The High Court of Telangana has held that the director of the liquidated company had no power when Resolution Professional (RP) took charge as per Insolvency Bankruptcy Code (IBC), 2016. The bench held that the petitioner could not be held responsible for alleged violations by the accused-company since he had relinquished his position as Director at the time such offences were alleged to have occurred.
Vinay Kumar Kanoria , the petitioner is the former Director of the accused company, namely, M/s.Gena Pharmaceuticals Limited. The respondent/de facto complainant filed alleging contraventions of Section 18(a) (vi) read with Rule 106 and Schedule point No.50 of the Drugs and Cosmetics Act,
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1940 (‘Act, 1940’) and Drugs and Cosmetics Rules, 1945 (‘Rules 1945’) and also violation under Section 3(d) read with Schedule point 22 (Kidney Stones) of Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954 ( ‘Act 1954’) against accused company – M/s. Gena Pharmaceuticals.
As per the complaint averments, on receipt of credible information, found stocks of 2x200ML of potrate MB6 oral solution bearing details. It was alleged that the indication on the label of the drug as potrate MB6 for management of calcium oxalate nephrolithiasis (especially in hyperoxaluria cases and uric acid neptrolithiasis) violates Section 18(a) (vi) read with Rule 106, read with Schedule J point No.50 of Act, 1940 and Rules 1945 and also Section 3(d) read with point 22 (kidney stones) of Act, 1954 (objectionable advertisements), thereby, the respondent/de facto complaint seized the drugs by listing them in Form – 16 in the presence of witnesses under a cover of panchanama. For the offences as alleged, PRC.,
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proceedings were initiated against the petitioner/accused stating that the accused company is represented by petitioner.
Cunsel for petitioner, submitted that the petitioner is neither accused in the complaint, nor the authorized representative of the accused company. He contended that on 09.08.2019 the National Company Law Tribunal, Kolkata, admitted application filed by the financial creditor under Section 7 of the Insolvency and Bankruptcy Code, 2016 for initiating CIRP against the accused company and vide CIRP commencement order, an Interim Resolution Professional (IRP’) assumed charge and was in full control of the accused company.
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Consequently, the CIRP process was unsuccessful and the accused company is under liquidation till date. He asserted that as per the company data of accused company on the website of Ministry of Corporate Affairs (MCA) (www.mca.gon.in) the petitioner was the Director of the company till 30.09.2019 whereas, PRC.No.52 of 2022 was registered before the trial Court on 24.11.2022 and on that date, the petitioner was not the Director of the accused company and the company was under complete control of liquidator, as such, the petitioner is incapacitated to represent the accused company in the PRC proceedings.
The respondent submitted that though the accused – company is under the control of liquidator, whether the petitioner is liable on behalf of accused – company is a matter which can be decided only after trial. Therefore, prayed this Court to dismiss the criminal petition as the same lacks merits.
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The single bench of Justice K Sujana held that the petitioner could not be held responsible for alleged violations by the accused-company since he had relinquished his position as Director at the time such offences were alleged to have occurred.
It was noted that since the company was under liquidation, its complete control was transferred to a liquidator. Therefore, during a period where no control could be exercised by the former director by virtue of his decision to relinquish his position, it would not be justified to hold him responsible for actions of the accused company.
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The High Court allowed the criminal petition and quashed the proceedings against the petitioner. Further held that the petitioner could not be held liable for actions committed by the company after his tenure as Director had ended, especially considering that the “company was under liquidation” and an IRP had “assumed charge” and taken its “complete control” by the time the complaint was lodged.
Sri Zubin JF Poovathinkal, counsel appeared for petitioner, and Sri D.Arun Kumar Additional Public Prosecutor, appeared for respondent.
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