Page 308 - DMGT407Corporate and Business Laws

Unit 12: Management of Companies

31 Ch.D.100]. However, where the director seeking contribution alone benefited from the Notes
wrongful act, he is not entitled to contribution.
Criminal liability. Apart from civil liability under the Act or under the general law, directors of
a company may also incur criminal liability under common law, as well as under the Companies
Act and other statutes. Some of the provisions of the Companies Act which make directors
criminally liable (fine or/and imprisonment) are:
S. 44(4) - Filing of prospectus or statement in lieu of prospectus (to be filed by private
company on ceasing to be private company) containing untrue statement.
S. 58A(5) - Failure to repay deposits within the prescribed time limits.
S. 58A(6) - Accepting deposits or inviting deposits in excess of the prescribed limits.
S. 63 - Issuing a prospectus containing untrue statement.

S. 68 - Knowingly making a false, deceptive or misleading statement and thereby
inducing persons to invest money.
S. 84(3) - Fraudulently renewing a share certificate or issuing a duplicate certificate.

S. 210(5) - Failure to lay balance-sheet, profit & loss accounts, etc. at the annual general
meeting.
S. 240(3) - Failure or refusal to produce books to inspector or furnish information or to
appear before inspector conducting investigation.
S. 295(4) - Granting loan to directors without approval of the Central Government.
Criminal liability under SEBI. The directors of a company may also be held criminally liable for
contravention of the provision of SEBI.
Criminal liability under economic legislations. Directors are also made criminally liable for various
lapses and non-compliances under MRTP Act, I(D&R) Act, FEMA, Income-tax Act, etc.

12.5.2 Audit Committee

Section 292A provides that every public company having paid up capital of ` 5 crore or more shall
constitute a committee of the board of directors known as Audit Committee. It will consist of three
or more directors as decided by the board. Two- thirds of the members shall be other than managing
or whole time director. Its members shall elect a chairman from amongst themselves. It shall act
in accordance with the terms of reference as specified in writing by the board.
The meetings of the audit committee still also be attended and participated by auditors, internal
auditors and director-in-charge of finance with no voting right. The committee shall discuss the
company’s internal control system, scope of audit, auditors’ observations and review the half-
yearly and annual financial statements before submission to the board. The committee shall
also have authority to investigate into the terms specified or referred to and for this purpose it
shall have access to the company’s records and external professional advice.
The recommendations of the committee relating to financial management including the audit
report shall be binding on the board and if not accepted, the board shall record the reasons
therefore and communicate the same to the shareholders through its report.
The chairman of the Audit Committee shall attend every annual general meeting of the company
to provide classification on matters relating to audit.

For non-compliance of the provisions of s. 292A, the company and every officer in default shall
be punishable with imprisonment up to one year or fine up to ` 50,000. The offence is
compoundable.

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