In private limited company, what is the responsibility of the Managing Director for a tex-evasion case that happened after he resigned. Even though the MD had resigned before the offense, the company filed form 32 for his resignation only after the offense happened.
Please state specific sections in the Companies act that say that the MD is innocent or guilty for such a situation.
Also, please share examples of similar cases and the decisions made thereon.
Really appreciate your help. Thanks!
As per Revised Companies Act 2013 under Section 168 of the Act Director who has resigned shall be liable even after his resignation for the offences occured during his tenure.
Further as per Income Tax Act 1961 Section 179, where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private company cannot be recovered, then, every person who was a director of the private company at any time during the relevant previous year, shall be jointly and severally liable for the payment of such tax, unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company."
Hence Section 168 of companies act 2013 he cannot be relieved
If possible you can take second opinion also.
Section 302(2) of the Act casts a legal obligation on the company to inform the
registrar of the companies by filling Form 32 giving particulars of changes, if any, in
the office of director. If such a form is filed with the registrar of companies it is a
proof of a director ceasing to be a director but, it is not an act to be complied with in
order to make resignation valid. Resignations once made, take effect immediately
and the concerned ROC is informed formally in terms of provisions of the Act.
However, mere non filing of requisite form with the concerned RoC does not
invalidate the resignation of a director. The Bombay High Court in Dushyant D
Anjaria V. Wall Street Finance Ltd10 held that
“…..The resignation of a Director would be effective from the date it was
submitted, for the reason that the letter brings out clearly the intention of the
person to resign. So far as the formalities like filing up Form 32 and sending it
to the Registrar of Companies were concerned, it was for the company to
comply with them in conformity with the provisions of Sec. 302 or Sec. 303 of
the Companies Act. Where there was delay or negligence on the part of the
company in intimating the Registrar about the date of resignation, the Director
who had resigned could not be held with responsibility and liability for such
delay….”
Section 5 of the Companies Act 1956 defines “Officer in Default” mentioning a list of officers who will
be prosecuted for any violation or offence under the Act. The list includes ‘directors’
also. It is pertinent to note that for the purpose of the said section, the default in
reference to an officer means the default during his tenure. In other words, if a
default is committed when a person was not even an ‘officer in default’, he cannot be prosecuted and held liable for such default. In the similar way, if it is proved that a
director at the time of the contravention was in-charge of and responsible to the
company for the conduct of its business, he will be held liable even if resigns
afterwards.
Concluding above, a director who has resigned would not be liable for anything that
happens subsequently. However, he can still be held liable for any mischief or
offence made during his directorship.
Under the Income Tax Act, 1961, where any tax due from a private company in respect of any income of any previous year cannot be recovered from such private company, then, every person who was a Director of such private company at any time during the relevant previous year is liable, jointly and severally, for the payment of such tax. A Director (including any past Director but only for the duration when he was in office) can, however, escape such liability if he or she proves that the non-recovery of such tax cannot be attributed to any gross neglect, misfeasance or breach of duty on his or her part in relation to the affairs of such private company.
Hope the above companies act 1956 (As the case is belonging prior to april 2014) and income tax act 1961 may be useful to you.
Thanks,
Rgds
Jaikishan
CAclubindia
