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DIRECTOR’S LIABILITY

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Liability of a Whole-Time Director in relation to a company

Date | VersionFebruary 1st 2020 | 1.0
Keywords‘Companies Act, 2013’, ‘Whole-Time Director’, ‘Director’, ‘Liability’, ‘officer in default’, ‘Offences by Companies’
List of Legislations Referred‘Companies Act, 2013’, ‘Indian Penal Code, 1860’, ‘Indian Trusts Act, 1882’, ‘Negotiable Instruments Act, 1881’
JurisdictionIndia

A company being a juristic person, carries on its business affairs through its board of directors. The directors of a company are responsible for the superintendence, control and directions of the affairs of the company. A director is expected to perform his duties as a reasonably diligent person having the knowledge, skill and experience. Therefore, a director plays various roles in a company, like an agent, an employee, an officer and/or a trustee of a company.

It is imperative for a person to understand that even though, he/she is appointed as a director of a company under the Company Act, however, his/her liabilities as a director are not only limited to the offenses committed under the Companies Act. Thus, it becomes important to understand the importance of holding the position of a director in a company.

Broadly, there are two ways in which a liability can be fastened upon a director of a company:

1. Specific or vicarious liability provided under different statutes – It can further be classified into the following three categories:

a. Companies Act, 2013(“Act”): Primarily, the act holds ‘officer in default’ liable for the majority of the violations. Section 2(60) of the Companies Act, 2013 defines an ‘officer in default’. It states that “officer 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;
… …
(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;”

Section 2(59) of the Companies Act, 2013 defines an ‘officer’. It states that “officer includes any director, manager or key managerial personnel or any person in accordance with whose directions or instructions the Board of Directors or any one or more of the directors is or are accustomed to act.”

b. Specific or vicarious liability provisions under different statutes – These type of provisions are found in various statutes for example, Section 141 of the Negotiable Instruments Act, 1881 and Section 27 of Securities and Exchange Board of India Act, 1992.

2. If no express provision for vicarious liability is provided – It has been adjudicated by the apex court in the case of Sunil Bharti Mittal v Central Bureau of Investigation [(2015) 4 SCC 609] that ‘where it is inter-alia held that de hors any vicarious liability provision, individual directors can be made accused only if there is sufficient material to prove their active role coupled with criminal intent’. Above principal was reiterated in the case of Shiv Kumar Jatia v. State of NCT of Delhi [AIR 2019 SC 4463]. For instance, under the Indian Penal Code, 1860 (“IPC”) there are no express ‘vicarious liability’ provisions. Hence, liability for a director can only stem if the director has committed an act coupled with criminal intent.

Different liabilities attributable to directors under different statutes are provided below.

LIABILITY OF A WHOLE-TIME DIRECTOR UNDER COMPANIES ACT, 2013

Sr.No.SectionReferenceDescription
1.Section 7Incorporation of a companyWhen a company gets incorporated by furnishing any false or incorrect information or representation or by suppressing any material fact or information in any of the documents or declaration filed or made for incorporating such company, or by any fraudulent action, the promoters, the persons named as the first directors of the company shall be liable for fraud under section 447.
2.Section 8Formation of a Company with Charitable objects, etc.If a company makes any default in complying with any of the requirements laid down in this section with respect to the formation of a charitable company, the defaulting company shall, without prejudice to any other action under the provisions of this section, be punishable with fine which shall not be less than ten lakh rupees but which may extend to one crore rupees and the directors and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than twenty-five thousand rupees but which may extend to twenty-five lakh rupees, or with both. If it is proven that the affairs of the company were conducted fraudulently, every officer in default shall be liable for action under section 447.
3.Section 12Registered office of a companyIf any default is made in complying with the requirements of this section, the company and every officer who is in default shall be liable to a penalty of one thousand rupees for every day during which the default continues but not exceeding one lakh rupees.
4.Section 15Alteration of memorandum or articles to be noted in every copyIf every alteration is not noted in every copy, the company and every officer who is in default shall be liable to a penalty of one thousand rupees for every copy of the memorandum or articles issued without such alteration.
5.Section 16rectification of name of companyIf a company makes default in complying with any direction given by the Central Government for the change of name, the company shall be punishable with fine of one thousand rupees for every day during which the default continues and every officer who is in default shall be punishable with fine which shall not be less than five thousand rupees but which may extend to one lakh rupees
6.Section 17Copies of memorandum, articles, etc., to be given to membersIf the company fails to deliver the memorandum and articles of the company within 7 days of the request made by its member then the company and every officer of the company who is in default shall be liable for a penalty one thousand rupees each day during which such default continues or one lakh rupees whichever is less.
7.Section 34Criminal liability for mis-statements in prospectusWhere a prospectus, issued, circulated or distributed under Chapter III of Companies Act 2013, includes any statement which is untrue or misleading in form or context in which it is included or where any inclusion or omission of any matter is likely to mislead, every person who authorizes the issue of such prospectus shall be liable under section 447.

Section 447 talks about punishment for fraud.

8.Section 35Civil liability for mis-statements in prospectusWhere a person sustains loss or damage due to the misleading prospectus then every person who is a director of company at the time of issue of prospectus shall be liable to pay compensation to such person for the loss incurred.
9.Section 39Allotment of securities by companyIn case minimum amount stated in the prospectus has not been subscribed and money received for the purposes of allotment of securities is not returned within the prescribed time, or when the company fails to file a return of allotment with the Registrar, the company and its officer who is in default shall be liable to a penalty, for each default, of one thousand rupees for each day during which such default continues or one lakh rupees, whichever is less.
10.Section 40securities to be dealt with in stock exchangesIf a default is made in complying with the provisions of this section, the company shall be punishable with a fine which shall not be less than five lakh rupees but which may extend to fifty lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees, or with both.
11.Section 42issue of shares on private placement basisIf a company makes an offer or accepts monies in contravention of this section, the company, its promoters and directors shall be liable for a penalty which may extend to the amount raised through the private placement or two crore rupees, whichever is lower, and the company shall also refund all monies with interest to subscribers within a period of thirty days of the order imposing the penalty.
12.Section 46Certificate of sharesIf a company with intent to defraud issues a duplicate certificate of shares, the company shall be punishable with fine which shall not be less than five times the face value of the shares involved in the issue of the duplicate certificate but which may extend to ten times the face value of such shares or rupees ten crores whichever is higher and every officer of the company who is in default shall be liable for action under section 447.
13.Section 48Variation of shareholders rightsWhere the company fails to take consent of the shareholder with respect to variation of rights of their share or fails to file the copy of order of tribunal with respect to variation of rights under section 48(2) with the registrar within 30 days of date of such order then every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty five thousand rupees.
14.Section 53Prohibition on issue of shares at discountWhere a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both.
15.Section 56Transfer and transmission of securitiesWhere a company fails to register the transfer of securities of the company on an application made by the holder of securities or do not register it in accordance with the provision of this section then every officer of the company who is in default shall be punishable with fine which shall not be less than ten thousand rupees.
16.Section 59Rectification of register of membersWhere a company fails to comply with the order of the tribunal with respect to the rectification of name of the person in the register of members then every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees.
17.Section 60Publication of authorised, subscribed and paid-up capitalWhere any official publication, business letter, billhead or letter paper of a company contains the amount of authorized capital of the company then such official publication, business letter, billhead or letter paper should also contain the amount of the capital which has been subscribed and the amount paid-up otherwise the officer of the company who is in default shall be liable for a penalty of five thousand rupees.
18.Section 64Notice to be given to Registrar for alteration of share capitalIf a company fails to file a notice of alteration of its share capital to the registrar within a period of 30 days of such alteration then the company or any officer of the company who is in default shall be punishable with fine.
19.Section 66Reduction of share capitalIf any officer of the company- (a) knowingly conceals the name of any creditor entitled to object to the reduction; (b) knowingly misrepresents the nature or amount of the debt or claim of any creditor; or (c) abets or is privy to any such concealment or misrepresentation as aforesaid then he shall be liable under section 447.
20.Section 67Restrictions on purchase by company or giving of loans by it for purchase of its sharesIf a company contravenes the provisions of this section, it shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years and with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees.
21.Section 68Power of a company to purchase its own securitiesIf a company fails to comply with the provision of this section with respect to the buyback of shares by the company then every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than one lakh rupees.
22.Section 71DebenturesWhen a company fails to comply with the order of tribunal with respect to the redemption of debenture not done on the maturity date then every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than two lakh rupees
23.Section 74Repayment of deposits, etc., accepted prior to the commencement of this Act.If a company fails to repay the deposit or part thereof or any interest thereon within the time specified or such further time as may be allowed by the Tribunal, the company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with fine which shall not be less than one crore rupees but which may extend to ten crore rupees and every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years or with fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees, or with both.
24.Section 75Damages for fraudWhere a company fails to repay a deposit or part thereof or any interest thereon and it is proved that the deposit had been accepted with intent to defraud the depositors, or for any other fraudulent purpose, every officer of the company who was responsible for the acceptance of such deposit is liable.
25.Section 76APunishment for contravention of Section 73 or Section 76Where a company accepts or invites or allows or causes any other person to accept or invite on its behalf any deposit in contravention of the manner or the conditions prescribed under section 73[Prohibition on acceptance of deposits from public] or section 76[Acceptance of deposits from public by certain companies] or rules made thereunder or if a company fails to repay the deposit or part thereof or any interest due thereon within the time specified under section 73 or section 76 or rules made thereunder or such further time,every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years and with fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees,Provided that if it is proved that the officer of the company who is in default, has contravened such provisions knowingly or wilfully with the intention to deceive the company or its shareholders or depositors or creditors or tax authorities, he shall be liable for action under section 447.
26.Section 86Punishment for contraventionIf a company fails to comply with any section of Chapter VI (Registration of Charges), then the officer of the company who is in default shall be punishable with imprisonment which may extend to six months or with fine of not less than twenty-five thousand. The chapter includes duty of the company to register charges, application for registration of charges etc.
27.Section 88Register of membersIf a company does not maintain a register of members or debenture-holders or other security holders or fails to maintain them in the manner provided then every officer of the company who is in default shall be punishable with fine which shall not be less than fifty thousand rupees.
28.Section 89Declaration in respect of beneficial interest in any shareIf a company fails to file a return of declaration in respect of beneficial interest in any share with the registrar within thirty days of its receipt then the company andevery officer of the company who is in default shall be punishable with fine which shall not be less than five hundred rupees but which may extend to one thousand rupees.
29.Section 90Register of significant beneficial owners in a companyIf a company, required to maintain register of individuals holding beneficial interest of prescribed percentage, and file the return, fails to do so or denies inspection as provided therein, the company and every officer of the company who is in default shall be punishable with fine which shall not be less than ten lakh rupees but which may extend to fifty lakh rupees and where the failure is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the failure continues.
30.Section 91Power to close register of members or debenture holders or other security holdersIf the register of members or of debenture-holders or of other security holders is closed without giving the notice to them then every officer of the company who is in default shall be liable to a penalty of five thousand rupees for every day during which the register is kept closed
31.Section 92Annual ReturnIf a company fails to file its annual return within the specified time period then everyofficer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than fifty thousand rupees.
32.Section 94Place of keeping and inspection of registers, returns, etc.If any inspection or the making of any extract or copy of register under section 88 or return under section 92 required by any member, debenture-holder, other security holder or beneficial owner or any other person is refused then every officer of the company who is in default shall be liable for the penalty specified under the section.
33.Section 99Punishment for default in complying with provisions of sections 96 to 98If any default is made in holding the meeting of the company in accordance with the sections 96 to 98 then every officer of the company who is in default shall be punishable with fine which may extend to one lakh rupees.
34.Section 102Statement to be annexed to noticeWhen a company makes a default in mentioning material facts in the notice of meeting as envisaged under this section then every promoter, director, manager or other key managerial personnel who is in default shall be punishable with fine which may extend to fifty thousand rupees.
35.Section 105ProxiesIf a company fails to mention the right of the member entitled to appoint a proxy in the notice of the meeting then every officer of the company who is in default shall be punishable with fine which may extend to five thousand rupees.
36.Section 111Circulation of members resolutionsWhere a company fails to provide the notice of the resolution which is intended to be moved in the meeting on requisition in writing made by the members then every officer of the company who is in default shall be liable to a penalty of twenty-five thousand rupees.
37.Section 117Resolutions and agreements to be filedIf a company fails to file the resolution or the agreement passed in the meeting with the registrar within 30 days of passing then every officer of the company who is in default shall be punishable with fine which shall not be less than one lakh rupees.
38.Section 118Minutes of proceedings of general meeting, meeting of Board of Directors and other meeting and resolutions passed by postal ballotIf the minutes of the meeting is not kept and made in accordance with the provision of this section then every officer of the company who is in default shall be liable to a penalty of five thousand rupees.
39.Section 119Inspection of minute-books of general meetingWhen a company refuses inspection of minute-books of general meeting on a request made by its members then every officer of the company who is in default shall be liable to a penalty of five thousand rupees for each such refusal or default.
40.Section 121Report on annual general meetingIf the company fails to file the report on each annual general meeting, before the expiry of the prescribed period, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees.
41.Section 124Unpaid Dividend AccountWhen a company fails to pay the declared dividend to its shareholder within specified time or fails to comply the any provision of this section then every officer of the company who is in default shall be punishable with fine which shall not be less than one lakh rupees
42.Section 127Punishment for failure to distribute dividends

 

Where a dividend has been declared by a company but has not been paid or the warrant in respect thereof has not been posted within thirty days from the date of declaration to any shareholder entitled to the payment of the dividend, every director of the company shall, if he is knowingly a party to the default, be punishable with imprisonment which may extend to two years and with fine which shall not be less than one thousand rupees for every day during which such default continues and the company shall be liable to pay simple interest at the rate of eighteen per cent. per annum during the period for which such default continues.
43.Section 128Books of account, etc., to be kept by companyIf the managing director, the whole-time director in charge of finance, the Chief Financial Officer or any other person of a company charged by the Board with the duty of complying with the provisions of this section, contravenes such provisions, such managing director, whole-time director in charge of finance, Chief Financial officer or such other person of the company shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees or with both.
44.Section 129Financial statementIf a company contravenes the provisions of this section, the managing director, the whole-time director in charge of finance, the Chief Financial Officer or any other person charged by the Board with the duty of complying with the requirements of this section and in the absence of any of the officers mentioned above, all the directors shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both
45.Section 134Financial statement, Board’s report, etc.If the financial statements have not been prepared in accordance with this section or the auditor report is not attached to the financial statement or the company fails to comply with any provision of this section then every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees.
46.Section 136Right of member to copies of audited financial statementIf the company fails to provide the copies of audited financial statement to its member upon request then every officer of the company who is in default shall be liable to a penalty of five thousand rupees.
47.Section 137Copy of financial statement to be filed with RegistrarIf a company fails to file the copy of the financial statements within specified time with the registrar then any director who is charged by the Board with the responsibility of complying with the provisions of this section shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than one lakh rupees.
48.Section 147Punishment for contraventionIf the company fails to comply with the provisions of section 139 to 146 relating to appointment/removal of auditor or fails to provide the proper support to auditor then every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than ten thousand rupees.
49.Section 157Company to inform Director Identification Number to RegistrarIf a company fails to furnish Director Identification Number to the registrar within specified time then every officer of the company who is in default shall be punishable with fine which shall not be less than twenty-five thousand rupees.
50.Section 159Punishment for contraventionIf any individual or director of a company, contravenes any of the provisions of section 152 [Appointment of directors], section 155 [Prohibition to obtain more than one DIN] and section 156 [Director to intimate DIN], such individual or director of the company shall be punishable with imprisonment for a term which may extend to six months or with fine which may extend to fifty thousand rupees and where the contravention is a continuing one, with a further fine which may extend to five hundred rupees for every day after the first during which the contravention continues.
51.Section 166Duties of directorsIf a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
52.Section 168Resignation of directorDirectorshall be liable even after his resignation for the offences which occurred during his tenure.
53.Section 172PunishmentWhen a company fails to comply with Chapter XI relating to appointment and disqualification of director, failure to provide the inspection of register of directors and key managerial person and their shareholding etc. to its members etc. then every officer of the company who is in default shall be punishable with fine which shall not be less than fifty thousand rupees.
54.Section 173Meetings of BoardEvery officer of the company whose duty is to give notice for the board meeting under this section and who fails to do so shall be liable to a penalty of twenty-five thousand rupees.
55.Section 178Nomination and Remuneration Committee and Stakeholders Relationship CommitteeIn case of any contravention of the provisions of section 177[Audit Committee] and this section, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both.
56.Section 182Prohibitions and restrictions regarding political contributionsIf a company makes any contribution in contravention of the provisions of this section then every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months and with fine which may extend to five times the amount so contributed.
57.Section 184Disclosure of interest by directorIf a director fails to disclose his/her interest in entities prescribed in the provision, such director shall be punishable with imprisonment for a term which may extend to one year or with fine which may extend to one lakh rupees, or with both
58.Section 185Loans to directors, etcIf any loan is advanced or a guarantee or security is given or provided or utilised in contravention of the provisions of this section,–

(i) the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees;

(ii) every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees; and

(iii) the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person, shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both.

59.Section 186Loan and investment by companyWhen a company gives loan to any person or make investment anywhere in contravention to this section then every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to two years and with fine which shall not be less than twenty-five thousand rupees
60.Section 187Investments of company to be held in its own nameIf a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both
61.Section 188Related party transactionsAny director or any other employee of a company, who had entered into or authorised the contract or arrangement in violation of the provisions of this section shall,–

(i) in case of listed company, be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees, or with both; and

(ii) in case of any other company, be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees.

62.Section 189Register of contracts or arrangements in which directors are interestedEvery director who fails to comply with the provisions of this section and the rules made thereunder shall be liable to a penalty of twenty-five thousand rupees.
63.Section 190Contract of employment with managing or whole-time directorsEvery company shall keep a contract of service with a managing or whole-time director is in writing at its registered office and copies of such contract shall be open to inspection by any member of the company without payment of fee. In contravention to this section every officer of the company who is in default shall be liable to a penalty of five thousand rupees for each default.
64.Section 191Payment to director for loss of office, etc., in connection with transfer of undertaking, property or sharesIf a director of the company contravenes the provisions of this section, such director shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees.
65.Section 203Appointment of key managerial personnelIf a company contravenes the provisions of this section with respect to the appointment of a key managerial person, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every director and key managerial personnel of the company who is in default shall be punishable with fine which may extend to fifty thousand rupees and where the contravention is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.
66.Section 204Secretarial audit for bigger companiesIf a company or any officer of the company or the company secretary in practice, fails to annex the secretarial report to the Board’s report and provide all necessary assistance and clarifications, the company, every officer of the company or the company secretary in practice, who is in default, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees
67.Section 206Power to call for information, inspect books and conduct inquiriesIf a company fails to furnish any information or explanation or produce any document required by the Registrar under this section, the company and every officer of the company, who is in default shall be punishable with a fine which may extend to one lakh rupees and in the case of a continuing failure, with an additional fine which may extend to five hundred rupees for every day after the first during which the failure continues.
68.Section 207Conduct of inspection and inquiryIf any director or officer of the company disobeys the direction issued by the Registrar or the inspector under this section, the director or the officer shall be punishable with imprisonment which may extend to one year and with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees.
69.Section 213Investigation into company’s affairs in other casesWhere the business of the company is being conducted with intent to defraud its creditors, member or any other person or that the company is being formed for an unlawful purpose then the person concerned in the formation of the company or the officer in default shall be punishable under section 447.
70.Section 221Freezing of assets of company on inquiry and investigationIn case of any removal, transfer or disposal of funds, assets, or properties of the company in contravention of the order of the Tribunal, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.
71.Section 242Powers of TribunalIf a company contravenes the provisions of sub-section (5), the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both.
72.Section 243Consequence of termination or modification of certain agreementsIf any no managing director or other director or manager whose agreement is so terminated or set aside shall, is appointed or acts, as the managing director or other director or manager of the company , prior to the expiration of the prescribed time period,such person, and every other director of the company who is knowingly a party to such contravention, shall be punishable with imprisonment for a term which may extend to six months or with fine which may extend to five lakh rupees, or with both.
73.Section 245Class actionAny company which fails to comply with an order passed by the Tribunal under this section shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years and with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees.
74.Section 248Power of Registrar to remove name of company from register of companiesThe liability, if any, of every director, manager or other officer who was exercising any power of management, and of every member of the company dissolved, shall continue and may be enforced as if the company had not been dissolved.
75.Section 251Fraudulent application for removal of nameWhere it is found that an application by a company has been made with the object of evading the liabilities of the company or with the intention to deceive the creditors or to defraud any other persons, the persons in charge of the management of the company shall, notwithstanding that the company has been notified as dissolved–

(a) be jointly and severally liable to any person or persons who had incurred loss or damage as a result of the company being notified as dissolved; and

(b) be punishable for fraud in the manner as provided in section 447.

76.Section 274Directions for filing statement of affairsIf any director or officer of the company contravenes the provisions of this section, the director or the officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees, or with both.
77.Section 284Promoters, directors, etc., to cooperate with Company LiquidatorWhere any promoters, directors, officers and employees, who are or have been in employment of the company or acting or associated with the company, without reasonable cause, fails to extend full cooperation to the Company Liquidator in discharge of his functions and duties, he shall be punishable with imprisonment which may extend to six months or with fine which may extend to fifty thousand rupees, or with both
78.Section 286Obligations of directors and managersIn the case of a limited company, any person who is or has been a director or manager, whose liability is unlimited under the provisions of this Act, shall, in addition to his liability, if any, to contribute as an ordinary member, be liable to make a further contribution as if he were at the commencement of winding up, a member of an unlimited company:

Provided that —

(a) a person who has been a director or manager shall not be liable to make such further contribution, if he has ceased to hold office for a year or upwards before the commencement of the winding up;

b) a person who has been a director or manager shall not be liable to make such further contribution in respect of any debt or liability of the company contracted after he ceased to hold office;

(c) subject to the articles of the company, a director or manager shall not be liable to make such further contribution unless the Tribunal deems it necessary to require the contribution in order to satisfy the debts and liabilities of the company, and the costs, charges and expenses of the winding up.

79.Section 336Offences by officers of companies in liquidationIf any person, who is or has been an officer of a company which, at the time of the commission of the alleged offence, is being wound up, by the Tribunal under this Act or which is subsequently ordered to be wound up by the Tribunal under this Act commits offences listed under this provision, he shall be punishable with imprisonment for a term which shall not be less than three years but which may extend to five years and with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees. Provided that it shall be a good defence if the accused proves that he had no intent to defraud or to conceal the true state of affairs of the company or to defeat the law
80.Section 337Penalty for frauds by officers

 

If any person, being at the time of the commission of the alleged offence an officer of a company which is subsequently ordered to be wound up by the Tribunal under this Act has committed fraud, such officer shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to three years and with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees.
81.Section 338Liability where proper accounts not kept

 

Where a company is being wound up, if it is shown that proper books of account were not kept by the company throughout the period of two years immediately preceding the commencement of the winding up, or the period between the incorporation of the company and the commencement of the winding up, whichever is shorter, every officer of the company who is in default shall, unless he shows that he acted honestly and that in the circumstances in which the business of the company was carried on, the default was excusable, be punishable with imprisonment for a term which shall not be less than one year but which may extend to three years and with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees.
82.Section 339Liability for fraudulent conduct of business

 

If in the course of the winding up of a company, it appears that any business of the company has been carried on with intent to defraud creditors of the company or any other persons or for any fraudulent purpose, the Tribunal, on the application of the Official Liquidator, or the Company Liquidator or any creditor or contributory of the company, may, if it thinks it proper so to do, declare that any person, who is or has been a director, manager, or officer of the company or any persons who were knowingly parties to the carrying on of the business in the manner aforesaid shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Tribunal may direct.
83.Section 344Statement that company is in liquidationIf a company contravenes the provisions of this section, the company, and every officer of the company, the Company Liquidator and any receiver or manager, who wilfullyauthorises or permits the non-compliance, shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees
84.Section 392Punishment for contraventionWithout prejudice to the provisions of section 391, if a foreign company contravenes the provisions of this Chapter, the foreign company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees and in the case of a continuing offence, with an additional fine which may extend to fifty thousand rupees for every day after the first during which the contravention continues and every officer of the foreign company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees, or with both.
85.Section 403Fee for filing, etc.Where a company fails or commits any default to submit, file, register or record any document, fact or information under this section before the expiry of the period specified in the relevant section, the company and the officers of the company who are in default, shall, without prejudice to the liability for the payment of fee and additional fee, be liable for the penalty or punishment provided under this Act for such failure or default.
86.Section 405Power of Central Government to direct companies to furnish information or statisticsWhen a company fails to furnish the information or statistics as required by the central government then every officer of the company who is in default, shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees.
87.Section 441Compounding of certain offencesAny officer or other employee of the company who fails to comply with any order made by the Tribunal or the Regional Director or any officer authorised by the Central Government under sub-section (4) of this section shall be punishable with imprisonment for a term which may extend to six months, or with fine not exceeding one lakh rupees, or with both
88.Section 447Punishment for fraudWithout prejudice to any liability including repayment of any debt under this Act or any other law for the time being in force, any person who is found to be guilty of fraud involving an amount of at least ten lakh rupees or one per cent of the turnover of the company, whichever is lower, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud. Provided that where the fraud in question involves public interest, the term of imprisonment shall not be less than three years. Provided further that where the fraud involves an amount less than ten lakh rupees or one per cent. of the turnover of the company, whichever is lower, and does not involve public interest, any person guilty of such fraud shall be punishable with imprisonment for a term which may extend to five years or with fine which may extend to twenty lakh rupees or with both.
89.Section 448Punishment for false statement

 

Save as otherwise provided in this Act, if in any return, report, certificate, financial statement, prospectus, statement or other document required by, or for, the purposes of any of the provisions of this Act or the rules made thereunder, any person makes a statement,

(a) which is false in any material particulars, knowing it to be false; or

(b) which omits any material fact, knowing it to be material,

he shall be liable under section 447.

90.Section 449Punishment for false evidence

 

Save as otherwise provided in this Act, if any person intentionally gives false evidence,

(a) upon any examination on oath or solemn affirmation, authorised under this Act; or

(b) in any affidavit, deposition or solemn affirmation, in or about the winding up of any company under this Act, or otherwise in or about any matter arising under this Act,

he shall be punishable with imprisonment for a term which shall not be less than three years but which may extend to seven years and with fine which may extend to ten lakh rupees.

91.Section 450Punishment where no specific penalty or punishment is provided

 

If a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made thereunder, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees, and where the contravention is continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.
92.Section 451Punishment in case of repeated default

 

If a company or an officer of a company commits an offence punishable either with fine or with imprisonment and where the same offence is committed for the second or subsequent occasions within a period of three years, then, that company and every officer thereof who is in default shall be punishable with twice the amount of fine for such offence in addition to any imprisonment provided for that offence.
93.Section 452Punishment for wrongful withholding of property

 

If any officer or employee of a company-

(a) wrongfully obtains possession of any property, including cash of the company; or

(b) having any such property including cash in his possession, wrongfully withholds it or knowingly applies it for the purposes other than those expressed or directed in the articles and authorised by this Act,

he shall, on the complaint of the company or of any member or creditor or contributory thereof, be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

94.Section 454Adjudication of penaltiesWhere an officer of a company who is in default does not pay the penalty under section 454 then such officer shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than twenty-five thousand rupees.

LIABILITY OF A DIRECTOR UNDER INDIAN TRUSTS ACT, 1882

Sr. No.SectionReferenceDescription
1.Section 88Advantage gained by fiduciaryAdvantage gained by fiduciary—Where a trustee, executor, partner, agent, director of a company, legal advisor, or other person bound in a fiduciary character to protect the interests of another person, by availing himself of his character, gains for himself any pecuniary advantage, or where any person so bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other person and thereby gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained.

LIABILITY OF A DIRECTOR UNDER NEGOTIABLE INSTRUMENTS ACT, 1881

Sr. No.SectionReferenceDescription
1.Section 141 (2)Offences by CompaniesNotwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officers of the company, such director, manager, secretary or other officers shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

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