The Hindu Business Line : Lack of clarity on executive default law irks corporates

The question continues to trouble the corporate sector. Despite the law clearly specifying who the directors/officers in default are, the interpretation made by some of the Regional Directors (RDs) of the Ministry of Company Affairs (MCA) is creating lot of confusion among the companies, industry sources said.

"While processing the compounding applications, some RDs insist that all directors/officers in default should sign the compounding applications, which means that all the directors irrespective of executive or non-executive would be held defaulter and are liable to be punished."

This, according to the corporate sector, is contrary to the provisions of the Companies Act, which clearly stipulates that where there is a Managing Director or Manager, they and all other employees of the company would be punishable.

When the company has neither Managing Director nor Managers, all directors would be punishable.

The problem arises more so with reference to Section 212 of the Companies Act, which stipulates that the holding companies have to attach, while issuing balance sheet, specific details of subsidiaries, including balance-sheet, report of board of directors, auditors' report, and statement of holding company's interest in the subsidiary.

Further, the Central Government has been empowered to exempt the companies from these provisions and the offence was compoundable under Sections 212(9) & (10) of the Act.

The Act also specifies of the persons responsible for compliance of this Section.

As per Section 212(9) any such person as is referred in the Act fails to take all reasonable steps to comply with the provisions of the section, he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to Rs 10,000, or with both.

Section 212(10) states that if any person, not being referred to in the Act having been charged by the Managing Director, Manager or board of directors, as the case may be, with the duty of seeing that the provisions of this section are complied with, makes default in doing so, he shall, in respect of each offence, be punishable with imprisonment for a term which may be extended to six months, or with fine which may extend to Rs 10,000, or with both.