A listed company I’m invested in is now facing fraud prosecution, and I wanted to know if this was a shareholder’s complimentary coupon to Tihar.
Do Ordinary Shareholders Face Liability in Company Fraud? (Indian Law Explained)
A common concern among retail investors is whether they can be held personally liable if a listed company is involved in fraud. Under Indian law, the answer is generally no.
Limited Liability of Shareholders
Ordinary shareholders in a listed Indian company do not face personal liability or criminal prosecution for corporate fraud. Their financial exposure is limited to the loss in the value of their shares, as provided under the Companies Act, 2013. Simply holding shares does not make an investor responsible for the company’s misconduct.
Who Can Be Prosecuted for Fraud?
Fraud-related provisions, particularly Section 447 of the Companies Act, are aimed at individuals who are actually responsible for the wrongdoing—such as directors, promoters, key managerial personnel, or anyone who knowingly participated in or aided the fraud. Passive investors are outside the scope unless there is clear evidence of intent or active involvement.
Piercing the Corporate Veil
Courts may “lift” or pierce the corporate veil only in exceptional circumstances, such as when a company is a sham entity or where there is fraudulent trading (for example, under Section 339). Even in these cases, liability is typically fixed on those controlling or managing the company, not on ordinary retail shareholders.
Practical Takeaways for Investors
Retail shareholders are protected by the principle of limited liability.
Remedies for shareholders include class actions, regulatory complaints, or proceedings before SEBI.
The real legal and fiduciary risk lies with directors and promoters, not passive investors.
There are no known recent cases (including Eraaya-related matters) where general shareholders were held personally liable.
In short, unless a shareholder is actively involved in fraudulent conduct, Indian law does not expose them to personal liability for corporate fraud.