MATTER FOR EXAMINATION

In case a Whole Time Directors {WTD} {of a public limited company}

conviction is upheld by Supreme Court {SC} in appeal under criminal
law/s, what would be the position under of the Companies Act, 2013 {new
Act} and Rules framed there under?

LAW IN BRIEF
Disqualifications for vacation of office/ appointment/re-appointment of
Director (including Whole Time Director)
Vacation of office of Director
1. As per Section 167 of the new Act, among others, the office of the director shall
become vacant in case:
A person incurs any of the aforesaid disqualification as specified in Section
164; or
If a person is convicted by a court of any offence, whether involving moral
turpitude or otherwise and sentenced in respect thereof to imprisonment
for not less than six months.
This shall apply even if he has filed an appeal against the order of such
court.
Not eligible for appointment/ reappointment as director { Disqualification}
2. As per Section 164 of the new Act a person shall not be eligible for appointment
as a director of a company if:

he has been convicted by a court of any offence, whether involving moral

turpitude or otherwise and sentenced in respect thereof to imprisonment
for not less than six months and a period of five years has not elapsed from
the date of expiry of the sentence.
Provided that the disqualifications referred above shall not take effect:
(i) where an appeal or petition is preferred within thirty days as aforesaid
against the conviction resulting in sentence or order, until expiry of seven
days from the date on which such appeal or petition is disposed off; or
(ii) where any further appeal or petition is preferred against order or
sentence within seven days, until such further appeal or petition is disposed
off.

Appointment of Managing Director {MD} / WTD etc

3. In terms of Section 196 of the new Act, no company shall appoint or continue
the employment of any person as managing director, whole-time director or
manager who among others:
has at any time been convicted by a court of an offence and sentenced for
a period of more than six months.

SHORT COMMENTS
The above provisions under the new Act have been made effective from 1st
April 2014

Section 167 of the new Act

{Vacation of office of WTD}

The scope of offence in section 167 has been made wider by covering
moral turpitude or otherwise instead of only moral turpitude as stipulated
in section 283 of erstwhile Companies Act 1956.
WTD of a public limited company who had been convicted by a court under
criminal law/s before 1st April 2014 does not invoke moral turpitude hence
he was not disqualified under the erstwhile Companies Act 1956.
However, even if it is interpreted that the scope of the section has been
enhanced under the new Act and he should be covered now, still it can be
argued that the conviction had taken place before 1st April 2014 when the
new Act was not in force.

In the event conviction is upheld in appeal in SC, now, then he may have
to vacate his office even if he moves SC for higher remedy {Akin to
appeal}.

But it can be argued there cannot be any appeal because matter is in SC,
and a review petition will be filed and thereafter, if required curative
petition will be filed in SC. It can therefore be stated that such petition is
not appeal and any review/ curative petition indicates that matter has not
been finally disposed of under law. Therefore until such petition is disposed
off he shall not vacate his office.

This can be further argued due the words in section 164 that where any
appeal or petition is preferred or further appeal or petition is preferred
against order or sentence, disqualification shall not take effect until such
further appeal or petition is disposed off.

Conclusion

Thus he can continue as WTD even if his conviction is upheld under

criminal law/s provided he has filed a review/curative petition which is not
disposed off.

Section 164 of the new Act

{Disqualification for reappointment of WTD}
The scope of offence in section 164 has been made wider by covering
moral turpitude or otherwise instead of only moral turpitude as stipulated
in section 274 of erstwhile Companies Act 1956.
This only applies for his reappointment as WTD.
In the event conviction is upheld in appeal in SC, now, before his
reappointment, then he shall stand disqualified. But if any appeal or
petition is preferred or further appeal or petition is preferred by him in SC
against order or sentence then disqualification shall not take effect until
such appeal or petition or further appeal or petition is disposed off.
Conclusion
Thus he can be reappointed as WTD even if his conviction is upheld
under criminal law/s provided he has filed a review/ curative petition which
is not disposed off.
Section 196 of the new Act
{Restriction on Reappointment of WTD}
Section 196 and Schedule V therein for reappointment of WTD, is
applicable w.e.f. 1st April 2014 hence his earlier conviction will not affect
his reappointment now.
However if he conviction is upheld in appeal in SC, now, of an offence the
question is what is the nature of the offence.
Significantly the words any offence have not been used here as have
been used in sections 164 & 167 but the words used here are an offence.
The nature of offence could be understood from Schedule V of the new Act
in terms of which reappointment of WTD would be proposed.
The said Schedule only mentions about ineligibility for appointment of a
person who has been sentenced to imprisonment for any period or to a fine
exceeding Rs 1000/- for conviction of an offence under the Companies Act
2013, {among other Acts}. Significantly criminal conviction is not covered
here.
Conclusion

Thus he can be reappointed as WTD even if his conviction is upheld

under criminal law/s.

19th September 2014