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Judgment
A. Hariprasad, J.—Solitary legal question arising for decision in this proceedings u/s 482 of the Code of Criminal Procedure (for short, "Cr.P.C.") is the following:
Whether a person nominated as Director of a company by virtue of his office in a financial corporation owned by the State Government is liable for prosecution u/s 138 of the Negotiable Instruments Act, 1881 (in short, "NI Act") along with the company?
Material facts are the following: Petitioner is the 5th accused in C.C. No. 311 of 2000 on the file of the court of Chief Judicial Magistrate, Kollam. 1st respondent herein is the complainant before the trial court. Accused 1 to 4 are not arraigned in this proceedings. In Annexure-C, the complaint, it is averred that the 1st accused company issued a cheque to the 1st respondent in discharge of a legally enforceable debt. It is also alleged that the cheque was drawn towards a subsisting liability created by all the accused as Directors of the 1st accused company. When the cheque was presented for collection, it was dishonoured due to insufficiency of funds. Thereupon a notice required under the provisions of the NI Act was issued to the accused. Petitioner alone accepted the notice. Others evaded the same. Hence the prosecution was launched.
The fate of the case is dependant on the resolution of the legal question posed above. Petitioner contended that he is the Executive Director of Kerala State Industrial Development Corporation (in short, "KSIDC"). It is a Government company in which the entire shares are held by the State. It is also contended that the Central Government, by virtue of powers u/s 46 of the State Financial Corporations Act, 1951 (in short, "Act of 1951"), have directed that the provisions of the said Act shall apply to KSIDC. Accordingly, KSIDC has become a financial corporation controlled by the State Government under the Act of 1951.
Section 25 of the Act of 1951 enumerates the businesses in which a financial corporation may transact. It includes, inter alia, granting loans and advances to industrial concerns. Section 27 of Act of 1951 empowers the financial corporation, constituted under the Act, to impose conditions while entering into any agreement u/s 25 of the Act of 1951 with an industrial concern. It is the case of the petitioner that by virtue of Section 27(3) (b) of Act of 1951, any Director appointed in pursuance of Sub-section (2) of Section 27, cannot incur any obligation or liability by reason of his being a Director or for anything done or omitted to be done in good faith in the discharge of his duties as Director. Section 27 of the Act of 1951 insulates the Director appointed by the financial corporation from prosecution under the Companies Act as well.
Petitioner was in full time employment in KSIDC. It had granted a loan of Rs. 90,00,000/- to the 1st accused company. In accordance with the provisions of Section 27 of Act of 1951, KSIDC appointed the petitioner as nominee Director on the Board of Directors of the 1st accused company. Annexure-A is the certified copy of Form No. 32 issued by the Registrar of Companies showing the petitioner as a nominee Director of the 1st accused company. In fact, the 1st accused company committed default in repayment of loan advanced by the KSIDC. Therefore, KSIDC withdrew the petitioner as its nominee from the Board of Directors of the 1st accused company by Annexure-B, letter. That is dated 16.12.1996. Allegation in the complaint is that the 1st accused company, after availing a loan from the complainant/1st respondent, committed default in repayment. Hence the prosecution against the company and its Directors. However, petitioner (5th accused) is not liable to be proceeded in this case u/s 138 of the NI Act for the abovesaid reasons as well as for the reason that Section 141 of the NI Act dealing with offences committed by companies gives protection to a nominated Director. The relevant proviso of Section 141(1) of the NI Act reads as follows:
Offences by companies.-(1) If the person committing an offence u/s 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:
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Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.
It is evident from the above provision that the petitioner cannot be prosecuted for an offence alleged to have been committed by a company in which he was appointed as a nominated Director by a financial corporation which advanced amount to the defaulter company. It is important to note that the petitioner was not a member of the Board of Directors of 1st accused company at the time of launching prosecution. Even if he remained in the Board of the 1st accused company, he cannot be prosecuted by virtue of the provisions u/s 27 of the Act of 1951 and proviso to Section 141(1) of the NI Act. Therefore, prosecution against the petitioner is misconceived.
In the result, petition is allowed. Complaint filed by the 1st respondent is quashed in so far as it relates to the petitioner and the petitioner is exonerated from the liability alleged in the complaint.
All pending interlocutory applications will stand dismissed.