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Circular on Prosecution of Directors

SANTOSH SHAH (Company Secretary) (754 Points)

29 March 2011

Hello All

Please find attached Circular on Prosecution of Directors dated 25th March 2011

regards

Santosh Shah

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4 Replies

Jaideep (Service) (1368 Points)
Replied 29 March 2011

Thanx for sharing..........

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SANTOSH SHAH (Company Secretary) (754 Points)
Replied 29 March 2011

Originally posted by : SANTOSH SHAH
	Hello All Please find attached Circular on Prosecution of Directors dated 25th March 2011 regards Santosh Shah

Hello All

Please find summary of the attached MCA Circular on Prosecution of Directors.

Summary:

1. Extra Precautions on part of Registrar before initiating penal actions against the following directors :

a. In case of Listed Companies - as per SEBI directors nominated as Independent Directors

b. Public Sector Undertakings - Directors nominated on behalf of Government.

c. Public Financial Institutions - Having nominated Directors on Board of such Other companies

d. Directors nominated by Government under section 408 of companies act 1956.

2. The above directos will not be prosecuted for any acts of omission or commission by company,

unless the above directors had knowledge and acted diligently.

3. Compliances to be verified by Registrar :-

a. If Director Resigns, Company does not file Form 32, then ROC to enquire on actual status.

b. Cross check of Annual Return Vs Annual Report ( To determine status of director as nominee or not)

c. Timing of Commission of Offence

EXEMPTION:-

Directors appointed by BIFR under SICA 1985, are exempted from Prosecution.

Excluded from list of officers in default

4. OFFICERS IN DEFAULTPursuant to Default u/s 209 (5) & (6), 211 & 212 of Companies Act 1956)

Ø Managing Director

Ø Manager

Ø Company Secretary

Ø Directors ( Where there is no MD)

Ø Any Officer and Employees assigned Specific Responsibility for complying above provisions.

Note : Directors will include Non Executive Directors only when act is done willfully, Diligently, with knowledge or consent.

Prosecution against Officers / Directors in case of Govt. Company will require approval from Central Government by ROC as per Section 621 of the Act.

ROC Examination of Records :-

( To determine Directors / Officers in Default)

a. Annual Return

b. Form 32 c. DIN Database in the Registry. Regards, Santosh Shah

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 29 March 2011

Thanks for sharing and nice explanation...

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 29 March 2011

In supersession of all earlier circular the Ministry has directed to the Registrar of Companies to take extra care in examining the cases where the following directors are also identified as Officer in default. No such Directors as indicated below 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, 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, and clarified that the following directors would not be included in the purview of Officer in default:-

(a) For listed companies Securities and Exchange Board of India (SEBI) requires nomination of certain Directors designated as Independent Directors.

(b) For public sector undertakings, respective Government nominates Directors on behalf of the respective Government.

(c) Various public sector financial institutions having participation in equity of a company also nominate Directors to the Board of such companies.

(d) Directors nominated by the Government u/s 408 of the Companies Act, 1956.

It is further clarified that before taking penal action under the Companies Act, 1956 against the Directors the following compliances should be verified by Registrar of Companies: -

(a) A director resigns and the company does not file Form 32 as required in terms of Section 302(2) of the Act. In case, the director concerned has informed/endorsed a copy of his resignation to the Registrar of Companies, the Registrar should enquire into such cases and try to find out whether such director has actually resigned or not.

(b) In case the status of a director, i.e. whether he is a nominee director or not, is not reflected in the Annual Return or other documents of the company, available with Registrar, the same should be cross checked with the Annual Report filed by the company;

(c) The timing of the commission of offence is also material to identify the director’s responsibility; and Form 1AB should also be checked in case any person has been charged by the Board under Section 5(f) with the responsibility of complying with some particular provision or in case any director has been specified by the Board under Section 5(g) of the Act.

(d) Special Directors appointed by BIFR under section 16 (6)(b) of SICA 1985, shall not incur any obligation or liability for anything done or omitted to be done in good faith and in discharge of duties. Hence they shall be excluded in the list of officers in default.

For default u/s 209(5), 209(6), 211 and 212 of the Act, the following persons shall be the ‘officers in default for the purpose of prosecution under these provisions :-

(a) Where there is a Managing Director or Manager, the Managing Director or the Manager as the case may be and in addition, the Company Secretary appointed u/s 383A or the person who has been charged with work of maintenance and preparation of Annual Accounts in compliance with aforesaid provisions.

(b) Where there is no Managing Director or Manager, every director and the Company Secretary appointed u/s 383A of the Act .

(c) Any persons amongst officers and employees other than Managing Director/Manager/Directors who has been charged by the Managing Director/Manger or Board of Directors with specific responsibility of complying with aforesaid provisions, in addition to Managing Director/Manager/Board of Directors as the case may be.

(d) Directors including Non-Executive Directors, officers and employees not connected with responsibility with the above provisions should not be arrayed as delinquent directors.

(e) While considering the non-executive directors for including in the list of officers in default for a particular violation of the Companies Act, it should be examined whether the violation has taken place with his knowledge attributable through board process, with his consent or connivance and whether he acted diligently or not.

(f) Where prosecution is required to be filed against any Government company, its directors/officers and Member of Parliament and Member of Legislator under the Companies Act, 1956, Registrar of Companies should seek prior authorization of Central Government in terms of Section 621 of the Act

Therefore, with the above circular Ministry has clarified that before initiating prosecution against Directors the ROCs should very carefully apply his mind on the particular matter.

This circular is issued with a view to avoid wrongful prosecution of Directors. Wherever the Registrar of Companies have doubt as to whether director/officer can be held liable after applying the above parameters, they should refer to Regional Director, who shall guide Registrar of Companies in the matter.