Act Against Independent, Non-Executive Directors Only If Evidence Exists, Says Government
Action can be taken against these directors only if sufficient evidence exists, the Ministry of Corporate Affairs has said.
Civil or criminal proceedings action can be initiated against independent and non-executive directors of companies only if sufficient evidence exists, the Ministry of Corporate Affairs has said.
The ministry, in a circular that was released today, has also framed a standard operating procedure for acting against them. Action can be initiated against such directors a company for non-compliance by a company only if the irregularity is attributed to or takes place with the consent of such directors, it said.
The circular, while recognising that these directors aren’t vested with broad powers to make crucial decisions, stipulates limited grounds for acting against them.
While independent directors—according to The Companies Act, 2013—are those who aren’t related to a firm’s promoters and don’t have any financial relationship with the company or its subsidiaries, non-executive directors don’t handle the day-to-day operations of the company. Independent directors can participate in various committees of a company, including those related to remuneration.
What’s In The Circular?
The circular states that whole-time directors and key managerial personnel of a company must be primarily held liable for non-compliance as they’re associated with its daily operations.
To avoid unnecessary prosecution of independent and non-executive directors, the ministry has suggested that:
- Independent directors can be held responsible for offences like non-filing or non-maintenance of records only if there are no whole-time directors in the company.
- Directors nominated by banks or the central government mustn’t be impleaded unless the non-compliance is committed with their consent or connivance.
- Registrar of Companies must seek documents during investigation to ascertain role of directors and avoid unnecessary civil or criminal action. The official may also rely on the company’s filings to identify directors having the actual responsibility to ensure compliance and maintain records.
The circular will apply to present and future cases initiated by the Ministry.