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TMI Blog2017 (3) TMI 624X X X X Extracts X X X X X X X X Extracts X X X X ..... oner is the Director of Sequoia India Investment Holding which finances Vasan Health Care and by virtue thereof is a nominee independent director of Vasan Health Care, he cannot be held to be responsible for the day-to-day affairs of Vasan Health Care. Even otherwise the contentions now raised during the course of arguments and in the reply affidavits are not part of the complaints. In the complaints it is merely stated that accused No.2 to 8 are the directors of the company and have been actively participating in day-to-day affairs of the company and take all the decisions for the company. Admittedly, the petitioner is not the Managing Director of Vasan Health Care nor the signatory to the cheque. He is also not the person responsible for day-to-day functioning of Vasan Health Care. No vicarious liability can be fastened on the petitioner in the absence of specific role being attributed to the petitioner. Thus the petitions are allowed. - CRL.M.C. 3303/2016 & Crl.M.As. 14050/2016, 18100/2016, CRL.M.C. 3310/2016 & Crl.M.As. 14069/2016, 18067/2016, CRL.M.C. 3311/2016 & Crl.M.A. 14071/2016, CRL.M.C. 3312/2016 & & Crl.M.As. 14073/2016, 18068/2016, CRL.M.C. 3313/2016 & Crl.M.A. 140 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and seeks quashing of complaints as well. 2. Complaints as noted above were filed by two respondents (separately) Raja Arora and Ashok Arora against M/s. Vasan Health Care Private Limited (in short Vasan Health Care) and its Directors alleging that the complainants were the joint owners of the various built up properties which were leased out to Vasan Health Care. The terms of the lease deed between the complainant and the accused persons inter alia fixed monthly rents and a security deposit. The accused in the complaint i.e. Vasan Health Care and its Directors issued cheques towards part-payment of the monthly rents. However, when the cheques were presented, the same were dishonoured for the reason payment stopped by drawer . On the assurance of the accused persons, the cheques were represented, however they were again returned unpaid with remarks payment stopped by drawer . Legal demand notices were issued to which replies were sent. Since despite expiry of the period of 15 days after the receipt of notice, the amount was not paid, the respondents filed the complaints as noted above. 3. The two-fold contentions of learned counsel for the petitioner are that the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business of the company at the relevant time, will not be liable under the provision. The liability arises from being in charge of and responsible for the conduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company. Conversely, a person not holding any office or designation in a company may be liable if he satisfies the main requirement of being in charge of and responsible for the conduct of business of a company at the relevant time. Liability depends on the role one plays in the affairs of a company and not on designation or status. If being a director or manager or secretary was enough to cast criminal liability, the Section would have said so. Instead of every person the section would have said every director, manager or secretary in a company is liable , etc. The legislature is aware that it is a case of criminal liability which means serious consequences so far as the person sought to be made liable is concerned. Therefore, only persons who can be said to be connected with the commission of a crime at the relevant time have been subjected to action. 18. To sum u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the business of the company or make any specific allegation about consent, connivance or negligence. The very fact that the dishonoured cheque was signed by him on behalf of the company, would give rise to responsibility under Sub-section (2) of Section 141. (iii) In the case of a Director, Secretary or Manager (as defined in Section 2(24) of the Companies Act) or a person referred to in Clauses (e) and (f) of Section 5 of Companies Act, an averment in the complaint that he was in-charge of, and was responsible to the company, for the conduct of the business of the company is necessary to bring the case under Section 141(1). No further averment would be necessary in the complaint, though some particulars will be desirable. They can also be made liable under Section 141(2) by making necessary averments relating to consent and connivance or negligence, in the complaint, to bring the matter under that sub-section. (iv) Other officers of a company cannot be made liable under Sub-section (1) of Section 141. Other officers of a company can be made liable only under Sub-section (2) of Section 141, be averring in the complaint their position and duties in the company and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of directors who are nominees of government or financial institutions should also be reported but a suitable remark 'nominee director' should be incorporated. Therefore, against the names of Independent Directors and Nominee Directors, they should indicate the abbreviations Ind. and Nom respectively in brackets to distinguish them from other directors. 9. The legality and validity of the Master circular dated 2nd July, 2012 was challenged before a Division Bench of the Gujarat High Court in Ionic Metalliks v. Union of India, 2014 SCC Online Guj 10066; (2015) 2 GLH 156. The court while deciding the issue noted the categories of Directors under the Companies Act and the Listing Agreement prescribed by Securities and Exchange Board of India (in short SEBI) as: A. Classification under the Companies Act Categories of Directors The Companies Act refers to the following two specific categories of Directors: 1. Managing Directors; and 2. Whole-time Directors. A Managing Director is a Director who has substantial powers of management of the affairs of the company subject to the superintendence, control and direction of the Board in ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who is not appointed to the Board, but on whose directions the Board is accustomed to act, is liable as a Director of the company, unless he or she is giving advice in his or her professional capacity. Thus, such a shadow Director may be treated as an officer in default under the Companies Act. 6. De facto Director: Where a person who is not actually appointed as a Director, but acts as a Director and is held out by the company as such, such person is considered as a de facto Director. Unlike a shadow Director, a de facto Director purports to act, and is seen to the outside world as acting, as a Director of the company. Such a de facto Director is liable as a Director under the Companies Act. 7. Rotational Directors: At least two-thirds of the Directors of a public company or of a private company subsidiary of a public company have to retire by rotation and the term rotational Director refers to such Directors who have to retire (and may, subject to the Articles, be eligible for re-appointment) at the end of his or her tenure. 8. Nominee Directors: They can be appointed by certain shareholders, third parties through contracts, lending public fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd control of the Board). In contrast, a non-executive Director is a Director who is neither a Whole-time Director nor a Managing Director. Clause 49 of the Agreement prescribes that the Board shall have an optimum combination of executive and nonexecutive Directors, with not less than fifty percent (50%) of the Board comprising non-executive Directors. Where the Chairman of the Board is a non-executive Director, at least one-third of the Board should comprise independent Directors and in case he is an executive Director, at least half of the Board should comprise independent Directors. Where the non-executive Chairman is a promoter of the company or is related to any promoter or person occupying management positions at the Board level or at one level below the Board, at least one-half of the Board of the company shall consist of independent Directors. Independent Directors The Agreement defines an Independent Director as a nonexecutive Director of the company who: a. apart from receiving Director's remuneration, does not have material pecuniary relationships or transactions with the company, its promoters, its Directors, its senior management, or its holding c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement, or appointed by any Government, or any other person to represent its interests. 13. Further sub section 12 to Section 149 provides: Notwithstanding anything contained in this Act,- (i) an independent director; (ii) a non-executive director not being promoter or key managerial personnel, shall be held liable, only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently. 14. As has been noted above, the Petitioner was appointed as an independent non-executive nominee director in 2009 and he subsequently resigned from the company in the year 2015. In terms of Section 149(12) of the Companies Act, 2013 he shall be held liable, only in respect of such acts of omission or commission by the company which had occurred with his knowledge or consent or connivance or where he had not acted diligently attributable through Board processes. Thus specific averments are required to be made in the complaint to show that the offence was committed with the knowledge/ consent/ connivance of the Petitioner. 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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