Liabilities of Directors of a Company

Under the Companies Act, 1956, criminal proceedings against directors may be instituted in pursuance of the following Sections, resulting in imprisonment:
Section		Matter	Fine up to (Rs)	Imprisonment (years)
44(4)		Filing of prospectus containing untrue statement	50,000.00	Two
58A(6)(b)		Inviting deposits in contravention to rules	Fine	five
58A(10)		Failure to repay deposits as directed by CLB		Three
63		Misstatement in prospectus	50,000.00	Two
68		Fraudulently inducing persons to invest	1,00,000.00	One
73		Failure to repay excess application money	50,000.00	One
105		Concealing name of creditor	Fine	One
202(1)		Undischarged insolvent acting as Director	50,000.00	Two
207		Default in distributing dividend	1000/day	Three
209A		Failure to assist Registrar/other officer in inspection in Company	50,000.00	One
210(5)		Failure to lay balance sheet at A G M	10,000.00	Six months
211(8)		Failure to comply with Section 211 regarding balance sheet	10,000.00	Six months
217(5)		Failure to attach directors report with balance sheet	20,000.00	Six months
221(4)		Failure to give information to auditor	50,000.00	Six months
250(9)		Improper issue of shares	50,000.00	Six months
293A(5)		Contribution to political parties	Fine	Three
295(4)		Grant of loan to directors	50,000.00	Six months
308(3)		Failure to disclose share holdings	50,000.00	Two
372A		Giving loans to body corporate in excess of limit	50,000.00	Two
407(2)		Acting as Director after removal by Court	50,000.00	One
488(3)		False declaration of Company’s solvency	50,000.00	Six months
		Here almost in all cases imprisonment and/or fine or both.
Some important case studies regarding the liability of directors:
A Managing Director is a principal officer and is liable under the Income Tax Act for false verification of an income tax return
	M R Pratap v. V M Muthukrishnan(1992)
The directors of a Private Company, which is being wound up, are liable for the sales tax dues of the Company if the same cannot be recovered from the Company .
	P. Chockalingam v. Deputy Commercial Tax Officer (1990)
A Director was not held liable for payment of dividend on false account declared at a meeting where the Director to be made liable was absent.
	Negendra Prabhu v. the popular Bank ZLR (1961)
In the absence of reasonable grounds for suspicion, a Director cannot be held liable for the fradulant acts of co-director on the ground that he ought to have discovered the fraud.
	Dovey v. Cory (1901)
The position of Managing Director or the Chairman  is something different
1.	He cannot say that he signed the accounts without understanding the implications of its entries
	Official liquidator v. Shri. Krishna Prasad Singh (1969)
2.	The Managing Director of the Company has no authority to use the funds of the Company for illegal purposes like giving bribes. Even if the Company has benefitted from the contract, he has no right to change the Company for his illegal activities. The Company can recover the money.
	Hannibal (E) & Co. v. Frost (1988)