Liabilities of Directors under the Companies Act, 2013
Liabilities of Directors under the Companies Act, 2013
Directors hold a position of trust and are responsible for managing the company’s affairs. The Companies Act, 2013, along with other laws, imposes several liabilities on directors to ensure accountability and proper governance.
1. Liabilities for Fraudulent Conduct and Misfeasance
Section 34: Directors who are knowingly party to the formation of a company by false statements or fraud are punishable with fines and imprisonment.
Section 447: Deals with punishment for fraud by any person including directors.
2. Liability for Negligence, Default, or Breach of Duty
Section 166: Directors must act with due diligence and in good faith to promote the company’s interest. Failure can lead to penalties.
Section 174: Duty to exercise reasonable care, skill, and diligence.
Section 188: Liability in case of related party transactions if proper procedure is not followed.
3. Liability for Non-Compliance with Statutory Requirements
Filing Defaults: Failure to file annual returns, financial statements, etc., can attract penalties (Sections 92, 99, 137).
Maintenance of Statutory Registers: Under Section 88 and others.
Appointment of Auditors: Section 139.
4. Liability for Payment of Dividend
Section 123: Directors are liable for payment of dividend out of profits only. Illegal payment leads to personal liability.
5. Liability for Insider Trading and Securities Law Violations
Directors must comply with SEBI regulations (if applicable).
Non-compliance can lead to fines and imprisonment.
6. Liability for Defaults related to Loans and Deposits
Section 73-76: Liability for accepting deposits without complying with the rules.
Section 185: Loan to directors — strict compliance required, else penalty applies.
7. Criminal Liability
For offenses under the Companies Act or other laws, directors may face criminal prosecution with imprisonment and fines.
Examples: Fraud, false statements, failure to comply with company law provisions.
8. Liability in Case of Corporate Social Responsibility (CSR)
Directors are responsible for ensuring compliance with CSR provisions (Section 135). Failure can lead to penalties.
9. Liability under Environmental, Labour, Tax, and Other Laws
Directors can also be held liable for non-compliance with laws beyond the Companies Act, e.g., pollution control, labour laws, tax laws, etc.
10. Personal Liability and Indemnity
Directors can be held personally liable if they act outside their authority or breach duties.
The company may indemnify directors for acts done in good faith, but not for fraud or negligence.
Summary Table
| Liability Area | Relevant Sections | Penalty / Consequence |
|---|---|---|
| Fraud and Misstatements | 34, 447 | Fine, imprisonment |
| Breach of Duties and Care | 166, 174 | Penalty, disqualification |
| Filing and Compliance Defaults | 92, 99, 137 | Fines |
| Illegal Dividend Payment | 123 | Personal liability |
| Related Party Transactions | 188 | Penalties, transaction void |
| Loan to Directors | 185 | Penalty, imprisonment |
| Deposit Acceptance | 73-76 | Penalty, imprisonment |
| CSR Compliance | 135 | Fines |
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