Directors Liability Under The Indian Companies Act 2013

Directors Liability Under The Indian Companies Act 2013A major portion of the Indian Companies Act, 2013 (PDF) has been notified recently by the Ministry of Corporate Affairs (MCA). With the notification of various provisions of the Act and the Rules thereunder, the regulatory compliances under Indian Companies Act 2013 have been given a new meaning. The increased cyber obligations under the 2013 Act now require the companies to comply with techno legal requirements in India. These include cyber law due diligence (PDF), cyber security due diligence, e-discovery compliances, etc.

Companies function through board of directors and the board plays an important role in complying with the requirements of the company law. The 2013 Act has enhanced the liabilities and obligations of the directors. The new company law regime prescribes management and inspection of documents in electronic form, electronic voting, electronic notices, etc that require a techno legal compliance on the part of Indian companies. The directors are under an obligation to comply with techno legal requirements of not only the 2013 Act but also the Information Technology Act, 2000 and other related laws.

The Companies (Appointment and Qualification of Directors) Rules, 2014 (PDF) have imposed many obligations upon the directors of a company. Rule 14 (1) of the same prescribes that every director shall inform to the company concerned about his disqualification under sub-section (2) of section 164, if any, in Form DIR-8 before he is appointed or re-appointed.

Rule 14(2) states that whenever a company fails to file the financial statements or annual returns, or fails to repay any deposit, interest, dividend, or fails to redeem its debentures, as specified in sub-section (2) of section 164, the company shall immediately file Form DIR-9, to the Registrar furnishing therein the names and addresses of all the directors of the company during the relevant financial years.

Rule 14(3) states that when a company fails to file the Form DIR-9 within a period of thirty days of the failure that would attract the disqualification under sub-section (2) of section 164, officers of the company specified in clause (60) of section 2 of the Act shall be the officers in default.

Section 2(60) of the Indian Companies Act, 2013 provides that an “officer who is in default”, for the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any penalty or punishment by way of imprisonment, fine or otherwise, means any of the following officers of a company, namely:—

(i) whole-time director;

(ii) key managerial personnel;

(iii) where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified;

(iv) any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorises, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default;

(v) any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in a professional capacity;

(vi) every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance;

(vii) in respect of the issue or transfer of any shares of a company, the share transfer agents, registrars and merchant bankers to the issue or transfer;

Rule 15 states that the company shall within thirty days from the date of receipt of notice of resignation from a director, intimate the Registrar in Form DIR-12 and post the information on its website, if any.

Rule 16 states that where a director resigns from his office, he shall within a period of thirty days from the date of resignation, forward to the Registrar a copy of his resignation along with reasons for the resignation in Form DIR-11 along with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014.

The Companies (Management and Administration) Rules, 2014 (PDF) also prescribe many techno legal and cyber security obligations upon the directors of a company. The directors must be well versed with the techno legal regulatory provisions under the Companies Act 2013 and other technology laws of India.