fiduciary relationship of a Director - Companies Law Ready Reckoner - Companies Law

fiduciary relationship of a Director In Palmer s Company Law , 23rd Edn., p. 848 it is stated : 64-02. Relationship is with company: the fiduciary relationship of a Director exists with the company; the Director is not usually a trustee for individual shareholders. Thus, a Director may accept a shareholder s offer to sell shares in the company although he may have information which is not available to that other, and the contract cannot be upset even if the Director knew of some fact which made the offer an attractive proposition. So in Percival V. Wright a person who had approached a Director and sold him shares in the company, afterwards, upon discovering that the Director had known at the time of the contract that negotiations were on foot for the purchase by an outsider of all the shares in the company at a higher figure, could not impeach the contract. In his judgment Swinfen-Eady, J. said there is no question of unfair dealing in this case . The Directors did not approach the shareholders with the view of obtaining their shares. The shareholders approached the Directors and named the price at which they were desirous of selling . In Pennington s Company Law , 6th Edn. at pp. 608-09, it is stated : Directors owe no fiduciary or other duties to individual members of their company in directing and managing the company s affairs, acquiring or disposing of assets on the company s behalf, entering into transactions on its behalf, or in recommending the adoption by members of proposals made to them collectively. If the Directors mismanage the company s affairs, they incur liability to pay damages or compensation to the company or to make restitution to it, but individual members cannot recover compensation for the loss they have respectively suffered by the consequential fall in value of their shares, and they cannot achieve this indirectly by suing the Directors for conspiracy to breach the duties which they owed the company. However, there may be certain situations where Directors do owe a fiduciary duty and a duty to exercise reasonable skill and care in advising members in connection with a transaction or situation which involves the company or its business undertaking and also the individual holdings of its members. KAMAL KUMAR DUTTA VERSUS RUBY GENERAL HOSPITAL LTD.- 2006 (8) TMI 313 - SUPREME COURT