In the earlier issue, we discussed on Section 5 of the Companies Act, 1956 and we shall continue with the same section of the Companies Act, 1956 in this issue also.Query No 1:
For offenses committed prior to the appointment of petitioner as Managing Director, can a Managing Director be held as an Officer in default under Section 5 of the Companies Act, 1956?Decided Case Law : C.V Siva Prasad vs Registrar of Companies
Facts of the case : The petitioner was appointed as the Managing Director of a financing Company with effect from 16-09-1992. The Complaints were filed for periods up to 31-03-1992 alleging that the Company had committed offenses under different sections of the Companies Act. Further it was alleged that the financing Company having lent the loan in excess of 50% without a Resolution of the Shareholders, had committed an offense under section 370 of the Act. The defense of the petitioner was that he had assumed charge as Managing Director with effect from 16-09-1992 being appointed with effect from 16-09-1992 and all these alleged offenses had taken place prior to his assuming charge on 16-09-1992.
Clarification : The petitioner who has joined the duties as the Managing Director with effect from 16-09-1992 could not be said to be an officer in default regarding the loan transactions that has taken place prior to his joining of duties on 16-09-1992 .Held that in the instant case, at the relevant point of time i.e up to 31-03-1992 the petitioner was not the Managing Director, as admitted in the Complaint itself.
Important Point : As per the allegations in the complaint itself it was clear that the relevant period of the offense was up to 31-03-1992.
Conclusion :Since the petitioner was not a Managing Director during the period he could not be a defaulting officer. He could not be therefore be treated as an Officer in default under section 5 of the Companies Act, 1956.
Query No 2 : Whether vicarious liability of a person for being prosecuted for an offense committed under Drugs & Cosmetics Act, 1940 by a Company arises if at material time he was in charge of the Company and was also responsible to Company for conduct of its business ?Decided Case Law : State of Haryana Vs Brij Lal Mittal
Clarification : The vicarious liability of a person for being prosecuted for an offense committed under Drugs & Cosmetics Act, 1940 by a Company arises if at material time he was in charge of the Company and was also responsible to Company for conduct of its business.
Important point : Simply because a person is a Director of the Company, it does not necessarily mean that he fulfills both the above requirements so as to make him liable. Conversely without being a Director, a person can be in charge of and responsible to the Company for the conduct of its business.
Conclusion :Where except a bald statement that the respondents were Directors of the manufacturers, there was no other allegation to indicate, even prima facie that they were in charge of the Company and was also responsible to Company for conduct of its business even though the prosecution against them were to be quashed.