IntroductionThepost of a Director is occupied by any person who determines and implements thepolicies and strategies of the company, some companies entrust these functionsto a person with a different designation also. So, it is not the name of thedesignation which is important per se but the position occupied by him and theduties and functions discharged by him. A company is an artificial entity recognizedby law as a legal person but it neither has its own mind nor its own body whichis very essential to carry out its functions and operations.
This is where the Directorscome in handy and they act as human agent of the companies playing the role ofthe mind of a company. Often,the Directors are treated as the mind and will of companies who are responsiblefor all the actions of the company. Section 252 of the Companies Act statesthat every public company shall have a minimum of three Directors and as forevery private company, it shall have a minimum of two directors. Hence, theDirectors play a very vital role in a company. It has thus been establishedthat as the Directors are responsible for all the actions of the company so incertain cases the corporate veil of a company can be lifted and the Directorscan incur personal liabilities which includes criminal liability as well.Types of LiabilitiesTheliabilities of Directors arise due to their position as agents, officers ortrustees of the Company or also for having a fiduciary relation with theCompany or its shareholders.Theliabilities incurred by the directors of the companies can be listed asfollows:· Liabilitiesin contract· Liabilitiesin tort· Liabilitiesunder criminal law· Liabilitieswhich are statutory in nature as under the Companies Act, 1956 and other laws.Althoughif the acts done by the directors are in good faith and are within the scope oftheir authority then they would not be held liable for any tortuous acts done bythe company, as a result of their acts.
Only in the cases where the directorsact in bad faith or outside the scope of their authority, will they incur aliability. Analysis of the Criminal Liability ofthe Directors CriminalLiability can be incurred by a Director of a company when there is an illegalact committed by the Director and in such a case, certain provisions of the CompaniesAct, 2013 and other statutes may apply. The Director can be held criminallyliable for any illegal act which has been committed by the company where he hasin any way abetted or procured the commission of such act in bad faith or outsidethe scope of their authority. TheDirectors of the company incur civil as well as criminal liability under theCompanies Act, 2013. Although, directors of a company can also incur criminalliability under common law, the Indian Penal Code and other statutes.
Thefollowing provisions of the Companies Act are taken into consideration for theDirector to incur criminal liability i.e. fine or imprisonment:-· Section53 – When a company issues shares at a discount unless it’s a case of sweatequity shares under Section 54, the company will be fined with 1 lakh rupeeswhich may extend to 5 lakh rupees and any officer including the Directorinvolved in such a situation shall be imprisoned for 6 months and a fine of 1lakh which may extend to 5 lakhs· Section68(11) – When a company buys back its own shares without following theconditions specified under Section 68 then the company will be fined 1 lakhrupees which may extend to 3 lakh rupees and any officer including the Directorinvolved in such a situation shall be sentenced to imprisonment of upto 3 yearsor with a fine of 1 lakh rupees which may extend to 3 lakh rupees.· Section71(11) – When the company makes any default in complying with the orders of thetribunals under Section 71 which deal with Debentures then every officerinvolved including the Director shall be imprisoned for upto 3 years or with a minimumfine of 2 lakh rupees which may extend to 5 lakh rupees.· Section129(7) – When a company contravenes the provisions of Section 129 relating tofinancial statements the MD, the director in charge of finance dept., the CFO orany other official who was entrusted with the duties under this Section by the Company Board andin case the above mentioned officers are not present in a company then in thatcase, all the directors of the company shall be shall beimprisoned a term which may extend to 1 year or with a minimum fine of 50thousand rupees which may extend to 5 lakh rupees, or with both.· Section134(8) – When a company contravenes the provisions of Section 134 relating to theapproval by the Board of Directors financial statements then the company shallbe charged with a minimum of 50 thousand rupees as fine which can also extendto 25 lakh rupees and every officer including the Director of the company whois responsible for this shall be imprisoned for a term which may extend to 3years or with fine which shall be a minimum of 50 thousand rupees which mayextend to 5 lakh rupees, or both.· Section167(2) – Whena director of a company continues to function as a director of that companydespite knowing that the office of director which was held by him had becomevacant due to the disqualifications mentioned in Section 167 then in that case heshall be imprisoned for a term up to 1 year or with a minimum fine of 1 lakhrupees which shall go up to 5 lakh rupees, or both.· Section 185(2) – When any loan is advanced tothe Director of the company or any other officer in whom the Director is interestedwhich is in contraventionof the provisions of Section 185 then, the company shall be fined with a minimum of5 lakh rupees which may go up to 25 lakh rupees, and any officer including the Directorwho is involved in such an activity shall be imprisoned for up to six months orwith a minimum fine of 5 lakh rupees which may go up to 25 lakh rupees, or both.