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IAI Actuarial Core Principles · Business Management · Separate legal personality, directors' duties, shareholders and partnerships

Meridian Life Pvt Ltd, an Indian company, has a director, Mr Rao, who also holds shares in a supplier. Without telling the board, he steers a large procurement contract to that supplier, which charges the usual market price. Which description of his position is most accurate under Indian company law principles?

Mr Rao has breached his duty to avoid conflicts of interest and to disclose his interest in the supplier. The duty is breached by the undisclosed conflict itself, so a fair market price or the absence of loss to the company does not cure it.

  1. AHe has breached his duty to avoid conflicts of interest and to disclose his interest, even though the price was fairCorrect
  2. BHe has breached no duty, because the price was the usual market price
  3. CHe has breached only a duty owed to the supplier
  4. DHe has breached no duty, because directors owe duties only to shareholders holding a majority
  5. He has breached a duty only if the company suffered a financial loss

Explanation

Directors must avoid situations where their interests conflict with the company's and must disclose any interest in a contract. A fair price does not remove the breach, since the duty concerns the conflict and non-disclosure, not only loss. The market-price and no-loss options wrongly make the duty depend on harm.

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