Part-Time Director Liability explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A penalty was imposed on a non-executive director without any finding that he was the person responsible. The Supreme Court set it aside.
The facts
In the relevant period, one M/s Modi Xerox Ltd. (MXL), made remittances abroad through its banker. The RBI issued a letter stating that M/s MXL had not submitted Exchange Control copy of the custom bills of Entry / Postal Wrappers as evidence of import of goods into India. The ED wrote to M/s MXL seeking invoices & purchase orders. M/s MXL provided some of the records, but some of the old records could not be traced.
Subsequently, an SCN was issued by the ED to M/s MXL and its Directors, one of whom is the appellant. The SCN proposed initiating adjudicating proceedings u/s 51 of the FERA r/w Sections 3, 4 and 49 of FEMA.
The appellant replied to the SCN, stating to be a part-time, non-executive director of M/s MXL and that he was never in the company's employment and had no executive role in its functioning. He also stated to never have been in charge of or responsible for the conduct of the company.
The authorities nonetheless imposed a penalty for contravening Section 8(3), 8(4) and 68 of FERA 1973, and appeals to the Appellate Tribunal and the High Court failed.
First, on the section itself. The Court held that the wordings of Section 68 of the FERA nowhere provide that all directors, irrespective of their role and responsibilities, would be guilty of contravention. When a person is proceeded with for committing an offence and is to be punished, necessary ingredients of the offence as required by Section 68 should be present.
That is the principle running through every director-liability provision, including section 149(12) of the Companies Act. Directorship is not itself the offence. The statute requires a connection between the person and the contravention, and that connection has to be found as a fact.
The Court noted the failure squarely: the penalty has been imposed without returning a finding that it was the appellant who was liable for contravention, and the Adjudicating officer did not consider the pleas of the appellant or even hold them to be untenable.
Second, on the process. Any reply submitted in response to notice must statutorily be considered u/s 51. Such reply cannot be ignored or rejected based on an erroneous assumption that such reply was furnished in an afterthought. And the reason: what is said by a person who is called for personal hearing even though given in the form of written representation required to be considered by the adjudicating officer otherwise the personal hearing shall become an empty formality and meaningless.
The Court went further on what notice must contain: a reasonable opportunity requires due communication of the allegations of contravention, and unless allegations contains complete ingredients of offence within the meaning of Section 68, it cannot be said that a reasonable opportunity for making a representation in the matter has been given.
Note also the evidential point: the affidavit of the Company Secretary is also uncontradicted, wherein it is stated that the appellant was only a part time director and was not in charge of day to day business, and nothing was put on record on behalf of the ED to disprove such pleas. The company's own records established the director's position, which is why the personal file and the record of role matter.
What the case establishes about part-time director liability
| Proposition | Authority |
|---|---|
| Directorship alone does not establish contravention | Section 68 nowhere provides that all directors, irrespective of their role and responsibilities, would be guilty |
| A reply to a show cause notice must be considered | Statutory requirement under section 51 |
| A written representation counts as what was said at a hearing | Otherwise the hearing is an empty formality |
| The notice must set out the complete ingredients of the offence | Otherwise no reasonable opportunity was given |
| An uncontradicted affidavit on the director's role stands | Nothing was placed on record to disprove it |
The practical lesson on part-time director liability
- Reply to any show cause notice in writing, in detail, and on the record.
- State the actual role — part-time, non-executive, not in charge of day-to-day business.
- Obtain corroboration from the company's own records, such as a company secretary's affidavit.
- Check whether the notice sets out the ingredients of the offence against you personally.
- Preserve the documents that establish role and attendance for each directorship.
Common mistakes
- Assuming part-time director liability follows automatically from the company's default.
- Responding informally rather than by a written representation.
- Failing to record the actual role and its limits contemporaneously.
- Not challenging a notice that does not allege the ingredients of the offence.