Forex Trading

Liability Of Directors For Debts Of The Company In India And The Czech Republic Directors and Officers India

Non-executive directors are those directors who do not have control over the day to day functioning of the company. They are usually directors such as Independent Directors, Nominee Directors, etc. With the need for, the expertise of such directors on the board, these non-executive directors have become extremely crucial for the effective functioning of the company.

when do directors become personally liable in india

Shareholders appoint him because of their faith in his skill, competence and integrity and they may not have the same faith in another person. Industries v. Chief Inspector of Factories that the directors being in control of the company’s affairs cannot get rid of their managerial responsibility by nominating a person as the occupier of the factory. He is not entitled to spend money for a purpose not covered by the Memorandum of Association although such payment is sanctioned by the Board of Directors and by the majority of shareholders. In R.K. Dalmia and others v. The Delhi Administration it was held that “A director will be personally liable on a company contract when he has accepted personal liability either expressly or impliedly. Directors are the agents or the trustees of a Company.” The recently published case of Antuzis v DJ Houghton Catching Services Ltd, confirmed the principle that directors entering into contracts in bad faith can be held personally liable. When one or more directors is alleged to have breached their fiduciary duties, they might be sued by one or more shareholders of the corporation.

Typical areas where liabilities might be personally guaranteed are

If a director authorises an employee of the company to do something which is a tortious act, the directors will not be liable for the consequences. In a normal scenario, if ACME Corporation were sued and got hit with a multi-million-dollar judgment, the plaintiff’s ability to recover that judgment would be limited when do directors become personally liable in india to ACME’s assets as a corporation. If after liquidating all its assets to pay the judgement, ACME was only able to pay 50% of the judgment amount, ACME’s owners, officers, and directors would not have to worry about the plaintiff attaching any liens on their personal property to satisfy the rest of the judgment.

The punishment may be imprisonment up to one year and fine to be not less than Rupees fifty thousand. The punishment for this may be imprisonment up to six months or and fine up to Rupees one lakh. Ii) Section 58A –failure to repay deposits within the prescribed time limit as specified under the provisions of Section 58A. Therefore, Directors would decidedly be liable for omitting to do what the was supposed to do in the given circumstances.

Investors frequently require the Directors and Executive officers to be covered under protective insurance. This ensures that the company does not suffer any monetary losses arising out of an alleged act of the director. Investor directors are also concerned that they may face litigation because of their role in company boards. This means that a large penalty or court award can wipe out a director’s personal wealth.

“The liability of a statutory body to the company for damages caused during the discharge of his function is considered by the statutory regulation regarding the liability of statutory bodies for the debts of a company to be a basic condition to render the statutory bodies liable.” That the fraudulent trading is with the knowledge of the Director and such intent to defraud is attributable to him. Such a person who knowingly does such fraudulent activity is liable for action under Section 447 of Companies Act, 2013 which prescribes punishment for persons guilty of fraud. The statutory provision adumbrated in Section 141 is required to be strictly construed for the reason that it is a penal statute. Penal statutes providing constructive vicarious liability should be construed much more strictly- When conditions are prescribed for extending such constructive criminal liability to others, the courts will insist upon strict literal compliance.


Your friend Arthur founded a non-profit called “The Knights Who Say ‘Ni,’” an organization that plants shrubberies to restore the habitat of Mexican whooping llamas. There’s been a recent fiasco among the organization’s directors and those responsible have been sacked. The rules of the Bar Council of India prohibit law firms from advertising and soliciting work through communication in the public domain.

While private individuals can file information with the CCI naming certain officers as part of/responsible for the alleged anti-competitive conduct, the initiation of proceedings to penalize individual office bearers is CCI’s prerogative. The second part of Section 48 of the CA02 requires the CCI to prove that a contravention has taken place with the consent, connivance or negligence of any director, manager, secretary or other officer of the company found guilty of contravening the provisions of the CA02, before penalizing them. To establish the involvement of individual office bearers, the CCI is increasingly looking at minutes of meetings, evidence of interaction between officials of competing enterprises in the form of email communications, registers of meeting places, hotel bills, and phone calls.

Suffice it is to say, that the directors’ liability would get triggered only in scenarios where the Income tax authorities establish that attempts made to recover from the company have gone in vain. Where no attempt was made to recover the tax due from the debtors of and shares held by the company, it was held by the Hon’ble Allahabad High Court that seeking to make the director liable under Section 179 of the IT Act would not be valid. 1.1 Under common law rules and equitable principles, director’s duties are largely derived from the law of agency and trusts.

when do directors become personally liable in india

If these requirements are not followed and the newco fails in the proceeding five years, the directors can be held directors jointly and severally liable for the debts of the newco. If this declaration is made without reasonable belief in its accuracy, directors can be liable for an unlimited fine or up to two years imprisonment. If the declaration is not registered within 15 days of being made, both directors and the company can be filed at an aggregate rate for each day it is not filed.

Annual General Meeting:

For example, if a director pays one supplier and not others, on the basis of a long and trusted relationship, after becoming aware of the company’s insolvency, he/she could find themselves personally liable as, overall, the creditors find themselves worse off. However, there are some circumstances in which you can be held personally liable, meaning liability for the debt falls to you. It has been held that a fiduciary who acts for two principals with potentially conflicting interest without the informed consent of both is in breach of the obligation of undivided loyalty; he puts himself in a position where his duty to one principal may conflict with his duty to the other. Therefore in a situation where an Independent director is allowed to be a director in more than one company , he has to make the necessary disclosures to the companies on whose board he sits, and he must take the consent of the members of such companies, failing which he in breach of his fiduciary duties of the companies.

  • Directors of a company may also incur criminal liability other than the civil liability under the Companies Act or Common law.
  • If a finding is made that the company was carrying the business with an aim to defraud the creditors; and the directors were involved in this action the veil will be lifted.
  • This is why it is very important to seek advice early and mitigate any risk as much as possible.
  • There are various events specified in this section which leads to the vacation of office such as disqualification under specific sections of the Act or by a court of law or Tribunal, acting in contravention of Section 184 while entering a contract or disclosing his interest in such contract, etc.
  • If the company is responsible for any such breach under the directors who have overall control over operations and management, they can be held liable.
  • ‘Director’ includes any person occupying the position of a director by whatever name called.” So It is not the name which is important but the position he occupies and the functions and duties he discharges.

If a director does any such act, he can be held criminally liable along with the company for this action. A director is not bound to give continuous attention to the affairs of his company, his duties being of an intermittent nature to be performed at periodical board meetings or committee meetings. Therefore, Directors are liable for theft of the company’s property or for false accounting. There are more than 150 sections dealing with criminal or penal liability of the Directors and other officers of the company.

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It appears that the CCI’s use of the power under Section 48 of the CA02 is likely to extend beyond cartels facilitated by trade associations. The Companies Act imposes criminal liability on any person who was responsible for a mis-statement in the prospectus of a public company. A Director is personally liable along with the company to repay the share application or excess share application money, as the case may be, if the same is not repaid within the stipulated time limit. The central government issued telecommunication licences to a number of companies.

The license process came under scrutiny for certain irregularities as a result of which a criminal investigation was launched against various companies including their directors. The special court investigating the licensing irregularities decided to attribute the actions of Bharti Cellular Ltd. to Sunil Bharti Mittal, its Chairman cum Managing Director, and made him an accused in the proceedings. The special court’s directions to make the director of BCL the accused was challenged in the Supreme Court as a mistake of law. Now, directors can ask for an indemnification policy against any liabilities he/she incur in case of alleged negligence, breach of duty, etc.

Meaning of Director as per the Companies Act, 1956

Directors are persons selected to manage the affairs of the Company for the benefit of the shareholders. It is an office of trust, which if they undertake, it is their duty to perform fully and entirely. Ltd., it was rightly observed by Hon’ble J.Neville that the Board of Directors is the brain of the company, and the latter can act only through its Directors.

To incur liability he must either be a party to the wrongful act or later consent to it. Non-compliance of this section results in a fine for the company which can range from one to five lakh rupees. The officer-in-default is held criminally liable and is punishable with imprisonment a period up to 6 months or fine of one to five lakh rupees or both. 2.1 The Companies Act, 2013 (“CA 13”) defines a director to mean ‘a director appointed to the Board of a company’. CA 13 contains the concept of an ‘officer who is in default’ for the purposes of affixing liability on such person in respect of any contravention of the provisions of CA 13 by the company.

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