2013 (10) TMI 894 - HC - Companies Law

Proceedings against the additional director who has resigned before the AGM but his resignation was not accepted by the company - Relieving the Additional Director from the Proceedings Held that - Even before the next Annual General Meeting of the Company the petitioner tendered his resignation resigning his Additional Directorship - But there was no document to show that such a resignation was accepted - The acceptance of such resignation before the Annual General Meeting of the Company would have caused termination of his tenure as Additional Director with effect from the date of resignation - Thereafter, he cannot be held responsible for any of the defaults committed by the Company or by the Directors of the Company. If the respondent chooses to make him responsible for any lapse or default committed by the Company or its Directors before the petitioner ceased to be an Additional Director, then the respondent shall be wholly justified in doing so - It was also obvious from the records that for the show cause notice the petitioner had issued a suitable reply stating that he should not be held responsible for the lapses on the part of the Company or the Directors after he ceased to be an Additional Director of the Company - As the same was not accepted by the respondent, the petitioner had approached the Court by way of present petition - the show cause notice shall be ineffective as against the petitioner and the petitioner shall be relieved of the proposed proceedings based on the aforesaid show cause notice - the Company Petition was allowed and the respondent was directed to relieve the petitioner wholly from the proceedings sought to be initiated pursuant to the show cause notice issued by the respondent.

Summary

Issues:
Petitioner seeking relief from proceedings based on a show cause notice issued by the respondent. Interpretation of the Companies Act 1956 regarding the appointment and tenure of Additional Directors. Determining the liability of the petitioner for defaults committed by the Company after ceasing to be an Additional Director.

Analysis:
The petitioner filed a Company Petition under Section 633 (2) of the Companies Act 1956, requesting relief from proceedings initiated by a show cause notice issued by the respondent. The petitioner contended that he was co-opted as an Additional Director by the Company's Directors in 1996 but resigned before the next Annual General Meeting in 1997. The respondent argued that since no Form-32 was filed regarding the petitioner's resignation acceptance, he was still responsible for filing statutory returns. The Court considered the submissions and documents, finding that the petitioner was not a regular Director but an Additional Director appointed until the next Annual General Meeting as per Section 260 of the Companies Act.

The Court highlighted that the tenure of an Additional Director ends with the next Annual General Meeting unless appointed as a regular Director. Even without resignation, the petitioner's tenure as an Additional Director would have ended by the subsequent Annual General Meeting date. The petitioner claimed to have resigned before the 1998 Annual General Meeting, but lack of acceptance documentation did not affect the legal termination of his directorship. The Court emphasized that the petitioner cannot be held liable for Company defaults post his Additional Director tenure expiration, as evidenced by his response to the show cause notice.

Consequently, the Court concluded that the show cause notice against the petitioner was ineffective, and he should be relieved from the proposed proceedings. The Company Petition was allowed, directing the respondent to exempt the petitioner from actions based on the show cause notice. No costs were awarded, and the connected Company Application was closed. The judgment clarifies the legal position on Additional Director appointments and their tenure under the Companies Act, ensuring fair treatment of individuals in corporate governance matters.