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Bombay High Court | Independent Non-Executive Director not liable for acts of company when not involved in day-to-day business

Bombay High Court

Bombay High Court

Bombay High Court: The Division Bench of K.R. Shriram and Milind N. Jadhav, JJ. took cognizance of a petition which was filed by the wife of late Shri. Anand S. Bhatt (‘Mr. Bhatt’) who was practicing advocate and partner of Wadia Ghandy & Co., Advocates and Solicitors. He unfortunately was a victim of the terrorist attack on 26-11-2008 at Hotel Oberoi, Mumbai. After the demise of Mr Bhatt, petitioner had come across a file relating to the orders passed by respondent 2 and on legal advice decided to approach this court challenging nine orders all passed by respondent 2 by which penalty had been imposed on one TPI India Ltd (‘TPI’), its directors and ex-directors because Mr Bhatt’s name also appeared in the impugned orders.

Petition alleged that prior to 10-03-1999, Mr Bhatt was an independent non-executive director of TPI and then he had resigned as independent director of TPI and the copy of resignation letter was submitted with the Registrar of Companies intimating to the public about resignation. It is important to note that TPI has been declared a sick industrial company under the provisions of the 1985(“SICA”) by the Board of Industrial and Financial Reconstruction (“BIFR”), New Delhi. It was also not in dispute that Mr Bhatt was an independent non-executive director and had nothing to do with the day-to-day management and business of TPI.

Respondent 2 passed the impugned adjudication orders holding TPI as defaulter under Foreign Trade (Development and Regulation) Act, 1992 (“FTDRA”) alleging that TPI had defaulted in its export obligation under the advance licences issued to it by respondent 2 by not submitting the required documentation.

It was noted that TPI was receiving notices from respondent 2 and those notices were also forwarded by respondent 2 to the incorrect residential address on the premise that Mr Bhatt also continued to be a director of TPI. It appeared that no notice was addressed to Mr Bhatt but all notices were addressed to TPI and TPI was called upon to show cause.

Mr Y.R. Mishra, counsel for the respondents submitted that name of Mr Bhatt was also appearing on the Import Export Code and if he had resigned, after his resignation from the company, he ought to have applied to get his name deleted from the Import Export Code by applying to the concerned Authority for modification.

The Court noted that all allegations made in affidavit-in-reply were bald as there is no requirement shown for any such application on the part of a person whose name appears at some point of time as a director of a company. The Court was of the view that in any event Form 32, which is a public document, has been filed by TPI and the Court would expect a Special Investigating Agency like respondent 2 to make an inquiry in the office of the Registrar of Companies and find out who were the directors.

The Court reproduced the first adjudication order dated 25-07-2008 and carved out that:

(a) It was TPI that was required to fulfill the export obligation within the prescribed period and submit the documents within one month from the date of expiry of export obligation period towards discharge of its export obligation;

(b) It was TPI that did not submit any original documentary evidence in discharge of export obligation;

(c) In view thereof, it was TPI that had received a demand notice dated 13.08.2000;

(d) It was TPI that was given an opportunity of personal hearing by the licencing authority;

(e) It was TPI that failed to respond to the demand notice;

(f) The licencing authority therefore declared TPI a defaulter;

(g) Since TPI did not submit any original documents in reply to the demand notice, it was TPI that was issued a refusal order dated 26.02.2001 followed by a forfeiture order dated 19.06.2003;

(h) It was TPI that had received a show-cause-notice dated 17.06.2008 requiring to show cause as to why action to impose fiscal penalty should not be taken against TPI and its directors;

(i) It was TPI that was directed to reply to the show-cause notice, and it was TPI that was warned that failure to do would lead to a presumption that it had nothing to say in its defence and the case will be decided exparte on merits without further reference to TPI;

(j) It was TPI that was offered an opportunity of personal hearing on 23.07.2008.

The Court again clarified that TPI is the accused person primarily. There is nothing in the impugned orders as to what was the role of each director and how Mr Bhatt was a directing mind or will of TPI.

This would run contrary to the principle of vicarious liability which requires detailing the circumstances under which a director of a company can be held liable. No doubt, a corporate entity is an artificial person which acts through its officers, directors, managing director / chairman etc. It is the cardinal principle of criminal jurisprudence that where there are allegations of vicarious liability, then there has to be sufficient evidence of the active role of each director. There has to be a specific act attributed to a director or the person allegedly in control of management of the company, to the effect that such a person was responsible for the acts committed by or on behalf of the company.

The Court while disposing the petition quashed, set aside all nine orders challenged by the petitioner and held that the proceedings against Mr Bhatt were void ab initio. The Court opined that if only a notice had been sent to Mr Bhatt identifying the specific acts attributable to him, he could have represented against the imposition of any penalty. He could have placed on record various facts and circumstances to show that even if any offence was committed by TPI, he had no hand in it, thus the impugned order imposing penalty on him were set aside relying on a similar judgment in Om Vir Singh v. Union of India, 2016 SCC OnLine Guj 8404.

[Meena Anand Suryadutt Bhatt v. Union of India, 2022 SCC OnLine Bom 1505, decided on 08-07-2022]


Advocates who appeared in this case :

Mr Vikram Nankani, Senior Advocate a/w Ms Kirti Bhoite & Ms Virangana Wadhawan (Economic Law Practice), Advocates, for the Petitioner;

Mr Y.R. Mishra a/w Mr N.R. Prajapati, Advocates, for the Respondents.


*Suchita Shukla, Editorial Assistant has reported this brief.

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