2013 (4) TMI 538 - HC - Companies Law

Court quashes criminal proceedings against director, clarifies liability under Companies Act

The court quashed the criminal proceedings against the petitioner, an ordinary director, under sections 150(1) and 150(2) of the Companies Act, 1956. It ... Officer in default – whether when the company had a managing director, whole-time director and manager as mentioned in clauses (a) to (c) of section 5 of the Act there cannot be any prosecution against the petitioner who was an ordinary director of original accused No. 1-company as he cannot be said to be 'officer who is in default” - Criminal proceedings were instituted against company, its managing director and directors for breach of section 150 as pursuant to inspection, it was found that the company had not maintained the register of members and index of members - The petitioner contested that he only the director of accused No. 1-company at the relevant time and there was already a managing director appointed by accused No. 1-company and, therefore, considering section 5, the petitioner could not be said to be 'Officer in default' and, it could not be said that the petitioner had committed any offence as alleged - Whether petitioner who was an ordinary director of the company could be said to be 'officer who is in default'? Held that:- As decided in Ravindra Narayan Versus Registrar of Companies [1994 (1) TMI 208 - HIGH COURT OF RAJASTHAN] and considering section 5 of the Act it is held that the Directors are Officer in default only where company does not have managing director, whole-time director or manager. Department of Company Affairs have also issued Circular No. 6/1994 [F. No. 3/41/93-CL-V] dated 24th June, 1994 that where penal provisions provide for punishment of ‘officers in default' prosecution be filed against the managing director(s); whole-time director(s) and manager, apart from the secretary, if any, and the company and only in those cases where there is no such managerial personnel, i.e., managing director/whole-time director/manager, prosecution be filed against all ordinary directors, apart from the secretary, if any, and the company. Considering the aforesaid, to continue the criminal proceedings against original accused No. 6, who was at the relevant time only ordinary director, would not be maintainable and the same would be abuse of process of law and the court and, therefore, this is a fit case to exercise the powers under section 482 of the Code and to quash and set aside the criminal proceedings against the petitioner-original accused No. 6. However, the same would be without prejudice to the rights and contentions of respondent No. 2 and prosecution against rest of the accused persons, who may be tried in 'accordance with law and on its own merits, without, in any way, being influenced by the present order. In view of the above and for the reasons stated hereinabove, the present petition succeeds. The impugned complaint, being Criminal Case No. 610/ 1999 filed by respondent No. 2 herein-original complainant pending in the Court of learned Additional Chief Metropolitan Magistrate, Ahmedabad is hereby quashed and set aside so far as the petitioner-original accused No. 6 is concerned. However the same shall be without prejudice to the rights and contentions of respondent No. 2-original complainant as well as the prosecution against other accused persons, who shall be dealt with and tried by the concerned learned Magistrate in accordance with law and on its own merits, without, in any way being, influenced by the present order, which would be qua the petitioner-original accused No. 6 only. Rule is made absolute accordingly. Issues:1. Interpretation of section 150(1) and 150(2) of the Companies Act, 1956.2. Determining liability of directors under section 5 of the Act.3. Application of legal precedents in determining liability of directors.4. Quashing criminal proceedings against an ordinary director.Analysis:Issue 1: Interpretation of section 150(1) and 150(2) of the Companies Act, 1956:The case involves a complaint under section 150(1) and 150(2) of the Companies Act, 1956, regarding the failure to maintain the register of members and index of members by a company. The accused directors were alleged to have committed a breach of these sections, leading to criminal proceedings.Issue 2: Determining liability of directors under section 5 of the Act:Section 5 of the Act defines 'officer who is in default' and specifies the officers of the company who can be held liable for penalties. The court analyzed the provisions of section 5 to determine the liability of directors. It was established that when a company has managing directors, whole-time directors, and a manager, ordinary directors cannot be considered officers in default under section 150 of the Act.Issue 3: Application of legal precedents in determining liability of directors:The court considered legal precedents, including judgments from the Rajasthan High Court and the Andhra Pradesh High Court, to support the interpretation of section 5 of the Act. These precedents clarified that directors are officers in default only when the company lacks managing directors, whole-time directors, or a manager.Issue 4: Quashing criminal proceedings against an ordinary director:Based on the interpretation of section 5 and the application of legal precedents, the court decided to quash the criminal proceedings against the petitioner, who was an ordinary director in the company. The court held that continuing the proceedings against the ordinary director would be an abuse of process of law and ordered the quashing of the complaint against the petitioner.In conclusion, the court quashed the impugned complaint against the petitioner, an ordinary director, citing the presence of managing directors, whole-time directors, and a manager in the company as the basis for determining the liability of directors under section 5 of the Act. The judgment emphasized the importance of following legal precedents and interpreting statutory provisions accurately to establish liability in such cases.