Calcutta High Court: Additional directors are on equal footing, in terms of, Power, Rights and Duties as Regular Directors

Calcutta High Court: Additional directors are on equal footing, in terms of, Power, Rights and Duties as Regular Directors

The Calcutta High Court by its single judge Justice Shampa Dutt (Paul) observed that additional directors appointed under Section 161 (1) of the Companies Act, 2013 are on equal footing, in terms of, of power, rights, duties, and responsibilities, as regular directors of the company. The Court made the observations while dismissing a discharge plea preferred by the former director of a company.

The petitioner- Surendra Kumar Singhi's, case was that the opposite party/complainant- Registrar of Companies had filed a complaint before the learned Chief Metropolitan Magistrate, Kolkata against the petitioner stating there in that M/s Mani Square Limited was incorporated on 30th October, 1959 under the Companies Act, 1956 with paid up share capital of Rs. 66,28,000/- and according to the provisions of Section 217(3) of the Companies Act, 1956, the Board of the company was bound to give fullest information and explanation in its report on every reservation, qualification or adverse remark contained in Auditor's report.

That, upon scrutiny of the Balance-sheet and other documents as on 31st March, 2014 it was found that the Board of Directors did not furnish fullest information and explanation in their Director's report with respect to the Auditors in their report on Balance Sheet for the year ending on 31st March, 2014. All the other directors accused had pleaded guilty and paid the fine imposed as punishment. However, the petitioner argued that he was innocent.

The petitioner asserted that he was appointed as an independent director from 2 June, 2014 onwards and that he was not involved in the preparation of or discussion on the relevant financials of the company ending March 2013, which were carried out prior to his appointment.

The petitioner highlighted that even the Union Ministry of Corporate Affairs (in short MCA) had categorically instructed the authorities concerned that unnecessary criminal proceedings should not be filed against independent directors.

However, the Court referring to the relevant provisions under the Companies Act, noted that, "the responsibility of an Additional Director being the same as that of a director (but difficult from an independent director) they remain responsible, as the statute provides for the same." The Court was of the view that the main distinguishing factor lay in the manner of their appointment and the term of office.

While additional directors are appointed on a temporary basis, they carry the same powers, obligations, and limitations as a (regular) director, the Court observed.

"They are also entitled to seek appointment as a permanent director at the Annual General Meeting. The additional director must utilize his/her powers in the best interest of the company and the shareholders," the Court added.

The Court, concurred with the opposing party's submission that the MCA records only indicated that the petitioner was an "additional director" from June 2, 2014 and that he was a regular director from September 30, 2014 till his resignation in December 2016.

The Court after referring to these records, found that the petitioner was an additional director when the financial statements under scrutiny were signed i.e., on 5 September, 2014. His status of being an additional director/ director in an independent capacity was not reflected in the MCA portal.

Whereas the petitioner highlighted that he had only given his consent to be appointed as an independent director, it was also observed that the petitioner had not filed any complaint with the MCA about the wrong information maintained on its portal.

The Court stated that evidence must be presented during trial to decide whether the petitioner was an independent director or an additional director at the time of filing the report under scrutiny.

The plea for discharge was, therefore, dismissed with the High Court observing that "to quash the proceedings by exercising this Courts inherent powers would amount to an abuse of the process of Court and would also amount to serious miscarriage of justice."