1987 (3) TMI 416 - HC - Companies Law

Issues Involved:

1. Applicability of Section 633(2) of the Companies Act, 1956.
2. Defaults under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952.
3. Defaults under the Employees' State Insurance Act, 1948.
4. Defaults under the Income-tax Act, 1961.
5. Financial difficulties as a defense for non-payment of statutory dues.
6. Liability of different petitioners based on their roles and responsibilities.

Detailed Analysis:

1. Applicability of Section 633(2) of the Companies Act, 1956:

The petitioners sought relief under Section 633(2) of the Companies Act, 1956, to be excused from prosecutions for defaults under the Provident Funds Act, Employees' State Insurance Act, and the Income-tax Act. The court referred to the judgment in *In re Beejay Engineers Pvt. Ltd.*, which held that Section 633(2) could apply to all legal proceedings arising from negligence, default, breach of duty, misfeasance, or breach of trust. However, the court noted that Section 633(2) cannot be a panacea for all defaults under various enactments, especially when other Acts provide specific punishments for such defaults.

2. Defaults under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952:

The Regional Provident Fund Commissioner (RPFC) stated that the provident fund dues in default amounted to Rs. 1,07,55,125.97. The court emphasized that financial difficulty is no excuse for not discharging statutory obligations under the Provident Funds Act. The liability of the company and its officers is absolute under Section 14A of the Provident Funds Act. The court agreed with the RPFC that non-deposit of employees' contributions deducted from wages constitutes a criminal breach of trust under Section 405 of the Indian Penal Code.

3. Defaults under the Employees' State Insurance Act, 1948:

The Regional Director, ESIC, stated that the default amounted to about Rs. 73 lakhs. The court noted that the scheme under the ESIC Act could not operate successfully without due contributions from the petitioners. The petitioners failed to meet their commitments for payment of arrears of ESIC contributions, which amounted to Rs. 72,99,748 with interest at 6% per annum. The court held that financial stringency is no ground for non-compliance with the ESIC Act, which is a social legislation.

4. Defaults under the Income-tax Act, 1961:

The Income-tax Department stated that the company failed to deposit the tax deducted at source (TDS) from employees' salaries within the prescribed time. The court noted that TDS is government money held in trust by the company. Non-payment of TDS constitutes an offence under Section 276B of the Income-tax Act. The court referred to the Supreme Court decision in *Maya Rani Punj v. Commissioner of Income-tax*, which held that non-payment of tax deducted at source is a continuing offence.

5. Financial difficulties as a defense for non-payment of statutory dues:

The petitioners argued that financial difficulties due to recession, high steel prices, and labour unrest led to defaults in statutory payments. However, the court held that financial difficulties are no defense for non-payment of statutory dues. The court emphasized that the petitioners' actions were deliberate and not honest or reasonable. The court noted that the petitioners used the statutory dues for business purposes, which is not permissible.

6. Liability of different petitioners based on their roles and responsibilities:

The court relieved petitioners Nos. 6, 7, and 8 (Rooplal Chaganlal Sohani, V. Sagar, and R. K. Talwar) from any liability as they were not involved in the day-to-day functioning of the company. However, the court held that the other petitioners (Nos. 1 to 5, 9, and 10) did not act honestly and reasonably and were liable for the defaults. The court emphasized that the petitioners failed to provide specific details or evidence to justify their defaults.

Conclusion:

The court dismissed the petition for petitioners Nos. 1 to 5, 9, and 10, holding that they did not act honestly and reasonably and were liable for the defaults under the Provident Funds Act, ESIC Act, and Income-tax Act. The court relieved petitioners Nos. 6, 7, and 8 from any liability. The petitioners were ordered to pay costs of Rs. 1,000 each to the Regional Provident Fund Commissioner, Employees' State Insurance Corporation, and the Income-tax Department.

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