Discuss the liability of executive and non-executive directors for fraud committed by the Managing Director of the company which came to their notice during a Board Meeting.

Executive directors are typically hands-on in day-to-day operations and are often aware of system loopholes, making them susceptible to suspicion of fraud. However, non-executive directors (NEDs) and independent directors (IDs) cannot escape responsibility merely by virtue of their position. Section 2(60) of the Companies Act, 2013 , defines an 'officer who is in default' to include 'every director' in respect of a contravention of the provisions of the Act (including Section 447 for fraud) who consented to the fraud or is aware of the contravention. Such a director can be covered within the term 'officer who is in default'. Method of Awareness: Awareness can be established by: Participating in board proceedings without objecting to the fraud. Receipt of proceedings of the board (minutes). The question arises whether 'board papers' also constitute awareness. If an ID receives bulky board papers containing financial statements that might hint at fraud, can they be expected to read everything and thus be deemed 'aware'? This is a point of contention. Resignation: Resignation might seem like an immediate recourse for an NED, but it does not absolve them from liability. The proviso to Section 168(2) of the Companies Act, 2013 , clearly states that a director who has resigned shall be liable even after his resignation for offences which occurred during his tenure. Role of Records: Attendance registers, board papers, and minutes become crucial: Attendance at Board Meeting: Promptly brings a director within the 'awareness' purview. Recording of Dissent: Where directors did not participate in discussion, voting, or dissented, it is relevant for affixing liability. Board Papers: Need to be concise. If efficiently compiled, they might highlight red flags for a director, prompting dissent or resignation. Secretarial Standard 1 (SS-1): Requires draft minutes to be circulated to all board members (even those who did not attend). This means proceedings are available to all, and they can be considered aware of a contravention. Detailed minutes and thorough reading by directors are essential. Therefore, if fraud committed by the MD came to the notice of executive and non-executive directors during a Board Meeting, and they did not take appropriate action (like dissenting, reporting, or ensuring it was recorded), they could be held liable as 'officers in default' under Section 2(60) read with Section 447.