Transcript Director’s Liability

Director’s Liability
Recurring Issues and Some Recent
Developments – MCA has been
making life easier for directors
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Non-executive Directors
• Independent Directors
• Nominee Directors of Government or Public
Sector Financial Institutions
• Directors appointed under SICA, 1985
• Non-executive Directors on board who do not
take remuneration nor engage in minutiae of
management
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Direction to RoC
• Registrar of Companies should take extra care in
examining the cases where above Directors are
also identified as Officer in default.
• No such Directors shall be held liable for any act
of omission or commission by the company or by
any officers of the company which constitute a
breach or violation of any provision of the
Companies Act, 1956 (provided…)
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Provided…
…breach or violation occurred
• without his knowledge attributable through
Board process
• without his consent or connivance
•where he has acted diligently in the Board
process.
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The Board Process
The Board process includes meeting of any
committee of the Board and any information
which the Director was authorised to receive
as Director of the Board as per the decision of
the Board.
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Guidelines to RoC for investigation
• Must see if directors resigned and Company
failed to file Form 32
• Non-ex Status of Director should be captured
in Annual Filings
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Section 297 Approvals
• This is required if director’s are engaging in any
related party transaction with the Company.
• sale, purchase or supply of any goods, material or
services
• underwriting the subscription of any shares in, or
debentures
• paid-up share capital of not less than rupees one
crore
• Central Government Approval required
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Simplified Online procedure for S.297
approval
• From 24th Spetember
• Application and grant – both online
• Practicing Professionals certification required
stating that there’s no conflict of interest,
contract is competitive and arm’s length, and
that provisions of the Act have been complied
with
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Directors still miserable…
Often being sued in India – as pressure tactics in
litigation. Very difficult to anticipate.
• Debt recovery
• Check Bounce
• S. 420 – fraud by company
Also, often proceeded against under labour
laws, environmental laws for non-compliance
by company
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Measures of caution
• Always act with utmost honesty and good
faith
• Exercise standard of care – as a reasonable
man will act
• What is expected from a person of expertise
and experience as the Director in question
• If these tests are satisfied – a court can let the
Director go under S. 633
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Finally…
• Take Directors & Officers insurance coverage
• Company can finance it (other expenditures
for defending charges for illegal activity can
not be passed on to company, even if
shareholders are willing)
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Thank You
Thanks to all of you for watching the
presentation.
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Management Solutions LLP