2012 (10) TMI 551 - HC - Companies Law

Prosecution of Nominee Director - Winding up Proceedings u/s 454 - Held that - It is not for the Official Liquidator to adopt a pick and choose policy; he is a statutory body and must maintain transparency. As decided by Court in case of Jamna Datwani v. Official Liquidator 2012 (3) TMI 160 - DELHI HIGH COURT No prosecution has been launched against the appellant as He is only acting to represent the Bank and is not actively involved in working and day to day affairs of co. like attending Meetings,access to Books etc. Held that - Appellant being only a nominee Director of the Bank and had resigned four years prior to the date of initiation of the winding up proceedings. She had no access to the records of the company and admittedly not having signed even a single document on behalf of the company, no useful purpose would be served in continuing with the prosecution - No Criminal poceeding can be initiated against her - prayer made in the application is allowed and She is accordingly discharged - in favour of appellant.

Issues Involved:
1. Applicability of Section 454 of the Companies Act, 1956.
2. Liability of a nominee director under Section 454.
3. Impact of resignation and filing of Form 32 on liability.
4. Relevance of Government Circulars and precedents.
5. Role and discretion of the Official Liquidator.

Issue-wise Detailed Analysis:

1. Applicability of Section 454 of the Companies Act, 1956:
Section 454 mandates the submission of a statement of affairs to the Official Liquidator by directors and officers of the company. The objective is to facilitate speedy administration in winding up and to enable the liquidator to ascertain the assets and liabilities of the company. The section applies to persons who are or have been officers of the company, those involved in the formation of the company within one year before the relevant date, and those in employment capable of providing the required information.

2. Liability of a Nominee Director under Section 454:
The court examined whether a nominee director, who was appointed to protect the interests of a financial institution, could be held liable under Section 454. It was argued that nominee directors do not partake in the company's management and thus should not be held liable. However, the court noted that Section 2(13) of the Companies Act defines a director broadly, including any person occupying the position of director. Consequently, no distinction is made between a nominee director and other directors regarding the liability to file a statement of affairs.

3. Impact of Resignation and Filing of Form 32 on Liability:
The applicant had resigned from the company in 1999, and Form 32 was filed with the Registrar of Companies, indicating her resignation. The winding-up proceedings were initiated in 2003, and the company was wound up in 2004. The court emphasized that since the applicant was no longer a director at the relevant dates, she could not be held liable under Section 454. The court also noted that the applicant had no access to the company's records post-resignation, making it unreasonable to expect her to file the statement of affairs.

4. Relevance of Government Circulars and Precedents:
The petitioner referred to Government Circulars (General Circular No. 08/2011 and Master Circular No. 1/2011) which direct proper application of mind in deciding whether a person can be implicated as an 'officer in default.' The court also considered precedents like Mother Care (India) Ltd. v. Prof. Ramaswamy P. Aiyar and K. Subramony Kerala Financial Corpn. v. D.L. Malabar Phyto Chemicals Ltd., which supported the view that nominee directors appointed to protect financial institutions' interests should not be held liable for filing the statement of affairs.

5. Role and Discretion of the Official Liquidator:
The court highlighted that the Official Liquidator must exercise discretion and not adopt a pick-and-choose policy. The court noted that another nominee director, Mr. S.P. Nagarkatte, was not prosecuted, indicating inconsistency in the liquidator's approach. The court concluded that since the applicant had resigned well before the winding-up proceedings and had no access to company records, continuing prosecution against her would be futile.

Conclusion:
The court allowed the application for discharge, ruling that the applicant, a nominee director who had resigned four years before the winding-up proceedings, could not be held liable under Section 454 of the Companies Act, 1956. The court emphasized the need for consistency and reasonableness in the Official Liquidator's actions.

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