In
practice, we see many people are acting as Directors in Multiple Companies
which are engaged in same business. Serious question is raised about this
practice in the latest judgment passed by Delhi High court.
Following is the
gist:
Rajeev
Saumitra - Plaintiff (herein after referred as Rajeev)
V/s
Neetu
Singh & Ors. - Defendant (herein after referred as Neetu)
·
Rajeev
has filed suit against the following:
(i)
Ms.
Neetu Singh (Wife of Mr. Rajeev)
(ii)
M/s
K.D.Campus Pvt. Ltd. ( Company in which Ms. Neetu is Director herein after
referred as K. D. Campus)
(iii)
M/s
Paramount Coaching Centre Pvt. Ltd. (Company in which Ms Neetu and Rajeev are
Director herein after referred as Paramount )
· Paramount
is a private limited company and involved in business of imparting education,
training and preparation for various national competitive examinations. Rajeev
and Neetu are holding 50% share each in the Company.
· Neetu,
inspite of being a director in Paramount incorporated another company under the
name of K.D. Campus for the purposes of competing with paramount as the founder
and director.
· Neetu
further incorporated another company, namely, Paramount Reader Publication Pvt.
Ltd. (One Person Company) for carrying on the competing business of printing,
publishing and distributing reading material by using the property (Reading
Material) of Paramount.
· Section
166 of the Companies Act, 2013 has became effective from 1st April
2014, the object of the said provision is to give the fiduciary duty to the
director and to lay a statutory obligation on the Director
· Neetu
was held guilty of carrying out competing business thereby has violated her
fiduciary duties and guilty of breach of section 166 of the Act.
Conclusion
As per
Section 166 of the Companies Act, 2013, the Director of the company shall act
in good faith in order to promote objects of the company for the benefit of its
members as a whole, and in the best interest of the company, its employees, the
shareholders, and the community and for the protection of environment.
The court held that, under No circumstances, the
Director can be allowed to compete business of the company, in which he/she is
already a director, to exploit the mark in order to give the impression to the
public at large that he/she has any association of affiliation of the company
in which he/she is still a director.
If the director is found guilty of entering into
competing business of the Company, he shall
be liable held for penalty as specified under section 166 (7) which is
not less than Rs. 1 Lakh which may extend to Rs 5 Lakh. Additionally he may
also be held liable for breach of contract and tort of which he has to bear the
consequence. .
