Duties, Roles & Responsibilities and Liabilities of Directors

Duties, Roles &
Responsibilities and Liabilities

of Directors
N K Jain
B.Sc., LLB., DCL, FCS, FCPSK
Corporate Advisor
Partner, Global Fin Serve LLP
Member, ASSOCHAM National Council for Corporate Affairs & CSR
Member, Company Law & CG Committee, PHD Chamber
Former Council Member and Past Secretary & CEO, ICSI
Cell: 09818348811
08920236422
Landline: 0120 - 4263965
E-mail: nkjain1953@gmail.com
15th May, 2020
Flow of Presentation
 Regulatory Framework
 Duties of Directors
 Roles & Responsibilities of Directors
 Case Studies
 Liabilities of Directors
 Risks for IDs
 D & O Insurance
 Way Forward: Dos and Don’ts
nkjain1953@gmail.com 9818348811 2
Regulatory Framework
 Companies Act, 2013 and Rules

 SEBI (LODR) Regulations, 2015
 ICSI Secretarial Standards on BMs & GMs
 Guidelines on CG for CPSEs, 2010
 RTI Act, 2005
 Parliamentary Standing Committees
 Administrative Ministry
 Controller & Auditor General of India
 Central Vigilance Commission
Duties of Directors
Legal Status of a Director
 Trustee of the company’s money,
property, IPRs, trade secrets etc.
 Agent of the company for various
transactions.
 To act bona fide and in good faith in the
best interest of the company.
 Personal interests of a director should
not conflict with company’s interests.
nkjain1953@gmail.com 9818348811
Duties of Directors-
Companies Act, 2013
 To act in accordance with company’s articles
 To act in good faith to promote objects of the
company for the benefit of its:
 members;
 employees;
 community; and
 for protection of environment
Duties of Directors-
Companies Act, 2013
 To act with due care and exercise
independent judgment.
 No conflict of interest with the company.
 Not to achieve any undue gain or advantage.
 Not to assign his office which shall be void.
Duties of IDs u/sch. IV of
CA, 2013
 Undertake appropriate induction & regularly
update their skills and knowledge;
 Seek information and take professional advice
and opinion of outside experts at the expense of
the company;
 Attend & actively/constructively participate in
Board/Committee/General Meetings;
 Ensure that concerns about running of the
company are addressed by the Board and
unresolved concerns are recorded in minutes;
Duties of IDs u/sch. IV of
the CA, 2013
 Ensure that RPTs are in company’s interest;
 Ensure that company has a functional VM;
 Report concerns about unethical behaviour or

violation of company’s code of conduct;
 Assist in protecting legitimate interests of the
company, shareholders & employees;
 Not disclose confidential information including
commercial secrets, technologies etc.
Additional Duties of IDs in
CPSEs- 20th June, 2013
 Not to use confidential information for advantage of

self or any other party
 Keep Board informed about any information which is
critical for the company
 Furnish a report to the Board about the role and
contribution during the year
 Get a list of applicable laws & understand penal
provisions for violations
Roles & Responsibilities
of Directors
Board's Responsibilities under
Regulation 4(2)(f) of LODR
 The board of directors of the listed entity shall

have the following responsibilities:
 Disclosure of information;
 Key functions of the board of directors; and
 Other responsibilities.
Principles Governing
Disclosures
 Information in accordance with applicable
standards of accounting
 Refrain from misrepresentation
 Information should not be misleading
 Adequate, accurate, explicit and timely
 Provide for equal, timely and cost efficient
access to relevant information by investors.
Directors Responsibility for
Disclosures
 Board’s Report: Discloses important information for all
stakeholders to make informed decisions.
 Directors’ Responsibility Statement: Statement
regarding integrity of financial statements, adequate
internal financial controls and proper systems to ensure
compliance with all applicable laws.
 CSR Policy: In case of failure to spend the amount,
reasons shall be disclosed in Director’s Report.
 Audit Committee: Board’s Report shall disclose reasons
where board has not accepted any recommendation of AC.
Director’s Responsibility for
Disclosure of Interest
 Every director shall disclose his concern or interest including
shareholding in any company, bodies corporate, firms etc.
 Every director of a company who is, directly or indirectly,
concerned or interested in a contract or arrangement:
a. with a body corporate in which he or he in association with
other director holds more than 2% shareholding or is a
promoter, manager, CEO of that body corporate; or
b. with a firm or other entity in which such director is a partner,
owner or member,
shall disclose the nature of his concern or interest at the meeting
of the board in which such contract is discussed and shall not
participate in such meeting.
Responsibility for Disclosure
of Information under LODR
 Directors and KMPs shall disclose to the board

of directors whether they have a material
interest in any transaction.
 The listed entity shall frame a policy for
determination of materiality, based on criteria
specified in Regulation 30(4), duly approved by
its board of directors.
Key Functions of Board of
Directors
(1)
 Reviewing and guiding corporate strategy, major
plans of action, risk policy, annual budgets and
business plans;
 Setting performance objectives;
 Monitoring implementation and corporate
performance; and
 Overseeing major capital expenditures,
acquisitions and divestments.
Directors
 (2) Monitoring the effectiveness of the listed
entity’s governance practices
 Proper board constitution and board processes
 Place at least prescribed information before board
 Independent auditor
 Rotation of auditor
 Integrity of financial statements
 Establishing and maintaining internal controls for financial reporting
 Significant changes in accounting policies and instances of
significant fraud indicated to auditors/audit committee
 Compliance certificate by CEO & CFO
Auditors Report on Internal Financial
Controls u/s 143(3)(i) of CA, 2013
Qualified Opinion
 According to the information and explanations given to us and
based on our audit, the following material weaknesses have been
identified as at March 31, ……:-
 (i) The company did not have an integrated ERP system. Different
software packages used by the company are interfaced through
software links or manual intervention leaving gaps between them.
This could potentially result into impaired financial reporting.
 (ii) The company did not have effective internal audit structure and
system so as to ensure coverage of all major areas with extensive
scope. Also the mechanism to review the internal audit reports is
weak. This could potentially result into weak checks and balances
and unreported financial irregularities ultimately resulting into
distorted financial reporting.
Directors
 (3)Selecting, compensating, monitoring and,
when necessary, replacing key managerial
personnel and overseeing succession
planning.
Examples
 In December 2014, American Apparel founder and CEO
Dov Charney was fired after allegations that he had misused
corporate funds and was accused of sexually harassing
female employees.
 In January 2015, the toymaker Mattel terminated its CEO
Stockton as its global sales fell 7% to $6 billion in 2014 and
sales of Barbie products declined for the third straight year.
 In 2018, Usha Ananthasubramanian, CEO of Allahabad
Bank was sacked on last day of her tenure for her alleged
role in Neerav Modi’s case when she was CEO of PNB.
 In October, 2018 Hari Shankaran, VC & MD and Arun K
Saha, JMD & CEO of IL & FS were sacked after a series of
defaults by the company led to meltdown of confidence in
financial markets.
Directors
 (4) Monitoring and managing potential

conflicts of interest of members of the board
of directors, management, and shareholders,
including misuse of corporate assets and
abuse in related party transactions.
Boardroom Battle at Tata
 The ouster of Mistry from the 148-year-old conglomerate is a
classic exampl of management clashes over strategy,
leadership styles, and corporate structure.
 In December 2012, Ratan Tata passed on baton to Mistry.
 Four years later, on October 24,2016 board of Tata Sons,
ousted Mistry as its chairman.
 Trustees of Tata Trusts were increasingly getting concerned
with the growing trust deficit with Mistry.
 Tata Sons justify the move on the grounds that Mistry had
“overwhelmingly lost the confidence” of members of Tata
Son’s board of directors, on account of “repeated departures
from the culture and ethics of the group”.
Directors
 (5) Ensuring the integrity of the listed entity’s
accounting and financial reporting systems,
including the independent audit, and that
appropriate systems of control are in place, in
particular, systems for risk management,
financial and operational control, and
compliance with the law and relevant
standards.
IL&FS: a case of Coloured &
Decorated Accounts
 “The accounts of the holding company were coloured and
decorated at the cost of public sector banks’ money.” “IL&FS
Ltd and IL&FS Financial Services Ltd kept raising funds on the
basis of bogus and fictitious but good credit ratings and this
short-term loans were passed to subsidiaries, joint ventures and
special purpose vehicles to help service their debts,”
 Government superseded its board for revival of the entity.
 As per IL&FS' balance sheet, infrastructure and financial assets
worth over Rs 1,15,000 crore were facing tremendous debt
pressure and struggling to service around Rs 91,000 crore in
debt which is the outcome of its mismanaged borrowings in the
past.
NOKIA Became Laggard in
Smartphone Market
 Stiff competition from Samsung and Apple, and lack on

focus on innovation was a major reason of collapse of
mobile feature phone giant. The hardware features
which Nokia was rolling out were quiet late as compared
to its major competitors Samsung and Apple. Nokia
seemed to be lagging in the race.
 NOKIA underestimated importance of the transition to
smartphones. It overestimated the strength of its brand,
and believed that even if it was late to the smartphone
game it would be able to catch up quickly.
26
Kodak Vanished
 In 1998, Kodak had 170,000 employees and

sold 85% of all photo paper worldwide. Within
just a few years, their business model
disappeared and they went bankrupt.
 What happened to Kodak may happen in a lot of
industries in the next 10 years and most people
don't see it coming.
HMT-Keeping Time to the
Nation
 HMT ruled Indian watch market for three decades
with almost 90% market share.
 The growth of HMT in reform era was marred as it
could not respond quickly to market changes.
 HMT failed to understand that “a watch was no
longer a time-keeping machine. It was also
becoming a fashion accessory. Consumers wanted
a well-designed product to match their style.
 Titan outsmarted HMT.
IOC: 2009 Jaipur Oil Depot Fire
 Jaipur oil depot fire broke out on 29th October

2009 killing 12 people and injuring over 200.
 Losses suffered worth Rs 2.80 billion.
 Fire was blamed on non-observance of normal
safety procedures.
 FIR was registered under sections 166, 304A, 511,
120B against 20 accused including company, its
chairman, 7 functional directors, 2 ministry officials,
6 IDs and local officials.
Other Responsibilities of the
Board of Directors
 The board of directors shall provide strategic guidance to
the listed entity, ensure effective monitoring of the
management and shall be accountable to the listed entity
and the shareholders.
 The board of directors shall set a corporate culture and
the values by which executives throughout a group
shall behave.
 Zero tolerance to receive or give bribery
 No gifts
 Honour its commitments –financial, commercial etc.
 Honesty in business dealings-no cheating/fraud
 No discrimination on the basis of sex, caste, creed, religion etc.
Volkswagen Emissions
Scandal
 US revealed that VW had fitted diesel cars with software
that cheated emissions tests.
 11m diesel cars have been fitted with a defeat device.
 Olaf Lies, a Volkswagen board director said that some
staff acted criminally in cheating emissions tests.
 Board only found out about the scandal just before it was
announced, even though it was known in the US for
more than a year.
 Group CEO Martin Winterkorn quit after the firm
admitted diesel cars were designed to cheat in tests.
Volkswagen Emissions
Scandal
 In January, 2017 prosecutors in USA announced criminal charges
against 6 VW executives for their role in the scandal.
 Media reports said that ex-Chairman Ferdinand Piech, had
informed key supervisory board members about potential cheating 6
months before scandal became public. [08.02.2017]
 On April 21, 2017, VW was
officially sentenced in a Michigan federal court for these violations.
 On August 21, 2017, VW engineer James Liang was sentenced to
40 months in prison and a $200,000 fine.
 On 18th June, 2018, Audi CEO Rupert Stadler, the most senior
official to face charges, had been arrested in Germany over his part
in the scandal.
 On 7th March, 2019 NGT slapped ₹500 cr fine on Volkswagen for
damaging the environment by using a so-called “cheat device" in its
diesel cars sold in India. NGT order stayed by SC.
VW's Settlement Cost and
Penalties: $ 20.8 billion
 In October, 2016 U.S. District Court in San Francisco signed off
on VW's settlement:-
 Buybacks and owner compensation: $10.0 billion
 Programs to offset excess emissions : $ 4.7 billion
 Dealers, states & attorneys for owners: $1.8 billion
 Criminal and Civil penalties: $ 4.3 billion
 Total estimated pay-outs : $ 20.8 billion
 In Sept., 2019, the Prosecutors charged the Volkswagen Chief
Executive, Herbert Diess, the company’s chairman, Hans Dieter
Pötsch, and the former chief executive Martin Winterkorn with
stock market manipulation for their alleged failure to reveal the
scandal.
Board of Directors
 The board of directors shall have the ability to ‘step

back’ to assist executive management by challenging the
assumptions underlying: strategy, strategic initiatives
(such as acquisitions), risk appetite, exposures and the
key areas of the listed entity’s focus.
 Members of the board of directors shall commit
themselves effectively to their responsibilities.
Union Carbide India Ltd.-
Bhopal Gas Case
 Leak of poisonous gas from the plant on December 2–3, 1984
destroyed & damaged thousands of lives, vegetation, etc.
 The prosecution charged the company and its directors with
not heeding the feedback on inadequate safety norms and
other maintenance lapses.
 The court had held Keshub Mahindra guilty & sentenced him
to 2 years of imprisonment along with seven other accused.
 He attended only a few meetings in a year and took only
macro view. A non-vigilant act of non-executive chairman,
accounted for death of thousands.
 “Ignorance” of the system by directors of the company is
unacceptable. Role of directors in this case is
questionable.
Look Out Circular against an
ID in PNB Fraud Case
 Sanjay Rishi, president of American Express for South Asia, was
appointed as a non-executive independent director of Nirav
Modi's Firestar International Ltd on December 6, 2016 and he
resigned from the post on February 7, 2018. He said he did not
take part in the day to day affairs of the company.
 An FIR was lodged on March 4 for the alleged offences of
cheating, criminal conspiracy under the IPC and the provisions of
the Corruption Act and when summonses were issued to him, he
voluntarily came to India and joined the CBI investigation.
 Rishi was not allowed to leave the country due to
continuation of the LOC. It was said that investigation was
going on and if Rishi is allowed to go to the US and he does not
return, the probe will be stalled.
PNB Fraud: IDs of Nirav Modi
Companies Face Asset Freeze
 NCLAT on 12th July, 2018 dismissed an appeal by the former IDs on
the board of companies of Nirav Modi against freezing of assets by
the government.
 The IDs on the Modi firms included India Inc's high profile
executives- American Express president Sanjay Rishi, former
PepsiCo executive Gautham Mukkavilli and former Wipro CFO
Suresh Senapathy. Most of them resigned after fraud came to light.
 Personal assets of these top executives will continue to remain
frozen during inquiry and investigation of fraud, as per the
latest order of the NCLAT. However, the persons will be allowed to
withdraw Rs 1 lakh pm from their accounts for their subsistence.
 All of them were barred from transferring or disposing off
funds and properties belonging to them.
IDBI-Loans to Aircel Promoter
Sivasankaran
 The inclusion of two Independent Directors of IDBI
Bank -Ninad Karpe and BSE chairman S Ravi in the
FIR filed by CBI made the entire banking sector jittery.
 The agency’s decision to name IDs was particularly
worrisome as IDs have limited knowledge of an entity’s day
to-day functioning.
 CBI finally reached to a conclusion that there was no
“mens rea” on part of the part-time independent directors
as they merely agreed to” a loan proposal which was
already approved by the IDBI management .
SC Bars JP Associates Directors from
Transferring Personal Assets
 The Supreme Court on 22nd November, 2017 restrained
IDs and promoters of JP Associates Ltd (parent company
of Jaypee Infratech) and their family members from
transferring any personal assets or property without the
court’s permission in order to safeguard the homebuyers’
interests.
 They will be held for criminal prosecution or contempt of the
courts order if found in violation, the court held.
 Eight IDs and five promoters of JP Associates were personally
present in court .
 “You have gone up at the cost of home buyers,” said the then
chief justice Dipak Misra as he addressed the directors and
promoters.
IL&FS: SFIO’s Charge Sheet
 SFIO filed its first Charge Sheet on 30th May, 2019
against 30 individuals and entities including
businessman C Sivasankaran and nine former directors
of unit IL&FS Financial Services (IFIN).
 It accused auditors BSR & Co LLP and Deloitte Haskins
& Sells (DHS) LLP along with others of concealing
information and falsifying accounts. SFIO said that loans
were given to Shiva group without adequate collateral.
 Those charged include former IL&FS vice-chairman Hari
Shankaran and former IFIN MD Ramesh Bawa.
 BSR and Deloitte were charged along with audit partners
Udayan Sen, Kalpesh Mehta and Sampath Ganesh
IL&FS: SFIO’s Charge Sheet
 Others on the list were Audit Committee members, Independent
Directors and the Shiva Group Chairman and his group companies.
 The other directors charged include Ravi Parthasarthy, Vibhav
Kapoor and K Ramchand.
 “Investigation revealed that the Audit Committee members,
Independent Director and CFO, IFIN and Group CFO of IL&FS were
aware of the stressed asset portfolio, the modus operandi used for
granting loans to group companies of existing defaulters to prevent
them from being classified as NPA”.
 “ They connived with the management………they being part of
the board were aware of the various RBI Reports and overlooked
numerous impairment indicators in contravention of the accounting
standard and principals.”
 Audit Committee members S S Kholi, Subhalakshmi Pense (both
former bank chiefs) and Arun Saha were also named in the Charge
sheet.
Board of Directors
 In order to fulfil their responsibilities members
of the board of directors shall have access to
accurate, relevant and timely information.
 The board of directors and senior
management shall facilitate the independent
directors to perform their role effectively as a
member of the board of directors and also a
member of a committee of board of directors.
Case Study of Coal India Ltd.
 In early January 2012, CIL decided to shift to pricing based on gross

calorific value - the international norm. Secretary, Ministry of Coal
instructed CIL to reverse their price hikes, which they did. Board did
not oppose to reversing the price hikes.
 Minority shareholder Children's Investment Fund (TCI) felt that
directors failed to assert their independence from govt.
meddling in a clear breach of fiduciary duties of the board.
 IPO prospectus mentioned that the interests of GOI as controlling
shareholder may conflict with your interests as a shareholder"; that
"the president of India may issue directives with respect to the
conduct of our business or our affairs... as a result (of which) the
government may take actions with respect to our business and the
businesses of our peers and competitors that may not be in our or
our other shareholders' best interests."
 TCI's partner, Oscar Veldhuijzen told that when CIL announced its
IPO, the government and the management had assured the fund
that the CIL board had complete freedom to determine coal prices.
 TCI also referred to Colliery Control Order, 2000, which
deregulated coal prices and allowed the government to regulate
coal supplies, not coal prices.
 TCI quoted the case of Ashoka Smokeless Coal India (P) Ltd vs.
Union of India (2007) 2 SCC 640, where the Supreme Court noted:
 "The coal companies evolve price fixation but, admittedly, they have
been doing so at the instance of the Central Government. The
Central Government seeks to exercise its statutory power. Such a
power, however, is confined to the four corners of the 2000 order.
When there is no control over the price, the Central Government is
forbidden to issue any direction that will have an impact thereover."
Issues:-
 Was the Board bound to follow Govt. order
 Were the IDs expected to keep quite as they did or
IDs should have voiced their opposition to the
government order
 Did the IDs discharged their fiduciary duties
 Role of IDs with reference to Colliery Control Order,
2000
 Any other issue
Summary of Key Functions of
Board
Action………………. Towards
 Review and Guiding: Corporate Strategy,
budget, business plan, capital expenditure,
acquisition, disinvestment, risks
 Monitor: Governance Practices & performance
of the management
 Selecting and Compensating: KMPs
 Overseeing: Succession Planning
Board Priorities & Practices
[Source: PWC’s 2015 Annual Corporate Directors Survey]
 Directors face increasing scrutiny from investors,

regulators and other stakeholders.
 Today’s boards want to spend more time on
areas impacting long term shareholder value
creation like:
 Strategy
 Mitigation IT Risks
 Talent Management
Global Trends
 Role of Lead ID
 A vast majority of U.S. boards have Lead ID
 Board Diversity
 An increase in intellectual resources of board which reduces the risk
of 'group- think’
 Shareholder Activism
 Following are top 3 reasons why a company may be targeted for
activism:(i) Poor stock price performance (ii) Ineffective or inefficient
capital deployment, and (iii) Poor corporate governance
 Stakeholder Vs Shareholder Approach
 Boards are increasingly seeking to balance the interests of both the
shareholders and other stakeholders in their decision-making
Risks for IDs
Why do we need Independent
Directors?
 Give a contrary view without fear or favour
 Challenge management decisions
 Bring objectivity in decision making
 Ensure legal and ethical behaviour
 Strengthen internal financial controls
 Strengthen governance standards
 Extend company’s “reach” to debt/capital market
 Improve succession planning
 Protect stakeholders value and interest
 Assist in sustainable growth
Risks for IDs
 Board discussions are dominated by 1 or 2 directors.
 Gaps identified in board's assessments are not actioned upon in
a timely manner.
 No formal induction is provided to new board members.
 Board receives no reports of whistle-blower policy.
 Board accepts management's strategy without in-depth probing.
 Risks inherent in strategy are not identified or managed.
 Compliance map does not exists to provide a gap analysis on
assurance activities.
 IDs should have a strategy of addressing these risk factors;
if the risks cannot be mitigated, IDs must evaluate whether
they want to be associated with the company.
Liability of Directors
Liability of Directors
 Liability to outsiders
 Liability to company
 Liability to shareholders
 Liability for statutory defaults and violations
 Liability for fraud.
 Liability for acts of co-directors
 Criminal Liability
 Liability under other Laws
Officer Who Is In Default
Sec.2(60)
 Whole time director;
 Key Managerial Personnel (KMP);
 In case of no KMP, a director specified by
Board who has given his consent to the Board;
 If no Director is so specified, all the Directors;
 Person with whose advice Board of Directors
is accustomed to act, other than a person who
gives advice to the Board in a professional
capacity;
Officer Who Is In Default
Sec.2(60)
 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 of any proceedings of the Board or
participation in such proceedings without
objecting to the same, or
 where such contravention has taken place
with his consent or connivance.
Liability of IDs/NEDs
 An ID/NED who is not a promotor or KMP

shall be held liable only for acts of omission
or commission by a company which had
occurred
 with his knowledge, attributable through
board processes, and
 with his consent or connivance or
 where he had not acted diligently.
Fraud (Sec 447)
For the purposes of section 447 of this Act:—
(i) “fraud” in relation to affairs of a company or any body corporate,
includes any act, omission, concealment of any fact or abuse of
position committed by any person or any other person with the
connivance in any manner, with intent to deceive, to gain undue
advantage from, or to injure the interests of, the company or its
shareholders or its creditors or any other person, whether or not there
is any wrongful gain or wrongful loss;
(ii) “wrongful gain” means the gain by unlawful means of

property to which the person gaining is not legally entitled
;
(iii) “wrongful loss” means the loss by unlawful means of

property to which the person losing is legally entitled.
Punishment for fraud
 Any person who is found to be guilty of

fraud involving an amount of at least Rs. 10 lacs or
1% of the turnover of the company, whichever is
lower shall be:
 punishable with imprisonment for a term which
shall not be less than six months but which may
extend to ten years and
 shall also be liable to fine which shall not be less
than the amount involved in the fraud, but which
may extend to three times the amount involved in
the fraud
Punishment for fraud
 Provided that where the fraud in question
involves public interest, the term of
imprisonment shall not be less than three years.
 Provided further that where the fraud involves an
amount less than Rs. 10 lacs or 1% of the
turnover of the company, whichever is lower, and
does not involve public interest, any person
guilty of such fraud shall be punishable with
imprisonment for a term which may extend to
five years or with fine which may extend to Rs.
50 lacs or with both.
Actions which attract
Punishment for Fraud
 Incorporation of a Company –Any person who furnishes
any false or incorrect information or suppresses any material
information shall be liable u/s 447
 Mis-statements in Prospectus – Where a prospectus,
issued, circulated or distributed includes any statement which
is untrue or misleading in form or context in which it is
included or where any inclusion or omission of any matter is
likely to mislead, every person who authorises the issue of
such prospectus shall be liable u/s 447.
 Issuing Duplicate Share Certificate with an Intent to
Defraud- - If a company issues a duplicate share certificate
with an intent to defraud, every officer of the company who is
in default shall be liable for action u/s 447 of the Act.
Actions which attract
Punishment for Fraud
 Where a company fails to repay the deposit and it is proved
that the deposits had been accepted with intent to defraud the
depositors or for any fraudulent purpose, every officer of the
company who was responsible for acceptance of such deposit
shall be liable u/s 447.
 Where business of a company has been or is being carried
on for a fraudulent or unlawful purpose, every officer of the
company who is in default shall be punishable for fraud.
 Furnishing of False Statement- If in any return, report,
certificate, financial statement, prospectus, statement or other
document required by, or for, the purposes of this Act or rules
thereunder, any person makes a statement, which -
 is false in any material particulars, knowing it to be false; or
 omits any material fact, knowing it to be material,
he shall be liable u/s 447.

Directors & Officers
Insurance
Directors & Officers Insurance
 A company may take any insurance on behalf of its MD, WTD,
CEO, CFO or CS for indemnifying any of them against any
liability in respect of any:
 Negligence, Default, Misfeasance,
 Breach of duty or Breach of trust
for which they may be guilty in relation to the company.
 Appointment letter of an ID shall set out provision for D&O
insurance, if any.[Sch.IV]
 With effect from October 1, 2018, the top 500 listed entities by
market capitalization calculated as on March 31 of the
preceding financial year, shall undertake Directors and Officers
insurance for all their IDs of such quantum and for such risks
as may be determined by its board of directors.
Directors & Officers Insurance
 No policy for indemnity for liability for fraud.

 The premium paid on D&O insurance shall not
be treated as part of the remuneration payable
to any such personnel.
 Provided that if such person is proved to be
guilty, the premium paid on such insurance shall
be treated as part of the remuneration.
Way Forward
Way Forward- Dos
 Evaluate demands on your time before accepting board
positions
 Do detailed due diligence to ascertain credibility of
company before accepting position of a NED/ID.
 Upon accepting position of a NED/ID, request for a set of
MOA, AOA, Board Charter, Annual Reports for at least 3
years, important policies etc. for study.
 ID to abide by the provisions of Schedule IV.
 Disclose your concern/interest in any company, body
corporate, firm including shareholding
 Disclose material interest in any transaction or matter
directly affecting the company
Way Forward-Dos
 Thoroughly read the agenda papers before the
board/committee/general body meetings
 Apply Business Judgement Rules, Build a clear
rationale, Devote sufficient time and attention for
informed and balanced decision making
 Proper delegation to officials one level below EDs/KMPs
 Ensure proper documentation
 Legal compliance certificate is part of Board agenda
 Seek additional information, clarifications, independent
expert opinion, if so required at the cost of the company
 Must express your opinions/views in Board Meeting
 Be politely but be firm. Do the assignment with passion
Way Forward-Dos
 Endeavour to get along with Chair and other directors
 Allow the business to grow
 Insist that at least one Board Meeting in a year should be
to discuss Policy and Strategy
 Be positive and constructive but ensure that your
concerns about the company are addressed by Board
 Make sure that unresolved concerns are recorded in
minutes of the board meeting
 Attend Directors development programmes at regular
intervals to update skills and knowledge
 Act within the authority
 Take D & O insurance
Way Forward- Don’ts
 Not to be an ID in more than 7 listed entities
 Not to be ID in more than 3 listed companies if a WTD in
any listed company
 Do not join a Committee in which you lack expertise and
can’t contribute.
 Not to unfairly obstruct functioning of the Board or its
committees
 No to agenda items to be placed on the table
 No non-cash transactions with the company
 Insider trading strictly prohibited
Way Forward- Don’ts
 Do not enter into forward dealings in the

securities of the company
 The ID should not be a material supplier, service
provider or customer or a lessor or lessee of the
company
 RPT allowed only with requisite approvals
 Do not disclose confidential information
 Silence means “Acceptance”
“It is easy to dodge our responsibilities,
but we cannot dodge the consequences
of dodging our responsibilities.”
Josiah Charles
71
THANK YOU
N K Jain
B.Sc., LLB.,DCL,FCS,FCPSK
Corporate Advisor
Partner, Global Fin Serve LLP
Member, Company Law & CG Committee, PHD Chamber of Com & Ind
Former Council Member and past Secretary & CEO, ICSI
Cell: 09818348811
08920236422
Landline: 0120 - 4263965
E-mail: nkjain1953@gmail.com
15th May, 2020

Duties, Roles & Responsibilities and Liabilities of Directors

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Duties, Roles & Responsibilities and Liabilities of Directors

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Duties, Roles &

Responsibilities and Liabilities

 Companies Act, 2013 and Rules

 Report concerns about unethical behaviour or

 Not to use confidential information for advantage of

 The board of directors of the listed entity shall

 Directors and KMPs shall disclose to the board

 (4) Monitoring and managing potential

 Stiff competition from Samsung and Apple, and lack on

 In 1998, Kodak had 170,000 employees and

 Jaipur oil depot fire broke out on 29th October

 The board of directors shall have the ability to ‘step

 In early January 2012, CIL decided to shift to pricing based on gross

 Directors face increasing scrutiny from investors,

 An ID/NED who is not a promotor or KMP

(ii) “wrongful gain” means the gain by unlawful means of

(iii) “wrongful loss” means the loss by unlawful means of

 Any person who is found to be guilty of

he shall be liable u/s 447.

 No policy for indemnity for liability for fraud.

 Do not enter into forward dealings in the

 Silence means “Acceptance”

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