Person as a Nominee Director of the Company can’t be summoned for offences in respect of Sections 128, 129, 448 read with Section 447 of the Companies Act, 2013, without any specific allegations against him in Investigation report of being complicit or having acted in bad faith, when he is not involved in the day to day affairs of the company as well as not assigned with any of executive work of the company.
21.09. 2020
Dr. Rajesh Kumar Yaduvanshi (Petitioner)
vs.
Serious Fraud Investigation Office
(SFIO) & Anr. (Respondents)
Delhi High Court
CRL. REV. P. 1308/2019 and CRL. M.A. Nos. 43209/2019,
3644/2020, 7626/2020, 7627/2020 & 10502/2020
Justice Vibhu Bakhru
Fact of the case
The petitioner has filed the present petition impugning a summoning order dated August 16, 2019 issued by the learned ASJ in Complaint Case No. 770/2019 captioned “Serious Fraud Investigation Office (SFIO) vs.Bhushan Steel Limited and Ors.”, to the limited extent that it directs issuance of summons to the petitioner. The learned Court had found that there was sufficient material placed on record against the petitioner for him to face prosecution in respect of offences under Sections 128, 129, 448 read with Section 447 of the Companies Act, 2013. The petitioner was Punjab National Bank Limited’s nominee on the Board of Directors of Bhushan Steel Limited (‘BSL’) at the material time.
Issue:
The principal issue that arises for consideration is:
• whether the petitioner can be prosecuted for the alleged fraud committed by BSL and/or promoters solely for the reason that the petitioner was a director of BSL and,
• Whether there is any material on record to indicate that the petitioner was complicit in the commission of the alleged offence.
The Petitioner submitted that there is no specific allegation in the SFIO report that the petitioner was even remotely connected or aware of the same and, therefore, his name does not feature as being involved in the fraudulent routing of funds. Further, it was submitted that merely mentioning the petitioner’s name as being one of the persons who is allegedly liable to be prosecuted under Sections 128, 129 and 448 of the Companies Act, 2013, without ascribing any specific role or pointing out any culpable conduct would not constitute sufficient material to persuade any Court to issue summons. Hence, there was no allegation in the complaint that the petitioner has connived with the Promoters or any other person to falsify the accounts and, therefore, the impugned order is wholly erroneous.
Judgement
Delhi High Court observed that there is no allegation that the petitioner was involved in the affairs of BSL except in his capacity as a Nominee Director of PNB. In such capacity, he was not assigned any executive work of BSL but was merely required to attend and participate in the Board Meetings of BSL.
Even, SFIO investigation report does not contain any specific allegations against the Petitioner of being complicit or having acted in bad faith. There is a material difference between the allegation that a Nominee Director has been negligent or has failed to discharge his responsibility and an allegation that he has connived or has been complicit in approving financial statements, which he knows to be false or conceal material information. While the latter may constitute an offence under Section 448 of the Companies Act, 2013, the former does not constitute any such offence.
Hence, the reasoning of the learned Trial Court that the petitioner had connived with the Promoters and is liable to be proceeded against, is clearly unsustainable and not supported by the allegations made in the complaint or the SFIO Investigation Report. Hence, the impugned summons issued to the petitioner and the impugned order, to the limited extent that it directs issuance of summons to the petitioner, are set aside.
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