Calcutta High Court (Appellete Side)

Surendra Kumar Singhi vs Registrar Of Companies on 20 January, 2023

                     IN THE HIGH COURT AT CALCUTTA

                     (Criminal Revisional Jurisdiction)

                             APPELLATE SIDE



Present:

The Hon'ble Justice Shampa Dutt (Paul)



                             CRR 1750 of 2020

                           Surendra Kumar Singhi

                                    Vs

               Registrar of Companies, West Bengal & Anr.




For the Petitioner                 : Mr. Sandipan Ganguly.




For the Opposite Parties           : Mr. Dipankar Dandapath.




Heard on                           : 04.01.2023

Judgment on                        : 20.01.2023
                                    2


Shampa Dutt (Paul), J.:



        The revision has been preferred praying for quashing of

proceedings in Case No. CS/0108645/2016 now pending before the

Learned Metropolitan Magistrate, 10th Court at Kolkata under Section

217(5) of Companies Act, 1956 and all orders passed there in including

the orders dated 06.09.2016, 21.12.2016 and 13.03.2020.


        The petitioner's case is that the opposite party/complainant has

filed   a   complaint   (CS-0108645/2016)   before   the   learned   Chief

Metropolitan Magistrate, Kolkata against the petitioner stating there in

that, M/s Mani Square Limited was incorporated on 30th October, 1959

under the Companies Act, 1956 with paid up share capital of Rs.

66,28,000/- and according to the provisions of Section 217(3) of the

Companies Act, 1956, the Board of the company was bound to give

fullest information and explanation in its report on every reservation,

qualification or adverse remark contained in Auditor's report. That,

upon scrutiny of the Balance-sheet and other documents as on 31st

March, 2014 it was found that the Board of Directors did not furnish

fullest information and explanation in their Director's report with

respect to the Auditors in their report on Balance Sheet for the year

ending on 31st March, 2014. In the Auditor's Report for the year ending

on 31st March, 2014, the auditor has mentioned that there are no dues

of Service Tax, VAT, Provident Fund, ESIC which had been deposited on
                                      3


account of any dispute except disputed amount of WBST/VAT of Rs

49.24 Lakhs under the Commercial Tax Party and Revision Board and

CST 11.13 Lakhs. This has resulted in violation of provisions of Section

217(3) of the Companies Act, 1956 and the said violation was pointed

out to the Directors of the company vide Show Cause dated 30th May,

2016. However, the reply which has been received was not satisfactory

and hence, the competent authority has issued instruction to launch

prosecution for the aforesaid violation vide their letter dated 28th March,

2016.


        The petitioner herein has been arraigned along with others as a

director of Mani Square Limited. But the opposite party deliberately

chose to overlook the fact that the purported violation is in respect of

the financial year ending on 31st March, 2014 and not the periods

subsequent    thereto   when   the   petitioner   was   appointed   as   an

independent director of M/s Mani Square Limited with effect from 2nd

June, 2014 and therefore, the liability which was attempted to be

thrust on the petitioner by the opposite party is totally untenable

inasmuch as the petitioner did not have any connection with the said

Mani Square Limited prior to 2nd June, 2014.


        Based on the complaint of the opposite parties, the learned Chief

Metropolitan Magistrate, Kolkata by his order dated 6th September,

2016 was pleased to take cognizance.
                                    4




       On 21st December, 2016, after receiving the file of the case, the

learned Metropolitan Magistrate, 10th Court, Kolkata was pleased to

issue summons against the petitioner and other accused persons.


       That the rest of the accused persons on 10th October, 2017

filed an application under Section 205 of the Code of Criminal

Procedure through their Learned Advocate and recorded a plea of

guilty before the Learned Magistrate and were convicted and

sentenced to pay a fine of Rs. 10,000/- only each, in default they

were directed to undergo simple imprisonment for fifteen days. The

fine amount as directed by the Learned Magistrate was paid by the

rest of the accused persons.


       However, the petitioner being absolutely innocent and having no

connection with the alleged circumstances of the instant case, chose

not to take the course adopted by the rest of the accused persons and

prayed for discharge by filing a petition before the Learned Metropolitan

Magistrate, 10th Court at Kolkata but by the impugned order dated 13th

March, 2020, the Learned Magistrate was pleased to reject the prayer

of the petitioner for discharge, inter alia, on the ground that the

proceedings being Summons triable he is not empowered to direct

discharge of the accused persons (relying upon the judgment of the
                                     5


Supreme Court in Amit Sibal vs Arvind Kejriwal and Ors. (reported

in (2018) 12 SCC 165).


       The petitioner has been highly aggrieved by the initiation and

continuation of the impugned proceedings and the Learned Magistrate

also refused to direct discharge of the petitioner from the case.


       Mr. Sandipan Ganguly, Learned Advocate for the petitioner

has submitted that:-


       (a) The petitioner was requested to join the Board of Directors of

          M/s. Mani Square Limited as an "independent director" on

          2nd May, 2014.

       (b) The petitioner gave his consent to join as an "independent

          director" of the said company on 6th May, 2014 and the

          formal consent in prescribed form, DIR-2 was given to act as

          an independent director on 17th May, 2014.

       (c) The said consent was acted upon by the company and the

          petitioner joined as an independent director on the Board of

          the said company since 2nd June, 2014 and prescribed Form

          DIR-12 was duly filed with the Registrar of Companies on

          8th June, 2014.

       (d) The petitioner resigned from the Board of the said company

          on   31st   December,   2016    by   submitting Form      DIR-11

          evidencing such resignation.
                                           6


       Mr. Ganguly, has further submitted that the alleged violation

mentioned in the impugned petition of complaint pertained to the

financial year ending on 31st March, 2014 and the petitioner was not

director of the company as on 31st March, 2014 and therefore, under no

stretch of imagination, the prosecution could be allowed to be continued

against the petitioner.


       That    according     to     the       General    Circular    No.   1/2020-

F.No.16/1/2020/Legal, Government of India, Ministry of Corporate

Affairs dated 2nd March, 2020 wherein it has been categorically directed

by the appropriate authority of the Government of India that

unnecessary Criminal Proceedings should not be initiated against the

independent directors and non-executive directors, Non-KMP (Non-Key

Managerial Personnel) and non-promoters.


       The    Learned     Magistrate      failed   to    consider    the   aforesaid

submissions    in   proper        perspective      and    rejected   the    petition

mechanically by simply stating that he has no authority to direct

discharge of the petitioner.


       That in the light of the facts and circumstances of the case and

the legal submissions made the impugned prosecution against the

petitioner cannot be allowed to continue any further and is liable to be

quashed.
                                       7


       The initiation and/or continuation of the impugned proceedings,

has amounted to gross abuse of process of Court and as such is liable

to be quashed.


       It is further submitted that it has been held by the Hon'ble

Supreme Court of India by interpreting provisions of other statutes

which are pari material to the penal provisions for which the petitioner

is being prosecuted, that liability is attracted against a person/director

for any violation committed by a company until such person is

conclusively found to be a director on the date of offence.


       A director of a company does not ipso facto by holding position

of director become responsible for the conduct of the business of the

company or any commission or omission of the company; before or after

the date on which the said director, was inducted into or had resigned

from the company.


       The complaint has been mechanically filed against all directors

picking up the list from the website of MCA on the date of filing of the

complaint including the petitioner.


       All the persons including the company secretary and managing

directors who are involved in day to day affairs of the company and

responsible for violations have pleaded guilty and were convicted and

sentenced.
                                     8


        The impugned orders are absolutely untenable in law and are

liable to be quashed.


        The proceeding is otherwise bad in law and is also liable to be

set aside and/or quashed.


        Mr. Dipankar Dandapath, learned advocate for the opposite

party has brought the notice of this court to the petition of complaint

filed before the Magistrate wherein it has been categorically stated that

upon scrutiny of Balance Sheet and other related documents in the

XBRL format as at 31.03.2014, it was found that Board of Directors did

not furnish fullest information and explanation in the Directors' report

with respect to the Auditors in their report on Balance Sheet for the

year     ending     31.03.2014       have      raised    the     following

reservations/qualification/adverse remark :-


        "In the Author's Report for the year ended 31.03.2014, the

auditor has mentioned that "on the basis of out examination of

records and according to the explanations given to us, there are no

dues in respect of Service Tax, VAT, Provident Fund, ESIC etc

which have not been deposited on account of any dispute except

disputed amount WBST/VAT of Rs. 49.24 lacs under commercial

Taxes Appellate and Revision Board and CST of Rs 11.13 lacs."


        This resulted in violation of Section 217(3) of the Companies Act,

1956.
                                    9


       On hearing the learned Advocates for both the parties and

considering the materials on record including the documents relied

upon it is seen that the invitation to the petitioner dated 02.05.2014

clearly shows that the petitioner was invited to join the board of

directors of the company Mani Square Limited as a Director and

his consent was solicited (Annexure 'B').


       Annexure 'C' is the petitioner's reply dated 6th May, 2014 there

to stating that he has given his consent to act as an Independent

Director on the board of the company.


       Form DIR 12 shows that the petitioner has been holding the

designation of "Additional Director" and category "independent".


       The designated partner details in the Ministry of Corporate

Affairs shows the petitioner as a "Director" of Mani Square Limited.


       Form no. DIR-11 is notice of resignation of a director to the

registrar and it is shown in the said form that the petitioner was a

"director" of Mani Square Limited from 30th September, 2014 to

31st December, 2016.


       Annexure G is a notification of the Government of India, Ministry

of Corporate Affairs regarding clarification on prosecutions filed or

internal   adjudication   proceedings   initiated   against   independent

directors, non promoters and non-KMP non-Executive Directors-reg.
                                       10


       Learned Advocate for the opposite party has submitted a written

note stating therein that as per records from MCA portal, date of

signing of board report for financial year 2013-2014 was 5th

September 2014. This falls well within the period of directorship of

the petitioner being from 2nd June, 2014 till 31st December, 2016.


       It is further submitted that the petitioner was an additional

director from 2nd June, 2014 to 30th September, 2014 and was a

director from 30th September, 2014 to 31st December, 2016 and as such

being an Additional Director on record he is liable as stated in the

petition of complaint.


       In reply there to the petitioner has stated that he was an

independent director and that he had given his consent to only act as

an independent director of the board.


       Section   161     (1)   of   the    Companies    Act    1956   governs

appointment of additional director, alternate director and nominee

director. The above provision clearly states that any person appointed

by the Board of Directors should always be appointed as an additional

director. It is only the shareholders in the general meeting who can

appoint a regular director irrespective of the director being an

independent    director/alternate     director/any     other   Director,   the

appointment can only be as additional director.
                                       11


       Hence the interpretation of the RoC that the petitioner was

additional and not Independent Director is wrong and misinterpreted.


       The said DIR 12 on page 23 under the column designation it is

stated "Additional Director" because this is the requirement of the Act

that any director appointed by the Board has to be appointed as

Additional Director, however the next column below the said column

designation   i.e.   category,   states    in   the said   form DIR   12   as

"independent". The RoC has deliberately suppressed to mention in its

report the second column category which establishes the fact that the

petitioner has been appointed as Independent Director only.


       The petitioner has never attended any board meeting nor was

present during the meeting in which the report of the Board was

considered and are in dispute. The petitioner has also not signed the

said report, hence he was not the part of the board which considered

approval of the report, hence cannot be held liable for any shortcomings

of disclosure in the said report.


       The Director's signing the report clearly states that the signatory

to the report were Mr. Sanjay Jhunjhunwala and Mr.                    Srikant

Jhunjhunwala and the petitioner had never signed any such report.


       Counter to the reply has been filed by the opposite party.
                                     12


       That the attachment to the DIR 12 Form on behalf of Company-

Mani Square Limited where petitioner joined as director, clearly states

in its resolution dated 2nd June, 2014 that petitioner was appointed as

an Additional Director and not as Independent Director.


       As per Board's Report along with balance sheet for financial year

2013-2014, it has been mentioned that the petitioner has been

appointed as Additional Director with effect from 2nd June, 2014.


       Therefore at time of scrutiny of Balance Sheet of the company,

the petitioner's name was reflected as additional director of the

company as per records fetched from MCA portal website.


       That for prosecution under Section 217(3) of Companies Act,

1956, all members of the Board at that point of time ought to have

exercised due diligence when the balance sheet was approved. Whether

absence of the petitioner from Board's meeting would be falling within

the exceptions provided in Section 217(5) of 1956 Act or whether his

case is covered under exceptions as mentioned in General Circular 1 of

2020 is essentially a mixed question of fact and law which requires

judicial decision by the Trial Court.


       Now the main points to be decided in this case are:-


       1.

What post was being held by the petitioner on the date of

filing the report.

2. Whether the petitioner is responsible/liable for the offence

alleged.

Point No. 1.

Form No. DIR - 11 clearly shows that on the date of resignation

(30.12.2016) the petitioner was the "Director" of the Company.

The said form also shows that the petitioner was with the

company as "director" on and from 30.09.2014 to 30.12.2016.

As seen from the portal, the petitioner was an "Additional

Director" from 02.06.2014 to 30.09.2014.

Inspite of being shown on the portal as "Additional Director

/Director" the petitioner did not lodge any complaint with the Ministry

about the alleged wrong information. There is no case that the

petitioner had filed any objection to the said wrong information (as

alleged) on the portal.

Point No. 2.

The board report for the financial year 2013-2014 was filed

on 5th September, 2014. From the records it is seen that the petitioner

was then an "Additional Director" of the Company. Admittedly the other

accused persons have pleaded guilty.

The main contention of the petitioner is that he was not attached

to the company in the financial year 2013-2014 and as such he is not

liable in any manner what so ever.

The case of the opposite party is that the board report of the

financial year 2013-2014 was filed on 5th September 2014 when the

petitioner was an "Additional Director" and as such prima facie becomes

liable for the said offences, as filed in this case.

The difference between Directors and Additional directors:-

    Basis                  Director               Additional Director

  Section          A director is appointed as          Section 161 contains
                    per provisions of Section            the provisions for
                   152 of the Companies Act,            appointment of an
                              2013.                     additional director.
  Power to
                                                   Additional director is
                     Members of a company
                                                  appointed by the Board
  Appoint             appoint a director.
                                                     of the Company
 Resolution         Ordinary Resolution                Board Resolution

  Term of                                          Up to the date of the
                                                  Annual General Meeting
                   Generally 5 years unless
   Office                                          or the Last date upto
                   the contrary is provided.
                                                  which AGM should have
                                                        been held.

That an Additional Director is a director having the same

powers, responsibilities and duties as other directors. The only

difference between them is regards to their appointing authority

and their term of office.

Powers and obligations

Though appointed on a temporary basis, an additional director is

vested with the same powers of a director. Moreover, they are subject to

all obligations and limitations of a director. They are also entitled to

seek appointment as a permanent director at the Annual General

Meeting. The additional director must utilize his/her powers in the best

interest of the company and the shareholders.

Additional Director-Section 161

Section 161(1) provides that the articles of a company may

confer on its Board of Directors the power to appoint any person,

other than a person who fails to get appointed as a director in a

general meeting, as an additional director at any time who shall

hold office up to the date of the next annual general meeting or the

last date on which the annual general meeting should have been

held, whichever is earlier.

For Regularization of Additional Director

Many people claim that the ROC knows about this director, as

the company had already filed DIR 12 at the time of his appointment as

additional director. So, following regularization DIR 12 is not required to

be filed, which is absolutely a wrong understanding. Since he is now a

director, and not an additional director. Therefore, ROC must be

informed by filing a new DIR 12 that the additional director has been

regularized as a director in the Company.

Moreover, additional directors are on equal footing, in terms of,

of power, rights, duties, and responsibilities, as other directors are. Yet,

tenure of additional director is up to the date of forthcoming AGM

unlike directors which are duly appointed by shareholders in the

general meeting. If the company wishes to continue with an additional

director beyond the AGM, then it will have to go for his/her

regularization.

The Supreme Court in Shiv Kumar Jatia vs. State of NCT of

Delhi, Criminal Appeal nos. 1263, 1264 and 1265-1267 of 2019,

held:-

"27. The liability of the Directors /the controlling authorities of company, in a corporate criminal liability is elaborately considered by this Court in the case of Sunil Bharti Mittal. In the aforesaid case, while considering the circumstances when Director/person in charge of the affairs of the company can also be prosecuted, when the company is an accused person, this Court has held, a corporate entity is an artificial person which acts through its officers, Directors, Managing Director, Chairman, etc. If such a company commits an offence involving mens rea, it would normally be the intent and action of that individual who would act on behalf of the company. At the same time it is observed that it is the cardinal principle of criminal jurisprudence that there is no vicarious liability unless the Statute specifically provides for. It is further held by this Court, an individual who has perpetrated the commission of an offence on behalf of the company can be made an accused, along with the company, if there is sufficient evidence of his active role coupled with criminal intent. Further it is also held that an individual can be implicated in

those cases where statutory regime itself attracts the doctrine of vicarious liability, by specifically incorporating such a provision.

29. By applying the ratio laid down by this Court in the case of Sunil Bharti Mittal it is clear that an individual either as a Director or a Managing Director or Chairman of the company can be made an accused, along with the company, only if there is sufficient material to prove his active role coupled with the criminal intent. Further the criminal intent alleged must have direct nexus with the accused. Further in the case of Maksud Saiyed vs. State of Gujarat & Ors. this Court has examined the vicarious liability of Directors for the charges levelled against the Company. In the aforesaid judgment this Court has held that, the Penal Code does not contain any provision for attaching vicarious liability on the part of the Managing Director or the Directors of the Company, when the accused is a Company. It is held that vicarious liability of the Managing Director and Director would arise provided any provision exists in that behalf in the Statute. It is further held that Statutes indisputably must provide fixing such vicarious liability. It is also held that, even for the said purpose, it is obligatory on the part of the complainant to make requisite allegations which would attract the provisions constituting vicarious liability.

30. In the judgment of this Court in the case of Sharad Kumar Sanghi vs. Sangita Rane while examining the allegations made against the Managing Director of a Company, in which, company was not made a party, this Court has held that when the allegations made against the Managing Director are vague in nature, same can be the ground for quashing the proceedings under Section 482 of Cr.P.C. In the case on hand principally the allegations are made against the first accused- company which runs Hotel Hyatt Regency. At the same time, the Managing Director of such company who is accused no.2 is a party by making vague allegations that he was attending all the meetings of the company and various decisions were being taken under his signatures. Applying the ratio

laid down in the aforesaid cases, it is clear that principally the allegations are made only against the company and other staff members who are incharge of day to day affairs of the company. In absence of specific allegations against the Managing Director of the company and having regard to nature of allegations made which are vague in nature, we are of the view that it is a fit case for quashing the proceedings, so far as the Managing Director is concerned."

In the present case the petitioner as seen from the documents

was an Additional Director on the date the board report was filed. To

counter the same evidence is required to be adduced during trial so

also to decide as to whether the petitioner at the relevant time of filing

the report was a Director, Additional Director or an Independent

Director. The responsibility of an Additional Director being the same as

that of a director (but difficult from an independent director) they

remain responsible, as the statute provides for the same.

Thus to quash the proceedings by exercising this Courts inherent

powers would amount to an abuse of the process of Court and would

also amount to serious miscarriage of justice.

CRR 1750 of 2020 is thus dismissed.