2009 (8) TMI 691 - HC - Companies Law

Non filing of Annual return - punishment for default on petitioner s/accused No. 3 - Held that - In spite of the fact that the petitioner communicated a letter to the respondent that he resigned from the accused-company as early as on 13-3-1998, the respondent had not taken his resignation into consideration. Thus Considering the facts and circumstances of the case, the court feels that due to non-application of mind by the respondent the petitioner has been arrayed as the third accused in EOCC No. 114 of 2007 on the file of Additional Chief Metropolitan Magistrate s Court, Egmore, Chennai. Hence, the court is warranted to interfere with the proceedings in EOCC No. 114 of 2007, and quash the same as against the petitioner/third accused alone. Criminal original petition allowed.

Summary

Issues:
- Quashing of criminal case against the petitioner based on resignation as a director.
- Interpretation of liability of directors under the Companies Act, 1956.
- Application of legal precedent in determining liability post-resignation.

Analysis:

The judgment revolves around a criminal original petition filed to quash EOCC No. 114 of 2007 under the Companies Act, 1956. The respondent alleged that accused directors failed to file balance-sheets and profit/loss accounts, constituting an offense under section 162 of the Act. The petitioner, accused No. 3, contended that as a non-executive director who resigned in 1998, he should not be held accountable for subsequent violations in 2006. The petitioner had responded to previous show-cause notices post-resignation, emphasizing his disassociation from the company's affairs. The petitioner presented evidence, including resignation documents, to support his claim.

The petitioner relied on a Bombay High Court judgment to argue that a director who resigns and has the resignation accepted by the board cannot be liable for company liabilities post-resignation, except for specific circumstances. Despite the petitioner's communication of resignation in 1998, the respondent did not consider this information, leading to the petitioner being wrongly implicated as the third accused in the criminal case. The court observed a lack of due diligence by the respondent in assessing the petitioner's resignation and concluded that the petitioner should not be held accountable for the alleged offenses.

In light of the facts and circumstances, the court intervened to quash the proceedings against the petitioner alone, emphasizing the need for a proper evaluation of the petitioner's resignation and non-involvement in the company's affairs post-resignation. The criminal original petition was allowed, with directions for the learned Magistrate to expedite the case's disposal within six months. The judgment underscores the importance of considering directorial liabilities in accordance with resignation dates and board acceptance, highlighting the need for meticulous assessment before implicating individuals in corporate offenses.