1984 (10) TMI 193 - HC - Companies Law

Issues Involved:
1. Prosecution under various sections of the Companies Act.
2. Applicability and interpretation of Section 633(1) and Section 633(2) of the Companies Act.
3. Validity of the Registrar's actions in light of Company Law Board circulars.
4. Specific allegations of misfeasance and breach of duty by the petitioners.

Issue-wise Detailed Analysis:

1. Prosecution under Various Sections of the Companies Act:
The petitioners sought relief under Section 633(2) of the Companies Act to prevent prosecution by the Registrar of Companies. The Registrar initiated three criminal cases against the petitioners under Sections 209(5), 211, and 217 of the Companies Act. The court noted that once prosecution has commenced, objections to its propriety must be entertained by the court hearing the criminal case, as per Section 633(1).

2. Applicability and Interpretation of Section 633(1) and Section 633(2) of the Companies Act:
The court emphasized that Section 633(1) is explicit in stating that only the court hearing the criminal case can entertain objections once prosecution has started. However, Section 633(2) applies when there are apprehensions of prosecution but no proceedings have been initiated yet. The petitioners argued that their rights under Section 633(2) should not be nullified by the Registrar's actions, which were contrary to the Company Law Board's circular.

3. Validity of the Registrar's Actions in Light of Company Law Board Circulars:
The petitioners contended that the Registrar's prosecutions defied the Company Law Board's circular, which advises against starting prosecution after an application for relief under Section 633 has been filed. The court acknowledged that while the circulars are not statutory, they should be respected by the Registrar, who is subordinate to the Company Law Board. The Registrar should have awaited the outcome of the Section 633(2) petition or requested an expedited decision instead of filing complaints.

4. Specific Allegations of Misfeasance and Breach of Duty by the Petitioners:
- Prosecution under Section 217:
- Non-realization of Government Investments: The petitioners demonstrated bona fide efforts to recover Rs. 3,500 from government departments, which were delayed by bureaucratic red tape. The court found no criminal liability.
- Amounts Due from Ex-employees: The Rs. 400 owed by ex-employees was deemed too minor to warrant prosecution, and the court directed the Registrar to drop any such prosecution.

- Prosecution under Section 209(5):
- Fixed Assets Register: The petitioners maintained a register, albeit not in a prescribed form. The court suggested that the Registrar could have directed improvements rather than prosecuting. The petitioners agreed to update the register with acquisition dates and asset locations.

- Prosecution under Section 211:
- Interest Earnings from Fixed Deposits: The court noted that the interest was from member deposits for land plots, which are under litigation. The court refrained from expressing an opinion on whether this activity was within the club's permissible objects.
- Excess Subscription from Members: The court found no misappropriation or mala fides in the club's practice of collecting 13 months' subscription.
- Excess Realizations from "Tambola": Credited to the building reserve account with no evidence of misappropriation.
- Diwali Mela Bazaar Realizations: Used for the employees' dispensary fund, with no exception taken by the court.
- Complimentary Air India Tickets: Used by two office-bearers for personal benefit, the court did not interfere in the prosecution on this score.
- Misappropriation of Mineral Water Stock: A criminal case against staff members was already pending, showing the managing committee's vigilance.
- Water Cooler and Bottle Cooler: The court accepted the petitioners' explanation that the amount was debited to the capital account.
- Fire Loss in Green Room: The court accepted the explanation that repairs were accounted for in the same year.
- General Allegation of Untrue Accounts: The court found the allegations vague and not substantiated by specific instances.

The court concluded that the complaint under Section 211 could proceed subject to the observations made.

Conclusion:
The petition was disposed of with the court directing the Registrar to drop certain prosecutions while allowing others to proceed, emphasizing the need for adherence to Company Law Board circulars and the proper application of Sections 633(1) and 633(2) of the Companies Act.

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