India: Duties And Liability Of Directors - An Indian Laws Perspective

Last Updated: 22 January 2013
Article by Hemant Goyal and Hemant Goyal

1. The Indian government has decided to replace almost six decades old company law governing the companies in India, i.e., the Companies Act, 1956 ("CA1956") by new law, viz., the Companies Act, 2012 ("CA2012"). The CA2012 has already been passed by lower house of the Indian Parliament and approval of upper house of Indian Parliament is pending to become the CA2012 a law. The Indian Government has attempted to make the provisions of the CA2012 in line with company law of the developed countries in view of the global economy and changed social-economic environment. This article has made an attempt to analyse and compare the duties/liabilities of the directors of Indian Companies and indemnity to the directors by companies under the CA1956 and the CA2012.


2.1. The CA1956 has not codified the law relating to duties of directors but in all cases all directors must ensure compliance with the provisions of the CA1956 and other applicable laws. Further, under the CA1956 the directors of Indian companies are subject to common law duties. Thus, a director has fiduciary duty towards the company. 

2.2. As per s.5 of the CA1956, for violation of the provisions of the CA1956 the managing director/ whole time director (director who is in whole time employment of the company) / manager (who is so appointment in accordance with the provisions of the CA1956) and the company secretary, if any, are responsible in first instance. In the absence of aforesaid categories of officers, prosecutions should be against all other directors of the company unless the directors have authorised any other person to make compliance with that provisions of the CA1956 and such person has accepted any such authorisation. The Master Circular No. 1/2011 dated 29 July 2011 of the Ministry of Corporate Affairs, Government of India ("MCA") consolidating the provisions relating to prosecution of directors under the CA1956 has clarified that Registrar of Companies should take extra care in examining the cases where following directors are also identified as 'officer who is in default' under s.5 of the CA1956:

  1. For listed companies (companies of which shares are listed at Indian stock exchange), Securities and Exchange Board of India requires nomination of certain Directors designated as Independent Directors.
  2. For public sector undertakings, respective Government nominates directors on behalf of the respective Government.
  3. Various public sector financial institutions, financial institutions and banks having participation in equity of a company also nominate directors to the board of such companies.
  4. Directors nominated by the Government under s.408 of the CA1956.

The MCA has also directed the Registrar of Companies that none of the above directors shall be held liable for any act of omission or commission by the company or by any officer of the company which constitute a breach or violation of any provision of the CA1956 which occurred without his knowledge attributable through board process and without his consent or connivance or where he has acted diligently in the board process.  The MCA did however not say that such directors should not be prosecuted at all and rightly so. Consequently, all the directors of a company may be liable for any violation of CA1956 unless they prove that they acted diligently and violation took place without their consent / knowledge / connivance.  

2.3. It is pertinent to note that s.201 of the CA1956 restricts a company to indemnify its directors.  According to s.201 of the CA1956 a company can indemnify its directors of any liability incurred by him in defending civil or criminal proceedings only if he is acquitted or discharged.  Except as aforesaid, s.201 of the CA1956 renders void all the provisions in the company's constitution or in any agreement indemnifying a director against any liability that would attach to him in respect of any breach of duty or trust or negligence.  It is noted that if premium of D&O policy to protect the directors is paid by a company, then also directors will be covered by s.201 of the CA1956 and may not be entitled to benefit of D&O policy. 


3.1. The CA2012 has like other modern laws codified the duties of the director of Indian companies. The proposed s.166 of the CA2012 mention the duties of the director as under:

  1. A director shall act in accordance its constitution document, i.e., articles of association.
  2. A director shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment.
  3. A director shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
  4. A director shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
  5. A director shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.

3.2. The CA2012 has widened the definition of the 'officer who is in default' to include key managerial personnel (chief executive officer and chief financial officer) and shadow directors. Interestingly, the CA2012 has proposed that every Indian company must have at least one director who stayed in India for a total period of not less than 182 days in the previous calendar year. Notably, the CA1956 has no such provision and this proposed change will require the resident Indian director to be more careful as he will be first one to be caught in case of violation by an Indian company.

3.3. The CA2012 has no provision corresponding to s.201 of the CA1956 meaning thereby that there is no restriction on the companies to indemnity its directors under the CA2012. The only reference to the provisions of indemnity to directors is given in s.197 of the CA2012 stating that the premium paid on insurance policy shall be treated as part of the remuneration of the officers only if such officer is found guilty.


4.1. It is noted that the CA2012 has deleted the phrase "or any other Act" existing in first proviso to s.291 of the CA1956 dealing with the powers of the board in corresponding new s.179 of the CA2012. According to a ruling of the Indian apex court, the existence of the aforesaid phrase in the CA1956 required the board of director to comply with other applicable laws while they exercise any power on behalf of the company. Though it is unclear whether the board of directors is liable to comply with other applicable laws but the deletion of above phrase makes it clear that the directors cannot be prosecuted under the CA20012 for non-compliance with the provisions of any law other than the CA2012. It would be an irony that the company law that gives the board authority to exercise the power on behalf of a company does not requires the board to comply with the provisions of other applicable laws while they exercise such a power on behalf of a company.

4.2. Though the CA2012 has however widened the definition of the 'officer who is in default' to include key managerial personnel (chief executive officer and chief financial officer) and shadow directors, but unlike old definition in the CA1956 that includes 'all the following officers', the new definition says 'any of the following officers' and thus apparently absolving the liability of other officers of the Company.

4.3. It is noted that despite increasing instances of frauds and violation by the companies, the CA2012 has radically changed the provisions of indemnity to directors by the companies as now there is no restriction on companies to indemnify its directors. This change will perhaps make the CA2012 the only law in the world not restricting the company to indemnify its directors.


While discussing the liabilities of the directors under Indian laws, the provisions of s.179 of the Income Tax Act, 1961 ("ITA1961") are also noticeable. S.179 of the ITA1961 is applicable only to private companies. The liability of the directors of a private company for the payment of tax due from the company is made joint and several if tax cannot be recovered from the company. This section however enables a director to establish that the non-recovery of tax is not attributable to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of a company to avoid such a liability. The burden to establish this rests on the director concerned and only if the burden is discharged that director can be exempted from the tax liability of a company imposed on him by s.179 of the ITA1961.

6. CONCLUDING REMARK: The CA2012 though discussed for more than four years appears to be a part of reform agenda of the Indian Government. A number of measures to protect the investors' interest have been incorporated in the CA2012 but the Indian government has offered more to the directors and companies as a number of provisions favourable to the companies and its directors are being incorporated in the CA2012 by diluting the existing legal provisions. It might also be possible that though the CA2012 has been passed by the lower house of Indian Parliament, it is amended by the upper house of the Indian Parliament and then sent back to the lower house of the Indian Parliament's approval again.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Global Jurix, Advocates & Solicitors
Global Jurix, Advocates & Solicitors
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Global Jurix, Advocates & Solicitors
Global Jurix, Advocates & Solicitors
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions