Director’s Duty to Act Honestly and Shareholder’s Duty

Running Head: DIRECTOR’S DUTY TO ACT HONESTLY and SHAREHOLDER’S DUTY
DIRECTOR’S DUTY TO ACT HONESTLY and SHAREHOLDER’S DUTY
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Author’s Note

DIRECTOR’S DUTY TO ACT HONESTLY and SHAREHOLDER’S DUTY1
A company is an artificial person having all the rights and liabilities at par with a natural
person and such identity of the corporate body is recognized only by the way of established
legislation by the Parliament. However, the only distinction between a corporate body and a
natural person is that the corporate shall continue to exist unless been dissolved or declared
insolvent or been removed by the Registrar of Companies. Additionally, the company cannot
function on its own. Therefore, the directors are appointed to the companies, the position of the
directors in a company is same as that of a soul or brain of the person. Therefore, it can be said
that the directors are the brains and soul of the company. Thus, they are under the obligation to
act only in good faith and interest of the company and not conflict their personal interest with
that of the company. Shareholders are the members of the Company who own one or more
shares of the company imbibing them the position of an owner in the company. Therefore, if a
company does well, shareholders earn profits, but when a company performs poorly, the
shareholders lose money due to losses incurred. The major distinction between the shareholder
and a director is that the former owns that company and the latter manages the company.
The study deals with the comparison of the duties of the Director and the Shareholders
with an insight into the statutory right of Oppression by the majority of shareholders. It is to
bring out the differences between the roles of the directors and the shareholders and the rights
and duties dedicated to the same.
The Companies Act lays down the duty of the Director of a company. Section 157A of
the Act states that it is the duty of the Director to manage the company and its everyday affairs.
Section 157 of the Act states that the Director owes the duty to act honestly and in due diligence
which discharging their duties as the position of the director. It has been explained that the
Director should not use his or her powers in an improper way by taking an advantage of his or

DIRECTOR’S DUTY TO ACT HONESTLY and SHAREHOLDER’S DUTY2
her power as that of the Director or the agent of the company to gain personal benefits towards
own self or the other person or company (Andrew 2016). Therefore, it has been explained that if
such Director has been found guilty in any circumstances for breaching the duty, such Director
shall be liable for the profits made by him at the cost of the damages of the company. In other
words, the director would be liable for both the profits made by him and the loss or damages
suffered by the company. In addition, there may be a possibility of the imposition of criminal
liability if such breach amounts to grave criminal charges. Under the Common Law Code, there
are established duties of a Director, which are explained as the duty of the director to use their
power in the good faith, skill, care and diligence of the company and at the same time avoid
conflict of interest with that of the company. Therefore it can be explained that the statute as
well the common law regime provides for the establishment of rights and duties of the Directors
as its manager. In Donner 2016, it was held that the Directors had breached their fiduciary duty
to consider the best interest of the company and hence, the Directors were held liable for the
same. In Nordic International Ltd vs. Morten Innhaug [2017] SGHC 1, it was held by the
Court that improper use of the power of the person as a director of the company and acting
dishonestly borrowing money from bank to purchase shares so that the person can become the
director of the company later, shall amount to the breach of the duty of the directors and hence,
for the same reasons, the Director borrowing such money was held liable. However, in a more
general way of company management, it is not an easy to prove malafide from the part of the
Directors but the same can only be established if any of the three explained malice is proved by
the prosecution. The same has been established in Omar, 2019 stating that the act of the Board
shall be considered bonafide unless otherwise being established by virtue of the facts and
circumstances of the case. However, Section 147 (4) of the Act provides immunity to the