The Supreme Court’s recent direction restraining directors of a firm from alienating their personal properties may impinge on the concept of limited liability, industry body FICCI said today.

In a statement, the industry chamber asserted that while all those who transgress the bounds of law should be legitimately punished under the law of the land, violating the principle of ‘limited liability’ can have negative consequences for entrepreneurship and business development in India.

The Supreme Court recently directed 13 directors of embattled realty firm Jaiprakash Associates Limited not to alienate their personal properties and asked the company to pay up Rs 275 crore by December end “like a good kid”.

The apex court’s direction that the directors shall not alienate their or their family members’ personal properties in any manner implies freezing of their assets.

“The latest direction of the Supreme Court restraining promoters of an Indian company from alienating personal properties in a matter pertaining to a corporate litigation comes as part of a series of such judicial pronouncements that may impinge on the concept of limited liability as defined by law,” FICCI said.

Give due regard

The chamber observed that apart from giving due consideration to the principle of limited liability, judicial pronouncements should also give due regard to the difference between secured and unsecured liabilities.

“FICCI hopes that as a respected and hallowed institution the judiciary would pay due attention to the economic consequences of judicial pronouncements,” Sanjaya Baru, Secretary General, FICCI, said.

Limited liability may be explained as a type of liability that does not exceed the amount invested in a partnership or a limited liability company.

This implies that while a shareholder can participate wholly in the growth of a company, his or her liability is restricted to the amount of investment made in the company, even if it subsequently goes bankrupt and has remaining debt obligations.

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