KANTHI NARAHARI -
(1.)THE present petition is filed under section 614 of the Companies Act, 1956, praying this Bench to direct the respondents to file Form 32 at the office of the Registrar of Companies intimating the cessation of the petitioner from the directorship with effect from April 25, 2012.
(2.)The practising company secretary appearing for the petitioner submitted that the petitioner is the founder promoter and one of the first directors of the first respondent. He had resigned his directorship and had communicated the same to the respondents vide his e -mail dated April 25, 2012. The petitioner had also sent the hard copy of the resignation letter by registered post with acknowledgment. The same was received by respondent No. 2 on April 30, 2012. The petitioner was subject to torture by other directors and respondents Nos. 2 to 4, have been making several baseless and untrue allegations. Vide his e -mail dated April 25, 2012, when the petitioner had categorically communicated his resignation and had requested the board of directors to take the same on record with immediate effect, the respondents refused to do the same. On April 26, 2012, respondent No. 3 had sent an e -mail to the petitioner to state that the petitioner cannot resign until all the liabilities incurred by the company are cleared. Subsequently, the respondents had in what was styled as a general meeting allegedly held on July 20, 2012, made various baseless allegations against the petitioner. Notwithstanding the fact that those allegations are vague, baseless and untenable on facts and law, the petitioner humbly states that they are extraneous to the subject matter of this petition. In fact, it may be noted that even respondent No. 3 had submitted his resignation citing certain untenable and baseless allegations against the petitioner and the same has been accepted by the board in the same meeting. In spite of categorical resignation by the petitioner, the respondents continue to remain in default by not filing the requisite Form 32 with the Registrar of Companies even as on the date of this company petition. Resignation of directorship is a material event and failure to notify the Registrar of Companies, of such important matters constitutes a grave offence on the part of the first respondent and its officers. The petitioner further submitted that as already narrated despite resignation from directorship and despite the notice under section 614 of the Companies Act, 1956, issued by the petitioner through his authorised representatives, the company continues to be in default and the respondents are liable to make good the default in filing Form 32. The failure of the first respondent and its officers including the second and fourth respondents to file Form 32 pertaining to the resignation of the petitioner from the office of director with effect from April 25, 2012, has put the petitioner to severe hardship and untold difficulties. Hence, he requested the Bench to direct the company to file Form 32 with the concerned Registrar of Companies effecting cessation of petitioner from the post of director. The respondents have filed a detailed counter affidavit and stated that the petitioner continues to be a director of the first respondent and therefore no cause has arisen under section 614 of the Companies Act, 1956, for maintaining the present petition under that provision. The petitioner and the second respondent were the subscribers to the memorandum and were the first directors of the company. The petitioner employed teams of persons to achieve the objects of the company, i.e., to develop a logistics and infrastructure management software for companies in the oil and gas sector. While the software was developed, the petitioner claimed to have obtained contracts from the Indian Oil Corporation and Total Oil India P. Ltd., for software customised for their needs. The petitioner hired about 20 employees for the development of the software, which was unjustified and completely exceeded the requirements of the company at the time. Despite claiming that purchase orders were in hand and despite claiming that the software was in place for the logistics and infrastructure management, no contracts were executed by the company either with the Indian Oil Corporation or with Total Oil India P. Ltd. The increasing costs of the company were funded by advances made by the respondents from time to time. Between August 2011 and April 2012, the petitioner also borrowed several lakhs of rupees from various persons, allegedly on behalf of the company. The respondents submitted that these were unilateral decisions of the petitioner and were neither approved by the board of directors of the company, nor were such borrowings brought to the knowledge of the board and shareholders. The petitioner was unable to secure contracts for the company, and the contracts claimed to have been obtained by him were in fact non -existent. The loans obtained by the petitioner were in default, and the creditors began demanding repayment. In response, the petitioner began avoiding the creditors, stopped answering their calls, messages or e -mails, which led to the creditors contacting the registered office of the company for payment, and issuing notices to the company at his address. It is at this time that respondents Nos. 2 and 4 even became aware of the liabilities created by the petitioner. The petitioner and second respondent convened an extraordinary general meeting of the company on April 13, 2012, to take stock of the beleaguered situation of the company and to determine measures to address this situation. It was decided at this meeting that respondent No. 3, who was a shareholder of the company would be appointed to the board of directors of the company in view of his experience in this sector. The board of directors of the company then commenced steps to apply the assets of the company towards earning some income and commence repayment of the liabilities taken in the company's name. The respondents submit that the company had been set up with sufficient funds to operate from low cost rental premises and with limited resources for a time horizon of three years. However, on account of the mismanagement by the petitioner, the company had been burdened with extensive liabilities, but no progress in business, leading to the company becoming liable to be wound up. The second respondent and the shareholders of the company had started questioning the process and unilateral decision making of the petitioner right from November, 2011. Faced with mounting expenditure and enormous liabilities, the petitioner decided to abandon the company and issued the letter dated April 25, 2012, claiming that he was resigning from the company. The board of directors responded to the petitioner's letter by not accepting his resignation and seeking his co -operation in resolving the issues faced by the company, which were, admittedly of his creation. The petitioner however, refused to communicate with the company. The respondents soon found that the purported resignation by the petitioner was well -planned, since the petitioner had cleaned out the information system of the company and taken away all the information and resources relating to the software developed by the company which is its intellectual property. Such intellectual property consists of software developed for clients, documents pertaining to the use of such software, including user guides and flow diagrams, webpage content, e -mails sent to and received from clients, vendors and employees. This is a serious criminal offence that has been committed by the petitioner. The respondents submit that the software developed in the company is the only real asset of the company, which the petitioner has misappropriated. The respondents however, faithfully answered calls, met with creditors and goods and service providers of the company, and have resolved several of its liabilities, mostly out of their personal funds. Repeated requests were made to the petitioner to make arrangements for payments to the creditors and goods and service providers. However, the petitioner refused to even discuss these issues. Instead, the petitioner would pass the numbers and contact details of the other directors and shareholders of the company to the creditors and goods and service providers who were, by this time, very upset and angry at the lack of response from the company. In fact the liability, which the respondents found was almost Rs. 60 lakhs was not fully applied for the purposes of the company. Further, the borrowings undertaken by the petitioner ostensibly on behalf of the company were impermissible, since the company is a private limited company. Accordingly, the respondents decided to file a complaint with the jurisdictional police station at Hebbagodi, Bangalore against the petitioner on August 14, 2012. The petitioner and the other shareholders of the company were summoned to the police station on the basis of this complaint on August 15, 2012. Discussions were held by the shareholders on these issues at the police station, including the responsibility for settlement of the liabilities of the company. The directors of the company were then directed by the police to continue their discussions outside the police station, upon which the petitioner agreed to meet the other directors at the registered office of the company. The directors then proceeded separately to the registered office of the company. On the basis of these discussions, the petitioner undertook to settle the liabilities created by him in the name of the company. The petitioner and the third respondent also agreed to withdraw their communications for resignation from the board of directors of the company. The directors then passed certain resolutions on the distribution of the responsibilities and liabilities of the company amongst the directors. The discussions at the meeting went on for over several hours, and thereafter resulted in the resolutions being passed. The allegations of coercion -or fraud are completely false. After the meeting, all the directors were provided with copies of the resolutions passed at this meeting. The respondents therefore submit that no requirement of filing Form 32, arose in view of the withdrawal of their resignations by the petitioner and the third respondent and their continued participation in the company's affairs. The petitioner had again disclaimed his responsibilities and is now seeking to dishonestly claim that he is no longer a director of the company. These allegations are false and dishonest and are denied by the respondents. The respondents submitted that the petition is misconceived and cannot be sustained in view of the fact that the petitioner continues to be a director of the company. No responsibility arises on the part of the company for filing Form 32 and hence no direction can be issued to the company under section 614 of the Act.
Heard the practising company secretary appearing for the petitioner. None appeared for the respondents. Counsel on behalf of the respondents was present on February 19, 2012 and on June 18, 2013. Thereafter neither counsel for the respondents nor the respondents in person were present before the Bench when the matter was listed for hearing. The Bench vide its order dated April 1, 2014, directed the registry to send notices to the respondents. In accordance with the directions the registry sent notices to all the respondents and the notices sent to respondents Nos. 1, 2 and 4 returned unserved with a postal remark as "not claimed". The notice sent to respondent No. 3 was served. The matter was heard and reserved for orders and the order is being passed on the basis of counter filed by the respondents and on the basis of the pleadings and oral submissions made by the learned practising company secretary for the petitioner. It is an admitted fact that the petitioner is named as first director of the company in the articles of association of respondent No. 1 company and the petitioner is continuing as director. The petitioner signed certain documents in the capacity as director such as notice calling for the annual general meeting, director's report annexed to the balance -sheet as at March 31, 2011. The grievance of the petitioner is that he has resigned from the post of director vide his letter dated April 25, 2012, sent by e -mail to the board of directors of respondent No. 1 company, and the company received the said resignation letter. However, the respondents have not accepted the resignation of the petitioner. It is seen that respondent No. 3 vide his letter dated April 26, 2012, addressed to the petitioner, wherein it is stated that the petitioner cannot resign as director of respondent No. 1 company until all liabilities incurred by the company at the behest of the petitioner between October, 2010 to April, 2012 are cleared to the satisfaction of all parties concerned. It is also stated that most of those liabilities are directly as a result of decision taken by the petitioner unilaterally. The company held its general body meeting on July 20, 2012, wherein it was resolved that the petitioner has been mostly unreachable on the telephone and does not respond to e -mails or to the text messages. It is also resolved that the petitioner has not attended the board meeting even though he was invited and recorded that the petitioner has been passing information to the creditors from whom he has borrowed money on behalf of the company and also recorded that he has entered into an agreement with M/s. Vertex System P. Ltd. It is also recorded that the petitioner has borrowed monies ranging from Rs. 50,000 to Rs. 5,00,000 from various parties under false pretences of pay back on behalf of the company, but not accounted in the company's account and the company is not at all responsible for those borrowings. It is also recorded that if the petitioner failed to meet the liabilities a formal complaint will be filed with the local authorities. The petitioner vide his letter dated August 21, 2012, complained to the police with regard to certain threats received by him as detailed out in the complaint. The petitioner caused a legal notice on the company through a practising company secretary on September 3, 2012. The respondents contended that the petitioner faced with mounting expenditure and enormous liabilities decided to abandon the company and issued the so called resignation letter dated April 25, 2012, whereby resigning from the post of director.
(3.)WITHOUT going into the merits of the case, I am of the view that whether the present petition is maintainable under section 614 of the Companies Act, 1956. Section 614 of the Act empowers this Bench to direct the company and any officer to make good the default within such time. The said provision of the Act is reproduced hereunder for better appreciation:
"614. (1) If a company, having made default in complying with any provision of this Act which requires it to file or register with, or deliver or send to, the Registrar any return, account or other document, or to give notice to him of any matter, fails to make good the default within fourteen days after the service of a notice on the company requiring it to do so, the Company Law Board may, on an application made to it by any member or creditor of the company or by the Registrar, make an order directing the company and any officer thereof to make good the default within such time as may be specified in the order.
(2) Any such order may provide that all costs of and incidental to the application shall be borne by the company or by any officers of the company responsible for the default.
(3) Nothing in this section shall be taken to prejudice the operation of any provisions in this or any other Act imposing penalties on a company or its officers in respect of any such default as aforesaid."
From the plain reading of the above provision of the Act, it is crystal clear that if the company made default in complying with any provisions of this Act which requires it to file or register with or deliver or send to, the Registrar any return, account or other documents, or to give notice to him of any matter, fails to make good the default within 14 days after the service of notice on the company requiring it to do so, the Company Law Board on an application made to it by any member or creditor or by the Registrar, make an order directing the company and any officer thereof to make good the default within such time as may be specified in the order. Admittedly, the present petition is filed by the petitioner who is a member (shareholder) for seeking direction from this Bench to the company and any officer thereof to make good the default. Hence the petitioner was entitled to file the present petition and the petition is maintainable. Admittedly the petitioner was named as the first director in the articles of the company along with the second respondent. The petitioner resigned from the post of director vide his letter dated April 25, 2012, addressed to the board of directors stating that he would like to resign from the directorship of the board of directors of respondent No. 1 company and requested the board to place the resignation letter at the board meeting so that his resignation will take immediate effect. The respondents received the resignation letter of the petitioner and the third respondent vide his letter dated April 26, 2012, addressed to the petitioner stated that the petitioner cannot resign until all liabilities incurred by respondent No. 1 company at the behest of the petitioner during the periods from October 2010 to April, 2012 are cleared. From the letter it is clear that there is no other reason not to relieve the petitioner from his position as director until he clears all the liabilities. The said reason cannot be a ground to withhold in filing Form 32 with the concerned Registrar of Companies showing cessation of petitioner as director due to resignation. On the legal aspect it is seen that there is no provision in the Companies Act, 1956, or in the Regulations contained in Table A regarding the acceptance of resignation of a director by the company. Even in the articles of the company there is no requirement of acceptance of resignation by the company. Even section 283 of the Companies Act, which prescribes vacation of office by the directors for the reasons as mentioned therein do not contain any provision regarding acceptance of the resignation. Therefore it is clear that a director may at any time resign from his office. It is reiterated that where there is no provision making acceptance of the resignation necessary, a director vacates office on giving notice of his resignation. He cannot withdraw his resignation without the consent of the company. Further various Hon'ble High Courts have held that the resignation of a director takes effect from the date of the resignation letter. It is also held by the Hon'ble High Courts that any form of resignation, whether oral or written is sufficient provided the intention to resign is clear. In the absence of any indication or otherwise, a resignation takes effect immediately. The resignation however will not relieve a person from any liability which he may have incurred while in office. In the present case the petitioner tendered his resignation to the board of directors in writing vide his letter dated April 25, 2012, therefore the intention is explicit and clear and the resignation takes effect from April 25, 2012. The only objection of the company in taking note of the resignation of the petitioner and filing of Form 32 with the concerned Registrar is that the company incurred certain liabilities at the behest of the petitioner during October, 2010 and April, 2012. As stated supra the resignation will not however relieve the petitioner from any liability if any, which he may have incurred while in office as alleged by the respondents. I am of the view that the company and its officers made default by not filing Form 32 intimating the resignation of the petitioner from the post of director despite receipt of 14 days' notice requiring it to do so. In view of the aforesaid reasons and in exercise of powers conferred under section 614 of the Companies Act, 1956, 1, hereby direct the company to file Form 32 with the concerned Registrar showing cessation of the petitioner from the post of director with effect from April 25, 2012, within a period of 15 days from receipt of copy of this order. Accordingly, Company Petition No. 3 of 2012 is ordered and disposed of. The Bench Officer of this Bench is directed to send copy of this order to the Registrar of Companies, Bangalore, Karnataka.