Directors' immunity under articles and misfeasance liability turn on proof of wilful default or breach of trust.

A company's directors were discussed in relation to alleged misfeasance arising from a loan sanctioned to an insolvent borrower by a committee acting under delegated authority. The articles of association had authorised delegation of lending power to the committee, whose decision was later confirmed by the board, and Article 86 provided that directors or officers would not be liable for losses unless caused by their own wilful act or default. The text states that, on the facts, there was no evidence of wilful neglect, wilful default, or breach of trust, and that the statutory misfeasance provision did not displace the contractual immunity in the articles where it was not inconsistent with the statute.

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Issues: Whether the directors were liable for misfeasance under Section 235 of the Indian Companies Act, 1913 in respect of the loan sanctioned by the loan committee, and whether Article 86 of the Articles of Association protected them from liability.

Analysis: The liability alleged against the directors arose from sanction of a loan to an insolvent borrower, but the power to sanction loans had been regularly delegated by the board to a committee under Article 99 of the Articles of Association. The committee sanctioned the loan and the board subsequently confirmed it. In the absence of evidence showing the grounds on which the committee acted, the directors were entitled to rely on the committee's exercise of delegated authority and on the board's reserved power of confirmation. Article 86 further provided that no director or officer would be liable for losses unless they occurred through his own wilful act or default. On the facts proved, there was no evidence of any wilful act, wilful neglect, or wilful default by the respondents. The provision in Section 235 was held not to override the contractual immunity contained in the articles, because misfeasance liability required proof of conduct amounting to breach of trust or wilful default.

Conclusion: The directors were not liable for misfeasance, and the application failed.

Final Conclusion: The decision establishes that, where a company's articles lawfully protect directors and the evidence does not show wilful default or breach of trust, liability for misfeasance cannot be imposed merely because an improvident loan was sanctioned by an authorised committee.

Ratio Decidendi: A misfeasance summons against directors will not succeed unless the alleged conduct is shown to amount to wilful neglect or default, and a valid article of association conferring immunity to directors is effective unless inconsistent with the statute.

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