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IN THE HIGH COURT AT CALCUTTA
Shampa Dutt Paul, J.
Surendra Kumar Singhi - Appellant
Versus
Registrar Of Companies, West Bengal & Anr. - Respondents
Criminal Revision No. 1751 of 2020
Decided On : 20-01-2023
COMPANIES ACT - SECTION 217(3) - QUASHING OF PROCEEDINGS - INDEPENDENT DIRECTOR - LIABILITY FOR VIOLATION - DIRECTORS' REPORT - DISCLOSURE OF RESERVATIONS - ADDITIONAL DIRECTOR - POWERS AND OBLIGATIONS - VICARIOUS LIABILITY - CRIMINAL INTENT - SUFFICIENCY OF EVIDENCE - INHERENT POWERS OF COURT - ABUSE OF PROCESS - MISCARRIAGE OF JUSTICE - INDEPENDENT DIRECTORS - NON-EXECUTIVE DIRECTORS - NON-KMP (NON-KEY MANAGERIAL PERSONNEL) - NON-PROMOTERS - GENERAL CIRCULAR NO. 1/2020-F.NO.16/1/2020/LEGAL, GOVERNMENT OF INDIA, MINISTRY OF CORPORATE AFFAIRS DATED 2ND MARCH, 2020 - INTERPRETATION OF STATUTES - PARI MATERIAL TO PENAL PROVISIONS - LIABILITY OF DIRECTOR FOR VIOLATION COMMITTED BY COMPANY - CONCLUSIVE FINDING OF DIRECTORSHIP ON DATE OF OFFENCE - DIRECTOR'S RESPONSIBILITY FOR CONDUCT OF BUSINESS OR COMMISSION OR OMISSION OF COMPANY - MECHANICAL FILING OF COMPLAINT - GUILTY PLEA AND CONVICTION OF OTHER DIRECTORS - UNNECESSARY CRIMINAL PROCEEDINGS AGAINST INDEPENDENT DIRECTORS - PROSECUTION OF INDEPENDENT DIRECTORS, NON-PROMOTERS AND NON-KMP NON-EXECUTIVE DIRECTORS - CLARIFICATION - APPOINTMENT OF ADDITIONAL DIRECTOR - TERM OF OFFICE - REGULARIZATION OF ADDITIONAL DIRECTOR - FILING OF DIR 12 - POWERS, RIGHTS, DUTIES, AND RESPONSIBILITIES OF ADDITIONAL DIRECTOR - VICARIOUS LIABILITY OF DIRECTORS FOR CHARGES LEVELLED AGAINST COMPANY - REQUISITE ALLEGATIONS FOR ATTACHING VICARIOUS LIABILITY - VAGUENESS OF ALLEGATIONS AGAINST MANAGING DIRECTOR - QUASHING OF PROCEEDINGS UNDER SECTION 482 OF CR.P.C.
Fact of the Case:
The petitioner, an independent director of M/s Mani Square Limited, challenged the initiation and continuation of proceedings against him under Section 217(5) of the Companies Act, 1956, for alleged violation of Section 217(3) of the Act. The petitioner contended that he was not a director of the company on the date of the alleged violation and that the prosecution against him was mechanically filed without considering his specific role and responsibilities as an independent director. The petitioner also relied on General Circular No. 1/2020-F.No.16/1/2020/Legal, Government of India, Ministry of Corporate Affairs dated 2nd March, 2020, which directed against unnecessary criminal proceedings against independent directors and non-executive directors.
Finding of the Court:
The court held that the petitioner was an additional director of the company on the date the board report was filed and that the responsibility of an additional director was the same as that of a director. The court further held that to quash the proceedings by exercising the court's inherent powers would amount to an abuse of the process of court and would also amount to serious miscarriage of justice.
Issues: 1. Whether the petitioner, as an independent director, was liable for the alleged violation of Section 217(3) of the Companies Act, 1956, when he was not a director of the company on the date of the alleged violation. 2. Whether the prosecution against the petitioner was mechanically filed without considering his specific role and responsibilities as an independent director. 3. Whether the court could quash the proceedings by exercising its inherent powers, considering the petitioner's status as an independent director and the General Circular No. 1/2020-F.No.16/1/2020/Legal, Government of India, Ministry of Corporate Affairs dated 2nd March, 2020.
Ratio Decidendi: 1. An additional director is a director having the same powers, responsibilities and duties as other directors. The only difference between them is regards to their appointing authority and their term of office. 2. The liability of the Directors /the controlling authorities of company, in a corporate criminal liability is elaborately considered by this Court in the case of Sunil Bharti Mittal. In the aforesaid case, while considering the circumstances when Director/person in charge of the affairs of the company can also be prosecuted, when the company is an accused person, this Court has held, a corporate entity is an artificial person which acts through its officers, Directors, Managing Director, Chairman, etc. If such a company commits an offence involving mens rea, it would normally be the intent and action of that individual who would act on behalf of the company. At the same time it is observed that it is the cardinal principle of criminal jurisprudence that there is no vicarious liability unless the Statute specifically provides for. 3. It is further held by this Court, an individual who has perpetrated the commission of an offence on behalf of the company can be made an accused, along with the company, if there is sufficient evidence of his active role coupled with criminal intent. Further it is also held that an individual can be implicated in those cases where statutory regime itself attracts the doctrine of vicarious liability, by specifically incorporating such a provision.
Final Decision: The court dismissed the revision petition and held that the proceedings against the petitioner would not be quashed.
Key Points: - The additional director has the same powers, responsibilities, and duties as other directors; difference lies in appointing authority and term (!) (!) (!) - Criminal liability of a director for company offences requires active role and criminal intent; mere presence as director does not automatically attract liability (Sunil Bharti Mittal ratio, Maksud Saiyed discussion) (!) (!) - Quashing proceedings under inherent powers is possible only to prevent abuse of process or miscarriage of justice; in this case, inherent powers to quash were rejected; petition dismissed (!) (!) - The timing of directorship relative to the alleged offence matters; liability considered on date of offence if a director held that position then (board report filing context) (!) (!) (!) - General Circular No. 1/2020 guidance against unnecessary criminal proceedings against independent/non-executive directors was discussed but not grounds to quash here (!) (!) - The petitioner was found to be an additional director at the relevant time and liable similarly to other directors for board actions (!) (!) - Board report for 2013-2014 filed while petitioner was Additional Director; overall liability contested and trial needed to determine exact role (!) (!) (!) - Proceedings not quashed; revision petition dismissed; no costs awarded (!)
JUDGMENT
Shampa Dutt (Paul), J. - The revision has been preferred praying for quashing of proceedings in Case No. CS/0108641/2016 now pending before the Learned Metropolitan Magistrate, 10th Court at Kolkata under Section 217(5) of Companies Act, 1956 and all orders passed there in including the orders dated 06.09.2016, 21.12.2016 and 13.03.2020.
2. The petitioner's case is that the opposite party/complainant has filed a complaint (CS-0108641/2016) before the learned Chief Metropolitan Magistrate, Kolkata against the petitioner stating there in that, M/s Mani Square Limited was incorporated on 30th October, 1959 under the Companies Act, 1956 with paid up share capital of Rs. 66,28,000/- and according to the provisions of Section 217(3) of the Companies Act, 1956, the Board of the company was bound to give fullest information and explanation in its report on every reservation, qualification or adverse remark contained in Auditor's report. That, upon scrutiny of the Balance-sheet and other documents as on 31st March, 2014 it was found that the Board of Directors did not furnish fullest information and explanation in their Director's report with respect to the Auditors in their report on Balance Sheet for the year ending on 31st March, 2014. In the Auditor's Report for the year ending on 31st March, 2014, the auditor has mentioned that there are no dues of Service Tax, VAT, Provident Fund, ESIC which had been deposited on account of any dispute except disputed amount of WBST/VAT of Rs 49.24 Lakhs under the Commercial Tax Party and Revision Board and CST 11.13 Lakhs. This has resulted in violation of provisions of Section 217(3) of the Companies Act, 1956 and the said violation was pointed out to the Directors of the company vide Show Cause dated 30th May, 2016. However, the reply which has been received was not satisfactory and hence, the competent authority has issued instruction to launch prosecution for the aforesaid violation vide their letter dated 28th March, 2016.
3. The petitioner herein has been arraigned along with others as a director of Mani Square Limited. But the opposite party deliberately chose to overlook the fact that the purported violation is in respect of the financial year ending on 31st March, 2014 and not the periods subsequent thereto when the petitioner was appointed as an independent director of M/s Mani Square Limited with effect from 2nd June, 2014 and therefore, the liability which was attempted to be thrust on the petitioner by the opposite party is totally untenable inasmuch as the petitioner did not have any connection with the said Mani Square Limited prior to 2nd June, 2014.
4. Based on the complaint of the opposite parties, the learned Chief Metropolitan Magistrate, Kolkata by his order dated 6th September, 2016 was pleased to take cognizance.
5. On 21st December, 2016, after receiving the file of the case, the learned Metropolitan Magistrate, 10th Court, Kolkata was pleased to issue summons against the petitioner and other accused persons.
6. That the rest of the accused persons on 10th October, 2017 filed an application under Section 205 of the Code of Criminal Procedure through their Learned Advocate and recorded a plea of guilty before the Learned Magistrate and were convicted and sentenced to pay a fine of Rs. 10,000/- only each, in default they were directed to undergo simple imprisonment for fifteen days. The fine amount as directed by the Learned Magistrate was paid by the rest of the accused persons.
7. However, the petitioner being absolutely innocent and having no connection with the alleged circumstances of the instant case, chose not to take the course adopted by the rest of the accused persons and prayed for discharge by filing a petition before the Learned Metropolitan Magistrate, 10th Court at Kolkata but by the impugned order dated 13th March, 2020, the Learned Magistrate was plea
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