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CS Executive · Company Law and Practice · Directors

Ravi, a director of Kaveri Textiles Ltd, learns of a profitable supply contract meant for the company. He routes it to a firm owned by his brother and earns a personal commission. Which statement correctly describes his position under the Companies Act, 2013?

Ravi has breached the statutory duty not to achieve undue gain for himself or his relatives. If found guilty, he must pay the company an amount equal to the gain. Diverting a company opportunity to his brother's firm is a breach even though the contract was not yet signed.

  1. AHe has breached the duty not to achieve undue gain, and if found guilty he must pay the company an amount equal to the gainCorrect
  2. BHe has committed no breach because the contract was not yet signed by the company
  3. CHe is liable only if the shareholders pass an ordinary resolution against him
  4. DHe need only disclose the commission in the next annual report to cure the breach

Explanation

A director must not achieve or attempt to achieve any undue gain or advantage for himself, his relatives, partners or associates. If found guilty, he is liable to pay the company an amount equal to the gain made. A pending contract does not remove the breach, and the shareholders' vote or a later disclosure does not cure it.

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