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2019 (11) TMI 1492 - Tri - Companies LawGrant of immunity to the newly appointed Directors - section 242(4) of the Companies Act, 2013,R/w Rule 11 of the NCLT Rules, 2016 - HELD THAT - The responsibilities/duties of Nominated Directors would arise from the date they have assumed their respective charges. The investigation conducted by SFIO has indicted the erstwhile management of the Company, which ultimately led to their removal and appointing the Nominated Directors in question. Various Civil and Criminal cases filed by and against the Company would continue to progress in respective Courts. However, personal liability still would lie against the erstwhile Management which includes its Directors, and not against Nominee Directors. It is settled position of law that a Company, which is duly incorporated as per law, is a Juristic Person, which can sue or be sued as per law. But normally it has no criminal liability and all the people, who are managing the affairs of a Company are liable to be prosecuted for the offence/violations committed in the name of a Company during the course of affairs of the Company. Therefore, fundamental duty cast upon the nominated Directors is to protect the interest of the Company and to carry out their statutory duties. It is not their legal duty of Nominated Directors to defend Civil/criminal cases instituted against the erstwhile Directors of the Company, as demanded by the erstwhile Directors in their letter dated 21st August, 2018 addressed to the Nominated Directors. The alleged frauds, committed by erstwhile Directors and other connected people, are prima facie proved during the investigation conducted by SFIO as per their report, are personal in nature and thus they have to defend those cases, as they are solely responsible for those offences and the Nominee Directors are not liable for those actions/offences. As per the extant provisions of Companies Act, 2013, and the Insolvency Bankruptcy Code, 2016 (Code), anybody aggrieved by actions taken on behalf of a Company, can approach the Authorities (NCLT) established under the above Acts, by seeking appropriate remedy rather than any other Court/Tribunal. An aggrieved party can file an Application/Petition before Adjudicating Authority constituted under extant provisions of Code, by seeking to initiate CIRP, which includes liquidation of the Company, on the ground that it has become commercially insolvent. In case, proceedings are initiated under the Code, the Adjudicating Authority (NCLT) is empowered to impose moratorium against initiation of any case(s) before any Court/forum. Even the Nominated Directors can file an appropriate Application/Petition under the provisions of Code, if the facts of case justify liquidating the Company, in order to avoid multiplicity of litigations against the Company. The Nominee Directors are not liable for any civil/Criminal action(s) for offence committed by the erstwhile management, which include removed Directors. Therefore, as the cases are filed against the Company and its erstwhile Directors, the nominee Directors are not proper and necessary parties to be impleaded. Since the matter falls under jurisdiction of the Tribunal, no Civil Court including Consumer Court can normally entertain any Suit or Petition in respect of the affairs of the Company. However, aggrieved parties can proceed against the erstwhile management which includes removed Directors and the Staffs, who are responsible for the offences and mismanagement committed by them. In Criminal cases too, the erstwhile Directors are liable for action but not the Nominee Directors in question The Nominee Directors cannot be impleaded or replace the erstwhile Directors of the Company in cases already filed or to be filed against the Company or its erstwhile Directors, and thus they cannot be called to appear in person before those courts and it is responsibility of the erstwhile Staff (which includes Directors) to defend their cases. However, the Nominee Directors are under legal responsibility to prosecute the cases filed by the Company, in order to protect the interest of Company - Petition disposed off.
Issues Involved:
1. Immunity for newly appointed directors from civil and criminal actions. 2. Allegations of fraud and mismanagement against the erstwhile directors of MBDL. 3. Jurisdiction of the Tribunal and civil courts. 4. Legal responsibilities of nominee directors. 5. Continuation of civil and criminal cases against the company and erstwhile directors. Detailed Analysis: 1. Immunity for Newly Appointed Directors: The Union of India sought immunity for newly appointed directors from civil and criminal actions due to actions taken by the erstwhile directors. The Tribunal emphasized that the responsibilities of the nominee directors arise from the date they assumed their charges and not for past wrongs committed by the previous management. The Tribunal clarified that nominee directors are not liable for civil or criminal actions for offenses committed by the erstwhile management. They are only responsible for protecting the company's interests and carrying out statutory duties. 2. Allegations of Fraud and Mismanagement: The Tribunal reviewed the Serious Fraud Investigation Office (SFIO) report, which found that MBDL was managed contrary to its objects and committed several civil and criminal offenses. The Union of India filed the main petition to prevent further illegalities by the erstwhile directors. The Tribunal's order dated March 14, 2019, replaced the existing management with new directors appointed by the Union of India to protect the company's property and stakeholders' interests. 3. Jurisdiction of the Tribunal and Civil Courts: The Tribunal asserted its exclusive jurisdiction over the matters in the main petition, as per Section 430 of the Companies Act, 2013, which bars civil courts from entertaining suits or proceedings related to matters determined by the Tribunal. Any aggrieved person can appeal to the Appellate Tribunal and subsequently to the Supreme Court. The Tribunal's order in the main case became final as no appeal was filed against it. 4. Legal Responsibilities of Nominee Directors: The Tribunal highlighted that nominee directors are not responsible for defending civil or criminal cases against the erstwhile directors. Their fundamental duty is to protect the company's interests and perform statutory duties. They are not liable for personal offenses committed by the previous management. The Tribunal emphasized that nominee directors should assist courts with company records if required but are not to be impleaded in cases against the company or its former directors. 5. Continuation of Civil and Criminal Cases: Civil and criminal cases against the company and its erstwhile directors will continue in respective courts. The Tribunal clarified that personal liability lies with the erstwhile management, not the nominee directors. The Tribunal directed that nominee directors should not be impleaded in ongoing or future cases against the company or its former directors. They are only to assist courts with available records and are exempt from personal appearance in such cases. Conclusion: The Tribunal disposed of the application with specific directions: 1. Nominee directors cannot be impleaded or replace erstwhile directors in ongoing or future cases. 2. Nominee directors should inform courts about this order and request exemption from personal appearance. 3. Nominee directors should take appropriate actions based on the SFIO report to address the company's affairs.
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