In the event that violations are committed by companies under the provisions of the Companies Act, 2013 (“Act”), in addition to the concerned company, proceedings can also be initiated against the “officer in default” under various provisions of the Act. The term “officer in default” is defined under the Act to include whole-time directors (“WTD”), key managerial personnel (“KMP”), and, in the absence of a KMP, directors specified by the board and who have given their consent in writing to such specification, or individuals responsible for the company’s affairs, or all directors if no specific director is designated as such.
The Act also requires that when a company assigns responsibility on any person for complying with the provisions of the Act it must file e-form GNL-3 with the jurisdictional Registrar of Companies (“RoC”).
In light of several instances of independent directors (“ID”) and non-executive director (“NED”) coming under the scanner for alleged non-compliances by companies, through its circular dated 2nd March 2020, the Ministry of Corporate Affairs (“MCA”) had introduced a standard operating procedure regarding prosecutions filed or internal adjudication proceedings initiated against ID’s, non-promoters, non-KMPs, and NEDs, wherein the following key clarifications were provided:
(a) The nature of default is crucial for arraigning officers of the company for defaults committed under the Act.
(b) Filing of information/records with the RoC, maintenance of statutory registers or compliance with the orders issued by the statutory authorities under the Act are not the responsibility of the IDs or the NEDs, unless any specific requirement is provided in the Act. The responsibility of the NEDs ordinarily arises in such cases where there are no WTDs and KMPs.
(c) In case lapses are attributable to the decisions taken by the board or its committees, all care must be taken to ensure that civil or criminal proceedings are not unnecessarily initiated against the IDs or the NEDs, unless sufficient evidence exists to the contrary.
(d) The records available in the office of the RoC, including e-forms DIR-11 or DIR12, along with copies of the annual returns or financial statements should also be examined so as to ascertain whether a particular director or the KMP was serving in the company as on the date of default.
(e) In case of any doubts, with regard to the liability of any person, for any proceedings required to be initiated by the RoC, guidance may be sought from the MCA through the office of Director General of Corporate Affairs. Consequently, any such proceedings must be initiated after receiving due sanction from the MCA.
