The companies Act 2013 Is enacted by parliament in the 64th year of the republic. It is an act to strengthen and amend the laws relating to companies. The act came into effect on 12th September 2013 across India. The new act has a few amendments, implementation of some sections, and repealed the related corresponding sections of the companies act, 1956. The 2013 companies act have lesser sections (470) to the previous 1956 act sections (658). The new act provides more significance for corporate governance and empowers shareholders. Under this act, corporate companies are comprised of certain objects and purposes so companies cannot go beyond the provided limitations. Therefore this act has imposed criminal as well as civil liabilities on the companies. This article provides an insight into the civil liabilities of the corporation under the companies act 2013.
CORPORATE CIVIL LIABILITIES :
As we all know that the company is liable (I.e legally obligated) for the acts perpetrated by employees of the companies. A corporation doesn’t possess a mind, body, soul, or brain of its own.
It has to perform through directors, employers, and other officers. A corporate company executes only those aspects which are incidental to the accomplishment of specific objectives which has been established under the law. The memorandum of associations and companies which are registered under the companies act 2013 contains certain purposes and objects.
so the companies cannot execute anything beyond the boundaries. If a corporation enforces any activity beyond its objective clause is ultra vires. Thus, the corporation follows neither its own will nor its own interest. Therefore, the directors of the company represent the interest of shareholders which means the interest of the corporation. Besides this, the law grants an artificial legal personality on a corporation that confers rights, obligations, and provisions. Following, The acts done by the corporation can be sued or can be sue, and also it owes criminal as well as civil liabilities. The civil liability imposed on the corporation through the vicarious and tortious liability. And consequently, the corporate civil liability imposed through the Companies Act, 2013. The liability of the corporation has been made under the statutory provisions and in the interest of justice and equity by the court.
What is a vicarious liability and tortious liability?
Vicarious liability holds Employer liable for the unlawful negligent or purposeful tort actions of their employees, while they are functioning in the course of their employment. Only the person who commits the act would be liable. The corporation would be liable for the acts of the employees committed in the course of employment( I.e principal of agency ). In addition, the Latin maxim of “Qui facet alium facet per se” (i.e he who acts through another does the act himself) further strengthens the principle of vicarious liability.
What is a corporate civil liability?
The Corporate Civil liability is the obligation to redeem for physical injury or tangible or intangible loss that may be caused to a third party by the company’s belongings or staff, over the course of work finished. Under section 35 of the companies act 2013, if any person in the issuance of a prospectus which contains misstatements has given to the protection of the companies and then obtained any damage or loss, the director of the company at the time of the issuance of the prospectus, the promoter of the company and any person mentioned in prospects would be liable for compensation of any loss suffered.
And every person who
(a) is a director of the company at the time of the issue of the prospectus;
(b) has authorized himself to be named and is named in the prospectus as a director of the company, or has agreed to become such director, either immediately after an interval of time;
(c) is a promoter of the company;
(d) has authorized the issue of the prospectus; and
(e) is an expert referred to in sub-section (5) of section 26, shall without prejudice to any punishment to which any person may be liable under item 36, be liable to pay compensation to every person who has suffered such loss or damage.
(2) No person shall be liable under sub-section (1) if he proves—
(a) that, having consented to become a director of the company, he withdrew his consent before the issue of the prospectus, and that it was issued without his authority or consent; or
(b) that the prospectus was issued without his knowledge or consent, and that on becoming aware of its issue, he forthwith gave a reasonable public notice that it was issued without his knowledge or consent.
(3) Notwithstanding anything contained in this section, where it is proved that a prospectus has been issued with the intent to defraud the applicants for the securities of a company or any other person or for any fraudulent purpose, every person referred to in subsection (1) shall be personally responsible, without any limitation of liability, for all or any of the losses or damages that may have been incurred by any person who subscribed to the securities on the basis of such prospectus.
NOTE: The section conforms to section 62 of the companies Act 1956 and strives to provide civil liabilities misstatements or misleading statements in the prospectus.
The directors of companies must be aware while handling the matters of the company and negligence to withstand by the provisions of the companies act 2013 which may lead to huge penalties to the individual as well as the company either in the form of civil or criminal. The directors of the company must make sure the utmost transparency in his litigations. Hence, the new act imposed various provisions to incorporate the liabilities of corporations.