THE COMPANIES ACT 2013

DIRECTORS Role, Responsibility, Duties & Liabilities

RO

LE

A Director is an appointed or elected

member of the Board.

He should Determine and implement the

Company’s Policies.

Derives his/ her powers emanating from

Board resolutions.

Cannot absolve himself of his

responsibilities for the delegated duties.

Responsible for the superintendence,

control and direction of the affairs of the

company.

RO

LE

To act as agent of the company.

To exercise power in good faith and

honesty.

To ensure due compliance with the

provisions of all laws governing the

corporate sector.

To avoid direct/ indirect personal

involvement in any transaction of the

company.

Not to make any secret profit in

derogation of his fiduciary position towards

the company.

Management Responsibilities

Framework Encompassing

by Directors

Formulation and Documentation

of Systems, Processes &

Controls

Continuous Evaluation of

Systems, Processes &

Controls

Continuous Improvement of

Systems, Processes &

Controls

The Directors responsibility statement under section 134(5) provides forstating the following :

Adherence with the accounting standards in preparation ofaccounts,

Selection and application of accounting policies that are reasonable.

Care and maintenance of adequate accounting records andsafeguarding the assets and preventing/ detecting fraud and otherirregularities

Preparation of annual accounts on going concern basis

“internal financial controls” for listed companies and

compliance of “all applicable laws”

The Board report, as per section 134 (3)(n), should contain a

statement indicating development and implementation of a RISK

MANAGEMENT POLICY of the company where the elements of

risks are identified which may threaten the existence of the

company.

Adhere with the accounting standards in preparation of annual accounts

Selection and application of accounting policies and making judgments/ estimations that are reasonable to give the true and fair view of the affairs of the company

Preparation of annual accounts on going concern basis

Proper and sufficient care and maintenance of adequate accounting records, safeguarding the assets and preventing/ detecting fraud and other irregularities in the company

Accounting Requirements

THE DIRECTORS NEED TO

ENSURE THAT THERE BE A

SYSTEM IN THE COMPANY

TO ENSURE THAT ALL THE

LAWS THAT ARE

APPLICABLE TO THE

COMPANY ARE COMPLIED

WITH IN ALL RESPECT.

Compliances of All Laws

FORMULATION AND REVIEW

OF AN EFFECTIVE INTERNAL

FINANCIAL CONTROL

SYSTEM OF THE COMPANY

IS THE RESPONSIBIL ITY OF

THE DIRECTORS COMPANY.

Internal Financial Control

As per section 143 (3)(i) the auditors of the company have to in the Audit report comment on the

adequacy of internal financial control system and operating effectiveness of the controls. Thus the

directors of the company will have to formulate an INTERNAL FINANCIAL CONTROL system.

A RISK MANAGEMENT

SYSTEM SHOULD BE

FORMULATED BY THE

DIRECTORS IN ORDER TO

IDENTIFY THE RISKS THAT

THE COMPANY FACES AND

SHALL BE MINIMIZED TO

THE MAXIMUM EXTENT

POSSIBLE.

Risk Management System

DUTIES

The companies

act 2013 has

prescribed the

duties that

every director

needs to

perform on day

to day basis to

ensure healthy

working of the

Company.

In view of the fiduciary position held by

directors, explicit provisions prescribing

directors duties have been added to the

new Act.

These amendments, though not

substantial, have tried to shift the onus

of the loss/ liability suffered by the

company on the director due to their

lack of discipline by increasing the

penalty and clearly codifying the role and

duties.

A director should act in accordance with the AOA of the company.

A director should act in good faith in order to promote the objects ofthe company for the benefit of the members as a whole and in the bestinterest of the company, employees, shareholders, the community andfor the protection of the environment.

A director to exercise his duties with due and reasonable care,skill and diligence and shall exercise independent judgment. Heshould not assign his office and any assignment.

A director not to get involved in a situation where he may have direct/indirect interest that conflicts/ may conflict with the interest ofthe company.

A director not to achieve or attempt to achieve any undue gain/advantage either to himself/ to his relative/ partners/ associates. Iffound guilty he shall be liable to pay the amount equal to the gain tothe company.

DU

TIE

S

PENALTY

The companies

act 2013 has

prescribed the

duties that

every director

needs to

perform on day

to day basis to

ensure healthy

working of the

Company.

Any Director who contravenes the provisions of

section 166 and does not diligently perform his

duties will be punishable with a fine not less than

1 lakh rupees , which may extend to 5 Lakh

rupees.

Disqualifications of directors:

Person is of unsound mind,

Undischarged insolvent,

Disqualified by order of tribunal/ court,

Non payment of calls in respect of shares of the companyheld by him,

Person has been convicted for offence dealing withrelated party transactions anytime during the previous 5years.

Person has not obtained DIN

Person has been convicted for any offence and has beensentenced for an imprisonment extending to 7 years ormore.

Person who is a director of a company which :

has not filed financial statements/ Annual Return for acontinuous period of 3 F.Y.

Has failed to repay the deposits accepted by it orinterest thereon or redeem debentures or pay dividenddeclared for 1 year or more.

Automatic Vacation of office :

If he incurs any disqualification of section 164.

If he fails to attend all board meetings for a consecutive period of 12months.

Contravention of section 184 Relating to entering into contracts in whichhe is interested.

Failure to disclose interest in any contract/ arrangement, section 184.

Disqualified by order of tribunal/ court.

Imprisonment not less than 6 months for moral turpitude or otherwise.

If he has been appointed a director by virtue of his holding office/employment in the holding/ subsidiary/ associate company and suchemployment in that company ceases.

Di rec to rs sh o u l d d isc l o se to th e co mp an y i n format i o n

reg ard i n g :

Di rec t o rsh ip s in a l l o th er co mpan i es w heth er in I nd ia o r

ab ro ad (cu r ren t & l as t 3 years )

S h areh o l d in g / i n te res t / co n cern i n a l l en t i t i es w heth er in

i n d i a o r ab ro ad

Det a i l s o f Re l a t i ves

Di sc l o su re reg ard i n g res i d en t i a l s ta tu s o f th e d i rec to r

Liabi l i ty of directors

extends to directors as:

Criminal l iabi l i ty

“Off icer”

“Off icer in defaul t”

Civi l l iabi l i ty, and,

For f raud

Liability as an “OFFICER”

Director as an “Officer”

“Officer” includes:

any director,

manager or

key managerial personnel or

any person

in accordance with whose directions or instructions the Board ofDirectors or any one or more of the directors is or are accustomed toact.

Liability as an “OFFICER”

Liabilities as an “officer” on contravention of the provisions of the following sections:

1. Section 66 - Reduction of Capital

2. Section 105 - Appointment of Proxies

3. Section 207 - Conduct of Inspection and Enquiry

4. Section 204 - Secretarial Audit

5. Section 274 - Directions for filing statement of Affairs – Winding Up byTribunal

6. Section 212 - Inspection by SFIO

7. Section 173 - Meetings of BoardIn case of default of compliances with regard to

calling of a General Meeting of the Company

Liability as an “OFFICER in Default”

“Officer in Default”

An officer of the company who is in default shall be liable to any penalty orpunishment by way of imprisonment, fine or otherwise, means any of thefollowing officers of a company, namely:—

(i) whole-time director;

(ii) key managerial personnel;

(iii) where there is no key managerial personnel, such director ordirectors as specified by the Board in this behalf and who has or havegiven his or their consent in writing to the Board to such specification,or all the directors, if no director is so specified;

Liability as an “OFFICER in Default”

(iv) any person who, under the immediate authority of the Board or any keymanagerial personnel, is charged with any responsibility including maintenance,filing or distribution of accounts or records, authorises, actively participates in,knowingly permits, or knowingly fails to take active steps to prevent, any default;

(v) any person in accordance with whose advice, directions or instructions theBoard of Directors of the company is accustomed to act, other than a person whogives advice to the Board in a professional capacity;

(vi) every director, in respect of a contravention of any of the provisions of thisAct, who is aware of such contravention by virtue of the receipt by him of anyproceedings of the Board or participation in such proceedings without objecting tothe same, or where such contravention had taken place with his consent orconnivance;

(vii) in respect of the issue or transfer of any shares of a company, the sharetransfer agents, registrars and merchant bankers to the issue or transfer

Liability as an “OFFICER in Default”

Directors are liable as officers in default under all sections where specific penalty is provided for each officer in default.

Where no specific penalty is provided under the Act, they are liable under Section 450 “punishment where no specific penalty or punishment is provided”.

CIVIL Liability

Section 75

Damages for Fraud

(DEPOSITS)

Section 245

Class Action Suits

Section 339

Liability for fraudulent conduct of business

Section 35

Civil Liability for mis-statement in

prospectus

CIVIL Liability under the following sections:

CLASS ACTION SUITS

A company Directors

An auditor including audit firm of a company for any improper or misleading statement of particulars made in the audit report or for

any unlawful or fraudulent conduct.

Expert or advisor or consultant for an incorrect or misleading statement made to the company.

A class action suit may be filed against the following authorities by the requisite number of members/ depositors :

for any fraudulent, unlawful

or wrongful act or omission

Liability for “FRAUD”

“Fraud” in relation to affairs of a company or any body corporate, includes: any act, omission, concealment of any fact or abuse of position committed by any person or any other person with

the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its

creditors or any other person, whether or not there is anywrongful gain or wrongful loss.

Any person who is found to be guilty of fraud, shall be punishable with: imprisonment for a term not be less than 6 months but may extend to

10 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 3 times the amountinvolved in the fraud.

The Act otherwise provides some relief to the non- executive &

Independent Directors as follows:

A non – executive director (not being a promoter/ KMP) is liable only for such

acts of omission or commission by the company which occur:

with his knowledge or

attributable through board processes, and

with his consent or connivance or

where he had not acted diligently.

Arun Gupta

managing counsel

factum legal ,

advocates & sol ici tors

Tel : (O) 011 -41066313

(M) 9810275571

www.factumlega l .com

arun@factumlega l .com