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'Don't prosecute all Directors' – MCA issues instructions

While prosecuting for acts of commission or omission violating Companies Act, 1956, directors who are not ‘officers in default’ shall be excluded. The Ministry of Corporate Affairs in its Master Circular No. 1/2011 issued on 29th July, 2011, has directed its officers not to generalize all the directors of a company while launching prosecution.

According to the instructions the directors not being managing directors or whole-time directors, independent directors appointed by listed companies as per SEBI requirements and directors of PSUs nominated by government will not be prosecuted. The list of directors who will be granted immunity from prosecution also includes directors nominated by public sector financial institutions, financial institutions and banks having equity participation in company, directors nominated by government under Section 408 of Companies Act and special directors appointed by BIFR under Section 16 (6)(b) of SICA 1985. The immunity, however, is available only if the offence had occurred without their knowledge attributable through Board process and without their consent or connivance or where they have acted diligently in the Board process.

To provide further relief, the MCA has stated that penal action should be initiated only against directors as on the date of commission of the offence. If a person has resigned from the position of a director and the company has failed to file Form 32, the concerned director who has informed/endorsed a copy of his resignation to the ROC should not be prosecuted.

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