Corporate Frauds: An Evaluation on Directors Liability in India – A Study

Abstract

This is study is about understand the directors liability in relation to criminal offences and its penal provision which is under Indian company law and common law systems. The concept of “Officer who is in default” brought in the Companies Act, 1956 to impose the liability on the defaulter who commits an offences against or on behalf of the company. But under companies act, 1956, penal provision was not that much effective in case of any serious frauds committed its officials, i.e., directors, promoters and other top managements. Hence it is to analyze the Companies Act, 2013 which brought some statutory recognition on the director’s duties in the company. The offences by the company and their criminal liabilities alsomade provision under this 2013 act. It includes the elements of intention to commit offences, unintentional in commission of offences, unlawful gain and losswhile determining the officer in default. The offence of fraud under section 447 of the 2013 act, which provision to identify the corporate frauds of the companies and punishment provision against those who commits the fraudulent act by use of their position with the intention to deceive the company, shareholders, creditors, customers, government and other persons under the roof of the corporate entity. But still the law says that it is mandatory to prove intention and knowledge in most of cases to make directors liable. This study reveals about the company laws pertains to corporate frauds and certain provisions are specifically establish criminal liability of the director of the company and establishing the liability for contravening or non-compliances of the provisions to make responsible in business activities of the company. In case the directors, managementand any other officer of the company committed offences with his consent, connivance, negligencemay be liable to take action according the prevailing company law and penal law provisions, only if it is proved. Also application or determination of the liability over the corporate officials, the doctrines of attribution and vicarious liability discussed along with the case laws decided by the supreme court of India.