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Thursday, January 3, 2008

Liability under the Companies Act

The following provisions of the Companies Act, 1956 make directors personally liable

to third parties: .

(a) Prospectus. Failure to state any particulars as per the requirements of Section 56 and Schedule II or mis-statement of facts in a prospectus renders a

director personally liable for damages to the third party. Section 62 provides that a director shall be liable to pay compensation to every person who

subscribes for any shares or debentures on the faith of the prospectus for any loss or damage he may have sustained by reason of any untrue statement

included therein. He may, however, escape liability where he proves his innocence.

(b) With Regard to Allotment. Directors may also incur personal liability for:

· irregular allotment, i.e., allotment before minimum subscription is raised or without a copy of the statement in lieu of prospectus having been filed with the

·

Registrar of Companies [Sec. 71 (3)].

· for failure to repay application money in case of minimum subscription having not been received [Sec. 69 (5)].

· for failure to repay application money when application for listing of securities is not made or is refused [Sec. 73].

(c) Unlimited Liability. Directors will also be held personally liable to the third parties where their liability is made unlimited in pursuance..of Section 322 (i.e.,

vide Memorandum) or Section 323 (i.e., vide alteration of Memorandum by passing a special resolution).

(d) Fraudulent Trading. Directors may also be made personally liable for the debts or liability of a company by an order of the Court under Section 542.

Such an order shall be made by the Court where directors have been found guilty of fraudulent trading.

1 comment:

Unknown said...

What is the liability of director in case the company's tax assessment is more than its paid up capital and assets?