Exploring the Multifaceted Position of Directors in a Company

Ask a company law student to define a director in one line, and most will struggle. Is a director an employee who happens to run the show? An agent following instructions? A trustee guarding someone else’s money? The honest answer is: a bit of all three, and something more. Indian courts have wrestled with this question for over a century, and the Companies Act still doesn’t hand out a neat definition. Understanding why directors occupy this layered position is key to understanding almost everything else about corporate governance.

Why there is no single label for a director 🔗

The Companies Act, 2013 defines a director under Section 2(34) in the most circular way possible: a director is simply any person occupying the position of director, however that person is described. That is not a definition so much as an acknowledgment that the role resists a tidy box. Courts have filled this gap with comparisons instead. Directors have been called trustees, agents, and sometimes managing partners, depending on which function they are performing at a given moment. None of these labels fits perfectly on its own. Together, they describe a role that shifts depending on the situation: sometimes contractual, sometimes custodial, sometimes managerial.

This matters practically. The label that applies in a given dispute often decides who bears liability, what standard of conduct is expected, and what remedy a wronged party can claim. A director accused of overstepping authority is judged by agency principles. A director accused of misusing company funds is judged closer to trustee standards. The multifaceted position is not academic trivia; it is the lens through which real cases get decided.

Directors as agents of the company 🔗

A company is a legal fiction. It exists on paper and cannot sign a contract, negotiate a deal, or hire staff by itself. It needs human beings to act on its behalf, and that is precisely the role directors play. Courts have long held that directors function as agents of the company, not agents of individual shareholders, executing decisions and entering into transactions in the company’s name.

How this agency is different from ordinary agency 🔗

An ordinary agent’s authority comes only from the principal who appoints them. A director’s authority is broader. It flows both from the company’s Articles of Association and directly from statute itself, which means it cannot simply be revoked the way a normal agency agreement can be. When the board authorises the purchase of office premises, for instance, and the managing director signs the sale deed, the company becomes bound by that contract, not the director personally, provided the director acted within the powers granted to them.

This agency relationship also explains why a company, and not the director in their individual capacity, is generally liable for contracts entered into on its behalf. The moment a director exceeds their authorised powers, however, that protective shield of agency starts to weaken.

Directors as trustees of company property 🔗

The second widely used comparison is that of a trustee. Directors handle company money, assets, and confidential information, and they are expected to use these resources solely for the company’s benefit, not their own. This is why courts describe directors as holding company assets “in trust,” safeguarding them the way a trustee safeguards property for a beneficiary.

Where the trustee comparison holds up 🔗

Directors who misapply company funds, divert business opportunities for personal gain, or misuse confidential information can be pursued using principles borrowed from trust law. The underlying idea is straightforward: the assets in a director’s control do not belong to them, and any breach of that stewardship attracts liability similar to a breach of trust.

Where the comparison breaks down 🔗

Directors are not trustees in the strict legal sense. In classic trust law, legal ownership of the trust property actually vests in the trustee, while the beneficiary holds equitable ownership. That is not true of directors, who never personally own company assets. A trustee also enters contracts in their own name regarding the trust property, whereas a director acts under the company’s common seal or its authorised signing framework, never in a personal capacity. Perhaps most importantly, a trustee is not meant to benefit from the trust property at all, while a director, often a shareholder too, can legitimately benefit from the company’s performance through dividends or salary. As one detailed analysis of director roles puts it, this makes directors closer to quasi-trustees than full-fledged ones.

Directors as managing partners 🔗

The “managing partner” label comes from a time when management of a company was sometimes handed to another firm acting as a kind of collective director. That specific arrangement has since been restricted, since only individuals, not firms or bodies corporate, can be appointed as directors under current law. Yet the comparison survives in a looser sense.

Since company management is rarely concentrated in one person and is instead spread across a board of directors acting collectively, the dynamic resembles how partners jointly run a partnership firm. Each director contributes to strategic decisions, shares responsibility for outcomes, and is expected to act in the collective interest of the enterprise, much like a partner would for a partnership. The comparison is useful for understanding how collective decision-making works at board level, even though shareholders, not directors, are the company’s actual owners in the way partners own a partnership firm.

Directors as employees or officers 🔗

This is where the analogies get contested. On one hand, a director, purely in that capacity, is not treated as a servant or employee of the company. Directors control the company’s affairs; they are not under someone else’s day-to-day supervision the way a typical employee is. Courts have been fairly consistent on this point.

On the other hand, nothing prevents a director from also holding a separate, salaried role within the same company. In R.R. Kothandaraman v. CIT, the Madras High Court held that a director can validly accept employee status under a special contract with the company, distinct from their role as a director. This is exactly what happens when a director is also appointed as a whole-time director or managing director drawing a fixed salary. As summarised in a review of the legal position of directors, a director can simultaneously be a non-employee in their governance capacity and an employee in their executive capacity, and the two roles are legally separable even though the same person occupies both.

Separately, directors are also classified as officers of the company for several statutory purposes, particularly when it comes to penalties, compliance obligations, and liability under the Companies Act.

The fiduciary duty that binds every role together 🔗

Whichever label applies in a given situation, one obligation runs through all of them: the fiduciary duty to act in good faith for the company’s benefit. This duty was largely built through case law until the Companies Act, 2013 finally codified it in Section 166. Under this section, a director must act in accordance with the company’s Articles, in good faith to promote the company’s objects, and in the best interests of the company, its employees, shareholders, the community, and the environment.

Section 166 goes further than just requiring good intentions. Directors must exercise their duties with due care, skill, and diligence, and must use independent judgment rather than simply rubber-stamping decisions made by others. This duty of care has generated its own body of debate about how demanding a standard directors should actually be held to, particularly around how much deference courts should give to good-faith business decisions that later turn out badly, a question examined in detail in this analysis of directors’ duty of care.

The statute also directly addresses conflicts of interest: directors cannot place themselves in situations where their personal interest conflicts, or could conflict, with the company’s interest, and they cannot use their position to secure undue personal gain. This statutory framework did not emerge from nowhere. It formalised decades of judicial reasoning, including early precedents such as York and North Midland Railway Co v Hudson, which is often cited as one of the foundational cases establishing that directors owe fiduciary obligations to the companies they serve. Breach of this fiduciary duty can expose a director to personal liability and require them to hand back any undue gain made at the company’s expense.

Putting the four roles side by side 🔗

Why this layered position still matters today 🔗

Modern companies are far more complex than the Victorian-era firms where these comparisons first took shape. Boards now include independent directors who have no executive role at all, nominee directors representing investors, and professional managers who may never own a single share. Despite this, the underlying logic from these older cases still shapes how Indian courts and regulators think about director accountability. Whether a dispute concerns a contract signed on the company’s behalf, funds misused, or a conflict of interest concealed from the board, the question courts keep returning to is the same one asked over a century ago: in what capacity was the director acting, and did that conduct match the trust placed in them?

What do you think? With today’s boards including independent and nominee directors who have little day-to-day control, does it still make sense to describe all directors using the same set of agent, trustee, and managing partner comparisons? And should a director’s fiduciary duty to “the community and the environment” under Section 166 be treated as seriously as their duty to shareholders?

References

1. https://legalserviceindia.com/legal/article-20919-legal-position-of-directors-in-a-company.html
2. https://lawtimesjournal.in/position-of-directors-under-company-law/
3. https://www.yourarticlelibrary.com/company/director/role-of-directors-as-agents-trustees-and-managing-partners/74222
4. https://blog.ipleaders.in/legal-position-of-directors-of-a-company/
5. https://corporatelawreporter.com/companies_act/section-166-of-companies-act-2013-duties-of-directors/
6. https://indiacorplaw.in/2023/03/29/analyzing-directors-duty-of-care-under-the-companies-act-2013/
7. https://taxguru.in/company-law/directors-aware-duties-section-166-companies-act-2013.html