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What is directors and officers’ liability insurance under companies act, 2013

QuestionsCategory: Directors & Officers Liability InsuranceWhat is directors and officers’ liability insurance under companies act, 2013
default avatarPlan Cover Staff asked 3 years ago
1 Answers

Best Answer

default avatarSrinivasan Mahadevan answered 3 years ago
Directors and officers can mitigate the risk of personal liabilities on them through various safeguards. But, the most ideal, and cost-effective mechanism is they obtain the “Directors and Officers Liability” insurance. This will help the directors to safeguard themselves in case of any claim arising from any third party due to their bonafide actions in the company.
The new Companies Act, 2013 imposes stricter civil and criminal penalties on the directors and officers, and has broadened the statutory duties of a Director to act in their best interest not only towards the company, but also the shareholders, employees and community. 
A person is appointed as a director under the Companies Act, however, their liabilities as a director are not limited to the offences committed under the Companies Act. Some examples of liabilities that can be imposed against Directors and Officers are:

  • Section 166 of the Companies Act, 2013, mentions about the fiduciary duties of the directors which includes that the director should not act in a manner to create any undue advantage either to himself or to any of his relative.
  • Statutory Liabilities (set forth in Companies Act) – This kind of liabilities are statutory in nature. Government authority can initiate a legal proceedings against directors. 
  • Non filing of statutory documents, RoC can impose penalty on directors and company.
  • Fraudulent business conduct and all associated debts. 
  • Class action suit” – Section 245 of the Companies Act, 2013 allows a group of shareholders constituting a minimum of 100 shareholders or those holding 10% shares in the company to bring an action on behalf of all affected parties, which includes claims for compensation from directors for any fraudulent, unlawful or wrongful act or omission or misconduct on their part. an insurance broker licensed by IRDAI has been supporting technology startups, small and medium businesses, not for profit companies and large companies with tailor made D&O liability insurances.