The liability of directors to the company arises under few circumstances.
Breach of Fiduciary Duty
A director will be liable for the breach of fiduciary duty when he acts dishonestly to the interest of the company. The powers of the directors must be invoked keeping in mind the advantage and interest of the company and not in the interest of the directors or any member of the company.
Directors are needed to exercise their powers within the limits provided by the Companies Act, 1956, the memorandum of association and the articles of association of the company.
The articles of association of a company may invoke further specific restrictions on the powers of the board of directors of the company. Being ultra-verse, the directors will be held liable personally, if they act beyond the powers limited by the articles of association of the company.
Reasonable skill and care is expected from the directors of a company as long as they hold their designation. The directors may be deemed for acting negligently in discharge of their duties and they will be both responsible and liable, if any loss or liability is faced by the company due to their negligence.
Mala Fide Acts
The directors are considered to be the trustees of the money and the property of the company handled by them. If the directors of a company perform their duties dishonestly or in a mala fide manner, they will be liable to the company in the context of mala fide and they will personally provide any compensation for any loss taken by the company as a result of their dishonest performance.
● This will be considered as a breach in trust.
● They are also accountable for any secret profits they have earned in past ventures on the behalf of the company.
● Directors also face certain liabilities on the context of misconduct and misuse of their powers.