Personal liabilities of directors under the Companies Act

		ARTICLE-80
As far as a Company is concerned, the Board of Directors can exercise all powers in respect of the Company except those, which require approval of the members of the Company. Members/ shareholders are the ultimate owners of the Company. However, they cannot interfere in day-to-day management affairs of the Company. They can remove the directors, or alter the Articles of Association for restrict the powers of the Board. Thus, the overall control and supervision of the Company is entrusted to directors, who were elected by the members.
The mind of the Board is the mind of the Company. Since the Board is a collective body, individual Director cannot take any decision. Under the Companies Act, 1956, Board of Directors is the controlling authority of a Company. So they are expected to take reasonable care in taking decisions. In this article, the personal liabilities of a Director are illustrated.
Company is solely responsible for any loss, penalty or punishment. Individual directors are not responsible for any loss incurred by the Company due to bona fide decisions of the Board. Individual liability will arise only if the acts/ decisions are mala fide. There are many judicial pronouncements.
Director may be held liable even if not personally involved in fraud, if he is negligent Official liquidator, Supreme Bank Limited v. PA Tendolkar,1973
Director was held liable to Company for misfeasance when he permitted Company’s claim to become time barred by sheer inaction. Smart advertising v. Ramesh K Nanchahal, 1989
A Director enabling another Director to perpetuate fraud resulting loss to Company is liable to repay and restore the loss
Personal liability of directors arises in the following situations:
1.	Failure to pay interest or principal to small share depositors Section 58AA
2.	Mis-statements in prospectus Section 62
3.	Allotment without getting minimum subscription, if default is due to his negligence Section 69(5)
4.	Irregular allotment Section 71(3)
5.	Failure to refund application money, if shares not listed in a stock exchange Section 73(2)
6.	Non-repayment of dividend within 30 days of declaration, if knowingly Section 207
7.	Non maintenance of account books Section 209
8.	Failure to disclose interest in contract or arrangement Section 299
9.	Participating in any Board Meeting relating to contract in which he is interested. Section 300(4)
10	Contravening provisions of Section 295.
Case study
Personal property of Managing Director cannot be attached to recover dues of Company. Kuriakose v. PKV Group industries, 2002.
Tax cannot be collected from personal assets of a Director, unless, there is a specific provision of law or agreement between parties. G C Mehrotra v. Dy. Collector, 1998
Excise duty dues of a Company can be recovered by realizing assets of a Company and not from its Managing Director Hrushikesh Panda v. State of Orisa, 196
If assets of a Private Company are insufficient even to meet preferential payment under Section 529A, income tax claims can be made from ex- directors of a Private Company and court can give directions for proceeding against the said directors. Transport Corporation of India v. Super cosmetics, 2000
If a Director executed his guarantee in his individual capacity and the guarantee is a continuing one, the guarantee will be Company-extensive with that of the Company. The guarantee will not be extinguished if the guarantor ceased to be a Director. If the Director has died, legal representatives are liable to the extent of the assets of the deceased. M R Lakshmi Narayanan v. Syndicate Bank,2001
If a Company is guilty of contempt of court, the person (Director) who was actually responsible for the contempt can be imprisoned, by piercing the corporate veil. Aligarh Municipality v. Ekka Tonga Mazdoor Union, 1970
In contempt proceedings, fine was imposed on Managing Director for violation of order of court. Vineet Kumar Mathur V. UoI