India Development News & Foreign Investment Opportunities

Nominee directors must have understanding for responsibilities

Govt decriminalizing offences 

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Govt decriminalizing offences

Nishith Desai Associates
Vivek Kathpalia.

 

 

Nominee directors of foreign joint venture partners and investors on the board of Indian companies have been recommended to get full understanding of their duties and responsibilities as there is increased regulatory scrutiny and prosecutions with the government undertaking a massive clean-up act.

The guidance was given by experts from Nishith Desai Associates, the law firm at a seminar held in Singapore on 15 Oct 2019.

“The government is recently trying to de-criminalize various offences under the companies law. However, till this is done, minor violations could give rise to risk of serious consequences for directors.” said Vivek Kathpalia, head of the Nishith Desai Associates in Singapore which handles international businesses venturing into India and advices on business disputes.

“The sophistication of prosecution agencies has improved over the years, along with their powers under law. Simply asserting that one was unaware or that auditors did not raise any red flags may not safeguard the director from prosecution or liability.” cautioned Ashish Kabra, who leads the disputes practice of Nishith Desai in Singapore and is an expert on handling multinational corporations’ cases in India and Singapore.

He cited various instances where directors have been jailed or are being prosecution for having connived or pleaded ignorant when questioned about their responsibilities in cases involving malfeasance, frauds and money laundering.

Speaking at a seminar on “Director Liability in India”, both Kathpalia and Kabra gave insights into challenges of ensuring the directors are not taken “for a ride” by a promoter driven management especially regarding financial matters.

Whilst explaining various practical situations which investor or other nominee directors may encounter and steps which the directors should take upon encountering or suspecting fraud, Kabra pointed out, that resignation from the board may not always be a solution.

The experts highlighted the importance of director and officer liability insurance and said that most directors do not even have copies of their insurance policy.

They stressed that whilst India remains an attractive proposition for foreign investors, being caught in the web of prosecuting agencies could leave a sour taste.

The Indian government is undertaking various measures to resolve the burgeoning NPAs and to clean up the banking sector. This has resulted in detection of multiple frauds.

Thus, in the current environment, it is critical that directors of companies act cautiously and know their duties and responsibilities. fiinews.com

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