TMI Blog2019 (8) TMI 1593X X X X Extracts X X X X X X X X Extracts X X X X ..... nnivance, but in the matter on hand, it is apposite to note that no materials have been brought on record to show that the petitioner actively participated in the day-to-day affairs of the Company or in the Board Meeting and the commissions and omissions alleged against the Company had taken place with the knowledge, consent or connivance of the petitioner to satisfy the ingredients of Section 149(12) of the Act. It is to be seen that the persons identified as wilful defaulter have to meet the consequence of the subsequent proceedings to be initiated by the Banks and Financial Institutions in tune with the Master Circular 2.5. Therefore, unless the allegations are supported by material documents, no one can be declared as a 'wilful defaulter'. It is settled position of law that the penal provisions requires strict proof and it cannot be permitted to be exercised in a casual manner - It is to be further seen that the Wilful Defaulter Identification Committee of the State Bank of India, after perusing the entire records came to the conclusion that they are not sufficient to declare the petitioner as a 'wilful defaulter'. In the case on hand, there is absolutely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... states that the Reserve Bank of India during annual inspection conducted in the year 2013 into the books of accounts of the fourth respondent-Company, found accounting malpractices in the Company and issued various direction in order to protect the public interest. Thereafter, on 16.09.2013, the fourth respondent had taken a decision to appoint a Former Director, Central Bureau of Investigation Dr.R.K.Raghavan, to carry out Forensic Audit into the affairs of the Company and also appointed a Special Audit Team. The first respondent also appointed M/s.N.C.Rajagopal Company, Chartered Accountants to carry out Special Audit into the books of accounts of the Company for its transaction between 01.04.2002 and 31.02.2013. The consortium of Bankers had appointed M/s.Maharaj, N.R.Suresh Co., Chartered Accountants in the meeting held on 25.11.2003 and they submitted a final report on 24.01.2014. 5. The petitioner would allege that the said Farouk Irani and his Team developed a software to create fictitious data / entries in the Companies account. The Forensic Audit conducted by Dr.R.K.Raghavan, submitted a final report on 28.07.2014, stating that the Managing Director of the Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representation on 09.12.2015 and also participated in the enquiry and gave a detailed explanation about his non-involvement in the alleged illegalities committed by the Company, however without considering the same, by the impugned letter dated 10.05.2016, the petitioner has been classified as a wilful defaulter on 25.04.2016. 9. Mr.G.Masilamani, learned Senior Counsel appearing on behalf of the petitioner would urge that admittedly the petitioner joined in the fourth respondent-Board as Non-Executive Independent Director of the Company. The learned Senior Counsel by referring Sections 149 (6) and 149(12)of the Act, submitted that an Independent Director shall be held liable, only in respect of such acts of omission or commission by a Company which had occurred with his knowledge, consent or connivance; that the petitioner never involved in the day-to-day affairs of the Company and no material is available to hold that the illegality of the company has taken place with his consent and connivance, the petitioner cannot be declared as a 'wilful defaulter'. The learned Senior Counsel relies on the Master Circular issued by the Reserve Bank of India, dated 01.07.2015 in supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had pecuniary relationship or transactions with the company, its holding, subsidiary or associate company, or their promoters, or directors, amounting to two per cent, or more of its gross turnoever of total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year; (e) who, neither himself nor any of his relatives- (i) holds or has held the position of a key managerial personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed; (ii) is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of- (A) a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or (B) any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facility, should be incorporated by the banks / FIs to the effect that the borrowing company should not induct on its board a person whose name appears in the list of Wilful Defaulters and that in case, such a person is found to be on its board, it would take expeditious and effective steps for removal of the person from its board. It would be imperative on the part of the banks and FIs to put in place a transparent mechanism for the entire process so that the penal provisions are not misused and the scope of such discretionary powers are kept to the barest minimum. It should also be ensured that a solitary or isolated instance is not made the basis for imposing the penal action. 3. Mechanism for identification of Wilful Defaulters :- The mechanism referred to in paragraph 2.5 above should generally include the following:- (a) The evidence of wilful default on the part of the borrowing company and its promoter/whole-time director at the relevant time should be examined by a Committee headed by an Executive Director or equivalent and consisting of two other senior officers of the rank of GM/DGM. (b) If the Committee concludes that an event of wilfu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a whole time director. (iv) As a one-time measure, Banks / FIs, while reporting details of wilful defaulters to the Credit Information Companies may thus remove the names of non- whole time directors (nominee directors / independent directors) in respect of whom they already do not have information about their complicity in the default / wilful default of the borrowing company. However, the names of the promoter directors, even if not while time directors, on the board of the wilful defaulting companies cannot be removed from the existing list of wilful defaulters. (e) A similar process as detailed in sub paragraps (a) to (c) above should be followed when identifying a nonpromoter/ non-whole time director as a wilful defaulter. 15. A plain reading of the above provisions would reveal that Section 149(6) prescribes the qualification of the Independent Director of a Company and it further distinguishes the Independent Director from the Managing Director or Whole-time Director or a Nominee Director of a Company. Section 149(12) deals with the responsibility and liability of the Independent Director. Clause 2.5 of the Master Circular of Reserve Bank of India, dated 01. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
