Corporate Law Newsletter – Penalty Against Former Director Set Aside: Revisiting ‘Officer in Default’ Under Companies Act, 2013 : July 2025
Introduction
The Companies Act, 2013 (“Act”), establishes a structured compliance regime for companies imposing accountability on individuals responsible for ensuring adherence to statutory obligations. Central to this enforcement mechanism is the concept of an “officer in default”—a legal classification that permits the imposition of penalties on those who are functionally liable for a company’s defaults.
In practice, however, complications arise when enforcement is pursued without examining whether the individual was genuinely in a position of control or responsibility at the time of the contravention. This issue was brought to the attention in a notable recent adjudication before the Regional Director of the Southeast Region, where a penalty was imposed on an ex-director of a private company under Section 454 of the Act and whose association with the company had ceased nearly a decade prior to the alleged non-compliance. The case provides a reflection on what it truly means to be an “officer in default” under the Act.
1. Facts of the Case:
The case under consideration arose from an appeal filed under Section 454(5) of the Act, by the appellant Mr. Gangadharappa Munindra Kumar, in physical form vide application against the adjudication order No. ROC(B)/Adj.Ord.454-12(1)/Eaglesight/Co.No.071410/2024 dated May 22, 2024, under Section 454 read with Section 12(1) of the Companies Act, 2013 , passed by the Registrar of Companies, Bangalore for default in compliance with the requirements of Section 12(1) of the Act. A statutory notice sent to the company was returned undelivered with the postal remark “no such media this address”, prompting the RoC to conclude that the company was not operating from its registered office.
As a result, RoC initiated adjudication proceedings and imposed monetary penalties, not only on the company but also on an individual reflected in the corporate records as the director of the company, under Section 12(8) of the Act.
The individual penalised was listed in the MCA records as a director, although he had resigned nearly a decade before the alleged default period (July 2023 to March 2024). Despite not being involved with the company during the default, a penalty of ₹50,000 was imposed on him in his capacity as an “officer in default,” with no distinction drawn between his past position and current involvement.
The individual contested the order before the Regional Director under Section 454(5) of the Act, arguing that he could not be held liable for non-compliance that occurred long after his resignation. During the hearing, it was submitted on his behalf that he had resigned from the company’s board approximately a decade prior to the period of default, and that this resignation had been duly recorded in internal board documents at the time. Further, it was submitted that due to the company’s failure to file the necessary Form DIR-12 notifying his cessation as a director, he had independently filed Form DIR-11 several years later, thereby notifying the RoC of his disassociation from the company. To substantiate his claim, the appellant placed on record the following:
- Board minutes from 2014 evidencing acceptance of his resignation;
- A judicial admission from a co-director confirming the same; and
- Proof of having filed Form DIR-11 in 2019, after the company failed to file DIR-12.
Collectively, these documents demonstrated that the appellant had taken all reasonable steps to formally sever ties with the company, both internally and before the RoC.
2. Decision of the Regional Director
After considering the submissions and documentation presented by the appellant, the Regional Director allowed the appeal and set aside the penalty imposed on the appellant by the RoC. In its reasoning, the Regional Director made the following material observations:
- No ongoing association at the time of default: The appellant had conclusively demonstrated that his resignation was effected and recorded by the company nearly a decade prior to the period during which the non-compliance occurred. Thus, he could not have been responsible for ensuring maintenance of the registered office during the default period.
- Regulatory filings supported by conduct: Although Form DIR-12 had not been filed by the company to reflect the resignation, the appellant had taken proactive steps by filing Form DIR-11 in 2019. His efforts to notify the authorities independently were considered as evidence of good faith and diligence by the Regional Director.
- Admissions by a co-director: The judicial admission made by another director of the company during civil proceedings further strengthened the appellant’s claim of having resigned long before the period of default.
- Liability must be rooted in actual responsibility: The Regional Director noted that attributing liability merely on the basis of name entries in MCA records, without determining the individual’s actual involvement, is not legally tenable. Directors can only be penalised where they were genuinely in charge or responsible at the time the contravention occurred.
Accordingly, the penalty of ₹50,000 was quashed as the appellant could not be regarded as the officer-in-default under the Act. The Regional Director also directed that any further action concerning non-payment of the penalty be initiated against the company and its current management.
3. Who is an “Officer in Default”?
The Act incorporates a detailed and functional definition of the term “officer who is in default” under Section 2(60). The provision identifies a range of individuals who may be held accountable for non-compliance, including:
- Whole-time directors;
- Key managerial personnel;
- Persons under whose instructions the board is accustomed to act;
- Officers expressly designated by the board as responsible for specific compliances;
- Any other person responsible for maintenance or filing of records under the Act.
To attract liability under this provision, two thresholds must typically be satisfied:
- The person must have held office at the time when the contravention occurred.
- The person must have been actively involved in or responsible for the compliance function connected to the default
his definition recognises that not every officer or director should be automatically saddled with liability. Instead, it adopts a functional approach, focusing on whether the person had actual responsibility, authority, or control at the time the default occurred.
Conclusion
This case serves as an important reminder of how enforcement under the Act must be fact-driven and context-specific, particularly when it comes to fixing personal liability on individuals as “officers in default.” The Regional Director’s decision underscores the principle that such liability cannot rest solely on outdated MCA records or historic designations, but must be based on actual control, responsibility, and involvement during the period of default.
For directors and professionals, the decision highlights the need to maintain proper documentation of resignations, including board approvals and statutory filings. Where a company fails to file Form DIR-12, a resigning director must take the initiative to file Form DIR-11, thereby notifying the Registrar independently and protecting themselves from future exposure.
The case also reaffirms the value of appellate remedies under Section 454(5), which can be effective in correcting misdirected penalties. More broadly, it encourages regulators to adopt a functional and fair approach when assessing director liability—one that balances enforcement with procedural justice and ensures that accountability is not imposed in a mechanical or arbitrary manner.
