2021 (12) TMI 387 - HC - Companies Law

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

Praveen Agarwal Versus The Deputy Registrar of Companies, Tamilnadu, Chennai

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 ... Compounding of offences - threshold limit of holding directorship in companies - Section 165 r/w 165(6) of the Companies Act, 2013 - HELD THAT:- The facts in the present case is not in dispute that the petitioner is implicated for the offence under Section 165 read with Section 165(6) of the Companies Act, 2013, on the ground that he is holding Directorship in 24 companies instead of 20 companies and violated the provisions of the Companies Act and due to which, the present impugned complaint came to be filed. This Court is of the opinion that earlier one show cause notice was issued on 07.04.2017, for which the petitioner has sent a reply dated 14.04.2017. Thereafter the petitioner also filed a Compounding Application under Section 441 of the Act on 12.05.2017, for compounding of the offence under Section 165 of the Act. Without considering the Compounding Application, the respondent issued another show cause notice on 23.06.2017 and for which also, the petitioner had sent a reply on 10.07.2017, intimating the pendency of the Compounding Application, to the respondent. For the reasons aforesaid, this Criminal Original Petition is allowed and the complaint, on the file of the Additional Chief Metropolitan Magistrate (EO.I), for the offence under Section 165 r/w 165(6) of the Companies Act, 2013, is quashed. Petition allowed. Issues:Violation of Companies Act - Holding Directorship in Excess of Permitted Limit - Quashing of ProsecutionAnalysis: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.