Director standing surety to outsider - Instructions to directors not to expose themselves to risk of standing sureties for accused persons - Companies Law - Circular : No. 37/75

Circular : No. 37/75 [14/5/74 ‑ CL ‑ V], dated 17 ‑ 1 ‑ 1976. Subject:-Director standing surety to outsider - Instructions to directors not to expose themselves to risk of standing sureties for accused persons Recently a case came to the notice of Government where a director of a public limited company stood surety for an outsider against whom prosecution was launched by Government and a bailable warrant of arrest was issued by a court in this country. The matter has since been examined in detail and this Department is of the view that the action of the company s director in furnishing the company s surety to an outsider, i.e., one not connected with the company administrative structure, is ultra vires the company. The directors of companies are hence advised that they should not expose themselves and the companies of which they are directors to the risk of standing sureties in the circumstances described for accused persons. This Department is of the view that by doing so the directors may be held personally liable for having acted outside the scope of the company s authority and in a manner prejudicial to the interests of the companies concerned.