The Ministry of Corporate Affairs (‘MCA’) issued a Circular dated March 2, 2020 on the initiation of prosecution or internal adjudication proceedings against independent directors and non-executive directors (who are not promoters or key managerial personnel (‘KMP’) of a company). The Circular reiterates the position that the liability of independent directors or non-executive directors (not being promoters or KMPs) is limited to: (a) acts, omissions, and commissions by a company which occurred with his/her consent or connivance; and (b) instances where he/she failed to act diligently. It also provides certain procedural safeguards against initiation of prosecution proceedings against such directors, such as:

 i.     Ordinarily, whole-time directors or KMPs (associated with day-to-day functioning of a company), are liable for defaults committed by the company. In their absence, director(s) who have expressly given their consent for incurring liability for maintenance, filing and distribution of accounts or records in Form GNL–3, may be held liable for any non-compliance in this regard;

ii.     Civil or criminal proceedings must not be initiated against independent directors or non-executive directors, without sufficient evidence of their involvement in lapses of decisions of the board or its committees; and

iii.    If there are doubts regarding their liability, guidance may be sought from MCA, in which case, proceedings will be initiated only with the sanction of MCA. In cases where prosecution documents may have already been filed, without the criteria above having been met, the matter may be submitted to MCA for examination and further direction.