Officer in Default Liability Limits Prosecution of Alternate Director Under Companies Act compliance provisions

Liability for non-compliance with Sections 73(2A) and 73(3) of the Companies Act, 1956 attached to the company and to directors who were officers in default. Section 5 confined that category to specified managerial personnel, persons acting under board directions, persons specially charged with compliance, or, in some cases, all directors. An alternate director was named in the complaint, but the pleading itself showed he was neither a managing director, whole-time director, manager, secretary, nor otherwise averred to be an officer in default. In the absence of any such averment, process against him was unsustainable and the complaint was liable to be quashed as against him.

---

---

Issues: Whether an alternate director, who was neither a managing director, whole-time director, manager, secretary, nor otherwise shown to be an officer in default, could be prosecuted for non-compliance with Sections 73(2A) and 73(3) of the Companies Act, 1956.

Analysis: Liability under Section 73(2A) attaches to the company and every director who is an officer in default. Section 5 defines an officer in default by reference to specified managerial personnel, persons acting under the board's directions, persons specifically charged with compliance, or, in certain cases, all directors. The complaint itself showed that the petitioner was only an alternate director, while the company had an executive and whole-time director and a company secretary. There was no averment bringing the petitioner within any of the categories in Section 5. In these circumstances, the petitioner was not a person liable for the alleged default, and process ought not to have been issued against him.

Conclusion: The prosecution against the petitioner could not be sustained, and quashing of the complaint as against him was warranted.

---