Section 378T Companies Act 2013 - Liability of Directors
Section 378T forms part of the statutory framework governing the management of Producer Companies under the Companies Act, 2013. It imposes personal financial consequences on directors in specified circumstances and protects the Producer Company against loss, damage, or improper profit arising from a contravention.
Meaning and Scope of Section 378T
The provision applies when directors participate in or approve conduct that is contrary to the Companies Act, 2013, any other law for the time being in force, or the articles governing the Producer Company.
The section provides for joint and several liability for loss or damage suffered by the Producer Company. It also expressly enables the company to recover an improper profit made by a director or the amount of loss or damage caused by the contravention.
Section 378T - Liability of Directors
(1) When the directors vote for a resolution, or approve by any other means, anything done in contravention of the provisions of this Act or any other law for the time being in force or articles, they shall be jointly and severally liable to make good any loss or damage suffered by the Producer Company.
(2) Without prejudice to the provisions contained in sub-section (1), the Producer Company shall have the right to recover from its director -
(a) where such director has made any profit as a result of the contravention specified in sub-section (1), an amount equal to the profit so made;
(b) where the Producer Company incurred a loss or damage as a result of the contravention specified in sub-section (1), an amount equal to that loss or damage.
(3) The liability imposed under this section shall be in addition to and not in derogation of a liability imposed on a director under this Act or any other law for the time being in force.
Joint and Several Liability of Directors
Sub-section (1) uses the expression "jointly and severally liable". In the context of Section 378T, the statutory obligation is imposed on directors who vote for or otherwise approve the relevant contravening action.
The liability is directed towards making good the loss or damage suffered by the Producer Company as a result of the contravention.
When Can Liability Arise Under Section 378T?
Section 378T(1) identifies the underlying contravention broadly. The relevant resolution or other approved act may contravene:
Recovery of Profit Made by a Director
Under Section 378T(2)(a), where a director has made a profit as a result of the contravention referred to in sub-section (1), the Producer Company has the right to recover an amount equal to the profit made by that director.
Recovery of Loss or Damage
Section 378T(2)(b) provides that where the Producer Company has incurred loss or damage as a result of the contravention, it has the right to recover an amount equal to that loss or damage from the director.
Liability Under Other Provisions Is Not Excluded
Section 378T(3) makes clear that the liability created by this section is additional. It does not displace or reduce any other liability that may be imposed on a director under the Companies Act, 2013 or another law for the time being in force.
Practical Effect of Section 378T
Section 378T therefore operates as a statutory accountability provision for the directors of a Producer Company. Directors who vote for or otherwise approve conduct falling within sub-section (1) may face the financial consequences specifically prescribed by the section.
For a particular transaction or Board decision, the provision should be read together with the articles of the Producer Company, the other applicable provisions of the Companies Act, 2013, and any other law governing the transaction.
Legislative Background
Section 378T was inserted into the Companies Act, 2013 by the Companies (Amendment) Act, 2020 and came into force on 11 February 2021. It forms part of the provisions governing Producer Companies.