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Director’s Liability

Director’s Liability. Recurring Issues and Some Recent Developments – MCA has been making life easier for directors. Non-executive Directors. Independent Directors Nominee Directors of Government or Public Sector Financial Institutions Directors appointed under SICA, 1985

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Director’s Liability

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  1. Director’s Liability Recurring Issues and Some Recent Developments – MCA has been making life easier for directors iPleaders and Intelligent Legal Risk Management Solutions LLP

  2. 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 iPleaders and Intelligent Legal Risk Management Solutions LLP

  3. 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…) iPleaders and Intelligent Legal Risk Management Solutions LLP

  4. 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. iPleaders and Intelligent Legal Risk Management Solutions LLP

  5. 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. iPleaders and Intelligent Legal Risk Management Solutions LLP

  6. 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 iPleaders and Intelligent Legal Risk Management Solutions LLP

  7. 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 iPleaders and Intelligent Legal Risk Management Solutions LLP

  8. Simplified Online procedure for S.297 approval • From 24thSpetember • 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 iPleaders and Intelligent Legal Risk Management Solutions LLP

  9. 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 iPleaders and Intelligent Legal Risk Management Solutions LLP

  10. 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 iPleaders and Intelligent Legal Risk Management Solutions LLP

  11. 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) iPleaders and Intelligent Legal Risk Management Solutions LLP

  12. Thank You Thanks to all of you for watching the presentation. iPleaders and Intelligent Legal Risk Management Solutions LLP

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