Liability of independent director in a company

614 votes

The idea of independent directors is quite exciting. As per provision under Companies Act, 2013 Independent directors are required to acts as conscience-keepers of the boards,vigilant watchdogs, protectors of the interests of minority shareholders .

This position has the highest threshold in respect of corporate governance and or prevent corporate fraud or white collar crimes as being an independent director they are also expected to bring out, misappropriation, non- compliance with legal provisions non- compliance with legal provisions, malpractices etc. in front of regulatory bodies.


an individual can be held liable for an offence by the company (i) if there is sufficient evidence of the individual’s active role coupled with criminal intent; or (ii) where the statute itself stipulates the liability of directors and other officials, such as under the PMLA.
Under the Companies Act, an exception has been specifically carved out for independent and non-executive directors, ensuring that they are liable only in cases where their knowledge and involvement can be established or where they, despite having knowledge, failed to act diligently.

Once a fraud is discovered, authorities generally look at everyone with suspicion, and merely being a non-executive director does not shield the individual from liability or criminal prosecution.

Advocate Rajesh Xavier LawRato

719 votes

HI
The Companies Act, 2013 restricts and limits the liability of Independent Directors only in respect of acts of omission or commission by a company which had occurred with his knowledge, attributable through board processes, and with his consent or connivance or where he had not acted diligently.
Independent directors in order to absolve themselves of any liability, must ensure that they record their objections to the wrongful conduct of the company, in the minutes of Board meetings and take appropriate steps to ensure that the non-compliance is communicated to the management of the Company.

In Sunil Bharti Mittal v. CBI, the Supreme Court held that an individual can be held liable for an offence by the company
(i) if there is sufficient evidence of the individual’s active role coupled with criminal intent; or
(ii) where the statute itself stipulates the liability of directors and other officials, such as under the PMLA.

Under the Companies Act, an exception has been specifically carved out for independent and non-executive directors, ensuring that they are liable only in cases where their knowledge and involvement can be established or where they, despite having knowledge, failed to act diligently

So in order to defend himself, an independent director should be above to prove that they had no knowledge or involvement of the offences
Hope this information is useful.

Advocate Rajagopalan LawRato