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Honble Supreme Court in N. Rangachari Vs. BSNL 2007 Crl.L.J.

2448, wherein the Apex Court


observed that a Company though a legal entity by itself but can only act through its Directors and
normally the Board of Directors act for an on behalf of the Company, as is evident from Section
291 of the Companies Act which provides that subject to the provisions of that Act, the Board of
Directors of a company shall be entitled to exercise all such powers and to do all such acts and
things as the company is authorized to exercise and do.

A director is required to act honestly and diligently applying his mind and discharging his duties
as a man of prudence of his ability and knowledge would do. It has been explained in the duties
of directors as to what is standard or due care and diligence expected from him as explained by
Justice Romer in Re City Aquintable Fire Insurance Company 1925 Ch. 407.

(1.) A director need not exhibit in the performance of his duties a greater degree of skill than
may reasonably be expected from a person of his knowledge and experience.
(2.) A director is not bound to give continuous attention to the affairs of his company. His
duties are of an intermittent nature to be performed at periodical board meetings, and at
meetings of any committee of the board upon which he happens to be placed. He is not,
however, bound to attend all such meetings, though he ought to attend whenever, in the
circumstances, he is reasonably able to do so.
(3.) In respect of all duties that, having regard to the exigencies of business, and the articles
of association, may properly be left to some other official, a director is, in the absence of
grounds for suspicion, justified in trusting that official to perform such duties honestly.
Business cannot be carried on upon principles of distrust. Men in responsible
positions must be trusted by those above them, as well as by those below them, until
there is reason to distrust them.

"If directors act within their powers, if they act with such care as is reasonably to be expected
from them, having regard to their knowledge and experience, and if they act honestly for the
benefit of the company they represent, they discharge both their equitable as well as their legal
duty to the company": see Lagunas Nitrate Co. v. Lagunas Syndicate ([1899] 2 Ch 392, 435)
Blacks Law Dictionary defines due diligence as the diligence reasonably expected from, and
ordinarily exercised by, a person who seeks to satisfy a legal requirement or to discharge an
obligation

Due Diligence is duty to take care. Many Indian statutes dealing with economic matters like
S. 24 SCRA, 1956, s.53 MRTP, 1969, S.27 SEBI 1992, S.278B IT Act, 1961 contain a
standard section on offenses committed by companies.

These section has the following proviso:

"Provided that nothing contained in this sub-section shall render any such person liable to
punishment if he proves that the contravention took place without his knowledge or that he
exercised all due diligenceto prevent such contravention."

Due diligence implies a particular standard of care. In the Indian context, ordinarily there is
neither a positive statutory duty on the part of the buyer to exercise due diligence nor a criminal
liability for a failure to exercise due diligence.

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