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GROUP 18

COMPANY LAW I
RESEARCH PAPER

“OFFICER WHO IS IN DEFAULT” –


AND THE COMPANIES ACT, 2013
Officer Who Is In Default – and the Companies Act, 2013

CHAPTER 1

INTRODUCTION

OVERVIEW

Human beings have a physical existence and also possess mental faculty. It can thus

be inferred that they possess the capacity to take decisions and actions. On the contrary

however, considering the fact that a corporations does not qualify as a natural person, it is

devoid of the capacity to do the same and thus, is not capable of taking actions or making

judgment on itself and hence requires a channel through which it can do the same.

Considering these restrictions on the capacity of a company as such, the directors of

the company hence serve as this channel for it to take actions and making judgments on

behalf of it. “A corporation is an artificial being, invisible, intangible and existing only in

contemplation of law.” It is essential to note that a corporation cannot have intention and

since it requires its directors or agents as a channel to act on its behalf, liability for intention

of any defaults or legal wrongs also falls over them.

It is also elemental to note however, that a company/corporation is a separate legal

entity other than its directors and agents but since there exists a necessity for a company to

rely on directors and agents to carry out tasks, their role becomes primordial.

The Companies Act, 2013 has had a great impact on the world of corporate governance with

respect to non-compliances and penalties imposed on Directors. It may be noted that Working

Directors, such as the CEO, Company Secretary, Managing Director, CFO, Whole-Time

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Officer Who Is In Default – and the Companies Act, 2013

Director etc. are responsible for all the activities of a company, including compliances.1

Interestingly enough, if the company does not have any Working Directors, then all the

directors of the company are made liable for non-compliance under the Companies Act,

2013. This directly results in high amounts of monetary penalties for all directors.

OFFICER WHO IS IN DEFAULT

It is essential to note that as result of The Companies Act, 2013, monetary penalties and

imprisonment have increased. Moreover, civil and criminal liability of the same not just falls

on the directors but also include “Officers In Default.” Furthermore, it is also elemental to

note that corporate governance requirements even for start-ups and unlisted companies have

been heightened even though there is no investment of public money whatsoever. In order to

make the statutes under The Companies Act, 2013 stricter, for ensuring compliance and

making key officials of companies more accountable, interpretation of the term ‘officer in

default’ has been revised making it inclusive of certain authorised persons of the company.2

It is crucial to note that The Companies Act, 1956, in its interpretation of the term ‘officer in

default’ in pertinence to appending a person with liability for offences, in case default is

made in compliance with a section, holds the company and all its officers in default guilty

under that section followed by specifying the sentencing guidelines for the same as per the

case. 3

The provision for an “officer who is in default” is included in the Companies Act, 2013 due

to a multiplicity of reasons. Simply put, it helps in ensuring that the officers of a company act

1
Mnkassociates, “Note on Officer in Default under Companies Act, 2013,” Tax Guru,
https://taxguru.in/company-law/note-officer-default-companies-act-2013.html
2
Startup Choice, “Officer in Default 2(60) Under Companies Act 2013,” Startup Choice,
http://startupchoice.com/blog/officer-default-companies-act-2013
3
CAClubIndia, “Officer in default - an overview,” CAClubIndia, https://www.caclubindia.com/forum/officer-
in-default-an-overview-186460.asp

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Officer Who Is In Default – and the Companies Act, 2013

in the best interest of the company and the stakeholders, it helps in ensuring that they perform

their duties in good faith, and it makes the key officials of the company more accountable.4

The phrase “officer who is in default” is defined under Section 2(60) of Companies Act, 2013

as per:

S. 2(60) "officer who is in default", for the purpose of any provision in this Act which

enacts that an officer of the company who is in default shall be liable to any penalty or

punishment by way of imprisonment, fine or otherwise, means any of the following

officers of a company, namely: —

(i) whole-time director;

(ii) key managerial personnel;

(iii) where there is no key managerial personnel, such director or directors as specified

by the Board in this behalf and who has or have given his or their consent in writing

to the Board to such specification, or all the directors, if no director is so specified;

(iv) any person who, under the immediate authority of the Board or any key

managerial personnel, is charged with any responsibility including maintenance, filing

or distribution of accounts or records, authorises, actively participates in, knowingly

permits, or knowingly fails to take active steps to prevent, any default;

(v) any person in accordance with whose advice, directions or instructions the Board

of Directors of the company is accustomed to act, other than a person who gives

advice to the Board in a professional capacity;

(vi) every director, in respect of a contravention of any of the provisions of this Act,

who is aware of such contravention by virtue of the receipt by him of any proceedings

4
Supra note 1.

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Officer Who Is In Default – and the Companies Act, 2013

of the Board or participation in such proceedings without objecting to the same, or

where such contravention had taken place with his consent or connivance;

(vii) in respect of the issue or transfer of any shares of a company, the share transfer

agents, registrars and merchant bankers to the issue or transfer;5

Therefore, it is elemental to note that all the aforementioned seven categories of officers of

the company fall under the ambit of an officer who is in default, regardless of their

involvement in the default or not and could be proven merely by acknowledging that a

statutory provision has not been compiled within order.6

Bankers, debenture trustees, auditors, and professional advisors are not covered under the

ambit of “officer who is in default”. This is because a person in accordance with whose

directions or instructions the Board of Directors of a company acts or is accustomed to act are

only providing advice in a professional capacity and may not necessarily have a direct

bearing on the decisions of the Board of Directors.7 It is essential to note that directors in the

board by efficacy of their professional competence and technical skill are in no way different

from other directors.8

Analysing section 5 of the statute divulges that (i) As mentioned before, liability as officer in

default is appended to all officers mentioned under clauses (a) to (g) collectively. (ii) A

person is an officer of the company in a scenario wherein a person is shown as director in

return.9 (iii) Liquidator is an officer of the company. 10 (iv) In a scenario wherein a company

has any of the officers mentioned under clauses (a) to (c), the other directors will not be held

5
The Companies Act, 2013, Ministry of Corporate Affairs.
6
Supra note 3.
7
Ibid.
8
Madan Gopal Dey v State, [1969] 39 Comp Cas 119 (Cal).
9
Marthanda Varma (H.H.) v Registrar of Companies, [1988] 64 Comp Cas 125 (Kar).
10
Official Liquidators, Baroda Batteries Ltd. v Registrar of Companies, [1978] 48 Comp Cas 120; Prahallad Bai
Lath v Registrar of Companies, [1979] 49 Comp Cas 317 (Ori).

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Officer Who Is In Default – and the Companies Act, 2013

as officers in default. (v) In the scenario opposite to the last point, wherein a company does

not have any officers mentioned under clauses (a) to (c), any director specified by the board

will be considered as an officer of default. (vi) (f) If there is no officer as mentioned in

clauses (a) to (c) and also the Board has not specified any of them, then all the directors will

be held as officer in default, it may include employee directors, part-time directors and

nominee directors as in default. Nominee directors of creditors, institutions, government,

joint venture partners etc, generally, do not enjoy any special immunity. Financial institution

nominee directors, however, get immunity under the State Financial Corporation Act but it

has to be established that the accused person has acted in good faith. [Geethanjali Mills Ltd. v

Thiruvengadathan (1989) 1 Comp LJ] (g) When the directors on the Board of a company are

in fact dummy persons and other person who remain behind the scene control the act of

directors, such a person may perhaps include a company or firm, in which case the directors

of that company or partners of that firm would be treated as persons in accordance with

whose directions or instructions the Board of directors of the other company are accustomed

to act. (h) The expression 'any person charged by the Board' refers only to officers of the

company and not to sub-ordinate staff. Further, the Board should charge a person with the

responsibility of complying with any specific responsibility by passing a resolution (see

Appendix 1) and the person so charged is required to give consent in Form 1AB. Thus, where

a company has not obtained consent of the person as prescribed, he cannot be charged by the

Board. (i) The consent of the person as mentioned in clause (f) shall be filed electronically

with the Registrar within 30 days in an e-Form 1AA with the filing fee enclosed with Form

1AB.11

An “officer who is in default” can be appointed by passing a Board Resolution after the said

person gives his consent in this regard to the Board. A Board Resolution for charging any

11
Supra note 3.

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Officer Who Is In Default – and the Companies Act, 2013

person with the responsibility of complying with any provision of Companies Act, 2013 has

certain essential elements that this paper seeks to explore considering the practical nature of

the provision under consideration. Such a resolution explicitly states the designation of the

officer of the company who is being charged and obtains consent with respect to the

responsibility of complying with provisions of Companies Act, 2013 mentioned thereafter.

Form GNL-3 may be filed with the Registrar of Companies to bring such a resolution into

effect.12

12
Law Gyaan, “Officer and Officer in Default under the Companies Act 2013,” Law Gyaan,
http://lawgyaan.in/officer-officer-default-company/

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