Directors’ Duties in India

>> Liabilities and Penalties in India

Exercise your responsibilities carefully as the penalties for failure to do so can be severe.

There are various liabilities under various statutes; the liabilities may be both civil (penalties) as well as criminal (penalties plus imprisonment), depending upon the nature of offence and the facts and circumstances in each case.  Either the breach of duty itself, or the imposition of one of the sanctions described above, may lead to disciplinary action being taken against you and/ or limitations upon you being able to continue in your role.

The managing directors, whole time directors, managers who are responsible for the management of the company are generally liable for their actions. However, the other directors are also responsible unless the contrary is proved by the other directors.

The severity of the liability of directors can be restricted through certain mitigating factors such as the directors having no knowledge of the offence/default, having not given consent for the act/offence, and the director having taken all due care possible.

The Companies Act 2013 also empowers the shareholders to take civil action under “class action suits” against the Directors which is notified with effect from 01st June, 2016.

Limitation of Liability

The liability of directors cannot be limited unless they prove that they had no knowledge of any such contravention either through board meeting proceedings or any other communication. They also have to show that any such contravention had taken place without their consent.

Delegation of Authorities

As a company director, you are empowered to delegate your duties to one or more directors or subordinates, provided that you supervise your delegate.  It is important to note that although directors can delegate certain duties, you would continue to be liable for the execution of those duties.  Certain duties such as attending board meetings, signing minutes and accounts, and signing agreements cannot be delegated.

Directors and Officers Insurance

The Companies Act 2013 allows the company to take out insurance for a director to indemnify themselves against any liability in respect of any negligence, default, misfeasance, breach of duty or breach of trust for which they may be guilty of in relation to the company.

Latest version updated 22nd March 2018

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