1985 (3) TMI 218 - HC - Companies Law

Summary

Issues:
- Relief under section 633 of the Companies Act, 1956 for exceeding borrowing limits.
- Liability of a director as an "officer in default" for company's actions.

Analysis:
The petition was filed seeking relief under section 633 of the Companies Act, 1956, due to the company exceeding its borrowing limits. The petitioner, a director of the company, claimed to have no involvement in the day-to-day operations or management of the company. The company had exceeded its borrowing limits, leading to notices from the respondent regarding deposits surpassing prescribed limits. The petitioner, fearing personal liability, filed for relief under section 633.

During the hearing, the petitioner's counsel argued that the petitioner, being just a director and not directly involved in the borrowings, should not be held liable. It was highlighted that the company had taken steps to rectify the situation by applying for an exemption after discovering the excess borrowings. The respondent contended that as a director, the petitioner should be aware of the company's operations and cannot claim ignorance.

The court examined the definition of an "officer in default" under section 5 of the Companies Act, which requires knowing involvement or authorization of defaults. The respondent failed to demonstrate any act by the petitioner knowingly contributing to or authorizing the excess borrowings. Consequently, the court found no evidence to hold the petitioner liable as an "officer in default" for the company's actions.

As a result, the court granted relief to the petitioner, ruling in favor of prayer (a) of the petition, with a modification regarding "all liabilities" to "criminal liability." The court emphasized the lack of evidence implicating the petitioner as an "officer in default" and awarded no costs in the matter.