[IBC] Telangana HC Quashes Proceedings Against Ex-Director Of Company, Says IRP Had Already Taken Charge When Complaint Was Filed

The High Court of Telangana has delivered an important decision on the issue regarding criminal liability of Directors and corporate governance. Gena Pharmaceuticals Limited of manufacturing and marketing drugs with objectionable Counsel for the petitioner, Advocate Zubin JF Poovathinkal, contended that the petitioner had stepped down from the position of Director in 2019, and the company's complete control was transferred to a liquidator after the Corporate Insolvency Resolution Process failed. Relying on the Supreme Court ruling in State of Haryana vs. Brij Lal Mittal and Others, the petitioner asserted that mere directorial status did not automatically translate into liability for corporate actions unless it could be shown that the individual was “in charge of” and “responsible for the conduct” of the company's business at the material time. The court further emphasized that while the accused company could avail the option of appointing a new representative, the petitioner, as a former Director with no control or involvement in the company's current operations and alleged offensive actions, was not the appropriate person to represent the company in court. The court 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.