Directors' liability for RBI Act non-compliance and winding-up proceedings do not bar criminal prosecution
Directors alleged to be in charge of and responsible for a company's business can be proceeded against for non-compliance with a repayment order under the Reserve Bank of India Act, unless they establish the statutory defence of absence of knowledge or due diligence; the discharge of such directors was therefore set aside. Pending winding-up proceedings do not bar criminal prosecution for a penal contravention under the Act, because the bar on proceedings against a company in winding up does not extend to criminal liability. The revisions succeeded, and the matter was directed to proceed against the concerned directors in accordance with law.
Issues: (i) Whether directors alleged to be in charge of and responsible for the conduct of the company's business could be discharged in a prosecution for non-compliance with an order made under the Reserve Bank of India Act, 1934. (ii) Whether pending winding-up proceedings barred criminal prosecution for contravention of the Reserve Bank of India Act, 1934.
Issue (i): Whether directors alleged to be in charge of and responsible for the conduct of the company's business could be discharged in a prosecution for non-compliance with an order made under the Reserve Bank of India Act, 1934.
Analysis: Section 58C fastens liability on every person who, at the time of the contravention or default, was in charge of and responsible to the company for the conduct of its business, subject to the statutory defence of absence of knowledge or due diligence. The complaint and pre-charge evidence specifically asserted that respondents 3 and 4 were directors responsible for the company's business and the default concerned non-compliance with the Company Law Board's repayment direction under section 45QA(2). The material was sufficient to proceed against them, and the discharge was therefore unwarranted at that stage.
Conclusion: The discharge of respondents 3 and 4 was unsustainable and liable to be set aside.
Issue (ii): Whether pending winding-up proceedings barred criminal prosecution for contravention of the Reserve Bank of India Act, 1934.
Analysis: The bar under section 446 of the Companies Act, 1956 concerns suits and other legal proceedings against the company in the winding-up context, but it does not extend to criminal prosecution for a penal contravention. The prosecution was founded on a statutory offence for failure to comply with the repayment order, and the existence of winding-up proceedings did not neutralise the criminal liability alleged under section 58B(4AAA) read with section 58C.
Conclusion: Criminal prosecution was not barred by the winding-up proceedings.
Final Conclusion: The revisions succeeded, the discharge order was set aside, and the matter was directed to proceed in accordance with law against the concerned directors.
Ratio Decidendi: Where a company default attracts penal liability under section 58C, directors averred to be in charge of and responsible for the company's business can be proceeded against unless they establish the statutory defence, and winding-up proceedings do not bar criminal prosecution for such an offence.