[Opinion] Importance of Director’s Designation in Determining Responsibilities

[2023] 147 taxmann.com 425 (Article)

1. A brief about this article

The board composition of a company would have different categories of directors such as, managing director, executive director, non-executive director, nominee director, woman director and additional director. In the category of non-executive director, there would be an independent director or non-independent director and the same holds good in the case woman non-executive director also.

A non-executive director is a member of a company’s board of directors who is not part of the executive team. A non-executive director typically does not engage in the day-to-day management of the organization but is involved in policy-making and planning exercises. An independent director is also a non-executive director who does not have any pecuniary relationship with the company, its promoters, and senior management or affiliate companies, is not related to promoters or the senior management, and/or has not been an executive with the company.

The provisions relating to the appointment of Independent directors are contained in section 149 of the Companies Act, 2013 should be read along with Rule 4 of Companies (Appointment and Qualification of Directors) Rules, 2014 and Sub-section (6) of section 149 spells out that an independent director in relation to a company, means a director other than a managing director or a whole-time director or a nominee director, and who in the opinion of the board, is a person of integrity and possesses relevant expertise and experience.

Further, the Companies Act 2013 has also prescribed a code for independent directors in its schedule IV pursuant to sub-section (8) of section 139 of the Companies Act 2013. For listed companies, the appointment of independent directors is governed by SEBI (Listing Obligations and Disclosure) Regulations 2015 which is in a similar line with the provisions of the Companies Act 2013 with few stricter compliances.

When the determination of responsibilities of the directors are to be decided by the regulators, the material importance over the category of director i.e., whether executive or non-executive and again independent or non-independent are of very much importance. The liability would differ according to the category – looking into the aspect as to whether the concerned director is involved in day to day management of the company and exercising control or the director is a non-executive and he/she attends the board meetings regulatory or part of the board process. The judiciary, generally goes by the above while deciding the criminal liability cases. This particular case is one such case where the Honourable Calcutta High Court examination two aspects specifically i.e. (i) what post was being held by the director (petitioner) and (ii) whether the director was responsible/liable for the offence alleged.

In order to understand the determination of responsibilities of a director and their liability, let us go through the appeal petition decided by the Honourable Calcutta High Court (Criminal Revisional Jurisdiction) judgment delivered on 20th January 2023 in the case of Surendra Kumar Singhi v. Registrar of Companies

2. Relevant case law

A revision petition has been preferred by an independent director praying for the quashing of proceedings of the criminal case (case No. CS/0108645/2016) which was pending before the Learned Metropolitan Magistrate, 10th Court at Kolkata under section 217(5) of Companies Act 1956 and all orders passed pertaining to this case including the orders dated 06.09.2016, 21.12.2016 and 13.03.2020.

3. Details of the company

M/s Mani Square Limited was incorporated on 30th October, 1959 under the Companies Act 1956 and it is involved in the business of residential, hospitality, retail, health care, education, and commercial real estate properties. The company is having its registered office at 164/1, Maniktala Main Road, Kolkata in the state of West Bengal. The company is under the jurisdiction of the Registrar of Companies of West Bengal and the Registrar of Company is situated in Kolkata. The company currently have five directors on its board.

4. Events relating to appointment – his tenure till the resignation of the independent director

The following are the details relating to the tenure of the independent director right from appointment till he resigned from the company.

(a) The company requested the concerned person to join the board of M/s Man Square Limited as an independent director on 2nd May 2014.

(b) The concerned person gave his consent to join the board as an independent director of the company on 6th May 2014 by submitting the prescribed consent form in DIR-2 form on 17th May 2014.

(c) Then, he was appointed by the board of directors as an independent director effective from 2nd June 2014 as an additional director.

(d) He was to hold the office of the additional director position till the time of the forthcoming annual general meeting of the company i.e. till 30th September 2014.

(e) The company filed the required DIR-12 form with the Ministry of Corporate Affairs on 8th June 2014.

(f) Upon appointment, he remained as an additional director till the date of the annual general meeting which was held on 30th September 2014 i.e., for the period from 2nd June 2014 to 30th September 2014.

(g) Though the director was appointed as an Independent Director, the MCA Portal showed his designation as an “additional director” during this period.

(h) The independent director held his position till the year 2016 and resigned from the directorship from the board on 31st December 2016 and he has also filed a DIR-11 form to this effect with the MCA portal.

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