Wednesday, September 11, 2013

Importance of Dissenting Note in Companies Act 2013

The Companies Act 2013 privides immunity to an independent director in respect of the acts of ommission or commission by the company only if he/she had acted diligently, had no knowledge of such acts because there was no possibility of those coming to his/her notice through the board process and had not consented to or connived in such acts. One of the duties of the independent directors as par the Code For Independent Directors (Schedule IV to the Companies Act 2013) is to ensure that unresolved concern is recorded appropriately in the minutes of the meeting. Therefore, if an independent director fails to ensure that his/her dissent is recorded in the minutes, it will be assumed that he/she had consented to such acts.

It is important for independent directors to act diligently and to get dessent, if any, recorded in the minutes. Those who do not go through the minutes diligently and considers approval of the minutes a routine item in board meetings will expose themselves to reputation risks and risks for being penalised for acts of ommission or commission of the company. If, most independent directors are risk-averse, these provisions will go a long way to reduce corporate fraud. However, there might be indpendent directors who are not that risk averse. Unscrupulous companies shall endeavour to identify those individuals for their induction in the Board. They may even informally agree to compensate them if liability arises in future.

Let us hope that most indeependent directors are risk averse.

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