MCA vide circular no. 5 on 02/03/2020 issued Standard Operating Procedure regarding prosecution filed or internal adjudication proceedings initiated against Independent Directors, non-promoters and non-KMP, non-executive directors. These clarifications include:
- Ordinarily, a WTD and KMP would be liable for defaults committed by a company as they are associated with the day-to-day functioning of the company. In their absence, such directors who have expressly given their consent for incurring liability in the e-form GNL-3 would be liable. Where the consent for incurring liability is submitted in e-form GNL-3 by a person under the immediate authority of the Board or any KMP, the liability of such person will arise. However, where Act holds a specific director, or officer, or any other person accountable for the default, then action should be initiated only against such person, as the case may be.
- Non-promoter and non-KMP, NEDs, would exist in the following cases:
- a) Independent Directors nominated by the Government on the public sector undertakings; b) Directors nominated by Public Sector Financial Institutions, Financial Institutions or Banks having participation in the equity of a company, or otherwise; c) Directors appointed in pursuance to any statutory or regulatory requirement such as Independent directors appointed by the NCLT.
- The nature of default is also crucial for arraigning officers of the company for defaults committed under the Act.
- All instances of filing of information/records, maintenance of statutory registers or minutes, or compliance with the orders under the Act are not the responsibility of the IDs or the NEDs unless any specific requirement is provided in the Act or in such orders, as the case may be. The responsibility of the NEDs ordinarily arises in such cases, where there are no WTDs and KMPs.
- In instances where lapses are attributable to the decisions taken by the Board or its Committees, all care must be taken to ensure that civil or criminal proceedings are not unnecessarily initiated against the IDs or the NEDs unless sufficient evidence exists to the contrary.
- The records available in the office of the Registrar, including e-forms DIR- 11 or DIR-12, along with copies of the annual returns or financial statements should also be examined so as to ascertain whether a particular director or the KMP was serving in the company as on the date of default.
The said Notification can be accessed through the following link:MCACir_5_02032020_Clarification on prosecutions against ID,Non KMP, Non Promoters,Non ED