Liabilities under the Companies Act

The following duties and liabilities have been imposed on the directors of companies under the Companies Act −


Any misstatement in the prospectus of a company or failure to state any particulars in the prospectus of a company, according to the prerequisites of the section 56 and schedule II of the Companies Act, 1956, will result in liability of the directors.

●      The directors will be personally liable for the above mentioned defaults and will compensate for any damage or loss taken by the third party.

●      According to section 62 of the Companies Act, 1956, if any loss is faced by a shareholder due to untrue or misleading statements in the prospectus of a company, then the directors will be held liable and will have to compensate for the loss.

With Regard to Allotment

●      The directors of a company are also considered liable if they conduct irregular allotments. Irregular allotment may be either allotment before minimum subscription is received or filing a copy of the statement in the prospectus of the company.

●      A director may be held liable to the company and compensate for any loss faced by the company if he fully authorizes the contravention of any of the provisions of section 69 or 70 of the Companies Act, 1956, with respect to all allotment.

Failure to Repay Application Money when Minimum Subscription Having Not Been Received within 120 Days of the Opening of the Issue

According to section 69 (5) of the Companies Act, 1956, and in compliance with SEBI guidelines, if the application money is not repaid with in 130 days, the directors will beheld severally liable and will have to pay the money with six percent annual interest on and after the completion of the 130th day. However, a director can be saved from beingliable if he can prove that the default in repayment is not a result of his misconduct or negligence.

Failure to Repay Application Money when Application for Listing of Securities Is Not Made or Is Refused

If the permission for lifting of shares has not been granted, the company shall repay all the money received from all the applicants pursued by the prospectus without any interest.

The company and its directors may be held liable if the money is not paid back within eight days. On completion of the eighth day, the company and its directors have to pay the money back with four percent to eight percent interest to the applicants. The rate of interest will be directly proportional to the delay in time.

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