Introduction
Every company has certain responsibilities and compliances which need to be followed. For this, the company appoints an officer who is responsible in case of any default of such compliances. The designation of such an officer, who shall be held liable to any penalty or punishment in case of default committed by the company, is set out under the Companies Act, 2013 ("Act").
Section 2(60) of the Act defines "Officer in Default". It states that officers such as a Whole-Time Director, Key Managerial Personnel ("KMP"), Directors, etc. (as defined in the Act), can be appointed as an Officer in Default.
However, where such an officer is not yet appointed, the Board of Directors ("Board") may pass a Board Resolution to appoint a Director as the Officer in Default. Further, such appointment has to be informed to the Registrar of Companies ("RoC") by filing Form GNL-3 with the Ministry of Corporate Affairs ("MCA") within thirty days of passing the Board Resolution.
Liability in Case of Default
- The working directors (viz. Managing Director, Whole-time Director, Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO"), Company Secretary) are responsible for all the activities of the company, including its compliances.
- In case the company does not have any working directors, then all directors of the company are liable for all non-compliances under the Act.
In other words, in the absence of any working directors, all directors of the company are held liable for all non-compliances under the Act. This can result in huge monetary penalties for all directors of the company.
Case Laws
In Ravindra Narayanan v. Registrar of Companies,[1] the High Court of Rajasthan held that directors are Officer in Default only where the company does not have a Managing Director, Whole-time Director, or Manager.
This concept has been followed by the Gujarat High Court in Kalpesh Dagli v. State of Gujarat and Another,[2] wherein the Assistant Registrar of Companies had carried out an inspection of the company under Section 290A of the Act. During this inspection, it was found that the company had not maintained the register and index of members, i.e. the details of shareholders such as their names, folio number, date of appointment and date of cessation. It was held that since the company had a Managing Director, Whole-Time Director, and Manager, there could not be any prosecution against the petitioner, who was an ordinary director of the company, as he could not then be the Officer in Default.
Conclusion
An Officer in Default is essentially appointed so that all officers of the company act in the best interest of the company and its stakeholders, perform their duties in good faith, and are made more responsible for the actions of the company. In case, despite this, there is any default by the company, the Officer in Default is held liable. Generally, a company appoints a Managing Director, Whole-time Director, CEO, CFO or Company Secretary as the Officer in Default. Where none of these positions are occupied, a director is held liable for the default, after being designated as the Officer in Default.
[1] (1994) 14 CLA 323 (Raj). [2] (2012) 111 CLA 116 (Guj).
Disclaimer: The content of this article is intended to provide general guidance on the subject matter. Specialist advice should be sought about your specific circumstances.