2013 (3) TMI 165 - HC - Companies Law

Former directors cleared of Companies Act violations due to resignation before alleged breaches

M SHANMUGHA VADIVEL, Versus THE ASSISTANT REGISTRAR OF COMPANIES, KERALA,

The Court quashed complaints against former directors for alleged violations of the Companies Act provisions, including failure to appoint a qualified ... Offense committed under section 383 A - non appointing of qualified Whole Time Company Secretary - share capital of the Company as on 31.03.2001 was Rs.21,23,80,000/- Held that:- The case of the petitioners that they having submitted their resignations are not liable to be prosecuted for the violation or non-compliance of the provisions of the Companies Act for the year 2003 was accepted by the Court. In the light of the findings entered by this Court it has to be held that the prosecution in these cases also cannot be sustained, since the petitioners had submitted their resignation in August 2000 itself, whereas the non-compliance or violation alleged is of the year 2003-2004. Issues:1. Alleged violation of Section 383 A of the Companies Act by not appointing a qualified Secretary.2. Failure to file required financial documents under Section 220 of the Companies Act.3. Non-compliance with holding Annual General Meeting and filing necessary statements.4. Violation of Section 269 of the Companies Act regarding the appointment of Managing Director or Whole Time Director.Issue 1:The petitioners, former directors of a company, sought to quash a complaint alleging a violation of Section 383 A of the Companies Act. The allegation was that the petitioners, by not appointing a qualified Secretary, breached the provision that mandates every company with a paid-up share capital of Rs.2 crores and above to have a Whole Time Company Secretary. The Court considered the submission that the petitioners had resigned before the alleged violation occurred in 2001. The Court accepted this defense, noting that the petitioners had submitted their resignations in August 2000, and the prosecution for the violation of 2001 could not be sustained.Issue 2:Regarding the failure to file financial documents under Section 220 of the Companies Act, the complaint alleged that the petitioners, as officers of the company, were in default for not submitting the required Balance Sheet and Profit and Loss account. The Court deliberated on the argument that the petitioners had resigned before the period in question (2004). Relying on previous judgments, the Court held that since the petitioners had resigned in 2000, the prosecution for non-compliance in 2004 was not sustainable, and thus, the complaint was quashed.Issue 3:In the case related to the non-holding of Annual General Meeting and failure to file necessary statements, the petitioners challenged the cognizance taken against them. The allegation was that the Annual General Meeting was not held for the year 2004, and the required statements were not filed. The Court considered the defense that the petitioners had resigned in 2000, and therefore, could not be held liable for the non-compliance in 2004. Relying on previous judgments, the Court quashed the proceedings, stating that the petitioners' resignation absolved them of liability for the alleged violations.Issue 4:The final issue pertained to the violation of Section 269 of the Companies Act regarding the appointment of a Managing Director or Whole Time Director. The complaint alleged that the petitioners failed to appoint a Managing Director as required for a company with a paid-up share capital of Rs.5 crores and above. The Court noted that the petitioners had resigned in 2000, and as such, the prosecution for the violation in subsequent years was unsustainable. Therefore, the Court allowed the petitions, quashing further proceedings against the petitioners in all the mentioned cases.In conclusion, the Court, while considering the resignations of the petitioners before the alleged violations occurred, held that the complaints against them for violations of the Companies Act provisions could not be sustained. The Court's decision to quash the complaints was based on the fact that the petitioners had resigned from their positions in the company before the periods in question, thereby relieving them of liability for the alleged non-compliances.