Clarification on Prosecutions Filed or Internal Adjudication Proceedings Initiated

To,

All Regional Directors,

All Registrar of Companies,

All Official Liquidators.

Subject: Clarification on prosecutions filed or internal adjudication proceedings initiated against Independent Directors, non-promoters and non-KMP non-executive directors.

Sir,

Under several provisions of the Companies Act, 2013 [Act], proceedings are required to be initiated against an officer in default for violations committed under the Act. The term ”officer who is in default” is defined under Section 2(60) of the Act, wherein various officers of the company have been identified.

2. Ordinarily, a whole-time director [WTD] and key managerial personnel[KMP] are associated with the day-to-day functioning of the company and accordingly such WTD and KMP would be liable for default committed by a company. in the absence of a KMP, such director or directors who have expressly given their consent for incurring liability in terms of the e-form GNL-3 filed with the Registrar would be liable. Where the consent for incurring liability for any of the provisions dealing with maintenance, filing or distribution of accounts or records is submitted in e-form GNL-3 by a person under the immediate authority of the Board or any KMP, the liability of such person will arise. However, in certain cases, the penal provisions in the Act hold a specific director, or officer, or any other person accountable for the default, in such cases, action should be initiated only against such director, or officer, or person, as the case may be, such as disclosure of interest by director under Section 184 of the Act.

3. Section 149(12) is a non-obstante clause which provides that the liability of an independent director(ID) or a non-executive director(NED) not being a promoter or key managerial personnel would be only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently. 

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