The corporate legal environment has undergone
unimaginable transformation with the liberalization
and globalization of business. Concepts such as
transparency and accountability have gained an important
place in the administration of business, especially in the
companies. A serious view is given to the lapses of persons
responsible for the operations of the companies. The directors
and officers of the company are exposed to the
maladministration and negligence in dealing with issues. They
are made personally liable for the decisions taken during the
discharge of their duties. The decisions of the directors of a
company, if proved to be wrong, impinge on the liability of the
directors. Sometimes, the liability may be unlimited as stated
in Sec 322 of the Companies Act, 1956. The Supreme Court
of India’s landmark judgments in public interest litigations—
M C Mehta vs. Union of India1 about the escape of Oleum gas
from one of the units of Shriram Foods and Fertilizers Industries
and in the case of Bhopal Gas tragedy—have fixed the civil
and criminal liabilities on the companies and their directors.
The Indian corporate scenario is growing in size and volume
and consequently, the concomitant problems. The judiciary is
playing an active role in fixing up the liabilities on the failure of
the companies and directors and officers complying with the
statutory duties. Thus, the era of corporate liability has started.
A director is generally regarded as one who occupies the position of the director in the company and
performs the dual role—as an officer and employee of the company. The Companies Act imposes certain
duties upon the directors of the company which can be stated as fiduciary duties, duties of care, skill and
diligence, and statutory and mandatory duties. The duties envisaged in the Act can be further classified into
the duties discharged as the representatives of the company, duties as the directors and duties in the individual
capacities. The directors have duties towards the company, shareholders and other class people such as
debenture holders, suppliers, regulators, the third parties and the government. The duties of the directors may
vary from company to company and as per the provisions of the Memorandum of Association and Articles of
Associations of the Company. Lapse in performing any duty creates a liability on the director or the officer
responsible for it. They are accountable and individually responsible for the lapses. The company also becomes
accountable for such lapses when they occur during their discharge of duties as directors or officers. They are
bound to compensate the loss suffered by the company when they perform or omit their duties. When
their business decisions cause damages to the third parties, the directors, as individuals and representatives
of the company, are also liable to the third parties.
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