1988 (7) TMI 332 - HC - Companies Law

Public deposits Director number of Winding up - Offences by officers of companies in liquidation Powers of court to grant relief in certain cases

Issues Involved:
1. Liability of directors for default, negligence, and misfeasance under Section 58A of the Companies Act and the Companies (Acceptance of Deposits) Rules, 1975.
2. Distinction in liability between full-time and part-time directors.
3. Applicability of Section 633 of the Companies Act for relief from criminal proceedings.
4. Impact of special circumstances, such as strikes and economic strain, on the directors' liability.

Issue-Wise Detailed Analysis:

1. Liability of Directors for Default, Negligence, and Misfeasance:
The directors of Amar Dye-Chem Ltd. (in liquidation) sought relief from criminal proceedings for defaults under Section 58A of the Companies Act and the Companies (Acceptance of Deposits) Rules, 1975. The admitted facts included the company's acceptance and renewal of deposits exceeding permissible limits, non-repayment of deposits, and violation of Section 58A. The court emphasized that Section 58A enacts stringent provisions regarding the acceptance of deposits to protect the investing public, requiring strict compliance from the company's officers.

2. Distinction in Liability Between Full-Time and Part-Time Directors:
The court examined whether the law distinguishes between full-time and part-time directors regarding liability. It was held that the Companies Act makes no such distinction. Section 2(30) defines "Officer" to include any director, without differentiating based on their time commitment. The general powers of the board under Section 291, the requirement for board meetings under Section 285, and the signing of balance sheets under Section 215 apply equally to all directors. The court concluded that all directors, irrespective of their full-time or part-time status, share equal responsibility and liability.

3. Applicability of Section 633 of the Companies Act for Relief from Criminal Proceedings:
The court considered whether the directors acted "honestly and reasonably" under Section 633 to be relieved from liability. The directors argued that special circumstances, such as strikes and economic strain, justified their actions. However, the court found no evidence that the directors were unaware of the excess deposits. The meetings of the board and the annual general meetings provided ample opportunity for all directors to be aware of the company's financial status. The court held that the acceptance and renewal of deposits without the company's sanction and in violation of the permissible limits were not reasonable actions.

4. Impact of Special Circumstances on Directors' Liability:
The directors cited a strike and "go slow" by workers as special circumstances that strained the company's finances, leading to the acceptance of deposits. The court noted that these circumstances ended by early 1983, yet the violations continued thereafter. The court found no justification for accepting new deposits or renewing old ones without the company's sanction, especially when the company was unable to repay existing deposits. The directors' actions were not considered reasonable under the circumstances.

Judgment:
1. Company Petitions Nos. 502 of 1984 and 506 of 1984 were dismissed, and the petitioners were ordered to pay costs to the Official Liquidator and the Regional Director of the Company Law Board.
2. Company Petitions Nos. 526 of 1984, 527 of 1984, 528 of 1984, 529 of 1984, and 530 of 1984 were granted relief from criminal proceedings as they were part-time directors and there was no evidence of their active involvement in the defaults.
3. Company Applications Nos. 331 of 1984, 332 of 1984, 333 of 1984, 334 of 1984, and 335 of 1984 had no orders passed on them.
4. The order was stayed for three weeks.

The court's decision highlighted the equal liability of all directors under the Companies Act, regardless of their full-time or part-time status, and emphasized the importance of strict compliance with statutory provisions to protect the interests of the investing public.

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