Sec 182.of the Indian Contract Act, 1872 says that “An ‘agent’ is an individual employed to do an act for one more or to characterize one other in dealings with third individual. The individual for whom such act is finished, or who’s so represented, known as the principal”
The place one employs one other to do an act for him or to characterize him in dealings with third events, the individual so employed known as an agent. Within the concept of the English regulation, the agent is a connecting line between the principal & third events. He’s an middleman who has the ability to create authorized relationships between the principal and the third events.
Sec. 2(13) of the Firms Act, 1956 defines that “‘director’ contains any individual occupying the place of a director by no matter identify known as”
Thus, director is a person lawfully appointed to the Board of Administrators of an organization which is duly constituted to direct, management and supervise the actions and affairs of an organization. Administrators of an organization are within the eye of regulation brokers of the corporate for which they act and the overall rules of the regulation of principal and agent regulate in most respects the connection of the corporate and its administrators. (Somayazula vs. Hope Prodhome & Co. (1963) 2 An W.R. 112.)
The check of company is whether or not the individual is purporting to enter into transaction on behalf of the principal or not. To be able to represent an company, it isn’t essential to have a proper settlement.
A director of an organization isn’t essentially the agent of the corporate or of its shareholder, however the true place of the administrators of an organization could that be of brokers for the corporate with powers and duties of carrying on the entire of its enterprise, topic to the restrictions imposed by the Articles of Affiliation. A Director or a managing director is probably not a servant of the corporate; he could also be an agent of the corporate for carrying on its enterprise. What he’s in actual fact will rely on the details and circumstances of every case. Typically talking, neither the board of administrators nor a person director is, as such, an agent of the corporate, or the company, or its members. Below fashionable laws, all powers of administration, besides these expressly reserved to the shareholders typically assembly, are vested within the board of administrators, who’ve powers to nominate officers who’re topic to the supervision and management of the board. Members of the board resemble brokers in that they act on behalf of others, and are fiduciaries owing to the duties of loyalty and care. Nonetheless, these duties are owed to the company physique itself slightly than to the shareholders. A person director, as such, has nonetheless much less resemblance to an agent than has the board as a physique. Even when he acts as member of the board, he doesn’t act as an agent, however as one of many group which supervises the actions of the company. Nonetheless, he could also be appointed an agent of the included physique.
Director as an agent: The Madras Excessive Court docket noticed that usually a director isn’t an agent of the Firm however the place he acts as a director- in- cost and corresponds with one other social gathering to convey a couple of contract he’ll act as an agent. As such the legal responsibility is of the corporate and never the agent personally. (Puddokottah Textiles Ltd. vs. B.R. Adityan (1975) 88 Mad. L. W. 688, 790)
The court docket has energy below its equitable jurisdiction to award curiosity at any time when an individual in a fiduciary place, equivalent to Director of Firm, misuses cash that he controls in his fiduciary capability. At any time when the transaction by which the cash used was of a industrial nature the court docket will presume that it was worthwhile and the court docket will give satisfactory compensation for the income assumed to have been made. (Wallersteiner vs. Moir (1975) 1 All E.R. 849, 865)
The Supreme Court docket has described the workplace of a Director thus,
“The Director of a Firm isn’t a servant however an agent inasmuch as an organization can’t act in its personal individual however solely by its administrators, who qua the Firm have a relationship of an agent to the principal.” (Ramprasad Vs. Commissioner of Revenue Tax (1973) A. Sc. 637, 640; Commissioner of Revenue Tax Vs. Man Mohandas (1966) A. Sc. 743; 59, I.T.R. – 699)
A managing Director could have a twin capability. He could each be a director and an worker. He has not solely the persona of a director but additionally the persona of an worker or an agent relying on phrases of his employment and the Firm’s Articles Affiliation. The time period ‘worker’ is facile sufficient to cowl each these relationships.
An agent although sure to train his authority in accordance with lawful directions given to him isn’t topic to the direct management and supervision of the principal. A Managing Director of a Firm if he’s to behave below the instructions of a board of Administrators is a servant.
A Managing Director has two capabilities and two capacities. As a Managing director he’s below a contract with the corporate and this contract is contract of employment. Extra particularly it’s a contract of service and never for service.
A Director of a Firm isn’t essentially an agent of the corporate or its shareholders. If he acts as an agent he should particularly say so. So the place in his written assertion a director didn’t elevate such a plea, he’s deemed to have acted on his private capability. So a go well with in opposition to him alone isn’t barred by Sections 230 and 235 of the Contract Act. (Raja Ram Jaiswal vs. Ganesh Parshad, AIR 1959 All 29)
Managing Director benefiting himself: A Managing Director appointed for ten years resigned his submit which the corporate refused to just accept and due to this fact he was nonetheless in service. Whereas being ostensibly in service his putting orders with the corporate’s suppliers and dealings with clients, was breach of his obligation and constancy and good religion as Director to not profit personally by contracts ostensibly entered into on behalf of the corporate. (Thomas Marshall Exports Ltd. v. Guinde (1978)) A Grasp is answerable for the torts of his servant dedicated through the course of his employment no matter the grasp deriving any profit. An agent’s operate is to enter into relations on behalf of his principal with third individuals. He acts at his discretion and judgment however inside the limits of his authority.
As an organization is a man-made individual and may solely contract by its brokers, the traditional mode of signing is to make use of the phrases “on behalf of” so and so firm earlier than the signature of the agent signing, and if an agent so indicators, no private legal responsibility will connect to him. Administrators are brokers of the corporate to the extent of the authority delegated to them. Therefore, the place administrators make a contract within the identify of, or purporting to bind the corporate, it’s the company- the principal- which is liable on it and never the administrators. The administrators will not be personally liable except it seems that they took private legal responsibility.
Administrators will not be personally liable below a contract which is lawful and which they’ve made within the correct train of their authority. Administrators bought items for his or her firm and agreed with the provider to allot him debentures for the value. Earlier than the debentures might be issued, the corporate went into liquidation. The provider was held not liable to make the administrators personally liable below the contract (Elkington & Co. vs. Hurter, (1982) 2 Ch 452) .
In one other case, the place its administrators cum majority shareholder appointed an accountant for the corporate and he subsequently appearing as a director eliminated the accountant, he was held not liable to compensate the accountant as a result of he had acted solely as an officer of the corporate however he was answerable for the accountant’s prices and bills of litigation. It’s because the litigation was solely as a consequence of his conduct in appearing in a highhanded method (Schouls vs. Canadian Meat Processing Company, [1980- 1984] LRC (Comm) 778) .
Part 226 of the Indian Contract Act assumes that the contracts or act of the agent is one, which, as between the principal and third individual, is binding on the principal. If the contracts is entered into, or act achieved professedly on behalf of the principal and is inside the scope of the particular authority of agent, there isn’t a issue. With regard to contracts and acts which aren’t truly licensed, the principal could also be sure by them on the principal of estoppel, if they’re inside the scope of the agent’s ostensible authority; however in no case is he sure by any unauthorized act or transaction with respect to individuals having discover that the precise authority is being exceeded. Due to this fact no act achieved by an agent in extra of his precise authority is binding on the principal with respect to individuals having discover that the act is unauthorized. An agent who was appointed by an influence of legal professional, borrowed cash on the religion of a illustration made by him that the ability gave him full authority to borrow and misapplied it. The agent produced the ability, which didn’t authorize the mortgage, however the lender didn’t learn it, and made the advance in reliance on the agent’s illustration. It was held that the lender should be taken to have had discover of the phrases of the ability and that the principal was not sure by the mortgage. (Jacobs v. Morris (1902) 1 Ch 816) In regard to Sec. 238 of the identical Act, which offers with impact on settlement of misrepresentation or fraud by agent, makes the principal sure by such acts of the agent having similar impact as if the principals had dedicated the fraud or misrepresentation. However misrepresentations made or frauds dedicated by brokers in issues that don’t fall inside their authority don’t have an effect on their principals.
Whereas negotiating a contract for his firm, a director ought to make it clear to the opposite social gathering that the contract can be entered into by the corporate and never by the director personally. If he doesn’t do that and the opposite social gathering believes that he’s contracting with the director or agent and never the corporate, the contract they conclude can be a private one and he can be personally answerable for the achievement of the guarantees made. (Bridges & Salmon Ltd. vs. The Swan (Homeowners), (1968) 1 Lloyds Rep 5)
Written and submitted by: –
STUTI BANSAL
IVth 12 months, B.B.A.LL.B
Symbiosis Legislation Faculty,
Pune