What Can Make Directors Liable Under Companies Act, 2013

The Companies Act 2013 is enacted to meet the present day challenges posed due to growing sphere of corporate governance arising from the stakeholders’ expectations. The 2013 act has ushered in a new era of corporate governance, by increasing the roles and responsibilities of the board of directors, protecting shareholders’ interests, bringing in a disclosure based regime and built in deterrence through self-regulation.
The 2013 Act provides for statutory recognition of duties of a director, such as exercise of due and reasonable care, skill, diligence, and independent judgment. Being fiduciaries, directors are exposed to liabilities as consequence of a breach of their duties.
The act has introduced several measures, which have the effect of considerably enhancing the duties and liabilities of directors. While some of the requirements already existed for the listed companies as part of the listing agreement, the new requirements under the 2013 Act apply to all companies.
There are two set of liabilities for the directors. The first set of liabilities is statutory in nature. The approach in the new regime is to impose stiffer penalties in case of criminal offence to constitute a strong deterrent on director’s conduct that falls short of the desired standards.The second set of liabilities arises from the claims made against the directors by either the company or the shareholders for breaches of director’s duties.
Under section 2(60) of the 2013 act, the concept of ‘officer who is in default’ has been given to include the person i.e. director who was handling a particular transaction on behalf of the company. Here the attribution of criminal liability of such officer is established and they shall be liable to penalty or imprisonment.
Therefore, the question arises about what all makes a director liable under the companies act, 2013? To understand this lets see the list given below which covers the various liabilities under different sections of the 2013 act:

1. Under section 53- Prohibition On The Issue Of Shares At Discount-

• For company- fine- not less than Rs 1 lakh and may extend to Rs. 5 lakhs.
• For officer in default- maximum imprisonment of 6 months or fine – not less than Rs. 1 Lakh and may extend to Rs. 5 lakhs or with both.

2. Under section 57- Punishment For Personation Of Shareholder–

• Such person in default- minimum 1 year to maximum 3 years and imprisonment or fine – not less than Rs. 1 lakh and may extend to Rs. 5 Lakhs.

3. Under section 58 (6) – Refusal Of Registration And Appeal Against Refusal–

• Such person in default- minimum 1 year to maximum 3 years and imprisonment or fine – not less than Rs. 1 lakh and may extend to Rs. 5 Lakhs.

4. Under section 59 (5) – Rectification Of Register Of Members–

• For company – fine – not less than Rs. 1 Lakh and may extend to Rs. 5 Lakhs.
• For officer in default – maximum imprisonment of 1 year or fine – not less than Rs. 1 Lakh and may extend to Rs. 3 Lakhs or with both.

5. Under section 68(11)- Power Of Company To Purchase Its Own Securities–

• For company- fine- not less than Rs.1 Lakh and may extend to 3 lakhs.
• For officer in default- maximum imprisonment of 6 months or fine – not less than Rs.1 Lakh and may extend to Rs.3 Lakhs or with both.

6. Under section 71(11)- Debentures–

• For officer in default- maximum imprisonment of 3 years or fine- not less than Rs. 2 lakh and may extend to Rs. 3 lakhs or with both.

7. Under section 92(5)- Annual Return–

• For company- not less than Rs. 50,000 and may extend to Rs. 5 Lakhs
• For officer in default- Maximum imprisonment of 6 months or fine – not less than Rs. 50,000 and may extend to 5 Lakhs or with both.

8. Under section 118 (2) – Minutes of Proceedings of General Meeting, Meeting of the Board of Directors and Other Meetings and Resolutions Passed by Postal Ballot. –

• Any person guilty of tampering with the minutes- maximum imprisonment for 2 years and fine- not less than Rs.25,000 but which may extend to Rs.1 Lakh.

9. Under section 128(6)- Books Of Account, Etc., To Be Kept By Company–

• For officer in default- maximum imprisonment of 1 year or fine – not less than Rs. 50,000 and may extend to Rs. 5 Lakhs or with both.

10. Under section 129(7)- Financial Statement-

• For officer in default- maximum imprisonment of 1 year or fine – not less than Rs. 50,000 and may extend to Rs. 5 Lakhs or with both.

11. Under section 134- Financial Statement, Board’s Report, Etc. –

• For company – not less than Rs. 50,000 and may extend to Rs. 25 Lakhs.
• For officer in default – maximum imprisonment of 3 years or fine – not less than Rs. 50,000 and may extend to Rs. 5 lakhs or with both.

12. Under section 137 (3) – Copy Of Financial Statement To Be Filed With Registrar–

• For company – fine – not less than Rs. 1,000 for each day in default but not more than 10 Lakhs.
• For officer in default – maximum imprisonment of 6 months or fine – not more than Rs. 1 Lakh and may extend to Rs. 5 Lakhs or with both.

13. Under section 167 – Vacation Of Office Of Director–

• Director- maximum imprisonment for 1 year or fine – not be less than Rs. 1 Lakh and may extend to Rs. 5 Lakhs or with both.

14. Under section 182 (4) – Prohibitions And Restrictions Regarding Political Contributions–

• For company – fine – 5 times of the amount of contribution in contravention
• For officer in default – maximum imprisonment of 6 months and fine- 5 times the amount of contribution in contravention.

15. Under section 184 (4) – Disclosure Of Interest By The Director –

• Such person in default – Minimum 1 year imprisonment or fine – not less than Rs. 50,000 and may extend to Rs.1 Lakh or both.

16. Under section 185 (2) – Loan To Directors, Etc. –

• For company – not less than Rs. 50,000 and may extend to Rs. 25 Lakhs.
• For officer in default – maximum imprisonment of 6 months or fine – not less than Rs. 5 Lakhs and may extend to Rs. 25 Lakhs or with both.

17. Under section 186(13) – Loan And Investment By Company-

• For company – not less than Rs. 25,000 and may extend to Rs. 5 Lakhs.
• For officer in default – maximum imprisonment of 2 years or fine – not less than Rs. 25,000 and may extend to Rs. 1 Lakh or with both.

18. Under section 187 (4) – Investments Of Company To Be Held In Its Own Name–

• For company – fine – not less than Rs.25, 000 and may extend to Rs.25 Lakhs.
• For officer in default – maximum imprisonment of 6 months or fine – not less than Rs. 25,000 and may extend to Rs. 1 Lakh or with both.

19. Under section 188 (5) – Related Party Transactions–

• In case of unlisted company, offence is punishable with fine, which shall not be less than Rs. 25,000 and may extend to Rs. 5 Lakhs.

20. Under Chapter – IV – Registration Of Charges–

• For company – fine – not less than Rs.1 Lakh and may extend to Rs. 10 Lakhs.
• For officer in default – maximum imprisonment of 6 months or fine – not less than Rs. 25,000 and may extend to Rs. 1 Lakh or with both.

21. Under section 447 – Punishment For Fraud–

• Any person who is found guilty of fraud – maximum imprisonment of 6 months may extend to 10 years.
• Such person can also be liable to fine, which may extend to 3 times the amount involved.