Director’s Responsibility Statement under the Companies Act, 2013
1. Introduction
The Director’s Responsibility Statement (DRS) is a statutory statement in which the Board of Directors of a company confirms that they have fulfilled their duties while preparing the company’s financial statements.
Introduced under Section 134(3)(c) of the Companies Act, 2013.
Ensures accountability, transparency, and compliance with financial reporting standards.
Applicable to all companies required to prepare financial statements, especially listed companies and public companies.
2. Legal Provisions
2.1 Section 134(3)(c) of Companies Act, 2013
The Board of Directors’ Report must include a Director’s Responsibility Statement, which confirms that:
Accurate preparation of accounts:
Financial statements comply with applicable accounting standards and give a true and fair view of the company’s affairs.
Accounting records maintained:
Proper records as per Section 128 have been maintained to explain transactions and financial position.
Safeguarding of assets:
Directors have taken adequate steps to protect company assets and prevent fraud or mismanagement.
Compliance with laws:
Ensuring adherence to applicable laws and regulations in preparation of accounts.
Internal financial controls:
Directors have ensured the existence of adequate internal financial controls for reliable reporting.
Proper systems for risk management:
Directors confirm systems are in place to identify and manage risks effectively.
2.2 Relevant Rules
Companies (Accounts) Rules, 2014 – specifies the format and particulars of the Director’s Responsibility Statement.
Schedule III – outlines the requirements of financial statements in compliance with DRS.
3. Purpose and Significance
Accountability of Directors
DRS makes directors legally accountable for financial statements.
Transparency
Assures stakeholders that accounts are prepared in good faith and in compliance with law.
Investor Confidence
Provides assurance to investors and lenders about reliability of financial information.
Legal Compliance
Non-inclusion of DRS in the Director’s Report is a violation of the Companies Act, attracting penalties.
4. Content of Director’s Responsibility Statement
A typical DRS under Section 134(3)(c) contains the following confirmation by the Board:
“Pursuant to Section 134(3)(c) of the Companies Act, 2013, the Board of Directors hereby confirms that:
In preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanations relating to material departures;
The directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the company’s state of affairs at the end of the financial year;
Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;
The annual accounts have been prepared on a going concern basis; and
The directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.”
5. Duties of Directors Under DRS
The DRS reflects directors’ duties under Section 166 of the Companies Act, 2013:
Act in good faith in the best interest of the company.
Exercise due care, skill, and diligence in preparing financial statements.
Ensure legal and regulatory compliance in financial reporting.
Prevent fraud and safeguard assets.
6. Case Law Illustrations
Case 1: Sahara India Real Estate Corporation Ltd. v. SEBI (2012)
Facts: Alleged misrepresentation in accounts submitted to regulatory authorities.
Observation: Court emphasized that directors are accountable for accuracy and transparency in financial reporting.
Significance: Reinforces that DRS is a mechanism to ensure directors’ accountability.
Case 2: PNB Housing Finance Ltd. v. SEBI (2019)
Facts: Violation of disclosure norms in financial statements.
Observation: Regulatory authorities noted directors’ failure to comply with Section 134(3)(c) reporting requirements.
Significance: Demonstrates that non-compliance with DRS can attract penalties under Companies Act and SEBI regulations.
Case 3: Shapoorji Pallonji & Co. Ltd. v. Ministry of Corporate Affairs (2015)
Facts: Director’s report did not contain adequate DRS confirmations.
Observation: Court held that DRS is mandatory under Companies Act, and omission leads to violation of statutory duties.
7. Consequences of Non-Compliance
Penalty on Company and Directors
As per Section 134(8) & Section 447, failure to include DRS can attract fines.
Directors may be personally liable in case of misstatement or omission.
Legal Action
Regulatory authorities (ROC, SEBI) can investigate and take action.
Reputational Risk
Non-compliance reduces investor confidence and trust in corporate governance.
8. Practical Importance
Audit and Reporting: DRS ensures auditors verify compliance with accounting standards.
Internal Controls: Encourages companies to establish robust internal financial control systems.
Corporate Governance: Acts as a tool to enhance board accountability in financial reporting.
9. Conclusion
The Director’s Responsibility Statement under Section 134(3)(c) of Companies Act, 2013:
Is a mandatory statement in the Director’s Report confirming compliance with accounting and legal standards.
Reinforces directors’ fiduciary duties, transparency, and accountability.
Courts have held that omission or misstatement in DRS is a serious statutory violation.
It plays a vital role in corporate governance and investor confidence.
✅ Key Takeaway:
The DRS transforms financial reporting from a mere formality into a statement of directors’ accountability, ensuring that financial statements are prepared with utmost care, accuracy, and compliance with law.
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