Court quashes order against Non-Executive Directors in company case

The court allowed the revision application, quashed and set aside the impugned order dated 09.01.2017, and dismissed the complaint against the applicants, who were Independent and Non-Executive Directors of a company. The court found that the prosecution of the applicants was bad in law as they were not involved in the day-to-day business activities of the company. The impugned order was deemed illegal, incorrect, and improper, leading to its setting aside. An authenticated copy of the judgment was to be sent to the Trial Court, and the record of the proceeding was to be consigned to the record department.

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Issues Involved:
1. Legality and correctness of the impugned order dated 09.01.2017.
2. Whether the impugned order is liable to be set aside, modified, or affirmed.
3. Appropriate order to be passed.

Summary:

Issue 1: Legality and Correctness of the Impugned Order
The applicants, who were Independent and Non-Executive Directors of Unity Infraprojects Ltd., challenged the order dated 09.01.2017, which directed the issuance of process against them for an offence punishable under section 276-B r/w section 278-B of the Income Tax Act, 1961. They contended that they were not in charge of and responsible for the day-to-day activities of the company. The learned Additional Chief Metropolitan Magistrate failed to appreciate that the allegations in the complaint did not make out a prima facie case against them. The court noted that the applicants being Independent and Non-Executive Directors were never involved in the day-to-day business of the company, and the prosecution of the applicants was bad in law.

Issue 2: Whether the Impugned Order is Liable to be Set Aside, Modified, or Affirmed
The court considered various judgments, including those from the Hon'ble Supreme Court and the Hon'ble Bombay High Court, which supported the applicants' contention that merely being a director does not make one responsible for the day-to-day affairs of the company. The court found that the complaint did not disclose the necessary particulars as to how the applicants were in charge of and responsible for the conduct of the business of the company. Hence, the impugned order was deemed illegal, incorrect, and improper and was liable to be set aside.

Issue 3: Appropriate Order to be Passed
The court allowed the revision application, quashed and set aside the impugned order dated 09.01.2017, and dismissed the complaint against the applicants. An authenticated copy of the judgment was ordered to be sent to the learned Trial Court for information, and the record of the proceeding was to be consigned to the record department as per the rules.

Order:
1. Criminal Revision Application No. 163 of 2023 is allowed.
2. The impugned order dated 09.01.2017 is quashed and set aside.
3. The complaint is dismissed against the applicants.
4. An authenticated copy of this judgment and order be sent to the learned Trial Court.
5. The record of this proceeding be consigned to the record department as per the rules.

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