The Doctrine of Corporate Opportunity: A Comparative Analysis – Part I

Abstract

SUMMARY In this article, the authors aim to answer the often-asked question when do the fiduciary duties of a director cease to exist, in order to allow him to undertake ventures for personal interest? This has not yet been conclusively answered by the courts, and upon conducting a detailed case law analysis, we conclude that there exist two primary approaches, which the courts have relied upon in arriving at their decisions. These have been laid down in the landmark English cases of Bhullar and Foster. These two cases are indicative of these two largely different approaches, and therefore, while not conflicting, and easily distinguishable on the basis of the facts themselves, can be said to be conflicting with respect to the difference of approach adopted by the Court of Appeals in England. This article endeavours to elucidate upon these two approaches, in light of Bhullar and Foster. Accordingly, the paper has been divided into various sections, which aim to elaborate on the law relating to the fiduciary duties of directors, in the particular context of use of corporate opportunity. Firstly, the authors have provided a jurisprudential background of the law on fiduciary duties of directors in common law. The statutory law, as followed in the UK and India,, and common law, as followed in the USA, with respect to the same, have been discussed, keeping in mind common law principles which have developed as a result of detailed judicial analysis. Secondly, having analysed the law on directors’ fiduciary duties in different common law jurisdictions, the authors have conducted an in-depth analysis of the two primary cases, i.e. Bhullar and Foster, highlighting the discussion on issues involved in the same, and examining the difference in the approach adopted by the court, pre and post the enactment of the Companies Act, 2006. Subsequently, the two approaches, namely the American Model and the English Model which were utilized by the courts in arriving at greatly varying decisions in the two cases have been studied. Lastly, in light of such analysis, the authors have compared and contrasted Bhullar and Foster and highlighted the inherent difference in approach between the two. The Indian position with respect to fiduciary duties of directors has been simultaneously discussed and compared in every section.