BREATHER FOR INDEPENDENT DIRECTORS

The ministry of corporate affairs (MCA) has asked its field officers —registrars of companies and official liquidators —to exclude independent directors and government nominees while initiating prosecution measures against company directors for violation of the Companies Act.

The MCA clarification comes in the backdrop of several instances in which its field officers framed charges against all the directors of a company for violations, despite the Act exempting certain directors from penal action as they were not directly involved in day-to-day management.

In a recent circular, the MCA spelled out the types of directors who should not be held responsible in such cases. These include independent directors in listed companies and government nominees in public sector undertakings, public sector financial institutions, financial institutions and banks.

The issue of independent directors facing charges of irregularities in companies had earlier drawn a heated debate in the case of investment banker Nimesh Kampani. He had faced charges in a case related to irregularities in Nagarjuna Finance. Kampani was an independent director in the company and was said to have quit before the company defaulted on depositors’ money in 2002.

Special directors appointed by the Board for Industrial and Financial Reconstruction (BIFR) will also not incur any obligation or liability for anything done or omitted in good faith and in discharge of duties.

While managing directors and persons amongst officers and employees who have been given specific responsibilities by the company board or managing director can be booked for violations, the ministry wants extra care to be taken that directors including nonexecutive directors, officers and employees not connected with the responsibility are not considered delinquent.

“No such director shall be held liable for any act of omission or commission which constitutes a breach or violation of any provision of the Companies Act, 1956, and which occurred without his knowledge attributable through the board process and without his consent or connivance or where he has acted diligently in the board process,” the circular said.