Judgment :- Petitioner is the A.P. State Financial Corporation created under the State Financial Corporations Act (for short 'the Act'). As a part of its activity, it lends loans to industrial concerns, run by individuals, or firms, or incorporated companies. Whenever the loans are advanced to companies, with a view to ensure proper utilization of the funds, the petitioner nominates some of its officers as nominee directors on the Boards of the Management of the respective companies. The Registrar of Companies, 2nd respondent herein regulates the affairs of the companies incorporated under the Companies Act, such as conducting of annual general body meetings, filing of balance sheets. In case of default, in taking various steps contemplated under the Companies Act, the 2nd respondent has the power to levy penalty on the Board of Directors. While scrutinizing the affairs of various companies, within the State of A.P., the 2nd respondent came across the defaults committed by some of them. In certain cases, the defaulting companies had directors, nominated by the petitioner herein, on the respective boards of management. The 2nd respondent issued notices for prosecution, or to levy penalty on all the directors of the defaulting companies, including those nominated by the petitioner. The petitioner seeks a writ of Mandamus, directing that the respondents be refrained from initiating proceedings under the Companies Act against the officials of the petitioner nominated as directors in various companies under the provisions of the Act. It is pleaded that the nominee directors cannot be treated on par with others, even where any defaults or violations are noticed. The petitioner also seeks directions under Section 27 of the Act. The 2nd respondent filed a counter affidavit. It is stated that it is endowed with the duty to ensure proper functioning of the companies incorporated under the Companies Act and in the process, steps were initiated in accordance with law against the defaulters. The 2nd respondent states that the Companies Act does not maintain any distinction between the nominee directors on the one hand and others on the other. It is also pleaded that in case, the petitioner feels aggrieved by the notices issued to its employees, nominated as directors, it can certainly approach the 2nd respondent with necessary application or even for exemption and that the same would be considered on its own merits. It is also pleaded that in case, the petitioner feels aggrieved by the notices issued to its employees, nominated as directors, it can certainly approach the 2nd respondent with necessary application or even for exemption and that the same would be considered on its own merits. Sri Durga Reddy, learned counsel for the petitioner submits that the nomination of directors on the Boards of Management of loanee companies by the petitioner is a special power conferred under Section 27 of the Act. He submits that the Parliament has given overriding effect to such a course and even if there is any conflict in the course of action indicated in Section 27 of the Act with the one, under Companies Act, the latter has to give way. He further submits that even otherwise, the nominee directors on the board of management of a company do not answer the description of "officer who is in default" occurring in Section 5 of the Companies Act. Sri Ganga Rao, learned Additional Standing Counsel for the Central Government, on the other hand, submits that once an individual figures as a director on the board of management of a company, he is responsible for any default or lapse vis--vis the provisions of the Companies Act. Learned counsel submits that notices were issued on a routine basis and as and when it was brought to the notice of the 2nd respondent that the nominees did not commit any default, proceedings were dropped. The Parliament enacted the Act with an object of establishing financial corporations by the Government, which, in turn, were expected to extend the financial assistance to the intending entrepreneurs. The Corporations created under it are wholly State owned and created to encourage industrial growth. Special and extraordinary powers are conferred upon them. For instance, Section 29 of the Act confer the powers of seizure and sale of the mortgaged property without the necessity of approaching any Court. The parliament conferred overriding effect upon the provisions of the Act over other enactments. It is not uncommon that huge sums are given in loan by the petitioner-corporation to industrial companies. To ensure that the amounts so advanced are put to use, for which they are lent, the Act itself provides for nomination of the employees of the Corporation on the Boards of Directors of the Companies, which avail the financial benefit. It is not uncommon that huge sums are given in loan by the petitioner-corporation to industrial companies. To ensure that the amounts so advanced are put to use, for which they are lent, the Act itself provides for nomination of the employees of the Corporation on the Boards of Directors of the Companies, which avail the financial benefit. They are called 'nominee directors' in the ordinary parlance. Section 27 of the Act creates a special mechanism, paving the way for appointment of nominee directors de hors the articles of association or the provisions of the Companies act. Further it galvanizes the nominee directors from any obligations arising out of their acts and omissions. Section 27 of the Act reads as under: 27. Power to impose conditions for accommodation – (1) In entering into any arrangement under Section 25 with an industrial concern, the Financial Corporation may impose such conditions as it may think necessary or expedient for protecting the interests of the Financial Corporation and securing that the accommodation granted by it is put to the best use by the industrial concern. (2) Where any arrangement entered into by the Financial Corporation with an industrial concern provides for the appointment by the Financial Corporation of one or more Directors of such industrial concern, such provision and any appointment of Directors made in pursuance thereof shall be valid and effective notwithstanding anything to the contrary contained in the Companies Act, 1956 (1 of 1956), or in any other law for the time being in force or in the memorandum, Articles of Association or any other instrument relating to the industrial concern, and any provision regarding share qualification, age limit, number of Directorships, removal of office of Directors and such like conditions contained in any such law or instrument aforesaid shall not apply to any Director appointed by the Financial Corporation in pursuance of the arrangement as aforesaid. (3) Any Director appointed in pursuance of sub-section (2) shall- (a) hold office during the pleasure of the Financial Corporation and may be removed or substituted by any person by order in writing by the Financial Corporation; (b) not incur any obligation or liability by reason only of his being a Director or for anything done or omitted to be done in good faith in the discharge of his duties as a Director or anything in relation thereto; (c) not be liable to retirement by rotation and shall not be taken into account for computing the number of Directors liable to such retirement. Sub-section 3(b) is noteworthy, which insulates the nominee directors from any liability or obligation on account of acts and omissions in their discharge of duties as directors, or anything any relation thereto. After the Companies Act was enacted, the Parliament inserted Section 46(b) in the Act giving overriding effect to it, on all other laws. Therefore, the nominee directors on the board of management of any company, which availed loans from the petitioner, cannot be treated on par with the directors, much less they can be prosecuted for any violation arising out of different provisions of the Companies Act. There is another angle, from which the matter can be viewed. The Companies Act identifies the persons, who can be proceeded against, for commission of defaults of different kinds. By its very nature, the Company would have big establishment comprising of elected, nominated and appointed individuals. While some may be in their managerial capacity, the others are in their executive capacity. Section 5 of the Companies Act, in a way, defines the persons who can be proceeded against, by calling them "officers who are in default". Section 5 reads a under: 5. While some may be in their managerial capacity, the others are in their executive capacity. Section 5 of the Companies Act, in a way, defines the persons who can be proceeded against, by calling them "officers who are in default". Section 5 reads a under: 5. For the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any punishment or penalty, whether by way of imprisonment, fine or otherwise, the expression "officer who is in default" means all the following officers of the company, namely:- (a) the managing director or managing directors; (b) the whole-time director or whole-directors; (c) the manager; (d) the secretary; (e) any person in accordance with whose directions or instructions the Board of directors of the company is accustomed to act; (f) any person charged by the Board with the responsibility of complying with that provision: Provided that the person so charged has given his consent in this behalf to the Board; (g) where any company does not have any of the officers specified in clauses (a) to (c), any director or directors who may be specified by the Board in this behalf or where no director is so specified, all the directors: Provided that where the Board exercises any power under clause (f) or clause (g), it shall, within thirty days of the exercise of such powers, file with the Registrar a return in the prescribed form. From this, it becomes evident that not every one, who is on the board of management, can be treated as an officer in default. Admittedly, the nominee directors do not answer the description of managing director or whole-time director or manager or secretary. It is not even the case of the respondents that the nominee directors are the persons, on whose directions the board of directors of a company, is accustomed to act, much less they are the one with responsibility of complying with the provisions of the Act. Viewed from any angle, the nominee directors under the Act cannot be proceeded against, for the defaults committed by the companies, who borrow amounts from the Corporation. Consequently, they cannot be prosecuted for the defaults in submission of annual reports or balance sheets etc. The writ petition is accordingly allowed as prayed for. There shall be no order as to costs.