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Author: TYC

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Auditor

Trisure India Ltd. v. A.F. Ferguson, (1987) 61 Com Cases 548 (Bom)

ISSUE:

Whether the defendants failed or neglected to apply their minds to or enquire into ascertaining the facts?

Whether the correct figures for sales, etc., have been set out or not?

Whether the publication of the report for the year ended August 31, 1974, caused and setback to the credibility, prestige, or goodwill of the plaintiffs?

Whether the said alleged manipulations, frauds, etc., could have been discovered by the defendants had they carried out their duties as auditors with reasonable diligence?

Whether the defendants failed and neglected to carry out their audit by accepted principles of accounting?

Whether the plaintiffs have suffered the damages?

Whether the defendants are liable to compensate the plaintiffs for the said alleged damages?

RULE:

The auditors play a critical function in overseeing the employer’s economic topics. As consistent with Section 141 of the Companies Act, 2013 only chattered accountants can be auditors. Section 143 tells that the auditor of a company shall have the right of entry to the books of money owed by the agency laws.

The duty of the auditor does not in any way absolve the management of its responsibilities and duties. While the Auditor expresses their opinion on the financial statements, it is the task of the Management to prepare them. The role of the Auditor requires them to procure knowledge of their client’s accounts, and the knowledge of the internal controls in place however he is not to delve into the mechanism behind such internal control, that is solely the responsibility of the Management.

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Board Meetings

Maharashtra Power Development Corporation v. Dabhol Power, (2004) 120 Com Cases 560 (Bom)

ISSUE:

Whether the appeal was maintainable?

Whether a petition under Section 397 can be filed on account of a single act of oppression?

Whether oppression must be of minority shareholders by majority shareholders?

RULE:

An irregular or illegal action is not per se oppressive but the illegality of action may have a bearing upon its oppressiveness.

A resolution passed by the directors may be perfectly legal and yet oppressive, and conversely, a resolution that is in contravention of the law may be in the interests of the shareholders and the company.

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Board Meetings

T.M. Paul (Dr.) v. City Hospital (P.) Ltd., (1999) 97 Com Cases 216

ISSUE:

Whether civil courts can interfere with the internal management of a company?

When is the notice for a board meeting considered to be served?
Whether resolutions can be passed on matters not listed on the agenda of the notice of meeting of board of directors?

Is it a duty on the director, who has personal interests in a contract/agreement being entered into by the company, to disclose such interests at the board meeting?

RULE:

It is imperative for a director to be well rehearsed with the ambit of his/her duties especially with regard to meetings of the board as they display a responsibility towards all members.

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Business Judgement

Cede & Co. v. Technicolor, Inc, 634 A.2d 345, 361 (Del. 1993)

ISSUE:

Under the circumstances, did the plaintiff have the burden of proof to show that defendant’s directors breached their fiduciary duties?

RULE:

Burden shifting does not create per se liability on the part of the directors; rather, it is a procedure by which Delaware courts of equity determine under what standard of review director liability is to be judged. To require proof of injury as a component of the proof necessary to rebut the business judgment presumption would be to convert the burden-shifting process from a threshold determination of the appropriate standard of review to a dispositive adjudication on the merits.

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Diversion of Corporate Opportunity

Regal (Hastings) Ltd v. Gulliver, [1967] 2 A.C. 134 HL

ISSUE:

Had the directors breached their fiduciary duties to Regal?

RULE:

If a director buys shares inside the company at a maximum which he has traded at a profit, he must justify for such profit or if a director of one company enters into a contract with any other company and if any benefit has happened, then it is the fiduciary duty of the director to return the profit to the company.

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Diversion of Corporate Opportunity

Vaishnav Shorilal Puri v. Kishore Kundan Sippy, (2006) 6 Comp LJ 74 (Bom)

ISSUE:

Whether the diversion of the Contship agency from SSTS to Seaworld amounted to a breach of fiduciary duty on the part of Puris as Directors as referable to Section 88 of the Indian Trust Act?

Whether the alleged conduct of Puris amounted to the oppression of Sippys within the meaning of Section 397 or that it led to mismanagement of SSTS and SSCO within the meaning of Section 398 of the Companies Act?

RULE:

The general rule to test the violation of this principle is to see the relation between the Company’s LOB and the opportunity’s relation to it and to see the scope of the company utilizing the opportunity.

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Diversion of Corporate Opportunity

Bhullar v. Bhullar (2003) EWCA Civ 424

ISSUE:

Whether the directors breached their fiduciary duty by purchasing property for their own?

RULE:

A breach of fiduciary duty occurs when the fiduciary acts in the interest of themselves, rather than the best interest of the employer or principal. A fiduciary’s actions must be free of conflicts of interest and self-dealing. As a fiduciary, you can’t use the principal for your own personal advantage.

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Diversion of Corporate Opportunity

Foster Bryant Surveying Ltd v. Bryant, Savernake Property Consultants Ltd, [2007] EWCA Civ 200, [2007] BCC 804

ISSUE:

Whether the director violated his fiduciary duties?

RULE:

A fiduciary relationship ends until the relationship that gave rise to it has been determined. After the relationship is established, the director is generally free of the ongoing responsibilities that characterize a fiduciary relationship. Acts performed by the directors when the employment contract is in effect but in preparation for competition after it ends are not inherently a violation of the implied term of allegiance and fidelity.

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Duty Towards Stakeholders

Tristar Consultants v. Customer Services India P. Ltd., (2007) 78 CLA 365 (Del)

ISSUE:

Under what circumstances and on what pleadings, a director of a company can be made liable in an action for recovery of damages alleging breach of contract by the company?

RULE:

Section 230 of the Indian Contract Act states that an agent cannot personally enforce, nor be bound by, contracts on behalf of principal.- In the absence of any contract to that effect an agent cannot personally enforce contracts entered into by him on behalf of his principal, nor is he personally bound by them.

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Categories
Proper Purpose Rule

Howard Smith Ltd v. Ampol Petroleum Ltd, [1974] A.C. 821

ISSUE:

Were the directors motivated by any purpose of personal gain or advantage?

Whether directors had a proper purpose in issuing shares to Howard Smith?

Whether the directors had the power to allot or alter prior majority shareholder position in the interest of the company?

RULE:

Proper purpose rule’, applies to directors of English companies under s171(b) of the Companies Act 2006. This long-standing equitable rule, codified by the 2006 Act, requires that a director must only exercise powers for the purposes for which they were conferred.

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