2019 (1) TMI 1387 - HC - Companies Law

Defaulting director of a Vanishing Company - Restrictions / Penalties imposed by the SEBI - Non-executive director, not holding any share - Held that - It is apparent from the averments made in the petition that the petitioner cannot be held as a defaulting director of a vanishing company. In this view, the petition is allowed and respondent no.1 is directed to remove the petitioner s name as a defaulting director of a Vanishing Company , including from the list as published on its website. However, if the respondent no.1 is of the view that there is material to indicate that the petitioner is an officer in default, it will be open for respondent no.1 to issue a separate show cause notice indicating the material on which such a view is premised and take an appropriate decision after hearing the petitioner. All contentions of the parties in this regard are reserved.

Summary

Issues:
Petitioner reflected as defaulting director of a 'Vanishing Company' despite evidence of resignation and absolution of allegations.

Analysis:
The petitioner, a market analyst with extensive experience, was erroneously listed as a defaulting director of a 'Vanishing Company' by respondent no.1. The petitioner joined the company as a Non-Executive Director in 1993 and resigned in 1995. Annual returns confirmed his resignation, and SEBI issued show cause notices due to the company's non-compliance with listing agreements. A criminal case was filed against the company, leading to its classification as a vanishing company in 2016. The petitioner contested this classification, emphasizing his limited role as a non-executive director during the alleged defaults.

SEBI accepted the petitioner's representation, revoking the adverse directions against him. Despite this, respondent no.1 continued to list the petitioner as a defaulting director. The petitioner's grievance was further validated when a court in Ahmedabad rejected a complaint against the petitioner under the Companies Act in 2018. The petitioner's name remained on the defaulting director list due to the Ministry of Corporate Affairs' actions, as confirmed by a letter from the Deputy Registrar of Companies.

Upon review, the High Court found no basis to hold the petitioner as a defaulting director of a vanishing company. Consequently, the court directed respondent no.1 to remove the petitioner's name from the defaulting director list. However, the court allowed respondent no.1 to issue a separate show cause notice if they believed the petitioner was an officer in default, providing an opportunity for the petitioner to respond. The judgment concluded with each party bearing their own costs, bringing closure to the matter.