March 6, 2013
In the earlier issue we discussed on Section 4 of the Companies Act, 1956 and in the present issue we shall proceed with Section 5 of the Companies Act which deals with Officer who is in default. Query No 1: When will the criminal liability of the ordinary directors arise? Decided Case law : Smt. G. Vijayalakshmi vs. SEBI Clarification : A reading of Section 113(2A) along with the definition of the Officer who is in default as given in section 5, would make it ample clear that the Criminal Liability of the ordinary directors in respect of a Company would arise only when the Company has no Managing director or Whole Time director or Manager and where particular directors are not specified to be liable by the Company. Important Point: In case where the Company has an officer described as Managing Director within the meaning of Section 5, question of any other director being liable for the criminal acts of the Company would not arise. Query No 2: Service of Show Cause notice is a crucial factor for determining the question as to whether a director could be construed as an officer in default. Decided Case law : Sivandhi Adityan Vs Additional Registrar of Companies (Mad) Clarification : Section 5 says that all the directors of the Company cannot be construed as 'officers in default' unless each of the director is an officer in default within the meaning of the section 5. Service of show cause notice is a crucial factor for determining the question as to whether a director could be construed as an 'officer in default'. Important Point : Where it was not proved by the prosecution that the show cause notice was issued to the accused director before launching prosecution proceedings, it was held that the accused could not be construed to be an officer in default under the provisions of section 5 and as such prosecution proceedings against him to be quashed.