Court quashes prosecution for directorship in excess companies, citing lack of due consideration.

The Court quashed the prosecution under Section 165 r/w 165(6) of the Companies Act, 2013, against the petitioner for holding directorship in 24 companies, exceeding the permissible limit of 20 companies. The Court found that the respondent had not considered the petitioner's responses to show cause notices and Compounding Application before initiating the prosecution, indicating a lack of due consideration. Consequently, the complaint was deemed unsustainable, and the Court allowed the Criminal Original Petition, directing the respondent to review the Compounding Application within four weeks.

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Issues:
Violation of Companies Act - Holding Directorship in Excess of Permitted Limit - Quashing of Prosecution

Analysis:
The petition was filed to quash the prosecution under Section 165 r/w 165(6) of the Companies Act, 2013, as the petitioner was accused of holding directorship in 24 companies, exceeding the permissible limit of 20 companies. The prosecution was initiated based on a private complaint by the Deputy Registrar of Companies, alleging the violation of the Companies Act.

The petitioner contended that they had responded to a show cause notice issued on 07.04.2017 and had also filed a Compounding Application on 12.05.2017, which was not considered by the respondent. Subsequently, another show cause notice was issued on 23.06.2017, to which the petitioner replied on 10.07.2017, highlighting the pending Compounding Application. The petitioner argued that the second notice was issued to harass them, and thus, sought the quashing of the complaint.

On the other hand, the Central Government Standing Counsel representing the respondent argued that the petitioner had not informed the outcome of the Compounding Application filed earlier. It was emphasized that the petitioner's directorship in 24 companies was a clear violation of the Companies Act, justifying the prosecution and opposing the quashing of the complaint.

The Court noted that the petitioner had responded to the initial show cause notice, filed a Compounding Application, and informed the pendency of the application in subsequent replies to the respondent. The Court found that the respondent had not considered these aspects before filing the impugned complaint, indicating a lack of due consideration. Consequently, the Court deemed the complaint unsustainable and decided to quash it.

As a result of the analysis, the Criminal Original Petition was allowed, and the complaint under Section 165 r/w 165(6) of the Companies Act, 2013, was quashed. The respondent was directed to review the Compounding Application filed by the petitioner and to make a decision within four weeks from the date of the order.

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