Directors are not to be liable for certain FI defaults, says DCA

Our Economy Bureau
20 January 2003

New Delhi: The Department of Company Affairs (DCA) has now clarified that default of privately-placed bonds or debentures or debt instruments by public financial institutions (PFIs) will not be considered as default to disqualify directors as prescribed under the Companies Act.

“The department has been receiving representation from PFIs on the issue. This clarification is in continuation with our earlier clarification on the disqualification of directors under Section 274(1)(g) of the Companies Act, 1956,” say DCA officials.

Last year, the department had clarified that nominee directors appointed on the boards of public companies and other concerns assisted by PFIs are exempted from the provisions of Section 274(1)(g).

This section states that a director of a public company, which has defaulted in filing annual accounts and returns, is disqualified to be appointed as a director of other public companies for a further period of five years from the date on which the public company has defaulted.

A similar disqualification is attracted when the company defaults in repaying the deposits or interests thereon on due date or in failing to redeem its debentures on due date or in the payment of dividends.

DCA had also clarified that nominee directors appointed on the boards of public companies or assisted companies by the central or state governments and banking companies are also exempted from this clause.