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IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
HARPREET SINGH BRAR, J.
A.K. Sud and Others – Petitioners
Versus
Registrar of Companies Punjab – Respondent
CRM-M-32022 of 2014
Decided On : 09-01-2024
Companies Act - Quashing of Complaint - Section 58A(10) of the Companies Act, 1956 - Companies Act, 1956, Section 58A(10), Section 58-A(9), Section 58(9), Section 41-A of the State Financial Corporation Act - The court analyzed the liability of the accused directors under Section 58A(10) of the Companies Act, 1956 and considered the protection provided under Section 41-A of the State Financial Corporation Act. The court's decision was influenced by the interpretation of the role of Nominee Directors and their liability for the company's defaults.
Fact of the Case:
The accused directors were alleged to have failed to comply with the order of the Company Law Board under Section 58-A(10) of the Companies Act, 1956, regarding repayment of deposits accepted by the company. The petitioners contended that they were Nominee Directors and should not be held liable for the company's actions.
Finding of the Court:
The court found that the petitioners, as Nominee Directors, were not responsible for the day-to-day business of the company and were entitled to protection under Section 41-A of the State Financial Corporation Act. The court also noted the similarity of the case with a previous judgment where the proceedings were quashed.
Issues: The key issue was whether the accused Nominee Directors could be held liable under Section 58A(10) of the Companies Act, 1956 for the company's failure to repay deposits accepted by it.
Ratio Decidendi: The court held that Nominee Directors cannot be held liable for the company's defaults and are entitled to protection under Section 41-A of the State Financial Corporation Act. The court also considered the precedent where similar proceedings were quashed.
Final Decision: The court quashed the complaint and summoning order against the petitioners under Section 58A(10) of the Companies Act, 1956, based on their status as Nominee Directors and the protection provided under Section 41-A of the State Financial Corporation Act.
JUDGMENT :
HARPREET SINGH BRAR, J.
1. Present petitions under Section 482 of Cr.P.C. have been filed seeking quashing of Complaint No. 38 dated 27.11.2000 titled as Registrar of Companies vs. J.C. Khandelwal and Others pending before learned Chief Judicial Magistrate, Patiala and further seeking quashing of summoning order dated 27.11.2000 whereby the learned CJM, Patiala has summoned the petitioner under Section 58A(10) of the Companies Act, 1956.
2. Both the petitions are decided by a common order and the facts are taken from the CRM-M-32022-2014. The petitioners-accused in both the petitions are erstwhile employees of Punjab State Industrial Development Corporation and Industrial Development Bank of India.
3. Brief facts of the case are that the Euro Cotspin Limited, was incorporated on 22.08.2014 as a Public Limited under the Companies Act, 1956 and is having its registered office at Village-Dehar, Lalru, Ambala-Chandigarh Highway, District Patiala. The accused No. 1 to 9 are directors of the company according to the particulars filed in the office of the complainant and are the officer in default. The accused company had failed to make repayment of deposit accepted by it and several such depositors approached the Company Law Board under Section 58-A(9) of the Companies Act, 1956 to seek order of the Board for getting repayment of their deposits. The company and its directors were directed by the Company Law Board vide order dated 09.08.2000 to repay the deposits alongwith outstanding interest at contracted rate till the date of repayment not later than 31.10.2000 and further the company was directed by Company Law Board to file an affidavit of Compliance of these directions by 10.11.2000 with the Registrar of Companies Punjab, H.P. & Chandigarh. The company has not furnished any information to the office of the complainant (Registrar of Companies, Jalandhar) regarding compliance of the order of the Company Law Board despite the issuance of notice by the office vide letter No. TC/14967/647 dated 25.08.2000. The directors of the company have failed to comply with the order of Company Law Board dated 09.08.2000 and thereby they have made themselves liable to be punished under Section 58-A(10) of the Companies Act, 1956.
4. Learned counsel for the petitioners inter-alia contends that the petitioners are alleged to have been the Nominee Directors of the financial institutions and the complaint has been filed on the allegations that the company has failed to make the payment of deposits accepted by it and such depositors have approached the Company Law Board under Section 58/A(9) of the Companies Act 1956 to seek the relief for getting repayment of their deposits. The learned counsel for the petitioners refers to order dated 09.08.2000 passed by the learned Company Law Board, Northern Region Bench New Delhi. The Company Law Board has returned a categoric finding that respondent-company is a 100 % export oriented manufacturing unit and is being supported by UTI and PSIDC by way of substantial participation in the capital of the Company. The prayer made by the depositors to make UTI and PSIDC as party and issuance of necessary directions to repay the outstanding interest was rejected and the learned Company Law Board observed that as per Section 58(9) of the Companies Act 1956, only Company which has accepted the deposits can be directed to repay the deposits and UTI and PSIDC cannot be made a party or directed to meet the deposited claims. Once the PSIDC was not made liable to repay the deposit, the petitioners cannot be made liable for offence under Section 58-A(10) of the Act. Moreover, the petitioners are Nominee Directors, and for all intents and purposes, they have no concern with the day to day business of the accused company, nor they have any control over the authority which issued FDRs to the depositors and the complainant has not even impleaded the Company as one of the accused and in the absence of the Company being implea
Nominee Directors are not liable for the company's defaults and are entitled to protection under Section 41-A of the State Financial Corporation Act.
Independent and non-executive directors cannot be held liable under NI Act unless directly involved in the company's day-to-day operations. (Sections 138, 141)
Vicarious liability under the Negotiable Instruments Act requires proof of a director's active involvement and responsibility in the company's operations, not merely their title.
Non-Executive Directors cannot be held liable under Section 141 of the Negotiable Instruments Act without specific averments demonstrating their involvement in the company's day-to-day affairs.
Dishonour of cheque – Liability of director of firm - Not sufficient to make a bald cursory statement in a complaint that the Director (arrayed as an accused) is in charge of and responsible to the c....
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