Companies Act 2006 has codified the duties of directors and has included these duties in the relevant sections. While Section 170 lays down the scope and nature of general duties Sections 171 to 177 and section 182 lays down the specific duties of the directors. The duties covered under these sections are made to replace the common law rules and equitable principles on which the duties of directors are based earlier. Section 170 also provides that these general duties "shallbe interpreted and applied in the same way as common law rules or equitable principles, and regard shall be had to the corresponding common law rules and equitable principles in interpreting and applying the general duties". 2
Under section 171 the directors have a duty to act within the statutory powers granted to them. This duty must be exercised in accordance with the constitution of the company and the powers must be exercised for proper purposes. For the purpose of general duties the Companies Act 2006 has defined the constitution to include the Articles of the company and decision taken in accordance with the Articles will be construed as taken within the constitution of the company. ...
uying the shed on the land proposed to be leased against the security of the assets will be considered within the powers of the board of directors, if the Articles of the company contain a provision to this effect. More so, when it is approved by all the other directors who are also shareholders of the company the transaction can be carried out.
3. Sale of Yeast for 5,000
Under section 172 the directors of the companies have a specific duty to promote the success of the company. The action of James being the managing director of the company in researching and developing new varieties of yeast can be used to promote the business of the company. In this way although he claims a one off fee of 5000 his intention in promoting the success of the company is implied. Moreover he claims the payment from the company for his work out of the time he had to spend for the company and it is his intelligence and hard work for which he is claiming the fees. The company will also be benefited by the new variety of yeast. Therefore this transaction has the legal validity. However the reasonableness of the consideration of 5,000 received by James needs to be considered.
4. Writing Cheque for 12,000 on Companies Account
Section 174 (1) of the Act prescribes the duty of the directors to act with care, skill and diligence. Section 174 (2) states the degree of care, skill and diligence to be exercised by the director specifying that the directors should exercise such care, skill and diligence as would be exercised by a reasonably diligent person with
a. "the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company; and
b. the general knowledge, skill and experience that the