2009 (1) TMI 923 - HC - Companies Law

Summary

Issues involved: Conviction and sentencing of Directors of a company in liquidation under Sections 454(5), 538(1)(c), and 541(1) of the Companies Act.

Summary:

Issue 1: Immunity under Section 27(3)(b) of the SFC Act
The appellants, Directors of the company in liquidation, claimed immunity from prosecution under Section 27(3)(b) of the State Financial Corporations Act, as they were nominated by financial institutions. The Court analyzed the scope of Section 27, emphasizing that the appointment of Directors by financial institutions is primarily to protect their interests. It was noted that such Directors are not involved in routine management tasks but are responsible for safeguarding the financial institution's interests. The Court held that Directors appointed by financial institutions cannot be held liable for acts or omissions not done in good faith, but can be prosecuted for any such actions.

Issue 2: Failure to file statement of affairs (Section 454(5))
The Court found that the nominee Directors appointed by financial institutions were not responsible for filing the statement of affairs before the Official Liquidator, as their role was to protect the financial institution's interests. Therefore, the appellants were granted immunity from proceedings under Section 454(5) of the Companies Act.

Issue 3: Failure to maintain statutory registers (Section 541(1))
The Court determined that the duty to maintain statutory registers, books of accounts, and records specified in the Companies Act falls on employees and Directors involved in regular management, not on nominee Directors of financial institutions. Hence, the appellants were not held liable for offences under Section 541(1) of the Companies Act.

Issue 4: Failure to hand over books of accounts (Section 538(1)(c))
Regarding the allegation of failure to hand over books of accounts to the Official Liquidator, the Court ruled that since the nominee Directors appointed by financial institutions were not in control of these documents, they could not be held accountable for such actions. The Court concluded that the offences alleged were not applicable to the appellants as nominee Directors, and therefore, their conviction and sentencing under Sections 454(5), 538(1)(c), and 541(1) of the Companies Act were deemed unauthorized. The appeals were allowed, and the impugned orders of the Company Court were set aside.