2023 (5) TMI 395 - HC - Companies Law

Liability of Independent Director who was retired before the date of offence - additional director regularized as a director in the Company - Post being held by the petitioner on the date of filing the report - petitioner is responsible/liable for the offence alleged or not. What post was being held by the petitioner on the date of filing the report? - HELD THAT - Form No. DIR 11 clearly shows that on the date of resignation (30.12.2016) the petitioner was the Director of the Company. As seen from the portal, the petitioner was an Additional Director from 02.06.2014 to 30.09.2014. Inspite of being shown on the portal as Additional Director /Director the petitioner did not lodge any complaint with the Ministry about the alleged wrong information. There is no case that the petitioner had filed any objection to the said wrong information (as alleged) on the portal. Whether the petitioner is responsible/liable for the offence alleged? - HELD THAT - 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 - Moreover, 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. 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 difficult 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. Revision 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 the General Circular No. 1/2020 regarding prosecution of independent directors.
5. Judicial decision on mixed questions of fact and law.

Issue-wise Detailed Analysis:

1. Quashing of Proceedings under Section 217(5) of the Companies Act, 1956:
The petitioner sought to quash the proceedings in Case No. CS/0108645/2016 pending before the Metropolitan Magistrate, Kolkata, under Section 217(5) of the Companies Act, 1956, including orders dated 06.09.2016, 21.12.2016, and 13.03.2020. The complaint alleged that the Board of Directors of M/s Mani Square Limited failed to provide the fullest information and explanation in their Director's report concerning adverse remarks in the Auditor's report for the financial year ending 31st March 2014. The petitioner contended that he was appointed as an independent director only from 2nd June 2014, after the financial year in question.

2. Liability of the Petitioner as an Independent Director:
The petitioner argued that he was not liable for the alleged violations as he was appointed after the financial year ending 31st March 2014. He joined as an independent director on 2nd June 2014 and resigned on 31st December 2016. The petitioner emphasized that the alleged violation pertained to a period before his appointment, thus making the prosecution against him untenable.

3. Interpretation of the Petitioner's Role and Responsibilities:
The court examined the petitioner's role, noting that he was invited to join as an independent director and his consent was acted upon by the company. The petitioner's designation was recorded as "Additional Director" from 2nd June 2014 to 30th September 2014, and as "Director" from 30th September 2014 to 31st December 2016. The court considered whether the petitioner, as an additional director, had the same responsibilities and liabilities as other directors. The court noted that additional directors have the same powers, responsibilities, and duties as other directors, despite being appointed on a temporary basis.

4. Applicability of the General Circular No. 1/2020 Regarding Prosecution of Independent Directors:
The petitioner referred to the General Circular No. 1/2020, which directs that unnecessary criminal proceedings should not be initiated against independent directors and non-executive directors. The petitioner argued that the learned Magistrate failed to consider this circular and rejected his discharge petition mechanically.

5. Judicial Decision on Mixed Questions of Fact and Law:
The court highlighted that determining the petitioner's liability involved mixed questions of fact and law, which required judicial decision by the Trial Court. The court noted that the petitioner's absence from Board meetings and whether his case fell within exceptions provided in Section 217(5) of the Companies Act, 1956, or the General Circular No. 1/2020 needed to be adjudicated during the trial.

Conclusion:
The court concluded that the petitioner, as an additional director at the time of filing the Board report, prima facie became liable for the alleged offences. The court emphasized that quashing the proceedings would amount to an abuse of the process of court and a miscarriage of justice. Therefore, the petition to quash the proceedings was dismissed, and the case was directed to proceed in the Trial Court for a detailed examination of the petitioner's role and responsibilities. The court ordered that all connected applications stand disposed of, and any interim orders stand vacated.

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