TMI Blog2019 (11) TMI 1492X X X X Extracts X X X X X X X X Extracts X X X X ..... ations committed in the name of a Company during the course of affairs of the Company. Therefore, fundamental duty cast upon the nominated Directors is to protect the interest of the Company and to carry out their statutory duties. It is not their legal duty of Nominated Directors to defend Civil/criminal cases instituted against the erstwhile Directors of the Company, as demanded by the erstwhile Directors in their letter dated 21st August, 2018 addressed to the Nominated Directors. The alleged frauds, committed by erstwhile Directors and other connected people, are prima facie proved during the investigation conducted by SFIO as per their report, are personal in nature and thus they have to defend those cases, as they are solely responsible for those offences and the Nominee Directors are not liable for those actions/offences. As per the extant provisions of Companies Act, 2013, and the Insolvency Bankruptcy Code, 2016 (Code), anybody aggrieved by actions taken on behalf of a Company, can approach the Authorities (NCLT) established under the above Acts, by seeking appropriate remedy rather than any other Court/Tribunal. An aggrieved party can file an Application/Petition be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 575/2019 in C.P. No. 02 of 2014 (T.P. No. 300 of 2017) is filed by the Union of India, Ministry of Corporate Affairs, through Deputy Registrar of Companies, O/o. the Registrar of Companies, Karnataka (Applicant/Petitioner) U/s. 242(4) of the Companies Act, 2013,R/w Rule 11 of the NCLT Rules, 2016, by inter-alia seeking to grant immunity to the newly appointed Directors namely Shri Anup K Pujari, IAS (Retired), Shri C.V. Sajeevan, Registrar of Companies, Karnataka, Shri M. Jayakumar, Official Liquidator, by the Central Government, in pursuance to the directions passed by the Tribunal vide orders dated 14th March, 2019 in C.P. No. 02 of 2014 (T.P. No. 300 of 2017) run the affairs of the Respondent No. 1 Company from initiating Civil and Criminal actions against them by various aggrieved people for the actions taken by the erstwhile Directors of the Company etc. 2. Brief facts of the case, as mentioned in the Application, and facts and findings as recorded by the Tribunal vide its dated 14th March, 2019 passed in the case, which are relevant to the issue in question, are as follows: (1) Initially, C.P. No. 02 of 2014 (T.P. No. 300 of 2017) is filed by Union of India (Petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roject on Bangalore-Mysore Highway during 1994-95. There were two schemes open for the public to become members of any one scheme after paying 60 and 66 instalments respectively. The successful member was assured to get a site as per terms and conditions signed by the members with the Company, starting from 1994-95 to 2001-02, 9600 members applied for sites (plots under the two schemes launched by the MDBL. The MDBL, through its directors and relatives purchased the lands from farmers in nine villages and then they shall get the conversion of its land use from agricultural lands into residential purpose after taking approval from the competent authorities and then said land be handed over back to MDBL, for the purposes of purchasing lands the Directors were given loans and advances of ₹ 10 Crores. The Company on the date of offer to the investors/public were neither having sufficient lands nor the approval from the competent authority for its conversion. And accordingly the said Vajragiri Project stalled when the Karnataka Industrial Area Development Board (KIADB) issued notification in the Karnataka State Gazette U/s 6 of the Land Acquisition Act, 1894 and the intention to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditors, investors, consumers and against the public. (6) Therefore, in order to prevent further perpetuation of the fraud, the main Company Petition was filed by inter-alia seeking to nominate the Directors to the Respondent No. 1 Company to manage the affairs of the Company etc. After considering the issue, the Company Petition was disposed of by separate Order dated 14.03.2019 with the following directions: i. Therefore, we are of the considered opinion that the Petitioner make out a case so as to interfere in the Affairs of the Company with suitable orders so to protect the property of the Company; to protect the interest of stakeholders of Company and to see the Company follow statutory compliances etc. We are also of considered opinion that the exiting management should not be continued, and it should be replaced by the New Directors to be appointed by the Union of India as per law. ii. We hereby declared that the Respondent Nos. 2 to 5 are hereby ceased to be the Directors of the R-1 Company and they are debarred from taking/involving any action with regard to the affairs of Company with immediate effect. Consequently, Union of India is permitted to appoint D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and consumer cases have been filed by the land Applicants against the Respondent No. 1 and they are at various stages and may result in unpleasant situation of issue of notice, summons, bailable and Non-bailable warrant, attachment of personal properties and effects against the present nominated Directors, who are not only discharging their official duties but also discharging their duties as Nominated Directors. In addition to several cases, the erstwhile Directors of the Company(the Respondents herein) have also addressed a letter dated 21st August, 2019 to the Nominated Directors, by inter-alia stating that the present nominated Directors have to actively participate in the day to day court matters in the interest of justice and equity including engaging advocates to defend the cases and that they should take appropriate actions to pursue the cases before various courts as per the attached list and had also warned that if the Government appointed Directors failed to pursue the matters, and any adverse orders are passed in the court proceedings, then they would take responsibility for future consequence and request them to attend the above cases without showing any negligence. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies Act, 2013 or rules made there under may be required to be complied with which would invariably delay and defeat the swift action that is required to be taken by said Directors. The said Directors may become subject to disability or disqualifications under law including but not limited to Sections 164 and 167 of the Act. (12) It is submitted that the Section 242(4) of the Act equips this Tribunal with wide powers to pass such orders as it thinks fit for regulating the conduct of the Company's affair as appears to be just and equitable. Rule 11 of the National Company Law Tribunal Rules, 2016 further confer on this Tribunal with inherent powers to pass such orders as are required to meet the ends of justice. Therefore, in order to ensure effective implementation of the Order dated 14.03.2019, it is just, necessary, convenient and in the interest of justice that this Tribunal, may pass order(s) under Section 242 (4) of the Act read with Rule 11 of the Rules, as detailed below: i. Declaring that the past wrong, if any and their impact erstwhile or continued, or any person or entity ought not to be construed or attributed in any manner or form, directly or indirect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey, Director (Legal Prosecution), MCA, for the Applicant, Party-in-person, Shri Parvez Naikwadi, Assistant Director, (Legal Prosecution), MCA, for the Applicant, Party-person along with their Counsel Shri Kumar M.N, and Shri Andre Peter, learned Counsel for the Respondents Nos. 2-5. We have carefully perused the pleadings of both the parties and extant provisions of the Companies Act, 2013 and rules made there under and the order dated 14th March, 2019 passed in CP No. 02 of 2014 (T.P. No. 300 of 2017) and the law on the issue. 4. As detailed supra, due to various allegations made against M/s. Megacity Bangalore Developers and Builders Limited (MBDL) (Company), Senior Fraud Investigation Office (SFIO) has investigated and filed its report, by inter-alia holding that the Company was being managed contrary to its objects and committed several Civil and Criminal offences against several of the customers. Therefore, the Union of India has filed the above case by seeking the relief as prayed for, in order to prevent the Directors to perpetuate further illegalities to be committed by the erstwhile Directors. Accordingly, the Tribunal has disposed of the main Company Petition with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of any power conferred by or under this Act or any other law for the time being in force, by the Tribunal or the Appellate Tribunal. Further, any person aggrieved by the order of the Tribunal, may file an Appeal before Appellate Tribunal and then Hon'ble Supreme Court of India, as per Sections 421/423 of the Companies Act, 2013, as the case may be. Section 423 of the Act reads as under: 423.... Any person aggrieved by any order of the Appellate Tribunal may file an appeal to the Supreme Court within sixty days from the date of receipt of the order of the Appellate Tribunal to him on any question of law arising out of such order: Provided that the Supreme Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days. Therefore, the order passed by the Tribunal in the main case became final being no appeal filed against it and the Union of India by implementing the order, has taken action by appointing Nominated Directors in question. And all the actions taken by a Company during the course of its business are amenable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious Civil/Criminal cases is filed against the erstwhile Directors for the actions/violations/offences committed during the course of affairs of Company, are deemed to be personal in nature and thus they have to defend by themselves, and the Company being legal/juristic person, in the normal course is not liable for criminal action against it. Therefore, the Nominee Directors are not liable for any civil/Criminal action(s) for offence committed by the erstwhile management, which include removed Directors. Therefore, as the cases are filed against the Company and its erstwhile Directors, the nominee Directors are not proper and necessary parties to be impleaded. Since the matter falls under jurisdiction of the Tribunal, no Civil Court including Consumer Court can normally entertain any Suit or Petition in respect of the affairs of the Company. However, aggrieved parties can proceed against the erstwhile management which includes removed Directors and the Staffs, who are responsible for the offences and mismanagement committed by them. In Criminal cases too, the erstwhile Directors are liable for action but not the Nominee Directors in question, for the reasons stated supra. 8. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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