"Officer in default" Under Companies Act 2013

The statutory principles of Corporate Law in India are enshrined primarily in the Companies Act,
2013 ("the Present Act") or Companies Act 1956 (Previous Act) and other supplementary and
complementary enactments and regulations. The Common Law norms evolved by the Courts in
England have also clearly influenced the legal principles adapted and adopted by the Indian
judiciary. This is especially so with respect to the provisions dealing with the liabilities of
corporate officers and directors in India. This article has been prepared with a view to provide an
overview of the Officer in Default in Companies Act 2013 and how it leads Indian Corporate
towards Corporate Governance.
Companies Act 2013 has increased monetary penalties and imprisonment. The civil and criminal
liabilities are not just on directors but include “Officers in Default”. There is heightened
corporate governance requirements even for startups and unlisted companies, even though there
is no public money invested.
While sections which require monetary penalties can be compounded before the statutory
authorities, sections which details imprisonment cannot be compounded. Entrepreneurs should
also note that such penalties are not limited by the “limited liability” concept. We urge the
entrepreneurs to give importance to corporate governance.
OFFICER IN DEFAULT
WHAT THE LAW STATES
COMPANIES ACT, 1956
Section 5: Meaning of officer who is in default
Section 201: Avoidance of provisions relieving liability of officers and auditors of company
COMPANIES ACT, 2013
Section 2(60): Officer who is in default
Section 149(12): notwithstanding anything contained in this Act
(i) an independent director
(ii) a non-executive director not being promoter or key managerial personnel, shall be
held liable, only in respect of such acts of omission or commission by a company which had
occurred with his knowledge, attributable through Board processes, and with his consent or
connivance or where he had not acted diligently
According to Section 2(60) in the Companies Act, 2013---

2 “Officer in default” under CA 13
“officer who is in default”, for the purpose of any provision in this Act which enacts that an
officer of the company who is in default shall be liable to any penalty or punishment by way of
imprisonment, fine or otherwise, means any of the following officers of a company, namely:—
(i) whole-time director;
(ii) key managerial personnel;
(iii) where there is no key managerial personnel, such director or directors as specified by
the Board in this behalf and who has or have given his or their consent in writing to
the Board to such specification, or all the directors, if no director is so specified;
(iv) any person who, under the immediate authority of the Board or any key managerial
personnel, is charged with any responsibility including maintenance, filing or
distribution of accounts or records, authorizes, actively participates in, knowingly
permits, or knowingly fails to take active steps to prevent, any default;
(v) any person in accordance with whose advice, directions or instructions the Board of
Directors of the company is accustomed to act, other than a person who gives advice
to the Board in a professional capacity;
(vi) every director, in respect of a contravention of any of the provisions of this Act, who
is aware of such contravention by virtue of the receipt by him of any proceedings of
the Board or participation in such proceedings without objecting to the same, or
where such contravention had taken place with his consent or connivance;
(vii) in respect of the issue or transfer of any shares of a company, the share transfer
agents, registrars and merchant bankers to the issue or transfer
Brief examination of the above mentioned Section.
The scope of “officer who is in default” has been broadened. The share transfer agents,
registrars and merchant bankers to the issue or transfer related to issue of shares & Chief
Financial Officer are also brought under its ambit.
Directors who are aware of the default by way of participation in board meeting or
receiving the minutes without objecting to the same will also be included in this category even if
company has Managing Director /Whole Time Director / other Key Managerial Personnel.
CFO is also included in this category.

Moreover any Key Managerial Personnel/ person charged with duty of the compliance,
will only be included under this category, if they knowingly commit the default.
Comparative Analysis of “Officer in Default”
CA 2013
Section 2(60)
CA 1956
Section 5
“officer who is in default”, for the purpose of any
provision in this Act which enacts that an officer of
the company who is in default shall be liable to any
penalty or punishment by way of imprisonment,
fine or otherwise, means any of the following
officers of a company, namely:—
Meaning of “officer who is in default”. For
the purpose of any provision in this Act which
enacts that an officer of the company who is in
default shall be liable to any punishment or
penalty, whether by way of imprisonment, fine
or otherwise, the expression" officer who is in
default" means all the following officers of the
company, namely:-
(i) Whole time director; (b) the whole- time director or whole- time
directors;
(ii) Key Managerial Person (a) the managing director or managing
directors;
(b) the whole- time director or whole- time
directors;
(c) the manager;
(d) the secretary
(iii) where there is no key managerial
personnel, such director or directors as
specified by the Board in this behalf
and who has or have given his or their
consent in writing to the Board to such
specification, or all the directors, if no
director is so specified;
(iv) any person who, under the immediate
authority of the Board or any key
managerial personnel, is charged with
any responsibility including
maintenance, filing or distribution of
accounts or records, authorizes,
actively participates in, knowingly
permits, or knowingly fails to take
active steps to prevent, any default;
(f) any person charged by the Board with the
responsibility of complying with that
provision: Provided that the person so charged
has given his consent in this behalf to the
Board;
(v) any person in accordance with whose
advice, directions or instructions the
Board of Directors of the company is
accustomed to act, other than a person
who gives advice to the Board in a
professional capacity;
(e) any person in accordance with whose
directions or instructions the Board of
directors of the company is accustomed
to act;
(vi) every director, in respect of a
contravention of any of the provisions of this Act,
(g) where any company does not have any of
the officers specified in clauses (a) to (c), any

who is aware of such contravention by virtue of the
receipt by him of any proceedings of the Board or
participation in such proceedings without objecting
to the same, or where such contravention had taken
place with his consent or connivance;
director or directors who may be specified by
the Board in this behalf or where no director is
so specified, all the directors: Provided that
where the Board exercises any power under
clause (f) or clause (g), it shall, within thirty
days of the exercise of such powers, file with
the Registrar a return in the prescribed form
(vii) in respect of the issue or transfer of any shares
of a company, the share transfer agents, registrars
and merchant bankers to the issue or transfer;
Legal Requirement in erstwhile Act.
As per section 5(f) of Companies Act 1956, if any person on whom Board cast the Responsibility
of Maintenance of Accounts. Consent of the person charged by the board with the
responsibility of complying provisions is required in Form 1AB. Particulars of person(s)/
director(s)/ charged/ specified for the purpose of clause (f)/ (g) of section 5 is required to file
with ROC within 30 days of exercise of powers in Form No. 1AA.
Further if a person charged with the responsibility revokes or withdraws his consent, Pursuant to
proviso to section 5(g), Form No 1AC is required to file with ROC.
Departure from erstwhile act
As Per companies Act 2013, No Consent is required for charging a person with any
responsibility including maintenance, filing or distribution of accounts or records. Further we
need not to intimate ROC regarding who is the person liable for Section 2(60) (iv). Further Act
as well as rules is also silent whether we need to communicate to the Person Charged under
aforesaid section regarding their responsibility.
Below table is indicative of some of the sections of CA 13 which deal with imprisonment.
Section Who is liable and the Civil/Criminal liability involved
53- Prohibition on
issue of shares at
discount
 Company-Fine- Not less than Rs. 1 Lac and may extend to Rs. 5
Lacs
 Officer in default- Maximum imprisonment of 6 months or Fine-
Not less than Rs. 1 Lac and may extend to Rs. 5 Lacs or with both.
68(11)- Power of
Company to
 Company-Fine- Not less than Rs. 1 Lac and may extend to Rs. 3
Lacs

purchase its own
securities
 Officer in default- Maximum imprisonment of 3 years or Fine- Not
less than Rs. 1 Lac and may extend to Rs. 3 Lacs or with both.
71(11)- Debentures
92(5)- Annual return
 Company-Fine- Not less than Rs. 50,000 Thousand and may
extend to Rs. 5 Lacs
 Officer in default- Maximum imprisonment of six months or Fine-
Not less than Rs. 50,000 Thousand and may extend to Rs. 5 Lacs
or with both.
118(12)- Minutes of
proceedings of
general meeting,
meeting of Board of
Directors and other
meeting and
resolutions passed
by postal ballot.
 Any person found guilty of tampering with the minutes- Maximum
imprisonment for 2 years and Fine- Not less than Rs. 25,000 but
which may extend to Rs. 1 Lac
128(6)- Books of
account, etc., to be
kept by Company
 Officer in default- Maximum imprisonment of 1 year or Fine- Not
less than Rs. 50,000 and may extend to Rs. 5 Lacs or with both.
129(7)- Financial
statement
 Officer in default- Maximum imprisonment of 1 year or Fine- Not
134- Financial
statement, Board’s
report, etc
 Company-Fine- Not less than Rs. 50,000 and may extend to Rs.25
Lacs
167- Vacation of
office of director
 Director – Maximum imprisonment for 1 year or Fine- Not be less
than Rs. 1 Lac and may extend to Rs. 5 Lacs or with both.
185(2)- Loan to
directors, etc.
 Company-Fine- Not less than Rs. 5 Lacs and may extend to Rs.25
Lacs
Not less than Rs. 5 Lacs and may extend to Rs. 25 Lacs or with
both.
186(13) Loan and
investment by
Company
 Company-Fine- Not less than Rs.25,000 and may extend to Rs. 5
Lacs

less than Rs. 25,000 and may extend to Rs. 1 Lac or with both.
188(5)- Related
party transactions
 In case of unlisted Company, be punishable with fine which shall
not be less than 25,000 rupees but which may extend to 5 Lac
rupees
57- Punishment for
personation of
shareholder
 Such person in default- Minimum 1 year to Maximum 3 years
imprisonment or Fine- Not less than Rs. 1 Lac and may extend to
Rs. 5 Lacs.
58(6)- Refusal of
registration and
appeal against
refusal
 Such person in default- Minimum 1 year to Maximum 3 years
imprisonment or Fine- Not less than Rs. 1 Lac and may extend to
Rs. 5 Lacs.
59(5)- Rectification
of register of
members
 Company-Fine- Not less than Rs.1 Lac and may extend to Rs.5
Lacs
Chapter-IV-
Registration of
Charges
 Company-Fine- Not less than Rs.1 Lac and may extend to Rs.10
Lacs
 Officer in default- Maximum imprisonment of six months or Fine-
Not less than Rs. 25,000 and may extend to Rs. 1 Lac or with
both.
137(3)- Copy of
financial statement
to be filed with
Registrar
 Company-Fine- Not less than Rs.1000 for every day in default but
not more than 10 Lacs
Not less than Rs. 1 Lac and may extend to Rs. 5 Lacs or with both.
182(4)- Prohibitions
and restrictions
regarding political
contributions.
 Company-Fine- 5 times of the amount of contribution in
contravention
 Officer in default- Maximum imprisonment of 6 months and Fine-
5 times of the amount of contribution in contravention
184(4)- Disclosure
of interest by
director
 Such person in default- Minimum 1 year imprisonment or Fine-
Not less than Rs. 50,000 and may extend to Rs. 1 Lac or both.
187(4)- Investments
of Company to be
held in its own name
 Company-Fine- Not less than Rs.25,000 and may extend to Rs.25
Lacs
Not less than Rs. 25,000 and may extend to Rs. 1 Lac or with both

447- Punishment for
fraud
 Any person who is found to be guilty of fraud- Maximum
imprisonment of 6 months may extend to 10 years
 Such person also liable to fine which may extent to 3 times the
amount involved.
After the implementation of Stringent Provisions of Companies Act 2013 Since it enhanced
responsibility of top management, quality of functioning of the board will increase which
will increase the trust of investors and stakeholders, which will be a beginning of new era of
corporate Governance.
Perhaps Corporate or corporate Officials will do good to remember the famous quote by Peter
Spiderman Parker's uncle Ben: "With great power comes great responsibility"
Disclaimer: There are many details that the Act prescribes, please speak with your Consultant
for advice. This is not a legal opinion and should not be construed as one.
Prepared By:
CS Harsh Ranjan
Officer – CS
Wital See Marketing Limited
csharshranjan@gmail.com

"Officer in default" Under Companies Act 2013

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"Officer in default" Under Companies Act 2013