Section 182 of the Indian Contracts Act, 1872 says that “An ‘agent’ is a person employed to perform an act for another or to represent another in dealings with a third person. represented is called the principal”

When one employs another to do an act for him or to represent him in dealings with third parties, the person so employed is called an agent. In English legal theory, the agent is a connecting line between the principal and third parties. It is an intermediary that has the power to create legal relationships between the principal and third parties.

Dried. 2(13) of the Companies Act 1956 defines that “‘director’ includes any person holding the office of director by any name called”

Thus, a director is a person legally appointed to be part of the Board of Directors of a company duly constituted to direct, control and supervise the activities and affairs of a company. The directors of a company are under the gaze of the legal agents of the company for which they act and the general principles of the law of principal and agent regulate in most aspects the relationship between the company and its directors. (Somayazula vs. Hope Prodhome & Co. (1963) 2 Year WR 112.)
The agency test is whether the person intends to transact on behalf of the principal or not. To set up an agency it is not necessary to have a formal agreement.

A director of a company is not necessarily the agent of the company or its shareholders, but the true position of the directors of a company may be that of agents of the company with powers and duties to carry on all of its business, subject to the restrictions imposed by the statutes. A Director or a delegated administrator cannot be a servant of the company; You can be an agent of the company to carry out your business. What it actually is will depend on the facts and circumstances of each case. Generally speaking, neither the board of directors nor an individual director is, as such, an agent of the company, or the corporation, or its members. Under modern law, all management powers, except those expressly reserved to shareholders at a general meeting, are vested in the board of directors, which has the power to appoint officers who are subject to the supervision and control of the board. Board members are similar to agents in that they act on behalf of others, and are fiduciaries due to duties of loyalty and care. However, these duties are owed to the corporate entity itself and not to the shareholders. An individual director, as such, is even less like an agent than the board as a body. Even when he acts as a member of the board, he does not act as an agent, but as one of the group that supervises the activities of the company. However, he may be appointed agent of the incorporated entity.

Director as Agent: The Madras High Court noted that normally a director is not an agent of the Company, but when he acts as a director in charge and communicates with another party to enter into a contract, he will act as an agent. As such, the responsibility lies with the company and not with the agent personally. (Puddokottah Textiles Ltd. v. BR Adityan (1975) 88 Mad. LW 688, 790)
The court has the power under its equitable jurisdiction to award interest when a person in a fiduciary position, such as the Director of the Company, misuses money he controls in his fiduciary capacity. Provided that the transaction in which the money was used was of a commercial nature, the court will presume that it was profitable and the court will adequately compensate for the profits that are supposed to have been made. (Wallersteiner v. Moir (1975) 1 All ER 849, 865)
The Supreme Court has thus described the position of Director,
“The Director of a Company is not a servant but an agent to the extent that a company cannot act on its own but only through its directors, who as a Company have an agent relationship with the principal”. (Ramprasad Vs. Income Tax Commissioner (1973) A. Sc. 637, 640; Income Tax Commissioner Vs. Man Mohandas (1966) A. Sc. 743; 59, ITR – 699)
A CEO may have dual character. It can be both director and employee. He not only has the personality of a director, but also that of an employee or agent, depending on the conditions of his employment and the company’s statutes. The term ’employee’ is easy enough to cover both of these relationships.
An agent, although bound to exercise his authority in accordance with the legal instructions given to him, is not subject to the direct control and supervision of the principal. A managing director of a company, if he is to act on the instructions of a board of directors, is a servant.

A Director General has two functions and two capacities. As CEO, he has a contract with the company and this contract is an employment contract. More specifically it is a service contract and not for service.

A director of a company is not necessarily an agent of the company or its shareholders. If he acts as an agent, he must say so specifically. Thus, when a director did not make such an allegation in his written statement, he is deemed to have acted in his personal capacity. Therefore, Sections 230 and 235 of the Contract Law do not prohibit a lawsuit against him alone. (Raja Ram Jaiswal vs. Ganesh Parshad, AIR 1959 All 29)

CEO for his own benefit: A CEO appointed for ten years resigned from his position that the company refused to accept and therefore remained in service. While ostensibly on duty, placing orders with the company’s suppliers and dealing with customers, it was a breach of duty, fidelity and good faith as a Director not to personally benefit from contracts ostensibly entered into on behalf of the company. (Thomas Marshall Exports Ltd. v. Guinde (1978)) A Master is liable for his servant’s damages committed during the course of his employment, regardless of whether the Master derives any benefit. The function of an agent is to enter into relationships on behalf of its principal with third parties. He acts at his discretion and judgment, but within the limits of his authority.

As a company is a legal person and can only contract through its agents, the normal way of signing is to use the words “on behalf of” such and such a company before the signature of the signing agent, and if an agent If you sign this way, you will not be held personally responsible. Directors are agents of the company to the extent of the authority delegated to them. Therefore, when directors enter into a contract on behalf of the company, or with the intention of binding it, it is the company – the director – that is liable and not the directors. Directors are not personally liable unless it appears that they have assumed personal responsibility.

Directors are not personally liable under any lawful contract entered into in the proper exercise of their authority. The directors bought goods for their company and agreed with the supplier to assign obligations for the price. Before the debentures could be issued, the company went into liquidation. The provider was not required to hold the directors personally liable under the contract (Elkington & Co. v. Hurter, (1982) 2 Ch 452).

In another case, when its directors and majority shareholder appointed an accountant to the company and he subsequently, acting as director, removed the accountant, he was not held responsible for compensating the accountant because he had acted only as an officer of the company but was not responsible. of the costs and expenses of the litigation of the accountant. This is because the litigation was solely due to his conduct acting in a high-handed manner (Schouls v. Canadian Meat Processing Corporation, [1980- 1984] LRC (Communication) 778).

Section 226 of the Indian Contracts Act assumes that the contracts or acts of the agent are one which, between the principal and a third person, is binding on the principal. If the contracts are entered into or the act is performed on behalf of the principal and is within the real authority of the agent, there is no difficulty. As for the contracts and acts that are not really authorized, the principal can be bound by them in principle of estoppel, if they are within the scope of the ostensible authority of the agent; but in no case is he bound by any unauthorized act or transaction in respect of persons who have knowledge that royal authority is being exceeded. Therefore, no act performed by an agent in excess of his actual authority binds the principal with respect to persons who have knowledge that the act is unauthorized. An agent who was appointed by a power of attorney borrowed money on faith in a representation made by him that the power of attorney gave him full authority to borrow and misapplied it. The agent produced the power of attorney, which did not authorize the loan, but the lender did not read it and made the advance relying on the agent’s representation. It was held that the lender should be considered to have been made aware of the terms of the power of attorney and that the principal was not bound by the loan. (Jacobs v. Morris (1902) 1 Ch 816) With respect to Sec. 238 of the same Act, which deals with the effect on the agreement of false statement or fraud by the agent, binds the principal for such acts of the agent that they have the same effect as if the principals had committed the fraud or misrepresentation. But false statements or fraud committed by agents in matters that are not their responsibility do not affect their principals.

While negotiating a contract for his company, a director must make it clear to the other party that the contract will be entered into by the company and not by the director personally. If he does not do so and the other party believes that he is contracting with the director or representative and not with the company, the contract they enter into will be personal and he will be personally responsible for the fulfillment of the promises made. (Bridges & Salmon Ltd. vs. The Swan (Owners), (1968) 1 Lloyds Rep 5)

Written and presented by:-
BASAL STUDY
IV year, BBALL.B
symbiosis Law School,
pune