2018 (12) TMI 1884 - HC - Companies Law

Order of refund some of its FDR (Fixed Deposit Receipts) of 17 investors within 30 days - non-compliance with the order - HELD THAT - From the conspectus of the facts it appears that the petitioner has no role in the allegations leveled against him. The post on which the petitioner was appointed as Director of the Company seems to be a mere paper arrangement only and unquestionably his tenure is of approximately four months i.e. from 07.11.2013 to 06.03.2014. Assuming that the petitioner has in fact taken some decisions as per the say of the respondents there is nothing to show that he had attended any Board Meetings as a Director or otherwise or he has formed any committee or has taken any decision during his tenure of three months by exercising powers of Director. No material is produced on record to show that the petitioner in fact had participated in any of the Board Meetings or had appointed any Committee as envisaged in Section 292 of the Act. As per section 283(1)(g) of the Act the petitioner would seize to function as a Director as he did not attend the Board Meetings for a period of three months. In the affidavit filed by the respondents in the aforenoted writ petition it is admitted that the tenure of the petitioner was from 07.11.2013 to 06.03.2014. Thus in absence of any material against the petitioner depicting his involvement in the affairs of the Company it can be safely presumed that there was no role played by the petitioner in any capacity in taking any decisions which would attract the offences alleged against him in the impugned criminal cases. This Court is of the considered opinion that the criminal cases filed by the Registrar of the Companies are liable to be quashed and set aside by invoking the inherent and extraordinary powers of this Court under Section 482 of the Code of Criminal Procedure in order to prevent the abuse of process of Court - Petition allowed.

Summary

Issues Involved:
1. Compliance with the Company Law Board order.
2. Validity of the petitioner's directorship and involvement in the company's affairs.
3. Procedural irregularities and governance failures in the prosecution.
4. Applicability of Article 20(2) of the Constitution of India.
5. Misrepresentation of the petitioner's status by the Registrar of Companies (RoC).
6. Legal principles regarding company matters and individual liability.

Issue-wise Detailed Analysis:

1. Compliance with the Company Law Board Order:
The primary allegation against the company was its failure to comply with the Company Law Board's order dated 13.10.2014, which directed the company to refund some of its Fixed Deposit Receipts (FDR) of 17 investors within 30 days. The RoC claimed that the company did not comply with this order, leading to the prosecution.

2. Validity of the Petitioner's Directorship and Involvement in the Company's Affairs:
The petitioner argued that he had no nexus with the company, as he was neither a promoter, shareholder, nor an employee. He was included in the Board of Directors on 07.11.2013 through deceptive means and had a theoretical tenure of 3 months, during which he did not attend any Board meetings. Under Section 283(1)(g) of the Companies Act, 1956, his position was automatically vacated due to non-attendance. He also resigned effectively on 06.03.2014.

3. Procedural Irregularities and Governance Failures in the Prosecution:
The petitioner contended that the criminal cases were based on an inspection report dated 07.07.2015, conducted 15 months after his resignation. The inspection observations were not attributable to his tenure. The petitioner highlighted serious procedural irregularities, including blanket sanctions given by the Ministry of Corporate Affairs (MCA) and the Regional Director, North Western Region, MCA, before show cause notices were issued. The RoC, Gujarat, allegedly prosecuted the petitioner without examining his prosecutability.

4. Applicability of Article 20(2) of the Constitution of India:
The petitioner argued that his prosecution by RoC, Gujarat, for the same matter in which he was exonerated by SEBI violated Article 20(2) of the Constitution of India, which prohibits double jeopardy. The SEBI had already investigated the Non-Convertible Debenture (NCD) matter and exonerated the petitioner, and the Securities Appellate Tribunal (SAT) had quashed SEBI's impugned order against him.

5. Misrepresentation of the Petitioner's Status by the RoC:
The petitioner claimed that the RoC maintained incorrect records for 3.5 years, showing him as a sitting Managing Director/Director of the company, which was used to prosecute him frivolously. The court noted that the petitioner's tenure was from 07.11.2013 to 06.03.2014, and he did not attend any Board meetings during this period, leading to automatic vacation of his office under Section 283(1)(g) of the Companies Act.

6. Legal Principles Regarding Company Matters and Individual Liability:
The petitioner relied on the Supreme Court's judgment in Anneta Hada Vs. Godfather Travels and Tours, which held that in a company matter, if the company is not arraigned as an accused, an individual cannot be held as an accused, making such cases non-maintainable. The court observed that there was no material evidence showing the petitioner's involvement in the company's affairs or any decisions taken by him during his tenure. The SEBI had already exonerated the petitioner in relation to the NCD matters.

Conclusion:
The court concluded that the criminal cases filed by the RoC were liable to be quashed due to the lack of evidence against the petitioner and the procedural irregularities in the prosecution. The court invoked its inherent and extraordinary powers under Section 482 of the Code of Criminal Procedure to prevent the abuse of the process of the court. The writ petition was allowed, and the rule was made absolute.