Ashok Kumar Sharma vs Northland Sugar Complex Limited (in liquidation) and Others

Adarsh Kumar Goel, J.—This appeal has been preferred against order of learned Single Judge holding the Appellant guilty u/s 454(5) of the Companies Act, 1956 (for short, "the Act") and imposing fine of Rs. 50,000/-.

M/s Northland Sugar Complex Limited was a company registered under the Act and was ordered to be wound up vide order dated 9.10.1997 in C.P. No. 45 of 1996. Official Liquidator took possession of the premises and record and issued notice u/s 454 of the Act to the concerned persons including the Appellant on 18.11.1997. Since they failed to file Statement of Affairs without reasonable excuse, complaint was moved by the Official Liquidator, leading to the impugned order.

We have heard learned Counsel for the parties and perused the record.

Contention raised in the appeal is that the Appellant was only the nominee Director nominated by the Punjab State Industrial Development Corporation, the creditor of the Company. Under the agreement to advance loan, there was a provision for nominating a Director by the Financial Corporation and in terms thereof, the Appellant was nominated vide order dated 4.5.1993, Annexure A-1. Section 41A of the State Financial Corporations Act, 1951 provided that for any official acts done in good faith, the nominee Director was not liable for prosecution. The Government of India vide letter dated 20.9.1973 also stated that criminal prosecution could not be initiated against the nominee Director of the financial institution without proper scrutiny and without approval of the Headquarters. The Appellant filed application, Annexure A-3, for putting forward this offence but learned Company Judge without considering this aspect, held the Appellant guilty.

Learned Counsel for the Appellant relies on DB judgment of Kerala High Court in K. Subramony v. Official Liquidator, Malabar Phyto Chemicals Ltd. (In Liqn.) [2010] 157 Comp Cas 61 and SB judgment of this Court in S.K. Sharma v. Registrar of Companies 2004 (2) ISJ 463 CA No. 8 of 2010 that a nominee Director may not be conversant with records or affairs of a company. In the application, Annexure A-3, the Appellant CA No. 8 of 2010 specifically stated in para 2 that as nominee Director, he was not involved in the day to day affairs of the company and was not in possession of any assets, books of account or document. He also did not receive any notice from the Official Liquidator which could not be rebutted.

Learned Counsel for the Official Liquidator relies upon judgment of this Court in M/s Northland Sugar Complex Limited (In Liqn.) v. Sh. Sansar Chand Maini (2009-3) 658 holding that even a nominee Director could be proceeded against u/s 454 of the Act. He also placed reliance on the reply filed by the Official Liquidator.

It is patent that if there is reasonable excuse, a person may not be held guilty u/s 454(5) of the Act. In the present case, there is no finding that the Appellant was concerned with day to day affairs of the company. The learned Single Judge has not gone into the issue whether the Appellant was in possession of any of the information and documents relating to the company. There is nothing in the reply to show that the Appellant was in any manner concerned with the date to day affairs of the company. In these facts and circumstances, the impugned order holding the Appellant guilty u/s 454(5) of the Act cannot be sustained.

Accordingly, we allow this appeal and set aside the impugned order qua the Appellant.