However, directors incur a personal liability in the following circumstances: 1. Where they contract in their names;
2. Where they use the rompany’s name incorrectly, e.g., by omitting the word ‘limited’ ; 3. Where the contract is signed in such a way that it is not clear
whether it is the
principal (the company) or the agent who is signing; and
4. Where they exceed their authority, e.g., where they borrow in excess of the limits imposed upon them (Weeks vs. Propert).
Directors as Trustees
A trustee is a person in whom is vested the legal ownership of the assets which he administers for the benefit of another or others. Directors are regarded
as trustees of the company’s assets, and of the powers that vest in them because they administer those assets and perform duties in the interest of the
company and not for eir own personal advantage. In Ramaswamy Iyenger vs. Brahmayya and Co., the Madras High Court held, “The directors of a
company are trustees for the company, and with reference to their power of applying funds of the cOmpany and for misuse of the power they could be
rendered liable as trustees and on their death the cause of action survives
against their legal representatives.” .
Besides, almost all the powers of directonl, e.g., of allotting shares, making calls, forfeiting shares, accepting or rejecting transfers, etc. are powers in
trust. “They have been made liable to make good money which they have misapplied, upon the same
Accordingly, where a director accepts employment under the company under a separate contract of service, in addition to thedirectorship, he is aJso
treated as anemployee or servant of the company. He shall, in such a case, be entitled to remuneration and other benefits admissible to employees, in
addition to his remuneration as Director under the Act. The Companies Act recognises situations of this nature. Sections 314 and 318, for instance,
provide for a director holding an office or place of profit under a company.
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