2023 (1) TMI 883 - HC - Companies Law

Validity of prosecution against the petitioner/director - post held by the petitioner on the date of filing the report - Non-furnishing of furnish fullest information and explanation by the Board of Directors in their Director s report with respect to the Auditors in their report on Balance Sheet for the year ending on 31st March, 2014 - rejection of prayer of the petitioner for discharge, inter alia, on the ground that the proceedings being Summons triable he is not empowered to direct discharge of the accused persons. What post was being held by the petitioner on the date of filing the report? - main contention of the petitioner is that he was not attached to the company in the financial year 2013-2014 and as such he is not liable in any manner what so ever - HELD THAT - An Additional Director is a director having the same powers, responsibilities and duties as other directors. The only difference between them is regards to their appointing authority and their term of office - Though appointed on a temporary basis, an additional director is vested with the same powers of a director. Moreover, they are subject to all obligations and limitations of a director. They are also entitled to seek appointment as a permanent director at the Annual General Meeting. The additional director must utilize his/her powers in the best interest of the company and the shareholders. Many people claim that the ROC knows about this director, as the company had already filed DIR 12 at the time of his appointment as additional director. So, following regularization DIR 12 is not required to be filed, which is absolutely a wrong understanding. Since he is now a director, and not an additional director. Therefore, ROC must be informed by filing a new DIR 12 that the additional director has been regularized as a director in the Company - additional directors are on equal footing, in terms of, of power, rights, duties, and responsibilities, as other directors are. Yet, tenure of additional director is up to the date of forthcoming AGM unlike directors which are duly appointed by shareholders in the general meeting. If the company wishes to continue with an additional director beyond the AGM, then it will have to go for his/her regularization. Whether the petitioner is responsible/liable for the offence alleged? - HELD THAT - In the present case the petitioner as seen from the documents was an Additional Director on the date the board report was filed. To counter the same evidence is required to be adduced during trial so also to decide as to whether the petitioner at the relevant time of filing the report was a Director, Additional Director or an Independent Director. The responsibility of an Additional Director being the same as that of a director (but different from an independent director) they remain responsible, as the statute provides for the same - Thus to quash the proceedings by exercising this Courts inherent powers would amount to an abuse of the process of Court and would also amount to serious miscarriage of justice. Application dismissed.

Issues Involved:
1. Quashing of proceedings under Section 217(5) of the Companies Act, 1956.
2. Liability of the petitioner as an independent director.
3. Interpretation of the petitioner's role and responsibilities.
4. Applicability of General Circular No. 1/2020.
5. Abuse of process of Court.

Detailed Analysis:

Issue 1: Quashing of Proceedings under Section 217(5) of the Companies Act, 1956
The petitioner sought to quash the proceedings in Case No. CS/0108647/2016 pending before the Learned Metropolitan Magistrate, 10th Court at Kolkata. The complaint alleged that the Board of Directors of M/s Mani Square Limited failed to furnish the fullest information and explanation in their Director's report concerning the Auditor's report for the year ending on 31st March 2014, resulting in a violation of Section 217(3) of the Companies Act, 1956. The competent authority issued instructions to launch prosecution for this violation.

Issue 2: Liability of the Petitioner as an Independent Director
The petitioner argued that he was appointed as an independent director of M/s Mani Square Limited with effect from 2nd June 2014 and was not associated with the company during the financial year ending on 31st March 2014. Therefore, he contended that he should not be held liable for the alleged violations. The petitioner's appointment and resignation details were provided, showing he joined as an independent director on 2nd June 2014 and resigned on 31st December 2016.

Issue 3: Interpretation of the Petitioner's Role and Responsibilities
The court examined the petitioner's role, noting that he was invited to join the Board on 2nd May 2014 and gave his consent on 6th May 2014. Form DIR-12 indicated he was an "Additional Director" and "Independent" category. The petitioner's resignation was filed using Form DIR-11, showing his tenure from 30th September 2014 to 31st December 2016. The court considered the petitioner's claim that he was an independent director and not responsible for the board report filed on 5th September 2014.

Issue 4: Applicability of General Circular No. 1/2020
The petitioner referenced the General Circular No. 1/2020 from the Ministry of Corporate Affairs, which advised against unnecessary criminal proceedings against independent directors and non-executive directors. The court noted that the petitioner's role as an additional director from 2nd June 2014 to 30th September 2014 made him liable for the alleged violations, as the board report for the financial year 2013-2014 was filed on 5th September 2014.

Issue 5: Abuse of Process of Court
The court deliberated on whether the continuation of proceedings against the petitioner amounted to an abuse of the process of the court. It was argued that the petitioner was not involved in the day-to-day affairs of the company and did not attend board meetings or sign the disputed report. The court referenced the Supreme Court's rulings on corporate criminal liability, emphasizing that directors could be held liable only if there was sufficient evidence of their active role and criminal intent.

Conclusion:
The court concluded that the petitioner was an additional director at the time the board report was filed and thus prima facie liable for the alleged offences. The court determined that quashing the proceedings would amount to an abuse of the process of the court and dismissed CRR 1752 of 2020. All connected applications were disposed of, and interim orders, if any, were vacated. The court directed that a copy of the judgment be sent to the learned Trial Court for necessary compliance.

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