OFFICER IN DEFAULT

If a Company made default in compliance of the applicable legal provisions, who will be held responsible for it? Officers in default. Who are the officers in default? As per section 5 of the Companies Act, 1956 following persons are defined as officers in default:

(i)                 the managing director or managing directors;

(ii)               the whole-time director or whole-time directors;

(iii)             the manager;

(iv)               the secretary means the Company Secretary;

(v)                any person in accordance with whose directions or instructions the Board of directors of the company is accustomed to act;

(vi)              any person charged by the Board with the responsibility of complying with that provision:

(vii)            Provided that the person so charged has given his consent in this behalf to the Board;

(viii)          where any company does not have any of the officers specified in clauses (a) to (c), any director or directors who may be specified by the Board in this behalf or where no director is so specified, all the directors:

If a person has been charged with the responsibility of complying provisions the ROC/MCA shall be informed about this by filing Form 1AB.

To give more clarity about the position of nominee directors, independent director, director appointed by the government and in case no director has been named as managing director or so, MCA issued a master circular dated 29^th July, 2011.

As clarified by the MCA the nominee director if appointed by the investors and/or banks, financial institutions etc. can be saved from the liability as officer in default if mentioned so in the agreement for his appointment.

No director appointment by the government shall be an officer in default. It further clarified that a non-executive director will be an officer in default shall be determined on the basis of diligence exercised by him at the time of doing such act as per which officer in default is to be decided.

For further more details check http://www.mca.gov.in/Ministry/pdf/Circular_1-2011_28july2011.pdf

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