Directors liable for cheating
vijays
(Querist) 28 November 2012
This query is : Resolved
if some of all directors are maimly concerned with day to day day business of co.then all directors or only those directors or only co. liable for cheating offence?why?
ajay sethi
(Expert) 28 November 2012
directors in charge of day to day management would be liable . you will have to prove the ingredients of offence
R.K Nanda
(Expert) 28 November 2012
all directors are liable for offence.
prabhakar singh
(Expert) 28 November 2012
Chapter II of the companies Act, 1956 deals with the topic “Director”. Section 291 of the Companies Act, (in Chapter II) deals with the general powers of board, as per which the Board of Directors of a company is entitled to exercise all such powers, and do such thing or acts, as may be authorized.
If we come to the question as to the liability of a director in relevancy to the query under hand Section 5 of the Companies Act, 1956 is important. For any default or offence under the companies Act, Section 5 (of the Act) defines the “the officer who is in default” and it includes the Managing director or whole time director.
Section 5 or any other provision of the Companies Act, 1956 does not specifically deal as to the question whether a person who was not on board at the time of default, would be treated as officer in default or be liable to any act, or offence committed by the company or co-director or officer in default prior to his appointment.
so one does need case law support.
In the case of “Ajay Mitra v. State of M.P” 2003 Cri LJ 1249, The Hon'ble Supreme Court held that:
“Since the appellant were not in picture at all at the time when complainant alleged to have spent money in bottling plant, neither any guilty intention can be attributed to them nor, there be possibility of any intention on their part to deceive the complainant. No offence of cheating can, therefore be said to have been committed by appellants.
In another case “National Small Industries Corp. Ltd. v. Hemant Singh & Anr.” the Hon'ble Supreme Court observed that:
“Section 291 of the companies Act, provides that subject to the provision of this Act, the Board of Directors of a company shall be entitled to exercise all such powers and to do all such act and things, as the company is authorised to exercise and do. A company through a legal entity, can act only through the Board of Directors. The settled principle is that a Managing Director is prima facia in charge of and responsible for the company’s business and affairs and can be prosecuted for offences by the company. But in so far as other directors are concerned they can be prosecuted only if they were in charge of and responsible for the conduct of the business of the company.
In the case of “N.K. Wahi vs. Shekhar Singh & Others”, (2007) 9 SCC 481, the Hon'ble Supreme Court held that:
“To launch a prosecution, therefore, against the alleged Directors there must be a specific allegation in the complaint as to the part played by them in the transaction. There should be clear and unambiguous allegation as to how the Directors are in-charge and responsible for the conduct of the business of the company. The description should be clear. It is true that precise words from the provisions of the Act need not be reproduced and the court can always come to a conclusion in facts of each case. But still, in the absence of any averment or specific evidence the net result would be that complaint would not be entertainable.”
In the case of “K.K. Ahuja v. V.K. Vohra”, (2009) 10 SCC 48, Hon'ble Supreme Court has held that:
“It is evident that a person who can be made vicariously liable ... is a person who is responsible to the company for the conduct of the business of the company and in addition is also in charge of the business of the company. There may be many directors and secretaries who are not in charge of the business of the company at all ... a person may be a director and thus belongs to the group of persons making the policy followed by the company, but yet may not be in charge of the business of the company; that a person may be a Manager who is in charge of the business but may not be in overall charge of the business; and that a person may be an officer who may be in charge of only some part of the business.”
Going through the above judgments it is clear that a director can not be held liable for any offence, default or any act of the company or co-director or officer in default, if he was not a director or in charge of the business or affairs of the company at the relevant time. Thus, for any offence or act committed by the company or his co-director or officer in charge prior to the date of his appointment a director can not be held liable.
Raj Kumar Makkad
(Expert) 30 November 2012
After going through the judgment cited above, I am hopeful that your query stand resolved.
