabhu v. Asstt Commissioner of Commercial Taxes stated
that apart from any provisions of the taxing statute, arrears of the tax amount are
not to be recovered from the directors personally.

4.7 Directors with unlimited liability:-

The liability of the directors like the shareholders is limited to the extent of the shares
held by them remaining unpaid. A limited liability can make the liability of any or all of
its directors unlimited. A provision to this effect has to be contained in the Memorandum.
that a person who becomes director after incorporation of such a clause will have
unlimited liability.

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Business Law Assignment – Liability of Directors MFM-1022, Batch- 2010-13

5.0 Statutory Liability: -

5.1 Misleading Prospectus: -
A director is liable to compensate a person who has subscribed shares on the faith of a
prospectus, which contained untrue statement. The Director should compensate every
such subscriber for any loss or damage he may have sustained by reason of such untrue
statement in an action in tort and also under section 62 of the Act to pay compensate. If
the Director discovers a mistake in the prospectus, it is his duty to specifically point it
out. The Director may also have to face criminal prosecution for untrue statement in the
prospectus. He may be imprisoned for two years and fined Rs.5000.

5.2 Inducement to invest:-

The Directors are liable to criminal prosecution for inducing or attempting to induce a
person by statement or even forecast which is false or misleading to enter into or to offer
to enter into any agreement to buy shares of the company. They shall be punishable with
imprisonment for a term which may extend to five years, or with fine which may extend
to Rs.10,000, or with both.

5.3 Maintenance of proper books of accounts: -

Where directors manage a company then each director shall be responsible (if there is no
managing director) that the company should maintain and keep proper books of account.
Default or non-compliance will make the Director punishable with imprisonment for a
term not exceeding six months or fine of Rs.100 or both. In the event of winding up,
failing to keep proper accounts will make him punishable with one-year imprisonment
and for falsification of book imprisonment for eight years.

5.4 Annual General Meeting: -

Directors must hold the meeting even though the accounts are not ready or the company
is not functioning or the management of the business is vested in the Central
Government. The holding of the meeting must be within the period of 15 months after the
preceding annual general meeting (AGM). The Board of Directors shall at the meeting
lay a balance sheet and a profit and loss account for the financial year. For default, the
Directors are liable to be punished with imprisonment for a term of six months and fine
of Rs.1,000.

5.5 Liability on winding up: -

A Director of a company in liquidation must co-operate with the liquidator in realizing
the assets of the company and distributing them among the creditors and contributors of
the company. If they fail to do so they are liable to imprisonment, which may extend to
five years and fine.
Therefore, Directors are liable for theft of the company’s property or for false accounting.
Directors are liable to prosecution on several issues. There are more than 150 sections
dealing with criminal or penal liability of the Directors and other officers of the company.
Some of these provisions have been listed and explained above.

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Business Law Assignment – Liability of Directors MFM-1022, Batch- 2010-13

5.6 Special statutory protection against liability: -

 The Act extends special protection against a liability that may have been incurred
in good faith. A good illustration here will be to cite an early case of Claridge’s
Patent Ashphalt Co, Re where the Court said that the Directors were acting for the
benefit of the company and took the best advice from the company’s solicitor and
thus were not held liable.
 The Bombay High Court in the case of Gautam Kanoria v. Asstt ROC also
granted relief to the Directors where the AGMs could not be held and annual
returns could not be filed due o the takeover of the company by the Government
and the matters being beyond their control. The totality of the circumstances has
to be examined for considering whether relief is to be allowed or not.
 It was also observed in Om Prakash Khaitan v. Shree Keshariya Investment Ltd
that it would be proper to relieve directors of consequences of defaults and the
breaches unless they are directly involved in the acts or omission complained of
or have otherwise not acted honestly or reasonably or have financial involvement
in the company.

5.7 Examle:Royal British Bank v Turquand:-

Cypriot law follows the UK common law laid down in Royal British Bank v Turquand.
This law provides that a contracting party to an agreement with a company is entitled to
assume that the contract has been executed in accordance with the company’s internal
regulations. The third party is not obliged to know about any inter-company breach or
non-compliance with internal rules.
The rule of Royal British Bank v Turquand generally applies when:
 The party relying on the exception does not know, could not know or was not
obliged to know that the relevant transaction was not in accordance with the
company’s memorandum of association;
 It is not apparent from the circumstances of the case that the third party should
have carried out any research regarding the transaction;
 The agreement is not fraudulent; and
 The decision did not need to be submitted by agreement to the company registrar.
Directors’ Liability and Consequences:-When the corporate veil is lifted, directors that
have bound the company by exceeding their powers as provided in the company’s
memorandum of association and articles of association are personally liable with respect
to the company. Such ultra vires acts are rendered void.

6.0 Liability Avoidance:-

There are three ways directors can reduce the risk of liability - due diligence, disclosure
of personal interests and self defense.

6.1 Due Diligence:-

Mistakes happen. Directors will not be liable for errors made in circumstances where they
acted honestly, in good faith and made reasonable efforts to make an informed decision
that was in the association's interests. Simply put, assume some directors face personal
lawsuits because they made a bad decision. If the bad decision was made after due
diligence, the directors should be all right.

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Business Law Assignment – Liability of Directors MFM-1022, Batch- 2010-13

Due diligence can be established if the record or evidence shows the directors made an
informed decision. This is demonstrated by:
 Obtaining necessary information relating to the issues involved;
 Examining the information;
 Making inquiries;
 Where appropriate, seeking outside professional advice; and
 Taking the time necessary to ensure that the decisions are informed decisions.
It helps if directors put in place systems to address compliance and that the systems are
periodically reviewed for adequacy. That is why a Director's Handbook, including
various check sheets, are commonly developed by societies and associations. Of course,
if check sheets are available and not followed, then the directors will likely pay.

6.2 Disclosure of Personal Interests:-

Directors must disclose any personal interest they may have in association dealings at the
first opportunity in writing. Alternatively, the director can disclose the interest orally and
request the nature and extent of the interest to be entered in the minutes of a meeting.
A director with a material interest must not vote on any resolution to approve the contact.
If a director or officer does not disclose his interest and the contract is approved then:
 The contract could be voided because the conflicted director is present or even
just counted in determining the quorum at the meeting authorizing the agreement;
 The director could have to pay the association any profit he made from the
It is a good idea for the association to maintain a register of disclosures. The register
should be open to examination by members as well as directors.

6.3 Self defense:-

A director who is present at a directors' meeting is deemed to have consented to
resolutions passed or actions taken unless:
 The director requests that an abstention or dissent be entered in the minutes;
 The director sends written dissent to the secretary of the meeting before the
meeting is adjourned;
 The director sends a dissent by registered mail or delivers it to the registered
office of the association immediately after the meeting is adjourned, or
 The director otherwise proves that he or she did not consent to the resolution or
A director who votes for or consents to a resolution or action is not entitled to dissent. So,
if you think the Board is wrong, it is not enough to abstain - vote against the motion and
make sure the vote is recorded.

6.4 Indemnity and Insurance:-

There are steps that can be taken to shield a director from paying for mistakes.
Unfortunately, the protection only helps the wallet. The hassle, inconvenience and waste
of time incurred dealing with the problem still remains.
An association may indemnify a current or former director or officer against all costs,

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Business Law Assignment – Liability of Directors MFM-1022, Batch- 2010-13

charges and expenses, including an amount paid to settle an action or satisfy a judgment,
reasonably incurred by the director in respect to any civil, criminal or administrative
action if:
 The director acted honestly and in good faith with a view to the best interests of
the association; and
 In the case of a criminal or administrative action that is enforced by a fine, the
director had reasonable grounds for believing his or her conduct was lawful.
A couple of things can be done to ensure that a director does not face personal loss. First
the association's by-laws should state that if a director's actions meet the statutory
fiduciary requirements, the director would be indemnified. Second, protection for a
director may be improved by an agreement for indemnification between the director and
the association.
Now the only problem is whether or not the association has the money to pay the director
back. This leads to the topic of directors' insurance.

6.5 Insurance:-
An association may purchase and maintain insurance for the benefit of current and former
directors against liability incurred in the capacity as a director or officer of the
association. Of course, the general exception still applies. The director must act honestly
and in good faith and in the best interests of the association, otherwise the insurance will
not cover the problem.
6.6 Risk Management:-
Risk management is not buying insurance or winning lawsuits. It is protecting and
conserving the association's resources and providing membership services sensibly. The
purpose of risk management is to improve your operations by having risks acknowledged
and controlled. Remember, insurance should be the last decision - not the first - otherwise
it is substituting action for thought.

6.7 Acting as a Director:-

If a director has to act in a responsible manner of an incorporated non-profit organization,
follow these steps:
 Attend all board meetings.
 Ensure that you receive and read, prior to meetings, all documents and reports on
which voting will take place.
 Review with care all minutes of the meetings.
 Keep notes of your impressions of the meetings.
 Keep a notebook of all minutes and other important documents.
 Insist on written professional opinions from specialists on whose advice the Board
is expected to act on.
 Insist the minutes record any disclosure, dissent, or refrain from voting by you or
any other member of the Board.
 Vote against any disbursement if there is a question of the insolvency of the
 Send a letter by registered mail to the non-profit corporation if the Secretary or
Chairperson refuses to record your disclosure, dissent or refrain from voting.

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Business Law Assignment – Liability of Directors MFM-1022, Batch- 2010-13

 Know the nature and extent of the association by-laws and policies.
 Install internal controls to oversee cheques and execution of contracts.
 Maintain a director's manual containing all corporate documents and relevant
information, and ensure that is kept up to date.
 Comply with the duty of confidentiality for all corporate information.

7.0 Conclusion: -
Accountability is an important element of Board effectiveness. There should be some
mechanism for evaluating the performance of the directors. The extent of liability of a
director would depend on the nature of his directorship. In applying the general equitable
principles to company directors, four separate rules have emerged. They are
1. That directors must act in good faith in what they believe to be the in the best
interest of the company
2. They must not exercise powers conferred upon them for purposes different from
those for which they are conferred.
3. That they must not fetter their discretion as to how they shall act and
4. That without the informed consent of the company, they must not place
themselves in a position in which their personal interests or duty to other persons
are liable to conflict with the duties to the company.

Three propositions in regard to the duties and responsibilities of directors:

1. A director need not exhibit, in the performance of his duties, a greater degree of
skill than may reasonably be expected from a person of his knowledge and
2. A director is not bound to give continuous attention to the affairs of his company,
his duties being of an intermittent nature to be performed at periodical board
meetings or committee meetings.
3. In respect of such duties as may be properly left to some other official having
regard to the exigencies of business or the articles of association of the company,
a director is, in the absence of grounds for suspicion, justified in trusting that
official to perform such duties honestly.

8.0 Bibliography:-
1. A Manual of Business Law (2008) by Dr.S.N.Mahashewari &
Dr.S.K.Mahashewari,Himalaya Publishing House
2. Introduction To Company Law (2008) by Avtar Singh, Eastern Book Company.
3. http://www.legalservicesindia.com/articles/dl.htm
4. http://www.businessdictionary.com/
5. Isehwar Consultant House of Consultant & IPR Law

Oriental Institute of Management, Vashi Campus 12