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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: Whether directors nominated by financial corporations under Section 27 of the State Financial Corporations Act, 1951 were immune from prosecution and conviction for offences under the Companies Act for failure to file the statement of affairs, maintain statutory records, and hand over books and papers to the Official Liquidator.
Analysis: Section 27 of the State Financial Corporations Act, 1951 gives a financial corporation the power to appoint nominee directors to protect its interests. Such appointment operates notwithstanding the Companies Act, 1956, but the immunity under Section 27(3)(b) is limited to acts or omissions done in good faith in the discharge of the director's duties. The nominee director is not part of the routine management of the company and is not concerned with day-to-day obligations such as maintenance of books, filing of returns, preparation of the statement of affairs, or custody and delivery of records to the Official Liquidator. Those obligations rest on those engaged in regular management of the company. Since the appellants were only nominee directors and no overt act attributable to them was established, the alleged omissions did not create liability for the offences charged.
Conclusion: The nominee directors were not liable for conviction under Sections 454(5), 538(1)(c) and 541(1) of the Companies Act, 1956, and the convictions and sentences were set aside in favour of the appellants.
Ratio Decidendi: A nominee director appointed by a financial corporation under Section 27 of the State Financial Corporations Act, 1951 is immune from criminal liability for omissions outside routine management, except for acts or omissions not done in good faith in the discharge of his limited board functions.
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