2013 (3) TMI 239 - HC - Companies Law

Violation of Section 297 - Non obtaining of approval of the Board of Directors of the Company in respect of contracts entered into by the company in which its directors are interested - also in case of a company having paid up capital of Rs.1 Crore and above previous approval of the Central Government is required in respect of contracts in which directors are interested which was not obtained - petitioners submits that petitioners 2 and 3 resigned from the directorship of the company on 11.8.2000 and the first petitioner resigned from the directorship from 16.8.2000 - Held that - Ongoing through Annexure A5, it is clear that the contention raised by the petitioners that they had submitted their resignations to the Company is true. Since it was the duty of the Secretary of the Company to fill up Form No.32 and to submit the same to the Registrar of Companies, the petitioners cannot be found fault with or saddled with the criminal liability for not submitting Form No.32. Since the resignations were not rejected or returned, they must be deemed to have come into effect in the year 2000 itself. If so, the prosecution initiated against the petitioners for the non-filing of returns or for any of the violations pertaining to the year 2003 and made mention of in the Inspection Report cannot be sustained. The fact that the petitioners had moved the Company Law Board long prior to the institution of these complaints would make it clear that the resignations were duly submitted to the Company. The Company had no case that the resignations were not accepted. As the petitioners had disassociated themselves from the business of the Company ever since they submitted their resignation in August 2000 as referred to earlier and as such, for the violations of non- compliance noticed in 2003, the criminal liability cannot be saddled upon the petitioners.

Issues Involved:
1. Alleged Offence under Section 217(3) of the Companies Act.
2. Alleged Offence under Section 211(7) of the Companies Act.
3. Alleged Violation of Section 297 of the Companies Act.
4. Alleged Offence under Section 193(1A) of the Companies Act.
5. Alleged Violation of Section 301 of the Companies Act.
6. Alleged Offence under Section 209(3)(b) and Section 211 of the Companies Act.
7. Alleged Offence under Section 211(7) read with Schedule VI of the Companies Act.
8. Alleged Offence under Section 285 of the Companies Act.
9. Alleged Offence under Section 217(4) read with Section 217(5) of the Companies Act.
10. Validity of Resignation of Directors and Their Liability Post-Resignation.

Detailed Analysis:

1. Alleged Offence under Section 217(3) of the Companies Act:
The petitioners were accused of not furnishing the Board's report attached to the balance sheet of the company, thus violating Section 217(3). This failure led to the initiation of criminal proceedings against them.

2. Alleged Offence under Section 211(7) of the Companies Act:
The complaint stated that the petitioners did not provide a true and fair view of the company's state of affairs in the balance sheet, violating Section 211(7). The balance sheet failed to meet the statutory requirements, making the petitioners liable for punishment.

3. Alleged Violation of Section 297 of the Companies Act:
The petitioners were accused of entering into contracts without obtaining the necessary approval from the Board of Directors and the Central Government, as required for companies with paid-up capital of Rs.1 Crore and above. This constituted a violation of Section 297.

4. Alleged Offence under Section 193(1A) of the Companies Act:
During an inspection, it was found that the proceedings in the Minutes Book of the annual general meeting and the Board of Directors' meeting were not dated, violating Section 193(1A).

5. Alleged Violation of Section 301 of the Companies Act:
The petitioners were alleged to have failed to maintain a register showing the details of contracts entered into with other companies, violating Section 301.

6. Alleged Offence under Section 209(3)(b) and Section 211 of the Companies Act:
The complaint stated that the balance sheet did not make provisions for the liability for payment of gratuity to employees, thus not providing a true disclosure of the company's state of affairs, violating Section 209(3)(b) and Section 211.

7. Alleged Offence under Section 211(7) read with Schedule VI of the Companies Act:
The petitioners were accused of misrepresenting amounts under the Suspense Account and showing non-confirmed amounts under Loans and Advances, thus failing to provide a true and fair view of the company's affairs as required by Section 211(7) read with Schedule VI.

8. Alleged Offence under Section 285 of the Companies Act:
The company allegedly did not hold any Board meetings after 30.10.2003, violating Section 285, which mandates that Board meetings be held at least once every three months.

9. Alleged Offence under Section 217(4) read with Section 217(5) of the Companies Act:
The balance sheet as of 30.10.2003 was not signed by the required persons, violating Section 217(4) read with Section 217(5).

10. Validity of Resignation of Directors and Their Liability Post-Resignation:
The petitioners argued that they resigned from their directorship in August 2000, and their resignations were submitted and accepted by the company. However, the respondent contended that the resignations were not intimated to the Registrar of Companies in Form No.32, thus the petitioners remained liable. The court examined the relevant provisions and previous judgments, concluding that the duty to submit Form No.32 lies with the company and its secretary. Since the petitioners had disassociated themselves from the company from the date of their resignation, they could not be held liable for violations occurring in 2003.

Conclusion:
The court held that the petitioners had effectively resigned from their directorship in 2000 and thus could not be held liable for the alleged violations in 2003. The prosecution against the petitioners was quashed, and the proceedings in the respective cases were dismissed.

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