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Issues:
Interpretation of section 370 of the Companies Act, 1956 regarding intercorporate deposits and loans; Exemption under sections 370(2)(a)(v) and 370(2)(b)(v); Compliance with section 370 requirements; Petition under section 633(2) for relief from alleged default; Premature filing of petition before initiation of prosecution; Liability of directors and company under section 633 of the Companies Act. Analysis: The petitioners, a company engaged in investment financing, sought relief under section 633(2) of the Companies Act, challenging the applicability of section 370 to intercorporate deposits. They argued that their transactions, though termed as loans, were actually deposits due to a bona fide mistake and were in line with the exemption under sections 370(2)(a)(v) and 370(2)(b)(v). Legal opinions obtained before and after the 1988 amendment supported their view. The Company Law Board alleged contravention of section 370 and lack of necessary approvals for loans exceeding prescribed limits, leading to the petition for relief and interpretation of section 370. The respondents contended that the exemption did not apply to companies not solely engaged in financing industrial enterprises, raising objections to the petition's timing and jurisdiction. The court considered past precedents and the respondents' arguments but emphasized the directors' honesty, reasonableness, and lack of conscious violation of the law. It held that the directors should be excused from liability, provided they cooperate with authorities. However, the court ruled that the company itself was not entitled to the protection under section 633, dismissing the relief sought for the company. The court highlighted the distinction between loans and deposits, citing relevant case law and emphasizing the need for compliance with section 370 requirements. It rejected the respondents' argument that the petition was premature, stating that the authorities' disclosed intention to take action justified the petition's filing. The court clarified that its decision did not delve into the interpretation of section 370, as that would be more suitable for a court handling any subsequent proceedings. In conclusion, the court granted relief to the directors based on their conduct and intentions, while denying the same to the company. It underscored the importance of cooperation with authorities and the need for compliance with legal provisions, particularly regarding intercorporate transactions. The judgment provided clarity on the application of section 370 and the scope of relief under section 633 of the Companies Act, safeguarding the directors from potential liabilities arising from the alleged default.
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