provision

this section deals with provision for unlimted liability for directors, managers of limited co.

S. 322. Directors, etc. with unlimited liability in limited company.- (1) In a limited company, the liability of the directors or of any director ¹[ * * * * ] or manager may, if so provided by the memorandum, be unlimited.

(2) In a limited company in which the liability of a director , ²[* * * ] or manager is unlimited, the directors, ³[* * * * *] and the manager to the company and the member who proposes a person for appointment to the office of director , ²[* * * *] or manager, shall add to that proposal a statement that the liability of the person holding that office will be unlimited; and before the person accepts the office or acts therein, notice in writing that his liability will be unlimited, shall be given to him by the following or one of the following persons, namely, the promoters of the company, its directors , ⁴[* * * * *] or manager, if any, and its officers.

(3) If any director , ²[* * * *] manager or proposer makes default in adding such a statement, or if any promoter, director , ²[* * * *] manager or officer of the company makes default in giving such a notice, he shall be punishable with fine which may extend to ⁵[ten thousand rupees] and shall also be liable for any damage which the person so appointed may sustain from the default; but the liability of the person appointed shall not be affected by the default.

NOTES

Eng. Act, 1948 Sec. 202 Previous Act: Sec. 70

Eng. Act, 1985 Sec. 306

Companies (Amendment) Act, 2000 (w.e.f. 13-12-2000)

Following changes have been made by the Companies Amendment Act, 2000:

(1) The terms "managing agents, secretaries and treasurers" in sub-sections (1), (2) and (3) have been omitted by the Amendment Act, 2000. The amendment is of consequential nature.

(2) Penalty enhanced.- The Amendment Act of 2000 enhanced the penalty amount from Rs. 1,000 to Rs. 10,000 under sub-section (3).

Penalty for failure to give notice to directors of unlimited liability [sub-section (3)]

Where liability of a director or manager is proposed to be unlimited, the person who proposes a person for the appointment as a director or manager is required to add a statement to that proposal to the effect that the liability of the director or manager would be unlimited. A notice in this behalf is required to be given to the director or manager. Failure to do so attracts penalty of fine which may extend to Rs. 10,000.

Compoundable Offence.-The offence is compoundable under section 621-A.

Secretarial Practice Notes : Directors etc., with unlimited liability

Check whether the memorandum provides for unlimited liability of directors or manager and whether any such appointment was made? If so, check that:

(i) the requisite statement was added to the proposal at the time of appointment;

(ii) the requisite notice was given before the person accepted the office or acted thereon;