Prosecution of Directors – In case of nominee director on behalf of Public Financial Institutions, Financial Institutions and banks
Penal actions for defaults committed under the Act are either taken against an „officer in default‟ or a ‘director(s)’ or “persons” as provided in the relevant penal provisions of the Act. section 5 of the Act, defines officer in default and the Directors are also liable for compliance of various provisions of the Act.
It is noticed that penal actions are also initiated against certain Directors who are not charged with the responsibility, particularly in following cases:
– For listed companies Securities and Exchange Board of India (SEBI) requires nomination of certain Directors designated as Independent Directors.
– For public sector undertakings, respective Government nominates Directors on behalf of the respective Government.
– Various public sector financial institutions having participation in equity of a company also nominate Directors to the Board of such companies.
– Directors nominated by the Government under section 408 of the Act
– Nominee director on behalf of Public Financial Institutions, Financial Institutions and banks on the board of companies.
MCA has hence clarified that ROC should take extra care in examining the cases where above directors are also identified as „Officer in default.‟ No such directors as indicated above shall be held liable for any act of omission or commission by the company or by any officers of the which constitute a breach or violation of any provision of the Companies Act, 1956, and which occurred without his knowledge attributable through Board process and without his consent or connivance or where he has acted diligently in the Board process. The Board process includes meeting of any committee of the Board and any information which the Director was authorized to receive as Director of the Board as per the decision of the Board.
(Circular No. 47/2011 dated 14 July 2011 read with Circular No. 08/2011 dated 25 March 2011)
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General Circular No.47/2011, Dated- Dated the 14th July, 2011
To,
All Regional Directors,
All Registrars of Companies, All Official Liquidators.
Sub: Prosecution of Directors – Regarding
Sir,
I am directed to refer to this Ministry’s General Circular No. 08/2011 dated 25.03.2011 on the subject cited above and to state that the nominee director on behalf of Public Financial Institutions, Financial Institutions and banks on the board of companies should also be treated in the same manner as provided in the para 2 of the said Circular.
Yours Faithfully
-sd/-
(Monika Gupta)
Assistant Director
