MCA issues Standard Operating Procedure for initiating Prosecution against Directors / KMP / Independent Directors
MCA issues Standard Operating Procedure- The Ministry of Corporate Affairs (MCA) released a Standard Operating Procedure against Independent Directors for prosecution or internal adjudication proceedings,
- Non-promoters and non-KMP owners, non-executives. These clarifications include: In the following cases, non-promoter and non-KMP, NEDs, will exist:
(a) Independent directors appointed to public sector undertakings by the Government; (b)Directors elected by, or otherwise appointed by, public sector financial institutions, financial companies or banks investing in a company’s equity;
(c) Directors appointed in pursuance to any statutory or regulatory requirement such as Independent directors appointed by the NCLT. 1/3
- The essence of the default is also essential to the arraignment of company officers for defaults committed under the Act. Both instances of sending information/records to the registry, maintaining statutory registers or minutes of meetings, or complying with orders provided by legislative authorities, including the NCLT under the Act, are not the responsibility of the IDs or the NEDs unless, as the case may be, any particular provision is laid down in the Act or in those orders.
- In such situations, where there are no WTDs and KMPs, the liability of the NEDs usually
- During audit, inspection, trial, or adjudication proceedings, required documentation may be obtained to determine the presence of the company’s officials involved at the time of issuing notices to the
- For situations where lapses are attributable to actions made by the Board or its committees, reasonable precautions must be taken to ensure that civil or criminal proceedings against the IDs or the NEDs are not unnecessarily initiated unless there is ample proof to the
- Furthermore, the documents available at the Registrar’s office, including e-forms DIR-11 or DIR12, along with copies of the annual returns or financial statements, should be checked to decide whether a specific director or KMP worked in the company as of the default
- In case of any doubts regarding the liability of any entity, guidance may be sought from the Ministry of Corporate Affairs through the office of Director General of Corporate Affairs for any proceedings needed to be instituted by the Registrar. Consequently, any such proceedings have to be launched after the Ministry has obtained proper sanction. A full-time director[ WTD] and main managerial staff[ KMP] are typically concerned with the day-to-day running of the company and thus these WTDs and KMPs would be responsible for the defaults committed by a company. In the absence of an KMP, those directors or directors who have expressly consented to assume liability in respect of the GNL-3 e-form filed with the Registrar would be liable. Where consent to incur liability for any of the provisions relating to the management, recording or dissemination of accounts or records is submitted by an individual under the Board’s immediate authority or any KMP in the e-form GNL-3, such person shall be held liable. In some cases, however, the disciplinary rules in The Act holds a specific director or officer or any other person responsible for the default; in such cases, action should only be taken against that director or officer or person, as the case may be, such as declaration of interest by directors under section 184 of the Act. All registrars are directed to follow the above described Standard Operating Procedure immediately and scrupulously.
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