Reimbursement of the expenses to managing director, etc., in connection with criminal cases instituted against them from funds of companies ‑ Whether permissible - Companies Law - No. 8/72(12)/42/71‑CL‑V,

Circular : No. 8/72(12)/42/71 ‑ CL ‑ V, dated 8 ‑ 5 ‑ 1972. Subject- Reimbursement of the expenses to managing director, etc., in connection with criminal cases instituted against them from funds of companies ‑ Whether permissible It has been brought to the notice of the Department that companies sometimes place funds at the disposal of their managerial personnel for defending themselves in criminal proceedings instituted against them. In this connection a reference is invited to the provisions of section 201 which specifically provides that any provision, whether contained in the articles of a company or in an agreement with a company or in any other instrument, for exempting any officer of the company or any person employed by the company as auditor from, or indemnifying him against, any liability which, by virtue of any rule of law, would otherwise attach to him in respect of any negligence, default, misfeasance, breach of duty or breach of trust of which he may be guilty in relation to the company, shall be void. It has also been laid down in the proviso to sub‑section (1) of the said section that a company may, in pursuance of any such provision, indemnify any such officer or auditor against any liabilities incurred by them in defending any proceeding, whether civil or criminal, in which judgment is given in his favour or in which he is acquitted or discharged or in connection with any application under section 633 of the Act in which relief is granted to him by the court. Thus, it is not permitted to a company to make its funds available to the managing directors, etc., in connection with any civil or criminal case instituted against them unless they are found by a competent court to be innocent and the question of reimbursement will arise only after the termination of the proceeding in favour of the officers of the company concerned.