1.
Civil and Criminal Liabilities
of the Directors
By- Kaushik Dey
LL.M 025222

2.
• As the Company has no physical existence, the
directors of the company act as the heart and limb
of the Corporation. They control the decision-
making process. The Board of Directors is made
up of a variety of different types of directors. Such
different types of directors in a company form the
backbone of the Company's corporate governance
structure.
• As the directors are considered as heart and limb
of a company, therefore they are given huge
responsibilities and duties. Contravention of such
obligations or omission of such tasks results in the
liabilities of the directors. Depending upon the
seriousness of the offense, these liabilities are
further classified into civil and criminal liabilities.

3.
Meaning and Position of Directors
• The position of Directors in a Company has not been explicitly
explained in The Companies Act of 2013. But the jurisprudence
which has been developed in England and in India shows that
directors broadly discharge their functions in three primary roles.
These are being: a) As Agents of the Company, b) As Trustees of
the Company, c) Officers of the Company.
• They are seen as professionals hired by the Company to use their
domain or entrepreneurial expertise to further the vision of the
Company.
• Generally, the liability of a person arises when there is a
corresponding duty to adhere to. In case such obligations are not
followed in letter and spirit, then that person's liability comes into
the picture. Depending upon the seriousness of the breach of such
statutorily engrained duties, the liability of the concerned directors
is categorized as Criminal and Civil Liabilities.

4.
Criminal Liabilities of a Director
• Corporate bodies commit crime due to economic causation; their
objective of crime commission is maximisation of profit at any
cost, and consequences of their crime commission is greater
economic loss to society, nation and ultimately to world at large.
• Corporate bodies are operated and business activities are
conducted by experienced and expert professionals in planned and
organised manner by use of modern know-how; thereby collection
of evidences to prove intention or knowledge in reference to crime
commission is very difficult. At the same time for tackling
problem of economic crime and to protect the society it is
necessary that corporations and its human agency involved in
corporate crime must be penalised. For this purpose, strict liability
rule is prescribed according to which on proving of commission
of act prohibited by law, presence of mental element is presumed.

5.
Evolution of the Law
Standard Chartered Bank v Director of Enforcement (2005):
Supreme Court settled the law that a company can be prosecuted and
convicted for even that offence for which minimum sentence of imprisonment
is prescribed. A corporate body cannot avoid liability on the ground that
punishment prescribed for offence is imprisonment and it has no body. When
for any offence imprisonment and fine both are prescribed punishment,
corporate entity will be inflicted with fine only. Natural persons liable for
corporate crime may be punished with punishments prescribed by penal
provisions.
Iridium India Telecom Ltd. v. Motorola Inc. (2011):
Supreme Court decided that corporate criminality can be imposed even for that
offence for which mens rea is essential requisite. Court decided that
attribution and imputation rule of applicable, thereby, criminal intent of the
'alter ego' of the company/body corporate i.e. the person or group of persons
that guide the business of the company, would be imputed to the corporation.

6.
Sunil Bharti Mittal v CBI (2015):
Supreme Court reiterated Iridium case decision regarding attribution and
imputation means 'alter ego'; whenever person controlling the affairs of
corporate body have mens rea and have done criminal act, it is attributed that
company was also actuated with mens rea and it is imputed that company
itself committed the criminal act.
• Vicarious liability rule is not applicable for imposition of criminal liability
unless by specific and express provision of law vicarious liability has been
imposed for crime commission.
• For application of strict liability, absolute liability and imputed liability
rules, it is necessary to establish relationship between natural person doing
the harmful act and corporate body. In this regard 'controlling and wilful
mind' test is used but it may not be appropriate in all the situations,
therefore, some more tests are used like benefit test and due diligence test.

7.
Criminal Liabilities of a Director under The
Companies Act, 2013-
• Section 8- Formulation of companies with charitable objects, etc.
• Section 34- Criminal liability for mis-statements in prospectus.
• Section 36- Punishment for fraudulently inducing persons to invest money.
• Section 53 and 54- Prohibition on Issuance of Shares at Discount.
• Issuance of Duplicate Share Certificate
• Concealment of the name of creditors while reducing Share Capital under
Section 66
• Section 68- Buyback of Securities
• Section 71- Liability arising out of Issuance of Debentures
• Section 76A- Punishment for accepting deposits from public in
contravention of Section 73 or 76.
• Failure to file Annual Returns u/s 92.
• Non-payment of dividend to its shareholders.
• Section 118- Tampering with minutes of the meetings.
• Section 128- Failure to maintain proper books of accounts

8.
• Non-compliance with Section 134.
• Section 167: Vacation of office of a Director
• Section 182: Prohibition and Restrictions regarding political contribution
• Section 184: Failure to Disclose Interest by Directors
• Section 185: Loans to Directors
• Section 186: Loans and Investment by Company
• Section 188: RPTs
• Section 229: Penalty for furnishing false statement, mutilation, destruction of
documents.
• Offenses concerning winding up proceedings- Section 337, 338, 339, 341 and
342.
• Section 240- Liability of officers in respect of offences committed prior to
merger, amalgamation, etc.
• Section 447- Punishment for Fraud
• Section 448- Punishment for False Statement
• Section 449- Punishment for providing False evidence

9.
Civil Liabilities of the Directors
• Section 35: Civil Liability for Mis-Statement in Prospectus.
• Section 39- Contravention of this provision which deals with Allotment of
Securities
• Section 40 and 42.
• Section 56- Procedural Infraction of Transfer and Transmission of Shares
• Section 60- Publication of authorised, subscribed and paid-up capital.
• Section 64- Notice to be given to Registrar for alteration of share capital
• Section 96- Failure to hold AGMs.
• Section 153 and 154- Penalties related to DIN.
• Section 165- Violation of the number of directorships prescribed under the
Companies Act
• Section 166- Duties of the Directors.
• Section 187- Investments of company to be held in its own name.

10.
Conclusion
• Satyam scandal has been a watershed incident for the development of the
jurisprudence of corporate governance in India because the initial report
prepared by the JJ Irani Committee to bring a new piece of legislation
dealing in this area was very much pro-business. But the subsequent
development arising out of the Satyam Scam forced the Government to carry
such stringent checks and balances on the key players driving the corporate
governance regime of a company.
• It has been a common ground of attack by the people in the industry that the
Companies Act, 2013 in its present form has been overtly criminalized,
which is deterring persons who have impeccable and embellished records as
business leaders from becoming directors in Indian Companies, as a result of
which, it is being poorly reflected in the overall corporate governance regime
of India. Taking the concerns of the business community, the Indian
Parliament has amended The Companies Act 2013, as a result of which
various minor offenses have been decriminalized to enhance the ease of
doing business in India. Through this amendment, the Government wants to
decriminalize offenses when defaults are determinable objectively, when
there is the absence of the element of fraud, or when they don't affect a
broader public interest.