D&O liability insurance gains currency with passage of Companies Act

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New Companies Act clearly lays down the duties and responsibilities of directors and senior officers and thereby holds them accountable directly for the same. New Companies Act clearly lays down the duties and responsibilities of directors and senior officers and thereby holds them accountable directly for the same.
SummaryA senior official should make sure he is covered under his company's D&O Liability insurance.

The approval of the new Companies Act by the Parliament has once again brought the focus back on the Directors and Officers (D&O) Liability Insurance.

If you are a director or a senior official with a company, make sure that the company has taken a D&O Liability Insurance and you are covered under the same. A personal liability arising on account of any failure on your part in carrying out your responsibilities properly or any wrongful act committed by you in your managerial role may catch you unaware and burden you with legal expenses and sizable financial liability to be paid to the aggrieved party.

If that was something which in any case was necessary to secure yourself from any contingency of that sort, the new Companies Act that was recently approved by the Parliament makes it even more essential for companies and their employees to secure against such claims.

The Companies Act clearly lays down the duties and responsibilities of directors and senior officers and thereby holds them accountable directly for the same. It also proposes to set up a National Companies Law Tribunal (NCLT) where the aggrieved party can file their cases against the individual and seek compensation for damages. The NCLT would look into early resolution of all issues relating to mismanagement and other company-related matters.

“Since the new act clearly defines your role and expectations, you will be held accountable for any lapse on your part as you are enshrined with that task. Also with the advent of NCLT, the phase of cases being stretched for several years in civil courts will no longer be there and cases will be resolved quickly by the NCLT and financial liability may fall upon you,” said Sushant Sarin, senior vice president, commercial lines, Tata AIG General Insurance.

The Companies Act also provides a provision for class action suit where a person or a group of people, who represent the interest of a larger group, can file a suit before the court since they have common grievance. The provision which was available to investors in the US was not available

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