1992 (4) TMI 199 - HC - Companies Law

Summary

Issues Involved:
1. Whether the petitioner company continues to be an investment company and could claim that the first proviso to section 372(2) of the Act will not be applicable to it?
2. Whether the petitioner company can invoke exemption under section 372(14) of the Act?
3. Whether the petitioners have acted honestly and reasonably and are entitled to any relief under section 633 of the Act?

Detailed Analysis:

1. Investment Company Status:
The court examined whether the petitioner company continues to be an investment company, as initially established. The company was originally incorporated in 1946 for investment purposes, but in 1975, its activities expanded to include hire-purchase, leasing, and industrial financing. The Registrar of Companies raised a query in 1982 about the company's compliance with section 372 of the Companies Act. The company responded, asserting its status as an investment company, and no further action was taken until a show-cause notice in 1984. The court considered the company's balance sheets from 1979 to 1982, which indicated that financial activities other than investments had become the prime business. The court concluded that the company had lost its character as an investment company due to the expansion of its activities, thus attracting the application of section 372(2) and (4). The petitioners' contention that the respondent could not revive the issue after the initial query was dismissed as unsustainable. The court held against the petitioner, determining that the company was no longer an investment company.

2. Exemption Under Section 372(14):
The petitioners argued that even if the company had lost its investment company status, it should be exempt under section 372(14). This section exempts certain companies, such as banking or insurance companies, private companies not subsidiaries of public companies, and companies established to finance private industrial enterprises in India. The court found that the petitioner company did not meet these criteria, as it was not established to finance private industrial enterprises in India and was not a subsidiary of a public company. The court held against the petitioner, concluding that the company was not eligible for exemption under section 372(14).

3. Honest and Reasonable Conduct Under Section 633:
The petitioners contended that any violation of section 372(2) and (4) was a technical one, made under the bona fide impression that the company was still an investment company. They sought relief under section 633, which allows the court to relieve officers from liability if they acted honestly and reasonably. The court found that the petitioners were fully aware of the company's change in business activities and the resulting loss of its investment company status. The petitioners were expected to follow the provisions of the Companies Act and the guidelines from the Registrar of Companies. The court concluded that the petitioners did not act honestly or reasonably and rejected their request for relief under section 633.

Conclusion:
Both petitions, C.P. Nos. 93 and 101 of 1984, were dismissed without costs. The court found that the petitioner company was no longer an investment company, was not eligible for exemption under section 372(14), and the petitioners did not act honestly or reasonably to warrant relief under section 633.