This article has been written by Ms.Taranjot Kaur, a 1st year law student of Panjab University, Chandigarh.
Introduction
Section 2(30) of the Companies Act, 1956, provides that officer includes any director, manager, secretary or any person in accordance with whose directions or instructions the Board of directors or any one or more of the director is or are accustomed to act. Therefore, it refers only to the officers of the company and not subordinate staff. The Companies Act, 1956 in number of sections uses the term ‘officer in default’ when affixing a person with liability for offences, i.e. if default is made in complying with a section, the company and every officer of the company who is in default shall be guilty of an offence under that section. This is followed by the specified penalty consisting of fine or fine and imprisonment in certain cases. The Companies Act 1956 imposes a number of obligations and duties on the officers of a company (i.e , those in charge of the management). If any officer contravenes the act, that officer is said to be an ‘officer in default’. Section 5 of the act specifically defines the term ‘officer in default’ as follows:
The Companies Act 1956 imposes a number of obligations and duties on the officers of a company (ie, those in charge of the management). If any officer contravenes the act, that officer is said to be an ‘officer in default’. Section 5 of the act specifically defines the term ‘officer in default’ and lists the officers who can be brought under the purview of the term, as follows:
- a) the managing director
- b) the full time director
- c) the manager
- d) the secretary
- e) any person in accordance with whose directions or instructions the Board of directors of the company is accustomed to act
- f) any person charged by the Board with the responsibility of complying with that provision
Provided that the person so charged has given his consent in this behalf to the Board
- g) where any company does not have any of the officers specified in clauses (a) to (c), any director or directors who may be specified by the Board in this behalf or where no director is so specified, all the directors:
Provided that where the Board exercises any power under clause (f) or clause (g), it shall, within thirty days of the exercise of such powers, file with the Registrar a return in the prescribed form.
Officers who fail to comply with the act may be punishable with a fine, imprisonment or both, depending on which provision of the act has been contravened.However,there is mechanism to assign a specific order to comply with any specific provisions of the companies act and such assigned person shall be the officer who is in default in exclusion of all other persons named in section 2 (60).
Assigned person may be termed as “Officers in Charge” in accordance with section 2(60)(iv) of the act.
Assigned person has to give consent letter in the name of Board of Directors to take charge of the Specific provisions of the Companies Act,‘Officers in Charge’ shall be responsible for only such provisions of Companies Act for which he/she has given consent, not for any other Section or Act or Laws. Board has to approve this matter in Board meeting .File e-Form GNL-3 with the MCA along with consent letter and copy of Board resolution. Details of maximum three ‘officers in Charge’ can be filed in a single form. DSC of ‘officers in Charge’ shall be affixed in this Form .The withdrawal of the consent for the charged person is also to be informed to MCA.
Section 2(60) of the Companies Act, 2013–
Officer who is in default”, for the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any penalty or punishment by way of imprisonment, fine or otherwise, means any of the following officers of a company, namely:—
whole-time director;
key managerial personnel;
where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified;
any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorizes, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default;
any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in a professional capacity;
every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance;
in respect of the issue or transfer of any shares of a company, the share transfer agents, registrars and merchant bankers to the issue or transfer.
Ministry viewpoint on officers in default –
The Ministry of Corporate Affairs has on numerous occasions examined the circumstances under which prosecution can be launched against the officers of a company for violating the act – that is, who should be treated as an officer in default. It has come to the knowledge of the ministry that the registrar of companies has brought cases against all directors of a company for violations, without differentiating between the officer in default and other officers.
The ministry has also noted that penal actions have been initiated against certain directors who were not charged with the relevant responsibility.The ministry clarified that no director shall be held liable for any violation by the company or by any other officer of the company, if the violation occurred without his or her knowledge and without his or her consent or connivance, or where he or she has acted diligently.
Where a director has resigned and the company has not filed a Form 32 (as required under Section 302(2) of the act), but the director concerned has informed or endorsed a copy of his or her resignation to the registrar of companies, the registrar should check with the company whether the director has actually resigned.Where the status of a director (ie, whether he or she is a nominee director) is not reflected in the annual return or other company documents filed with the registrar of companies, the documents should be cross-checked with the annual report filed by the company.Person appointed as a nominee director is responsible for the proper discharge of his or her obligations and fiduciary responsibilities under the statute in the same manner as an ordinary director, regardless of the interests that he or she represents or protects.
Punishments –
Prosecution [should] be filed against the managing director(s), full-time director(s) and manager, apart from the secretary, if any, and the company and only in those cases where there is no such managerial personnel, [should] prosecution be filed against all ordinary directors apart from the secretary, if any, and the company.
Conclusion –
Anyone that wishes to take up a managerial position in an Indian company should carefully study the provisions of the act and should avoid taking up a position without weighing up the pros and cons. Furthermore, directors who have wrongly been served a notice by the registrar of companies can challenge the notice. Directors who resign from a directorship by simply tendering a resignation letter to the company and without ensuring that the company files a Form 32 informing the registrar of companies of the director’s resignation should send a copy of their resignation letter directly to the registrar by registered post to avoid being wrongly prosecuted.
References –
https://taxguru.in/company-law/officer-default-section-260-companies-act-2013.html
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