9911796707
TMI Blog2009 (1) TMI 923X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Sri. C.K. Mony appearing for the Official Liquidator. 2. The specific case of the appellants is that they were full time employees of the financial institutions by name Kerala Financial Corporation Ltd. and Kerala State Industrial Development Corporation Ltd. and were nominated by these Corporations to the Board of Directors of the company in liquidation in terms of Section 27 of the State Financial Corporations Act, 1957 (hereinafter called the SFC Act ) and therefore, they enjoy immunity from the alleged offences under Section 27(3)(b) of the said Act. Consequently their prosecution and punishment for offences punishable under the Companies Act are unauthorised is their contention. Counsel appearing for the Official Liquida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding anything to the contrary contained in the Companies Act, 1956(1 of 1956), or in any other law for the time being in force or in the memorandum, articles of association or any other instrument relating to the industrial concern, and any provision regarding share, qualification, age-limit, number of directorship, removal from office of directors and such like conditions contained in any such law or instrument aforesaid shall not apply to any director appointed by the Financial Corporation in pursuance of the arrangement as aforesaid. (3) Any director appointed in pursuance of sub- section(2) shall-- (a) hold office during the pleasure of the Financial Corporation and may be removed or substituted by any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intment of Directors representing the interest of a financial institution in the Board of a company under Section 27 is essentially contractual and the provisions of the Companies Act, Memorandum and Articles of Association on share qualification, age limit, removal, retirement by rotation etc. applicable to other Directors of the Company do not apply to any Director appointed by a financial institution under sub-section (1) of Section 27 of the SFC Act. Further, it is provided in clause 3(a) of Section 27 that the Director appointed by a financial institution to the Board of Directors shall be removed or substituted by order in writing by the Financial Institution. This provision makes it clear that the Director representing financial inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, nominee director of a financial institution is not engaged in regular management of the company such as maintenance of books of accounts, filing of returns etc. which are routine works of regular employees including whole time or working director. In fact it is for the financial institution to oversee whether their nominee Director acts in such a way to protect it's interest and for his acts and omissions, it is for the Financial Institution to take action depending on his terms of appointment or to remove him, if he is found unfit. In other words, we are of the view that a nominee Director is not involved in the routine management of the company and he cannot be assigned any such work by the company except to be called to att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serve the purpose of protecting the interest in as much as it has also lost the funds. We have already expressed our view that in the winding up proceeding, the financial institution gets arrayed as a creditor and all what they have to see is whether the funds of the liquidated company are appropriated in accordance with law. Therefore, we are of the view that the nominee Director has no role in the filing of statement of accounts by the liquidated company before the Official Liquidator. So much so, appellants as nominee Directors appointed by financial institutions under Section 27(1) have immunity from proceeding initiated under Section 454(5) of the Companies Act. 5. The next offence alleged is under Section 541(1) of the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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