Directors of a company take decisions collectively. Of course, some Directors and officers are entrusted with the responsibility of managing the day-to-day affairs of the Company. Contravention of any provision of an applicable law creates a criminal offence. Knowingly or unknowingly, Directors and officers become liable to bear the consequences of such offences. Where the default is wilful or offences occur knowingly, Directors and officers have no other go except to undergo the punishment prescribed in the relevant laws or rules or regulations. However if such offences occur due to their ignorance or negligence, the pain will be more. Therefore it is essential to look at the penal provisions under various economic legislations so as to understand not only the liability of the Directors and officers but also that of the company for the acts of its Directors and officers.
Very recently in a grave matter pertaining to a corporate hospital in Kolkata by name AMRI, where over 90 people suffocated to death in the December 9, 2011 fire tragedy, 9 Directors and four employees were arrested, of whom only an octogenarian director [in whose name the hospital's license was given], was granted bail by a lower court on medical grounds and due to his age. On Friday, the 17th February 2012, the Calcutta High Court had granted bail to another senior director who had pleaded that he had not attended any board meeting of this Company at all in 2011. The offence involving criminal negligence has reportedly arisen from blatant flouting of building rules and fire safety norms.
It is generally accepted proposition that when Directors of a company discharge their duties as per the responsibility undertaken by them / entrusted with them, they are supposed to be acting for on and behalf of the company. Therefore such acts are deemed to be acts of the company itself. In such situations, company is deemed guilty and is usually held vicariously liable though but for such notional extension of liability, it is agreed that a company can act only through natural persons and therefore cannot be held vicariously liable for the acts of commission and omission by its Directors and officers.
Offences involving criminal liability are supposed to be best avoided by taking appropriate measure (a) to understand the applicable provisions of law and compliance requirements therein; (b) to appoint a particular officer and entrust with him the responsibility for compliance; (c) to review the compliance system periodically; (d) to note amendments and legislative changes and new laws, rules and regulations applicable to the business of the company; and (e) to ensure that an external company secretary with requisite experience and expertise carries out an audit of compliances in the form of a compliance management audit so that gaps could be sealed and future complications could be avoided.
