No unnecessary action against independent directors without strong evidence of wrong doing, assures MCA

NEW DELHI: The Ministry of Corporate Affairs on Monday said prosecution proceedings will not be initiated against independent and non-executive directors unless there is strong evidence of their complicity in frauds committed by the companies.

Against the backdrop of instances of independent and non-executive directors coming under the scanner for alleged corporate misdoings, the ministry has sent out a circular to its Regional Directors, Registrars of Companies (Rocs) and official liquidators with respect to prosecution proceedings.

"In case, lapses are attributable to the decisions taken by the Board or its Committees, all care must be taken to ensure that civil or criminal proceedings are not unnecessarily initiated against the IDS or the NEDS, unless sufficient evidence exists to the contrary," the communication said.

IDS and NEDS are Independent Directors and Non-executive Directors, respectively.

Corporate Affairs Secretary Injeti Srinivas said the communication clearly articulates the ministry's resolve and intent to give protection to independent directors and other non-executive directors from prosecution for both civil and criminal offences, unless there is strong evidence of them being party to any fraud committed by the company.

"Further, no prosecution can be initiated against such directors without explicit approval of the government," he said.

As per the three-page circular, in case of any doubt about liability of any person for any proceedings, guidance can be sought from the ministry through the office of the Director General of Corporate Affairs. Any such proceedings must be initiated after receiving due sanction from the ministry, it added.

The ministry also said that all registrars should immediately and scrupulously follow the standard operating procedure mentioned in the circular immediately and scrupulously "with respect to all ongoing cases".

With respect to cases where prosecution may have been already filed and does not meet the criteria mentioned in the circular, then such cases "may be referred to the ministry for necessary examination and further direction," it noted.

In December, the ministry launched an independent directors' database portal.

More than 14,000 individuals are in the process of getting registered with the portal.

The databank would be a comprehensive repository of both existing independent directors as well as individuals eligible and willing to be appointed as independent directors.

The Indian Institute of Corporate Affairs (IICA), under the ministry, is maintaining the portal. After registration, the individuals, except for certain categories, have to pass a basic online proficiency selfassessment test. The ministry is implementing the Companies Act, 2013.