In this major decision, the Delhi High Court ruled that when a person is not involved in the day-to-day operations of the company and is not tasked with any executive duties on behalf of the company, they cannot be summoned for violations of Sections 128, 129, 448 read with Section 447 of the Companies Act, 2013, without specific allegations against them in the investigation report of complicity or having acted in bad faith.
In the complaint case number 770/2019, titled "Serious Fraud Investigation Office (SFIO) vs. Bhushan Steel Limited and Ors.," the learned ASJ issued a summoning order on August 16, 2019, which the petitioner had challenged in the present petition, but only to the extent that it orders the petitioner to be served with a summons. The learned Court determined that there was enough evidence on file against the petitioner to warrant his prosecution for violations of Sections 128, 129, and 448 read along with Section 447 of the 2013 Companies Act. At the relevant time, the petitioner served as Bhushan Steel Limited (or "BSL's") nominee on the board of directors of Punjab National Bank Limited.
In the instant case titled Dr. Rajesh Kumar Yaduvanshi v. Serious Fraud Investigation Office (SFIO) & Anr. The issues raised for clarification before the High Court were:
Does the fact that the petitioner served as a director of BSL preclude prosecution of the petitioner for the alleged fraud allegedly committed by BSL and/or promoters?
Is there any evidence in the file that suggests the petitioner participated in the alleged crime's commission?
With regard to the first issue, the Delhi High Court ruled that no allegations have been made that the petitioner was involved in the business of BSL other than in his capacity as a PNB Nominee Director. He was just needed to attend and take part in board meetings in this position; he was not given any executive work to complete for BSL.
With regard to the second issue, the Delhi High Court ruled that there are no explicit accusations of collusion or bad faith made against the petitioner in the SFIO investigation report. The claim that a Nominee Director was negligent or failed to fulfil his duty is materially different from the claim that he colluded with others to approve financial statements that are materially inaccurate or omit facts that should have been disclosed. The former does not constitute any such offence, whereas the latter might under Section 448 of the 2013 Companies Act. Therefore, the learned Trial Court's judgement that the petitioner had colluded with the Promoters and should be subject to legal action is obviously untenable and is not supported by the charges presented
The Court categorically held that,
“Merely mentioning the petitioner’s name as being one of the persons who is allegedly liable to prosecuted as above offence, without describing any specific role or pointing out any culpable conduct would not constitute sufficient material to persuade any Court to issue summons."