2022 (7) TMI 15 - HC - Companies Law

Appointment of Additional Director - it is alleged that pursuant to the Board Minutes, the petitioner no.1/Company had appointed Mr. Bakshi as an Independent Director and made an incorrect declaration in the aforesaid Form DIR-12 that Mr. Bakshi was appointed as Additional Director - Section 149 of the Companies Act - HELD THAT - It is clear that the court concerned has not disclosed in the impugned order as to how he satisfied about prima facie case against the accused persons and what are the grounds for proceeding against the accused persons. The said order is not only very cryptic but also does not reflect that he has applied his mind. The order has been passed in a very casual and routine manner. Needless to say that the well settled principle of law is that the final purpose of a criminal proceeding is to secure justice and to prevent the abuse of process of law. The subsequent documents along with the resolutions if taken at its face value makes, it is abundantly clear that Mr. Bakshi was appointed as an Additional Director and there was no intention on the part of the petitioners to appoint him as an Independent Director nor any attempt was made to project him as Independent Director . One single statement that his consent was taken as Independent Director cannot be construed that the board of Directors had actually appointed him as Independent Director and not as additional Director . Accordingly, the allegations levelled in the complaint appears to be absurd and inherently improbable and if a prudent person tests is applied then the inevitable conclusion would be that there is no chance of conviction as there is nothing to show that the alleged false statement was made knowing it to be false or any omission of material fact was made knowing it to be material in order to deceive someone or to gain any undue advantage from the company or it s share holders or it s creditors, in order to attract the relevant sections. The ultimate conclusion is that if the present proceeding is allowed to be continued in view of the aforesaid facts and circumstances of the case, that will be an abuse of process of court because the allegations levelled in the complaint is absurd and inherently improbable in view of the documents available in the record including the Annexures - Application allowed.

Summary

Issues Involved:
1. Quashing of Complaint Case No. 14 of 2018.
2. Alleged incorrect declaration regarding the appointment of Mr. Bakshi.
3. Applicability of Sections 149, 447, and 448 of the Companies Act, 2013.
4. Mens rea or guilty mind as an essential ingredient for Sections 447 and 448.
5. Abuse of process of court.

Detailed Analysis:

Issue 1: Quashing of Complaint Case No. 14 of 2018
The revisional application sought to quash the Complaint Case No. 14 of 2018 filed before the 2nd Special Court, Kolkata. The court issued summons to the petitioners/accused persons based on the complaint filed by a public servant and documents on record.

Issue 2: Alleged Incorrect Declaration Regarding the Appointment of Mr. Bakshi
The petitioners argued that Mr. Bakshi was appointed as an "Additional Director" and not as an "Independent Director," as erroneously recorded in one sentence of the Board Minutes. The petitioners provided multiple pieces of evidence, including Form DIR-12 and the letter dated 9th December 2014, to substantiate their claim that the error was inadvertent and typographical.

Issue 3: Applicability of Sections 149, 447, and 448 of the Companies Act, 2013
The petitioners contended that Section 149 pertains to the appointment of directors, specifically "Independent Directors," which was not applicable since Mr. Bakshi was appointed as an "Additional Director" under Section 161. They argued that the provisions related to "Independent Director" under Section 149 were not triggered.

Issue 4: Mens Rea or Guilty Mind as an Essential Ingredient for Sections 447 and 448
The petitioners emphasized that Sections 447 and 448 require a false statement to be made "knowing it to be false" or an omission of material fact to be made "knowing it to be material." They argued that the typographical error did not constitute fraud or false statement with intent, as required by these sections.

Issue 5: Abuse of Process of Court
The court noted that the order dated 14.12.2018 did not disclose how the court was satisfied about a prima facie case against the accused persons. The order was deemed cryptic and did not reflect the application of mind, as established in the case of Pepsi Foods Limited vs. Special Judicial Magistrate. The court observed that the allegations were absurd and inherently improbable, with no evidence of intent to deceive or gain undue advantage.

Conclusion:
The court concluded that allowing the proceedings to continue would be an abuse of the process of the court, as the allegations were inherently improbable and lacked essential ingredients for Sections 447 and 448. Consequently, CRR 493 of 2019 was allowed, and all proceedings in Complaint Case No. 14 of 2018 were quashed. There was no order as to costs.