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2004 DIGILAW 795 (PNJ)

S. K. Sharma v. Registrar Of Companies

2004-07-30

SATISH KUMAR MITTAL

body2004
Judgment Satish Kumar Mittal, J. 1. By this order, I shall dispose of two petitions i.e. Crl. Misc. No. 42261 M of 2001 and Crl. Misc. No. 43048 of 2001 filed by S.K. Sharma and A.K. Mahajan who were nominated as Directors on the Board of M/s Cepham Agencies Private Limited (hereinafter referred to as accused Company) on behalf of the Punjab State Industrial Development Corporation (hereinafter referred to as the Corporation) by virtue of an agreement entered into between the accused Company and the Corporation. For the sake of reference, the facts are being noticed from Crl. Misc. No. 42261-M of 2001. 2. The Registrar of Companies filed a complaint under Section 58-A (x) of the Companies Act, 1956 against the accused Company and its Directors including the petitioners on the allegation that the accused-Company had failed to make repayment of deposits accepted by it. The depositors approached the Company Law Board (hereinafter referred to as the Board) to seek order for getting payment of their deposits. Thereafter, the Board directed the accused-Company to furnish information regarding outstanding deposits. When the matter was heard by the Board, the Managing Director of the accused Company was personally present and he submitted a repayment schedule before the Board. The repayment Schedule was accepted by the Board. Subsequently, when the accused-Company did not honour the undertaking given before the Board and foiled to submit affidavit regarding compliance of the undertaking, the Board directed to file a complaint against the accused company. On the said complaint dated 17.9.1999. Annexure P3, all the Directors including the petitioners were summoned vide order dated 25.10.2000. Annexure P4. The petitioners have challenged the aforesaid complaint as well as the summoning order, on the ground that the petitioners are only nominated Directors in the accused-Company on behalf of the Corporation. They have no concern with the day to day business of the accused Company nor they have any control over any authority who issued FDRs to the parties regarding the business transactions. The nominated Directors are appointed by the Corporation and such like financial institutions with an object to protect their, interests in the Company to whom financial assistance is given by them. The nominated Directors are appointed by the Corporation and such like financial institutions with an object to protect their, interests in the Company to whom financial assistance is given by them. It has been further stated that in view of Section 41-A of the State Financial Corporation Act, 1951 (hereinafter referred to as the Act), no suit or prosecution or other proceedings shall lie against any person appointed as Director Administrator, Managing Agent or Manager by the Financial Corporation under Section 27 or Section 32-A of the Act. 3. Pursuant to the notice issued to the respondent, reply has been filed by the Deputy Registrar of Companies. In the reply, it has been admitted that the petitioners are nominated Directors in the accused Company. They have been nominated in pursuance to Clause 12 of the agreement dated 25.8.1993, Annexure P7. Further it has been submitted that the petitioners are not entitled for protection provided under Sections 27, 32-A and 41-A of the Act because the petitioners were nominated Directors of the Corporation which was neither created under the Act nor is a State Financial Corporation. Therefore, the protection under Section 41-A is not available to them. It has been stated that the protection under Section 41-A of the Act is available to the person who has been nominated as a Director in a Company by the State Financial Corporation. The petitioners have not brought on record any notification vide which the Corporation was notified as financial corporation under the Act. Though an averment has been made in the petition that the corporation has been notified as a Financial Corporation under the Act, but the respondents denied the same for want of knowledge. 4. Learned counsel for the petitioners referred to notification dated 13.5.1988, Annexure P5 issued by the Ministry of Finance,. Department of Economic Affairs, Government of India. The notification was issued in exercise of powers conferred by sub-section (1) of Section 46 of the Act to the effect that provisions of Sections 29, 30, 31, 32, 32A to 32F of the Act shall be applicable to the Corporation. Subsequently, another notification was issued on 5.10.1989 by the Central Government which provides that in exercise of powers conferred by sub-section (1) of Section 46 of the Act, the provisions of Sections 27, 41, 41A and 44 of the Act shall apply to the Corporation. Subsequently, another notification was issued on 5.10.1989 by the Central Government which provides that in exercise of powers conferred by sub-section (1) of Section 46 of the Act, the provisions of Sections 27, 41, 41A and 44 of the Act shall apply to the Corporation. Learned counsel for the respondent has denied the factum of issuance of these notifications in his reply. 5. I have heard the learned counsel for the parties and perused the records of the case. 6. Undisputedly, in this case both the petitioners were nominated on the board of Directors of the accused Company as nominated Directors by virtue of Clause 12 of the Agreement dated 25.8.1993, P-7. Both the petitioners were not concerned with the day to day business of the accused company nor they were having any control over the authorities who issued FDRs to the parties regarding the business transactions. When on the complaint received by the Board, the accused company was asked to explain in regard to repayment of deposits, the Managing Director of the accused Company appeared before the Board and submitted the repayment schedule. The petitioners were not in control of the affairs of the business of the accused-Company much less having any knowledge regarding the receipt of the deposits and issuance of cheques. Even otherwise no such allegations have been leveled against the petitioners in the complaint. Thus, there was nothing in the complaint on the basis of which the petitioner could have been summoned. The petitioners being nominated Directors of the financial institution are entitled for the protection provided to them under Section 41-A of the Act. It is not disputed by the respondent that the nominated Director of a financial institution is entitled for the protection provided under Section 41A of the Act. The only objection raised by the respondent in its reply is that the Corporation is not a financial institution under the Act. To controvert this objection, the petitioners have placed on record Notifications-Annexures P/5 and P/6 whereby the Central Government notified that provisions of the Sections 27, 29 to 32, 32A to 32F, 41, 41A and 44 of the Act shall be applicable to the Corporation. 7. To controvert this objection, the petitioners have placed on record Notifications-Annexures P/5 and P/6 whereby the Central Government notified that provisions of the Sections 27, 29 to 32, 32A to 32F, 41, 41A and 44 of the Act shall be applicable to the Corporation. 7. In view of the position explained above, the petitioners who are only nominated Directors in the accused company on behalf of the corporation are entitled for the protection granted to the corporation under Sections 27, 29 to 32, 32A to 32F, 41, 41A and 44 of the Act of the Act. Hence, the summoning order as well as all subsequent proceedings initiated on the basis of the complaint in question, qua the present petitioners are liable to be quashed. 8. Consequently, the instant petition is allowed. The impugned summoning order as well as subsequent proceedings conducted on the basis of the complaint in question, qua the present petitioners, are hereby quashed.