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A company is basically an incorporated association of persons created by the law of the country. In India, a company is created and registered under the Companies Act 1956. A company, which is a separate legal entity, is also a self governing and controlling body. It has it's own rights and liabilities in the eyes of law.
Whereas the most integral part of a company is a Director or a Managing Director who performs the basic and most important role in administration of a company. However, a director or a managing director can't be held personally liable for the payment of arrears of taxes or salaries of employees due by the company under the laws in India.
Recently the Apex Court gave a judgement on the role of director in the default committed by the company. The Supreme Court bench comprising of Justice Abhay Manohar Sapre and Justice R. Subhash Reddy set aside the criminal proceedings against the Managing Director of M/s Asian Hotels (North) Limited. The company known to run one of the oldest and most renowned hotels - Hotel Hyatt Regency. A criminal complaint was filed against the hotel and the managing director of the hotel alleging criminal negligence on account of which a man fell from the 6th floor and suffered from life threatening injuries.
On dismissal of a petition filed before a High Court seeking quashing of proceedings against the MD of the Compan, the appellant sought relief before the Apex Court.
The SC had observed that the mere fact that Director is chairing the meetings doesn't mean he has a sufficient role in the day to day operations of the hotel.
The decision emanating from the Court stated:
"In absence of specific allegations against the managing director of the company and having regard to nature of allegations made which are vague in nature, we are of the view that it is a fit case for quashing the proceedings, so far as the Managing Director is concerned,"
In the case of Shiv Kumar Jatia vs. State of NCT of Delhi, the SC took a reference of the case of Sunil Bharti Mittal v. CBI and observed that it is absolutely clear that an individual either as a Director or a Managing Director or Chairman of the company can be made an accused, along with the company, only if there is sufficient material to prove his active role coupled with the criminal intent. Further the criminal intent alleged must have direct nexus with the accused.
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