2011 (1) TMI 1201 - HC - Companies Law

Appellant guilty under section 454(5) of the Companies Act, 1956 - failed to file Statement of Affairs without reasonable excuse, complaint was moved by the Official Liquidator Held that -It is patent that if there is reasonable excuse, a person may not be held guilty under section 454(5) of the Act.

Summary

Issues:
- Appeal against the order holding the appellant guilty under section 454(5) of the Companies Act, 1956 and imposing a fine of Rs. 50,000.
- Nominee Director's liability under the Act.
- Reasonable excuse defense under section 454(5) of the Act.

Analysis:

1. Appeal against the order holding the appellant guilty under section 454(5) of the Companies Act, 1956 and imposing a fine of Rs. 50,000:
The case involved an appeal against the order of a learned Single Judge holding the appellant guilty under section 454(5) of the Companies Act, 1956, and imposing a fine of Rs. 50,000. The company in question was ordered to be wound up, and the Official Liquidator issued a notice under section 454 of the Act to the concerned persons, including the appellant, for failing to file a Statement of Affairs without reasonable excuse. The appellant contended that as a nominee Director, nominated by a financial institution, he should not be held liable for prosecution. The Court considered the appellant's defense and the lack of evidence showing his involvement in the day-to-day affairs of the company. The Court found that there was no finding that the appellant was concerned with the company's day-to-day affairs and set aside the impugned order against the appellant.

2. Nominee Director's liability under the Act:
The appellant argued that as a nominee Director nominated by a financial institution, he should not be held liable for prosecution under section 454(5) of the Companies Act, 1956. The appellant cited provisions under the State Financial Corporations Act, 1951, and a Government of India letter stating that criminal prosecution against a nominee Director of a financial institution required proper scrutiny and approval. The appellant emphasized that he was not involved in the day-to-day affairs of the company and did not possess any assets or documents. The Court considered previous judgments on the liability of nominee Directors and concluded that the appellant, in this case, could not be held guilty under section 454(5) of the Act due to the lack of evidence of his involvement in the company's affairs.

3. Reasonable excuse defense under section 454(5) of the Act:
The Court highlighted the importance of establishing a reasonable excuse for not filing a Statement of Affairs under section 454(5) of the Companies Act, 1956. In this case, the Court noted that there was no finding that the appellant was involved in the day-to-day affairs of the company or possessed relevant information or documents. The Court emphasized that without evidence of the appellant's involvement in the company's affairs, the impugned order holding the appellant guilty under section 454(5) of the Act could not be sustained. Consequently, the Court allowed the appeal and set aside the order against the appellant.

This detailed analysis of the judgment provides insights into the legal reasoning and considerations that led to the decision in each issue raised in the case.