M.N. Santhana Raman v. Registrar of Companies, A.P., Hyderabad & Ors.

HON’BLE SRI JUSTICE SAMUDRALA GOVINDA RAJULU CRL.P.NOs.525 OF 2007, 526 OF 2007 & 527 OF 2007 COMMON ORDER: These three petitions are filed under Section 482 of the Code of Criminal Procedure for discharging the petitioner (2nd Accused) from criminal prosecutions launched by the 1st respondent in C.C.Nos.35 of 2005, 36 of 2005 and 37 of 2005 in the Court of Special Judge for Economic Offences, Hyderabad for the offences punishable under Sections 63 (1), 68 and 628 of the Companies Act. There is no dispute that the petitioner/A-2 was Director in Midwest Iron and Steels Limited (in short, the company). He was not a share holding Director, but he was nominated as Director by Financer of the company by name Industrial Development Bank of India (I.D.B.I). The 1st respondent viz., Registrar of companies launched prosecution in the above three cases before the lower court against A-1 to A-7 who are Directors and Managers in default of the company. It is alleged that all the accused as Directors and Managing Director made statements which are false in material particulars, knowing them to be false, in returns, reports, certificates, balance sheets, prospectus and other documents required for purposes of the Companies Act. Details of allegations constituting the offences punishable under Sections 63 (1), 68 and 268 of the Companies Act are not necessary for purposes of disposal of these petitions. The only point urged by the Senior Counsel appearing for the petitioner/A-2 is that A-2 is only a nominated Director and that he has no participation in day-to-day administration of the company. At any rate, even as nominated Director, A-2 during the period when he worked as such, has to sign prospectus, returns, balance sheets and other documents after they were approved by Board of Directors in which A-2 is also a member. It is contended by the 1st respondent’s counsel that as nominated Director of the company, A-2 is expected to safeguard interest of the financer viz., Industrial Development Bank of India and to send periodical reports and assessments about working and financial position of the company Industrial Development Bank of India and that A-2 has failed to perform his duty as nominated Director. Reliance is placed by the petitioner on Section 30A(2)(b) of the Industrial Development Bank of India Act, 1964 which was subsequently repealed by the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003. At this stage, it may be noted that the petitioner was nominated as Director by Industrial Development Bank of India in the year 1992 and he functioned as such up to 06.06.1997 when he ceased to hold of office of the Director in the company. The petitioner filed Criminal M.P.Nos.720 of 2006, 721 of 2006 and 722 of 2006 in C.C.Nos. 35 of 2005, 36 of 2005 and 37 of 2005 in the lower court respectively under Sections 244 and 245 of the Code of Criminal Procedure praying for discharging him from those three cases. The lower court after enquiry and hearing passed order dated 03.11.2006 dismissing the said petitions. Section 30A(2)(b) of Industrial Development Bank of India Act,1964 reads as follows:- “(2) Any director appointed as aforesaid shall---- (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.” Even if this Act of 1964 was repealed by the Act 53 of 2003, Section 15(2) of the Repealing Act of 2003 saved Section 30A of the Principal Act of 1964, which reads as follows: “2) Not withstanding the repeal of Industrial Development Bank of India Act, 1964, the provisions of Section 30A of the Act so repealed will continue to be applicable in respect of the arrangement entered into by the Development Bank with an industrial concern up o the appointed day and the Company will be entitled to act upon and enforce the same as fully and effectually as if this Act has not been enacted.” Thus, even if Industrial Development Bank of India Act, 1964 is repealed, Section 30A of the said Act continuous to remain in force. In my opinion, Section 30A(2)(b) of the Industrial Development Bank of India Act is not helpful to the petitioner at this stage. It only prescribes that the nominated Director shall not incur any obligation or liability “by reason only of his being a Director”. The prosecution of A-2 in these three cases is not merely on the ground that A-2 is a nominated Director of the company. The 1st respondent is prosecuting A-2 also on the ground that he made false statements on material particulars in several returns, reports, balance sheets, prospectus and other documents and signed in them. Therefore, second part of clause(b) of Sub section (2) of Section 30A is applicable to this case. As per second limb of Clause (b), a nominated Director will not incur any liability “for any thing done or omitted to be done in good faith” in the discharge of his duties as a Director. This portion of clause (b) places burden on the accused and nominated Director to prove what all he did was done “in good faith”. Until A-2 proves that what all he did as nominated Director and in whatever documents he subscribed his signatures as such was done in good faith, Section 30A (2)(b) of the Industrial Development Bank of India Act will not come to rescue of the petitioner. In that view of the matter, I do not find any valid and legal reasons either to discharge the petitioner-A-2 from the above three cases or to quash the proceedings in the above three pending cases before the lower court. In the result, all the three petitions are dismissed. ____________________________________ SAMUDRALA GOVINDA RAJULU,J. Date:26.11.2009. Gk. HON’BLE SRI JUSTICE SAMUDRALA GOVINDA RAJULU CRL.P.NOs.525 OF 2007, 526 OF 2007 & 527 OF 2007 Gk. Date: 26.11.2009