I am a director and cheque signing authority of a pvt ltd company but not involved in day to day management. I am not happy with the financial management of the company which is being done by one of the co signatories who is naking independent decisions. I do not want to resign as signatory at this moment as there is dispute in the company and if I resign it will completely de stabilise the company. Can I get a financial release indemnity from the other co signatory and is such a relase valid?. Is there a format for the same
From Sri Lanka, Kelaniya
Partner - Risk Management
Legal Analyst, Hrm
+1 Other

I do not know what law applies in Sri Lanka. You need to refer to your company act, income tax act and related laws to determine what is the requirements

In Indian law,

All directors are jointly and severally liable for unpaid taxes and other statutory dues for the period the person is a director. The liability persists after resignation also but for the period prior to resignation

In case of fraudulent transactions, the law holds all directors responsible and liable unless the director was not involved in the business and did not represent himself as representing the company

For any bounced cheque, the director would be liable as authorised signatory or as the person signing the cheques

Universally, the laws are designed to hold that If the director signs cheques he can not claim to be not involved in the business. Further any release or indemnity is only internal and does not operate as a shield against a third party. Meaning that you can counter sue the company to reimburse you for the loss or payment but you can't tell an outsider that you have indemnity so he shouldn't sue you.

You better speak to a local lawyer familiar with corporate law of your country to understand your rights.

From India, Mumbai
This seem to be a reasonable analysis applicable to you. Please read and understand the same (I got it from a google search)

From India, Mumbai
Dear DRJK,

In addition to the observation of Shri Saraswat Banerjee, I may point out that company laws are almost identical in every country that lay equal responsibilities on Directors of the company working on behalf of the company, which is declared as an artificial person and a separate legal entity. So, whatever transactions are made for and on behalf of the company, all the directors are made responsible jointly, equally and severally. So according to any company law, no immunity can be granted to any of the directors from any responsibility.

Further, a cheque signing authority is not merely a nominal signatory of the cheque just to fill in the blank. The theme behind opening of a joint account and making more than one signatory is to ensure that no illegitimate and illegal transaction is made for and on behalf of the artificial body, the company. Each signatory has to play its own role to counter-check with reference to the approvals, invoices, vouchers and other supporting documents, whether the funds of the company are being used legitimately for and in the interest of the company or not, and also that any fraudulent withdrawal or unapproved and undesirable expenditure is not made.

So, as per legal position, no immunity is granted to any cheque signing authority. So, there is no scope to get a financial release indemnity from the other co signatory as such a release, even if made, will be invalid in law.

From India, Delhi
I see our poster has not even logged in to see the replies that have come in .....
However, let me add another point i just discussed with a lawyer.
Under the torts and common law, if there is a case / allegation against a director on account of his being a member of the board of the company, for an action or failure of the company (not for failure of his personal responsibility), the company is supposed to defend the case in the court and pay the cost of the case. So, the release that the poster wanted is already there in law. That, in case the director is sued, the company is required to pay / reimburse

From India, Mumbai
Thank you very much for the very useful replies. Actually the company I am referring to is an Indian private limited company,incorporated in India. I am just temporarily resident in Sri lanka
From Sri Lanka, Kelaniya
I wish you had clarified things earlier.
Well in your case, as a director, you are responsible for how the company runs, what decision it makes, statutory dues and taxes and any financial irregularities like cheque bouncing.
You being a signatory ensures that you can't pretend to be unaware of the decisions. If you don't agree with it, refuse to sign the cheque.
No financial release works against a third party. You will still be liable in a court or any preceding. At best, it's an internal arrangement stating you will be reimbursed in case any personal penalty is imposed

From India, Mumbai
Is there a format for such a release at least for internal arrangement and for reimbursing against personal liablity. will greatly appreciate if it is available
From Sri Lanka, Kelaniya
There is no format as such
You can make an agreement stating the circumstances in which company will reimburse you the cost of any liability imposed on you by a court or government authority.
But we come to the second part of the problem
With whom will you sign the agreement ?
You can not sign it with the company it's self. You are a director, so companies actions are mostly on your direction. Any such agreement would be to protect your self against action taken or allowed by you. So it would be unenforceable in court.
You can sign it with the other shareholders and directors, providing therein that they will ensure you get reimbursed and protected. It would be in the form of a shareholder agreement
A better option may be taking a Director & Key Manager Liability insurance cover.

From India, Mumbai
Customised agreement should be preferred to serve your purpose. Otherwise, no way to legally shun your responsibility.
From India, Delhi

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